Innophos (IPHS) Q2 2019 Earnings Call Transcript

Innophos (IPHS)
Q2 2019 Earnings Call
Aug 06, 2019, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Innophos second-quarter 2019 earnings conference call. My name is Dana, and I'll be your operator for today's call. [Operator instructions] Please note that this conference is being recorded. I would now like to turn the conference call over to Mark Feuerbach, interim CFO.

Thank you. You may begin.

Mark Feuerbach -- Interim Chief Financial Officer

Good morning, and thank you for joining us today for Innophos' second-quarter 2019 results conference call. Joining me on the call today is Kim Ann Mink, chairman, president, and chief executive officer. Please turn to Slide 2. During the course of this call, management may make or reiterate forward-looking statements made in this morning's press release regarding financial performance and future events.

We will attempt to identify these statements by use of words such as expects, believes, anticipates, intends, estimates and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risks and other factors as set forth in the Forward-Looking Statements section and in Item 1A Risk Factors in our annual report on Form 10-K as filed with the SEC that could cause actual results to differ from those in the forward-looking statements made in this conference call. Also I would like to remind you that during the course of this conference call, management will discuss non-GAAP measures in talking about the company's performance.

Our adjusted EBITDA financial measure excludes stock-based compensation, currency translation, severance, value chain transition expenses and the associated supplier Q4 2018 payment amortization, Mexico natural gas supply and balance charges and M&A related costs. Please refer to our press release, the appendix of today's presentation and our SEC filings for the GAAP to non-GAAP reconciliations. We will make a replay of this conference call available for a limited time over the telephone at the numbers set forth in the press release and via webcast available on the company website. In addition, please note that the date of this conference call is August 6, 2019, and the presentation for this call can be found on our website at www.innophos.com in the Investor Relations Events section.

Any forward-looking statements we may make today are based on assumptions that we believe to be reasonable as of this date, and we undertake no obligation to update these statements. Please turn to Slide 3. During the call today, we will be reviewing our second-quarter 2019 financial performance and 2019 outlook, after which we will open the call up for questions. With that, please turn to Slide 4 as I turn the call over to Dr.

Kim Ann Mink.

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Thanks, Mark, and good morning, everyone, and thank you for joining us today. Our second-quarter performance was highlighted by our ability to leverage our improved mix, pricing power momentum, cost management and lower cost structure to grow adjusted EBITDA margin by 129 basis points year over year despite a 10% decline in sales. In addition, we delivered strong free cash flow on improved working capital and reduced capital expenditures. Delivering this solid earnings, margin and cash performance in the face of top-line headwinds is a strong testament to the effectiveness of our Vision 2022 strategy and strategic pillars framework, which are now deeply engrained in the Innophos culture and highly interconnected.

During the quarter, we continued to make solid progress executing against our strategic priorities to further transform Innophos' growth profile over time. Notably, we achieved the initial sequential benefits from our lower-cost value chain structure, developed innovative solutions that enhance our position in attractive Food, Health and Nutrition end markets and leveraged our value-selling model to continue to capture price increases. Q2 sales were $185 million, a 10% decrease compared with the prior-year quarter as our pricing power was predominantly offset by the planned discontinuation of low-margin nutrition trading business, as well as a general weakening of demand, including customer destocking, lost 2019 business due to Midwest flooding and continued indirect tariff effects. GAAP net income for the quarter of $1 million or $0.07 per share was down $5 million or $0.24 per share from the prior-year quarter, due primarily to a $6.6 million one-off tax charge that Mark will explain shortly.

Further, there were no imbalance charges in Q2 as the situation with Mexico's natural gas network improved with the completion of the country's pipeline. This resulted in a 12% sequential reduction in the basic rate invoiced and similar year-over-year natural gas cost. In Q2, adjusted EBITDA of $30 million was down less than $1 million or 3% year on year and essentially flat on a sequential basis. Adjusted EBITDA margin of 16%, which as noted earlier was up 129 basis points compared with the prior-year quarter as we benefited from lower costs, including early benefits from the new value chain cost structure, continued success in capturing price increases and improved mix, all of which helped us offset the lower volume effects.

Now was Mark will expand upon later, today, we are resetting our 2019 revenue guidance as we expect overall volumes to remain under pressure through the balance of the year due to the indirect impact from tariff, as well as general market softness related to ongoing macro environment uncertainties. In addition, we no longer expect the U.S. fertilizer sales impacted by Midwest flooding to rebound in 2019. These factors will more than offset our ongoing efforts to leverage our pricing power on the revenue line.

Now even with these headwinds, though, we are maintaining our EBITDA guidance for the year, supportive of our ongoing focus on pricing actions and cost management. While we manage the near term by focusing on the factors that we can control, we remain committed to executing on the strategic priorities that will advance Innophos on our transformational Vision 2022 journey. So with that, please turn to Slide 5 to take a closer look at some of our key strategic pillar achievements in Q2. In operational excellence, by leveraging the benefits of the new low-cost supply chain now in place, we achieved initial sequential savings during the quarter.

Following the successful MGA production scale-up in Q1, our Coatzacoalcos facility continues to meet target production rate. We've continued to advance our supply plan with the successful setup of third-party sourced MGA for our Geismar PWA plant. We are pleased with our progress with this project and remain on track to deliver GAAP and adjusted diluted EPS improvement of $0.25 to $0.27 per share annual run rate by year end. In addition, as we have said before, we are committed to instilling a continuous improvement culture across the organization to further optimize our operations and improve our cost structure.

With commercial excellence, our commercial organization has continued to deepen our relationships with our customers and leveraged our value-selling model to capture price increases and offset effects of lower sales volumes. In fact, we just recently announced last week our sixth consecutive quarterly price increase, which will take effect August 15th. Under strategic growth, we remain focused on increasing our presence in attractive food, health and nutrition market through innovation, partnerships and M&A. In Q2, we successfully commercialized several new products for the SPARC program, including a new blend of fruit and vegetable derived ingredients for a leading consumer packaged goods company for an on-the-go greens beverage that supports immune health in a convenient dry blend form, allowing derived Vitamin D3 product processed with our dicalcium phosphate that delivers the benefits of longer shelf life stability compared with other Vitamin D3 products and a new calcium complete vitamin formulation with magnesium for one of our global customer's growing business in Asia.

In addition, supporting our industrial specialties business, we launched a new next-generation hydrogen sulfide scavenger for asphalt applications that offers improved efficacy in a more convenient dosing form. This product is already generating profitable new business. These SPARC wins support our strategy to shift our portfolio mix to a greater level of higher-margin, higher-value branded ingredient and formulated solutions over time. In further support of this strategy, we continue to actively evaluate M&A opportunities that meet our disciplined strategic and financial criteria to strengthen our FHN platform.

Looking ahead, our focus with the balance of 2019 is to control the factors that we can control in order to manage the near-term headwinds. At the same time, we will execute on our strategic pillars to deliver on our profitability targets and realize our Vision 2022 goals for sustainable top and bottom line growth. With that, I'll turn the call over to Mark.

Mark Feuerbach -- Interim Chief Financial Officer

Thank you, Kim Ann. As Kim Ann noted and as shown on Slide 6, our Q2 financial performance was marked by our ability to grow our adjusted EBITDA margin despite a difficult year-over-year comparison on the top line. Additionally, because of our ongoing focus on working capital and lower capital expenditures, we delivered a very strong free cash flow performance. Now let's turn to Slide 7 to take a closer look at the quarter details.

Sales of $185 million in the quarter were 10% lower than the prior-year quarter, as the 3% selling price increases were offset by 13% volume declines. Volumes were impacted predominantly by the planned discontinuation of low-margin nutrition trading business, as well as a general weakening of demand, including customer destocking, lost 2019 business due to Midwest flooding and continued indirect tariff effects. Q2 gross margin of 20% was at the highest level since Q1 2018 and up over 200 basis points compared to the prior-year quarter, reflecting the benefits of our pricing and cost containment initiatives. On a sequential basis, gross margin grew by 64 basis points as we benefited from an improved Mexico natural gas environment and we realized initial benefits from our value chain optimization program.

Moving on to earnings on Slide 8, Q2 net income of $1 million was down $5 million due primarily to a $6.6 million one-off tax charge related to a Dutch tax regulations enacted in the current-quarter retroactive to January 1, 2018. These charges resulted from an uncompleted merger in 2018 due to an administrative error committed and acknowledged by our Dutch legal counsel, Husan BV. More specifically, in 2018, two of Innophos' Dutch subsidiaries were to be merged in accordance with our global simplification strategy. Due to Husan's error, the merger and approval by the Dutch tax inspector did not occur until 2019.

As a result of this and a change in Dutch tax law enacted May 17, 2019, retroactive to January 1, 2018, we were subjected to the one-time tax charge for our 2018 tax year. We have initiated a malpractice legal proceeding in the Netherlands against Husan, seeking reimbursement for all costs and liabilities resulting from their administrative error. Moving on now, adjusted EBITDA of $30 million was down slightly year over year as lower volume effects and higher manufacturing costs were mostly offset by higher-selling prices, reduced SG&A costs and input cost improvements as we saw some initial benefits of the value chain optimization program. Adjusted EBITDA margin of 16% was up 129 basis points year over year due to improved pricing and mix, as well as improvements in our cost structure.

Moving on to Slide 9 to review our performance by segment. FHN Q2 sales of $107 million represented 57% of total company sales and were down 15% overall, as the 3% improvement from price increases was offset by an 18% decrease in volume. This volume decline was due largely to the discontinuation of low-margin nutrition trading business, as well as general weakening of demand, including customer destocking. FHN Q2 adjusted EBITDA margin was 21%, up 611 basis points sequentially and up 639 basis points compared with last year due to increased selling prices, improved sales mix, capitalized variances for the nutrition business and lower costs from the value chain optimization program.

In addition, we reclassified some profit related to certain intermediate product transactions to downstream consuming segments that previously have been recorded in the Other segment in Q1 2019. IS Q2 sales of $68 million were up 1% year over year, as a 3% selling price increase offset a 2% volume decline that was impacted by Midwest flooding and indirect unfavorable tariff impacts on our international sales from Chinese competition redirecting mostly technical-grade product. The IS Q2 adjusted EBITDA margin of 12% was down 320 basis points sequentially due to the planned maintenance outage in our Coatzacoalcos facility and 409 basis points compared to last year due to higher freight costs and the noted tariff impacts. Other Q2 sales were $11 million, down 25% compared with the same period last year on lower volumes due primarily to reduced co-product and low-grade asset sales.

Other adjusted EBITDA margin was negative 7% due to the reclassification noted earlier. Year to date, other margins are properly reflected at 12%. Now turning to Slide 10, in the second quarter, net interest expense of $4 million was up $1 million due to higher market interest rates. The underlying effective Q2 tax rate was 88% higher than prior periods and expectations due to the $6.6 million one-time tax charge.

Excluding the impact of this charge, the effective tax rate would have been 30%. Capital expenditures of $6 million in the quarter were down significantly due to the timing of the value chain optimization project as some of the larger utilities projects at Geismar are scheduled for the second half of 2019. We paid $9 million of dividends during the quarter as we maintained our annual dividend rate of $1.92 per share. Net debt was $298 million in Q2, down $20 million year over year due to improved free cash flow.

Our net debt to adjusted EBITDA ratio was 2.4 times, compared with 2.5 times last year. Now turning to Slide 11, on a GAAP basis, earnings per share of $0.07 declined $0.24 year over year, due primarily to the $6.6 million one-off tax charge. Q2 adjusted diluted EPS was $0.43, down $0.12 year over year due to a higher effective tax rate and higher interest expense, lower adjusted EBITDA and higher noncash stock compensation. Moving on to Slide 12, Q2 cash from operations was $26 million and free cash flow was $20 million, both very favorable to prior year due to working capital improvements and lower capital expenditures in the second quarter of 2019.

Now turning to Slide 13 to review our outlook for 2019, starting with revenue. Revenues are now forecasted to be 6% to 7% below 2018 revenue of $802 million, compared with the prior expectation of 1% to 2% down. This reflects the previously communicated discontinuation of the low-margin nutrition business, which is expected to impact comps through the end of the year, but less materially for the fourth quarter. The revised revenue range also reflects our expectation that the U.S.

fertilizer sales impacted by Midwest flooding will not rebound in 2019 as previously expected. In addition, we now expect market softness to continue to impact both FHN and IS volumes, and we expect IS pricing and volumes to continue to be affected indirectly by tariffs. These factors will be partially offset by positive year-over-year revenue contribution from price increases and new product wins. From a GAAP and cash perspective, we continue to expect costs to be lower in the second half than in the first half of this year.

Capital improvements are now expected to be $45 million to $50 million, which is 15% to 20% below 2018 capital spending. This compares to our prior expectations of spending in line with 2018 and reflects our ability to be more efficient with spending as we finalize the optimization of the value chain and manufacturing program. It is important to emphasize that this will not be at the expense of investing in high-return programs, which remains a priority. And finally, we continue to expect the effective tax rate to operate in the 28% to 32% range, excluding the second-quarter $6.6 million one-time Dutch tax charge.

With that, I'll turn the call back over to Kim Ann.

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Thanks, Mark. And before we open the call up for questions, please turn to Slide 14 as I highlight a few key points. Now although we expect to face ongoing headwinds for the balance of 2019, we are focused on controlling the factors that we can control in order to deliver adjusted EBITDA growth and margin expansion this year and advance on our Vision 2022 journey. This includes leveraging our new lower-cost value chain structure to meaningfully reduce our cost basis as we move through 2019; continuing to deepen our customer relationships to leverage our market-leading pricing position; accelerating momentum behind our SPARC program to further grow our mix of high-value FHN business; and pursuing additional inorganic initiatives through M&A that support our strategy to shift our mix over time to a greater level of value-adding higher-margin ingredient solution.

Now a few years ago, we set out on our Vision 2022 journey to transform Innophos' growth and earnings profile. There is no doubt that the current market dynamics have created unplanned headwinds that have impacted our top line goals for the year. Despite this, we are confident that we are taking the tactical and strategic actions necessary to achieve our bottom line growth goals for 2019, while forging ahead toward a longer-term Vision 2022 goals for sustainable top and bottom line growth. We appreciate the ongoing support of our shareholders, our customers and employees and look forward to keeping you updated as we advance ahead.

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

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Brett Hundley with Seaport Global. Please, proceed with your question.

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

Hey, good morning, everyone.

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

How are you?

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

I'm good. Thank you. Hope you do well too. I have a question on FHN to start, and then I have a bunch of questions on the cash flow statement thereafter.

So customer destocking/general market weakness as it relates to FHN specifically, can you guys just delve into maybe product categories and how long you might expect these effects to be seen? And Kim Ann, do you think that this calls into question the stabilization discussion around your phosphates business?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Good question. Let me just first talk overall. In Q1, we began to see a softness in certain segments we serve like firefighting due to lack of fires on the West Coast and exports to Latin America due to indirect tariff impacts to IS. So that's part of that.

And this softness has now expanded across the boarder set of markets, impacting both the FHN and IS segments where we are starting to see some customers destocking, which we believe is really due to some ongoing macro environment uncertainties. As we look at our peers as well in the ingredients space, as you well know, Brett, many of us are starting to see maybe some consumer sentiment in some of these areas as we look across it. So -- and we see some of our own customers where we're seeing their revenues year-on-year decrease. For the most part, the core business remained stable as price increases have pretty much covered volume decreases.

From an FHN standpoint, the discontinued low-margin nutrition trading business was the largest factor. So if you recall, we called that out. We knew the comps would be tough. We did see some customer destocking.

Some of it is specific to some customers. We have -- do have a key customer where there's some destocking because of -- they've just been recently acquired. So that is due to sort of a specific circumstance. But I think it's just this underlying, I think, this uncertainty by some of our customers, which has caused this.

That notwithstanding, as we look to Q3, we do see a relatively strong order book.

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

That's really helpful. And if I can just push in on one of the comments that you made about a key customer destocking, because they were recently acquired, are you able to parse out whether or not that is indeed -- I assume you are destocking versus maybe losing business to a cheaper peer? You're clearly seeing that as destocking and not the latter?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Absolutely, because we -- yes. Yes. We think that both in public statements and also questions with the customer.

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

That's great. That's great. OK. So if I can move on to some questions on the cash flow statement.

So I think I had asked this. So for the full year, if we can talk about cash flow from operations. In my model, I kind of look at the $80 million number as kind of a level to exceed or miss. If you don't want to talk to a specific number, can you guys frame up where you might expect cash flow from operations for the year, either relative to earnings and so far as conversion or maybe even past performance?

Mark Feuerbach -- Interim Chief Financial Officer

Sure. So as you know, Brett, our first quarter is always a drain on cash from operations, right, because we have a number of factors hitting us there. We have funding of the bonus and retirement plans. We have a -- we just come off of a quarter, which is the weakest sales quarter of the year, so our receipts are lower and a few other factors.

So we typically are building off of a negative in the first quarter. And indeed, we saw that happen again this year. And then we ramp up as time goes on. Clearly, we had a good second quarter year over year, was up pretty substantially, $18 million.

And on a year-to-date basis, we're ahead of last year. So I would expect that we'll continue to see increases in the third quarter year over year. But of course, in the fourth quarter, we'll be impacted by the fact that we had a couple of one-off positive transactions last year, which would have put our operating cash flow at a higher number last year than we would expect to see this year.

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

OK. I appreciate those comments. And you guys talked about pulling down capital expenditures a little bit this year. We have the new number.

I think you said it was $45 million to $50 million. Could we expect that number to go sub-$40 million in 2020? Or should we expect some of this year to get pushed into next year, such that you're likely to remain above a $40 million spend in 2020?

Mark Feuerbach -- Interim Chief Financial Officer

So our view is that we should be right around the $40 million mark in 2020. And then we should return back to the mid-30s thereafter. If you look at our reduced spending for this year, the primary reason for the lower expectation is that we have seen our projects that have come in related to value chain, particularly down in Mexico, have come in favorable to what our estimates were at the time that we started the projects. So there is a little bit on one project that's going to flip from this year into next, but primarily it's because we're spending better than anticipated.

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

So Brett, I -- all I would add is, as you know, we've made some changes at the top over the last couple of years over our operations, and this reflects sort of that operational excellence piece just becoming much more efficient, more effective in the way we look at our capital expenditures and the way we're doing our engineering. So it's really a reflection of that. By no means are we taking -- cutting a high return project by any means. It's just -- I think it's just more fit, if you will.

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

Yes. No. I appreciate that. And a question for, I guess, either of you -- both of you related to that is, as you do get more efficient with your spend and clearly you're becoming more efficient across the entire operation and it's great to see that showing in your margin structure, would you guys be comfortable going to a higher leverage ratio relative to what you've communicated historically as you do start to see signs of that improving free cash flow story? And related to that, if I can pull in the M&A discussion, are there larger deal opportunities out there that you see, say, in the multi-hundred million dollar revenue range? And as an extension, would these larger opportunities be stand-alone entities or would they be part of larger businesses.

So I guess, two parts there. Does the cash flow story make you feel better with regards to future leverage? And then can you just describe the size of M&A opportunities and where they stand?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Good. Thank you, Brett, for that question. Yes, we actually absolutely get more comfortable. As we said, gross leverage is at 2.7 times, net leverage is at 2.5 to 2.4 times right now.

Our credit facility allows up to four times gross leverage for acquisitions. So the high end of that range is really reserved for unique opportunities that offer very strategic fits. And yes, we do have in our pipeline of acquisition targets, which are on the larger side to be more transformative to move that needle. And one thing I will say is all those that we are looking at, that we are assessing our asset-light, require limited ongoing capital investment or cash generative in nature.

So it really does present a favorable curve for paying down debt. So we do believe as we get into a more positive situation with our cash flow and if you link that up to the targets that we are looking at that are in that portfolio, we would become more comfortable, I would say. And I think there are targets out there. Back to your question, are they predominantly maybe small divisions of larger companies or stand-alone, most of the things we're looking at, I think we've talked about this, we've talked about it externally, are more privately held companies, stand-alone companies, I would say, Brett.

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

Thanks so much. I'm gonna get back in the queue. Thank you.

Operator

Thank you. Our next question comes from the line of Larry Solow with CJS Securities. Please, proceed with your question.

Larry Solow -- CJS Securities -- Analyst

Good morning. Thank you. Could you maybe just discuss a little bit on -- could you -- it sounds like, on the revenue side, the underlying growth in the nutritional piece, which obviously, has been growing a little bit faster. So if you exclude sort of the calling activity and some of the lower-margin trading business that you're exiting, how is the -- what is -- how is the core growth looking in that piece of your business?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

We actually did and I think -- and that's a really good question. Yes, we did have that discontinued low-margin nutrition trading business, which I know we've been talking about for some time, but knew that the comps would really come to light in 2019. But we are seeing some growth in some attractive markets in the FHN segment, unfortunately gets masked, like the areas of bakery and dairy. And that goes to show and really reflects then the ongoing stability, if you will, in that area.

And then the continued price increases that we've continued to get through the FHN segment that our customers have allowed us, if you will, and they've recognized the value proposition that we're bringing forward.

Larry Solow -- CJS Securities -- Analyst

OK. And on pricing, obviously, a lot of these price increases have been offset by higher raw material prices. What's your outlook going forward? And/or maybe even currently, have you -- I assume you've seen some easing on the raw material side. And do you think you'll be able to continue to get these price increases through with sort of a slowdown on the cost on commodity side?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Yes. So we captured $6 million pricing in Q2 2019 with $8 million of year-on-year price increases last quarter. So we are -- as we are lapping 2018 quarterly price increases, but we continue to see the momentum. That's really what I'm trying to get at there.

We just announced last week our sixth consecutive quarterly price increase, which will go into effect August 15, and we're hoping to get support there. And if you recall, Larry, and I often say this, not all our pricing is going to be related to input costs. As the input costs have gone up, we've been able to capture and more than cover that. But because of some of the things we're doing and the value that we bring to our customers, many of the rounds of price increases we've done over the six quarters have been related to that.

Now freight costs are up $2 million year on year, primarily due to the supply chain optimization program that now brings MGA into guide more from multiple locations, overseas. And Mexico energy costs were similar year on year. So we've been able to cover those. Mark, do you have anything to add.

Mark Feuerbach -- Interim Chief Financial Officer

And in fact, if you look at the year to date, we do show that our total input costs are above last year. But for the quarter, we're actually slightly favorable to last year, due in part to the decline in the Mexico natural gas that Kim Ann just mentioned and also getting some initial benefits on the value chain optimization as well.

Larry Solow -- CJS Securities -- Analyst

OK. And then, I guess, two questions, two more before we get to the value chain. On the new product contributions, I don't know if you can quantify sort of what percentage of your revenues from new products maybe introduced over the last couple of years. But could you maybe sort of give us some kind of parameter or something sort of how to help us gauge that effect of that benefit or maybe going forward?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Yes. We, at this point, are not talking about vitality index, although I did commit to by the end of the year, we would start to give you that. Just to give you -- I'll put some parameters on it for you. Hopefully, it will help.

Looking at 2018 versus 2017, again, by leveraging the skills of this broader technology organization coupled with our SPARC new product development process, we grew NPD sales by two-thirds. And we're targeting nearly 50% growth in sales from NPD in 2019 versus 2018, and we are on track to get that.

Larry Solow -- CJS Securities -- Analyst

OK. Great. That's helpful. And just on the costs and some -- it looks like you -- as you mentioned some expedited or a little bit earlier of savings from the value chain initiatives, is that -- is fair to say and is -- can you maybe help us what percentage of the -- sort of have you realized already or any way to sort of quantify that?

Mark Feuerbach -- Interim Chief Financial Officer

Yes. So we -- the benefits are coming through from Geismar now having been running on the new streams of input costs since the beginning of the year. Of course, the first quarters were hung up in inventory at the end of the quarter. So we're seeing -- that's where we're seeing the benefit come through.

So when you net everything out, we achieved about $1 million of improvement year over year from new structure? Yes.

Larry Solow -- CJS Securities -- Analyst

Got it. OK.

Mark Feuerbach -- Interim Chief Financial Officer

And you may recall all that we've said $0.25 to $0.27 annual run rate by the end of the year. That equates to about an $8 million EBITDA number, so about $2 million a quarter.

Larry Solow -- CJS Securities -- Analyst

Gotcha. OK. So you're sort of really getting your way there? And I assume similar benefit expected this quarter or maybe even a little bit more?

Mark Feuerbach -- Interim Chief Financial Officer

I think probably similar. And as we still -- we're still fine-tuning and ramping up the operations there.

Larry Solow -- CJS Securities -- Analyst

OK. And you -- I know, obviously, acquisitions are hard to time and you never want to rush anything. Just Kim Ann, any thoughts on the Vision 2022? You still remain confident in getting to those numbers? And again, I don't necessarily think if you didn't get to those numbers, it would be a negative per se, depending on what else. So any thoughts on that?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Yes. I've always said that the absence of an announcement doesn't mean we're not looking. It just means we're disciplined, Larry. And I think that's the word I want everyone to take away.

And I will not rush into an acquisition just for the sake of meeting that target that I set out from an inorganic growth standpoint. So we continue to remain very excited about opportunities in the space. We believe there are opportunities, but it's got to be the right timing and it's got to be the right acquisition.

Larry Solow -- CJS Securities -- Analyst

Right. Fair enough. And then just last question. Any update on the CFO search?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Yes. We've continued to search. And I think we're making some good progress, although I'm pleased to have Mark Feuerbach sitting across from me right now.

Larry Solow -- CJS Securities -- Analyst

No rush. No rush to kick Mark out.

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

He has been terrific. He has been terrific. But I think, again, we're remaining disciplined there to ensure that we find the right candidate that will help us take this company forward. But again, Mark is doing a great job and will continue to do so.

And I have complete faith in him, and I have complete faith in the process that we're running with these under right now.

Larry Solow -- CJS Securities -- Analyst

OK. Great. Thank you. Appreciate it.

Operator

[Operator instructions] Our next question comes from the line of Curt Siegmeyer with KeyBanc Capital Markets. Please, proceed with your question.

Curtis Siegmeyer -- KeyBanc Capital Markets -- Analyst

Good morning, everyone. Nice quarter, all things considered. Pretty good. Kim Ann, you gave us an update and some examples around some of the progress you've made with SPARC, which was thoughtful.

And one of the questions I had related to that was some of these benefits that you expect to be solved as you continue to progress there, should we start to see that in kind of reflected in volumes? Or is that mostly going to be a mix/pricing type of benefit going forward?

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Yes. As we go forward, it's really about changing the mix, Curt. That's how I think you should look at this, because again, we have very disciplined criteria when we look at a new product development program to enter into our sport program because of that stage-gate process. So we've got bars that you've got to be at or higher from a profitability and margin standpoint.

So it's about mix. And then as we now are gaining momentum, it's also about future organic growth. OK? Because what we're doing is, obviously, focusing on new product development projects on those markets that are growing on the average of 6% to 8% a year. So it's changing that mix, changing that mix fast enough and large enough, then to really start to see the benefits of the organic growth.

In 2020, I think you should really start to see some of that. If you recall, we've only been at the SPARC program 18 to 24 months, starting from scrap. So it's just great to see that I can actually talk about products that were launched that we are launching.

Larry Solow -- CJS Securities -- Analyst

Got it. That's helpful. And then if I could just follow-up on the capex reduction, can you just remind us where maintenance level capex sits currently?

Mark Feuerbach -- Interim Chief Financial Officer

So maintenance capex, true maintenance is in the $20 million to $25 million range for the year. Yes.

Larry Solow -- CJS Securities -- Analyst

Got it. OK. Thanks, Mark.

Mark Feuerbach -- Interim Chief Financial Officer

You're welcome.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Kim Ann Mink for closing remarks.

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Thanks, Dana. And thank you, everybody, for joining us today, and we really look forward to keeping you updated on our progress. Have a great day.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Mark Feuerbach -- Interim Chief Financial Officer

Kim Ann Mink -- Chairman, President, and Chief Executive Officer

Brett Hundley -- Seaport Global Securities, LLC -- Analyst

Larry Solow -- CJS Securities -- Analyst

Curtis Siegmeyer -- KeyBanc Capital Markets -- Analyst

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