Q2 2021 Janus International Group Inc Earnings Call

Hello, and welcome to the Janus International's second quarter 2021earnings conference call. Currently all participants are in a listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference you May Press Star then zero on your telephone keypad on.

As a reminder, the conference is being recorded I would now like to turn the call over to your host Mr. Scott Salmon.

The financial Officer of James. Thank you you may begin Mr. Dennis.

Thank you operator, and thank you all for joining our second quarter 2021 earnings Conference call. We hope that you have seen our earnings release issued this morning.

Please note that we have also posted a presentation in support of this call, which can be found in the investors section of our website at Janus I N T L dotcom.

Well, we began I would like to remind you that today's call may include forward looking statements and the.

These statements describing our beliefs goals plans strategies expectations for.

Junctions forecasts and assumptions our forward looking statements. Please note that the company's actual results may differ from those anticipated by such forward looking statements for a variety of reasons many of which are beyond our control.

Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business prospects and future results. We assume no obligation to update publicly any forward looking statements. In addition, we will be discussing or providing.

Certain non-GAAP financial measures today, including adjusted EBITDA adjusted EBITDA margins adjusted net income and adjusted EPS. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure.

I am joined today by our Chief Executive Officer of Rain Me Jackson, who will provide an overview of our business and given the operations update I will continue with the discussion of our financial results and outlook before we open up the call for your questions. At this point I will turn the call over to Randy.

Thank you Scott.

Before I begin I think it would be a good idea to remind you all of who we are and what we do at Janus given this is our first public earnings call.

Janus provides industry, leading products and access control technologies to the self storage and commercial space.

We offer a wide range of critical products and solutions.

50% share of the fast growing self storage market.

And all of our 3 division, which is a replacement remixing the renovation business, we sell products and services to help customers upgrade their assets within the aging storage industry.

As approximately 60% of self storage facilities are over 20 years old the sales channel provides janus with the significant growth opportunity.

We are a first mover in providing smart lock technology through our proprietary gnocchi wireless solution.

The dish and we provide a full line of complete self storage building systems with our bed co division as well as the complete offering of rolling steel doors for the commercial industrial and warehousing space with our asked the division.

Over the past 5 years, we've doubled our business and expect to replicate that growth rate in the future.

We have a very strong position in self storage in a leading position with our customers on all of our business segments.

The second quarter of 2021 was a transformative 1 for Janus.

We completed our business combination with Juniper industrial holdings and became a public company in June.

We backed up our strong start to the year by delivering solid financial results for the quarter, even in the face of unprecedented inflationary pressures from raw material labor and logistics, while continuing to invest in strategic growth initiatives.

High occupancy rates continue to drive new capacity additions in self storage industry.

This is a significant tailwind for the business and our outlook.

Janus is the leading beneficiary of capacity additions no matter, which form they take the new construction of Repurposing and refurbishing existing facilities.

Recently, we made a number of strategic leadership appointments, we promoted Christine the board in March the president of Nokia.

And followed that up this quarter by naming change itself as gnocchi director of wireless networks, and Jennifer Shafer as gnocchi director of training and development.

In July we named David Alexander as the head of the recently launched facilitate initiatives our newest service offering that complements our suite of self storage solutions by offering facility maintenance services and solutions for self storage facilities.

As we seek to advance our growth prospects 1 path of the opportunity for us as the international markets.

In January we acquired Jenny on store more in Australia.

Which expanded our geographic presence and complemented our existing international product offering.

We will continue to look for other strategic accretive opportunities to expand our industry, leading position in North America. The other parts of the world.

We're also excited about the acquisition of <unk>, which we will further discuss shortly.

I'm excited to now share a number of proof points with you today that demonstrate our focus and discipline to execute on our strategy and continue creating long term value for our stakeholders.

We are pleased by our second quarter results and how they position us to accomplish our objectives for the full year.

We delivered gross revenue of $174.2 million, an increase of 42, 5% as compared to the same period last year. This.

This growth was fueled by the continued strength in our commercial and other sales channel and it also reflected a shift in mix from new construction to our 3 the increase conversions and expansion of.

The trend we had been expecting.

Janus also experienced strong recovery across our end markets from the heavily COVID-19 impacted year ago quarter.

The pandemic continues to present challenges in certain areas of our business, including raw material inflation.

Labor availability of inflation and logistical challenges.

Despite these impacts our teams are working together to execute efficiently and safely.

The company has taken actions to offset the inflationary effects through both commercial and cost containment initiatives and we expect to see the benefits of these actions build in the second half of 2021.

Our adjusted EBITDA of $35.9 million came in 26% stronger than the Q2 of 2020.

The higher EBITDA was driven by higher revenues, partially offset by the inflationary pressure I just mentioned.

With the strategic investments being made to continue to achieve the of strategic growth going on of the business.

M&A continues to be of focus for the company's growth plans last month, we announced the strategic acquisition of D. B C eye on.

Manufacturing steel roll up doors and building products for both commercial and self storage industries from cornerstone building brands.

The transaction is expected to close in the third quarter and began positively contributing to our results.

The acquisition broadens our customer set of now include D. B C on its core general contractor and distributor base.

And provides an opportunity to deliver more comprehensive value added solutions to them.

We are very excited to add the <unk> business to Janus and look forward to leveraging its product portfolio and servicing it's terrific customer base.

In summary, I'm very pleased with our results for the second quarter and how our actions have positioned us to create long term value for all of our stakeholders.

With that I will turn the call over to Scott for an overview of the financials and outlook for the full year.

Thanks, Randy and good morning, everyone in.

In the second quarter revenues of $174.2 million were up 42, 5 per cent compared to the prior year quarter, driven primarily by solid execution and performance in each of our sales channels commercial was up 69% or 3 was up 62%.

And new construction was up 16% over the prior year quarter.

The strong growth was also partially bolstered by the COVID-19 related recovery across all end markets.

Adjusted EBITDA of $35.9 million was up 26% compared to the year ago quarter higher revenue was the primary driver of EBITDA growth.

Shelley offset by higher raw material labor and logistics costs and investments in strategic growth initiatives.

Genesis has taken actions to offset the inflationary effects through commercial and cost containment initiatives.

Cost pressures coupled with the investments resulted in adjusted EBITDA margins of 26%.

Non from 23, 3% in the prior year quarter.

In addition to inflationary cost pressures, we also experienced incremental costs related to being a public company keeping our employees safe as the result of COVID-19, and higher head count associated with strategic investments in our facilitated initiative and the continued build out of.

Of our Nokia Smart entry ground game in customer service departments.

For the second quarter 2021, we produced adjusted net income of $17.3 million and adjusted earnings per share of <unk> 22 cents.

We also generated $44.8 million of cash from operating activities.

Free cash flow for the quarter was 71.8 million, representing a free cash flow conversion of 94, 7%, which is defined as management adjusted EBITDA less capex, which is computed consistently to both the adjusted EBITDA and free cash.

Flow computations presented in the original Investor presentation.

At quarter end of our outstanding share balance was 138.384 million 250.

We reported results in 2 business segments, Janus North America, and Janus International.

Janus North America contributed 95% of revenue for the quarter.

The international which sells primarily in Europe, and Australia provided the balance of revenue.

Janus North America revenues were up 38, 1% year over year, driven primarily by increased volumes as the result of favorable industry dynamics in the commercial and our 3 markets coupled with improved market conditions as the result of the Covid related recovery.

Janus International revenues were up 152, 9% year over year, driven by increased sales volumes experienced in the new construction sales channel coupled with improved conditions as the result of the Covid related recovery in those end markets.

Now moving to our sales channel results for the North American segment.

As you can see in our financial disclosures, we break revenues into 3 categories, new construction of self storage or 3 self storage and commercial on the other.

New construction self storage was 33, 9% of sales down from 46, 9% in the prior year quarter, which represented flat year over year performance.

Our 3 self storage was 31.8 percentage of sales up from.

Grew 25, 6% in the prior year quarter, which represented an approximately 72% increase.

Commercial and other was 34, 4% of sales up from 27, 5% on the prior year quarter, representing an approximately 72% increase as well.

This mix shift represents a trend we have been expecting where new capacity on the self storage industry continues to move towards conversions on expansions of existing facilities versus greenfield operations favoring our our 3 business, where we derived similar margins the gains in commercial.

On the other were driven by the continued e-commerce movement in share gains in the commercial steel roll up door market from asked is the launch of the rolling steel product line in the fourth quarter last year.

Turning to guidance I am pleased to provide the following full year 2021 outlook for revenue to be in the range of 672 to 692 million.

Management adjusted EBITDA is expected to be in the range of $156 million to $162 million.

As a reminder, the adjusted EBITDA is in line with our original forecast now, including the incremental costs of being a public company.

These amounts do not reflect the anticipated addition of <unk> in the third quarter. Finally, we expect improved operating cash flow generation in the second half of 2021.

Thank you.

I'll now turn the call back to Randy for closing remarks.

Great. Thank you again Scott.

We are proud of how Janus performed during the quarter and since becoming a public company or.

Our business delivered another quarter of solid results, even as we completed our merger and becoming a public company.

Firmly believe in the power of this organization and our ability to deliver strong margin performance and continued earnings growth.

I'll look forward to continue on our positive momentum for the full year of 2021 and beyond.

Thank you again for joining US operator, we can now open up the lines for Q&A. Please.

Thank you at this time, we will be conducting a question and answer session I would like to ask a question. Please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You May Press star 2 if he was like churn moving a question from the queue.

Participants using speaker of Clinton and may be necessary to pick up your handset before pressing the stack he's 1.

1 moment, please while we poll for questions.

Our first question is from Jeff Hammond of Keybanc capital market day.

To your question.

Hey, good morning, guys.

Good morning, Good morning, Jeff.

So just on the the guidance.

So 1 just to be clear. It does not include anything from <unk> on on either top line or EBITDA that is correct.

Okay and then.

It looks like versus your December presentation sales much higher kind of on EBITDA in line and I was just wondering if you could walk through some of the moving pieces on the EBITDA line, whether it be mix inflationary pressures and I think you talked about new public company costs and how much of those are.

Yes sure.

I think like you said the top items.

Attributing to the.

Kind of.

I'll call it lack of conversion on the top line.

The revenue increase is the inflationary pressures from raw material logistics.

And labor as a as we've previously discussed I think in addition to that you've got.

The higher than anticipated public company costs.

1 thing that was not originally.

Originally anticipated is the.

Private company.

We are paying circa about $100000 of year for D&O insurance and the cost as the public company is about 30 times that.

For us so some of those costs. We're obviously not we were not able to anticipate that when we put together the original.

Investor presentation sort of circa a year ago. In addition to that you've got also.

The strategic investments as we kind of touched upon in our facilitate initiative as well as our kind of Nokia Smart entry building out the ground game and bolstering the the customer service departments.

Okay helpful. And then just maybe speaking to the material inflation and labor et cetera, just talk about what youre doing with respect to pricing.

Yeah, I'll take that Scott look.

Jeff.

In terms of inflationary pressures look we we have been through times like this we have the playbook as it relates to kind of a commercial decision in.

Our commercial actions and also kind of cost containment.

Albeit this is unprecedented as it relates to the inflationary times, but we're certainly comfortable as it relates to those 2 items that that will we will see the pick up in full momentum of those commercial decisions.

Through the back half of the year second half of the year.

Okay, and then just last 1 of the commercial growth is pretty eye popping in the first half of the year end.

I understand kind of of the ecommerce dynamic can you just talk about sustainability.

The sustainability of that growth rate, what you think the market is growing grows in the second half and kind of you know.

On what.

What's driving your share gains there.

Great question.

Look I think it's it relates to like you mentioned kind of E Commerce warehousing.

In addition to that when you look at Asda the investment we've made and asked the back in 2017, we focused on expanding the product, bringing bringing the product up to.

2 industry standards are higher.

When you look at our distribution base our dealers.

We now have another product to sell them and that's really starting to take off.

And so I think it has a lot to do with market penetration as it relates to the aster, Yeah, certainly think given that we're in the early stages of that I think there is tremendous runway.

Okay, great. Thanks.

Thanks, Jeff.

Yeah.

Our next question is.

From Adam Friedman of Jefferies. Please state your question.

Hey, guys. Thanks for taking the time today. So I just wanted to ask about Nokia made a bunch of announcements recently that you are rolling it out with specific customers.

Just wanted to ask like how those rollouts are going.

But there's sort of any change in your estimates with regards to <unk>.

Youre gnocchi revenue projections over the next few years. Thanks.

Hey, good morning, Adam Yeah, so as it relates to kind of any changes no. We're comfortable with where we are we're very pleased with the rollout some of the management changes that we made are more geared towards kind of.

The ground game, if you will that Scott spoke of building out the customer experience.

Aspect of the solution.

And then as it relates to kind of consumer behavior on data, we're starting to get a lot of positive.

Results from from the experience and we're just going to continue to focus on the educational aspect of of the deployment and the solution and as it relates to the ROI in the.

Of our of our customers so no change in.

And figures in the well.

We're very pleased with where we are with the Nokia solution today.

Great. Thanks, and then just on the the revenue guide.

Can you sort of parse out what percentage of the increase in the top line is related to pricing versus volume I mean, there's clearly been a step up.

And pricing that you're obviously sort of taking with your customers and.

On to Jeff's point, obviously, the there wasn't as much incremental EBITDA flow through but can you is there any way you can parse out what sort of pricing contribution is coming through.

Okay.

So I would say that.

On the first in the first half of the year.

Theres not a lot of impact from the pricing initiatives.

But in the back half of the year as Rami mentioned, we expect to see.

More of a much larger impact.

From pricing on the.

On the forecast and I think we were anticipating that its probably.

The back half of the year, it's probably about a 75% 25% split between price and volume, so 75% being kind of commercial initiatives and 25% being <unk>.

Volume related.

Great. Thanks, and then just lastly is it fair to assume that these price increases that you're implementing.

We'll be cap next year and just how should we think about incremental margins next year assuming that the.

The price increases that you're implementing flow through fully next share.

Yes, great question, Adam So I think the way that we would respond to that is it.

It's going to depend.

Historically, we've got a track record of.

Generally speaking not giving price increases back.

But.

As far as.

What that looks like going forward to.

To be determined based on what raw material pricing does.

Second half of 'twenty, 1 as well as first half of 'twenty 2.

Great. Thanks for the the responses guys.

Thanks, Adam Thank.

Thank you.

We have reached the end of the question and answer session I will now turn the call back over to you Randy Jackson for closing remarks.

Thank you everyone for joining us today, we appreciate your support of Janus International and look forward to updating you on our progress have a good day.

This concludes today's conference. Thank you for your participation and have a great day.

Yeah.

Okay.

Okay.

Hum.

Okay.

[music].

Currently all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference you May Press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn the call over to your host Mr. Scott <unk> Chief Financial Officer of Janus. Thank you you may begin Mr. Sena.

And our our three division, which is our replacement remix and renovation business, we sell products and services to help customers upgrade their assets within the aging storage industry.

As approximately 60% of self storage facilities are over 20 years old. This sales channel provides janus with a significant growth opportunity.

We are a first mover in providing smart lock technology through our proprietary gnocchi wireless solution.

In addition, we provide a full line of complete self storage building systems with our <unk> Division.

As well as a complete offering of rolling steel doors for the commercial industrial and warehousing space with our Aster Division.

Over the past five years, we've doubled our business and expect to replicate that growth rate in the future.

We had a very strong position in self storage in a leading position with our customers in all of our business segments.

The second quarter of 2021 was a transformative one for Janus.

We completed our business combination with Juniper industrial holdings and became a public company in June .

We backed up our strong start to the year by delivering solid financial results for the quarter, even in the face of unprecedented inflationary pressures from raw material labor and logistics, while continuing to invest in strategic growth initiatives.

High occupancy rates continue to drive new capacity additions in self storage industry.

This is a significant tailwind for the business and our outlook.

The million were up 42.5% compared to the prior year quarter, driven primarily by solid execution and performance in each of our sales channels commercial was up 69%.

Three was up 62% and new construction was up 16% over the prior year quarter.

The strong growth was also partially bolstered by the COVID-19 related recovery across all end markets.

Adjusted EBITDA, a 35.9 million was up 26% compared to the year ago quarter higher revenue was the primary driver of EBITDA growth.

Actually offset by higher raw material labor and logistics costs and investments and strategic growth initiatives.

Genesis taken actions to offset the inflationary effects through commercial and cost containment initiatives.

Cost pressures coupled with the investments resulted in adjusted EBITDA margins of 26%.

<unk> from 23.3% in the prior year quarter.

In addition to inflationary cost pressures, we also experienced incremental costs related to being a public company.

Keeping our employees safe as a result of COVID-19, higher headcount associated with strategic investments and or facilitate initiative and the continued build out of our gnocchi smart entry ground game and customer service Department.

For the second quarter of 2021, we produced adjusted net income of 17.3 million and adjusted earnings per share of 22 cents.

We also generated $44.8 million in cash from operating activities.

Free cash flow for the quarter was 71.8 million, representing a free cash flow conversion of 94.7%, which is defined as management adjusted EBITDA less capex, which is computed consistently to both the adjusted EBITDA and free cash.

Asked Flo computations presented in the original Investor presentation.

At quarter end are outstanding share balance was 138.384 million 250.

We report results in two business segments, Janus North America, and Janice International.

Janus North America contributed 95% of revenue for the quarter.

<unk> International which sells primarily in Europe , and Australia provided the balance of revenues.

Janus North America revenues were up 38, 1% year over year, driven primarily by increased volumes as a result of favorable industry dynamics in the commercial and our three markets coupled with improved market conditions as a result of the COVID-19 related to recovery.

Janus International revenues were up 152.9% year over year, driven by increased sales volumes experienced in the new construction sales channel coupled with improved conditions as a result of the COVID-19 related recovery and those and markets.

Now moving to our sales channel results for the North American segments.

As you can see in our financial disclosures, we break revenues into three categories, new construction self storage or three self storage and commercial and the other.

New construction self storage was 33.9% of sales down from 46.9% in the prior year quarter, which represented flat year over year performance.

Or three self storage was 31.8% of sales up through 25, 6% in the prior year quarter, which represented in approximately 72% increase.

Commercial and other was 34, 4% of sales up from 27.5% in the prior year quarter, representing in approximately 72% increase as well.

This mix shift represents a trend we have been expecting where new capacity in the self storage industry continues to move towards conversions and expansions of existing facilities versus greenfield operations favoring or or three business, where we derived similar margins the games and can.

Marshall and other were driven by the continued e-commerce movement and share gains in the commercial steel roll up door market asked us launch the rolling steel product line in the fourth quarter last year.

Turning to guidance I am pleased to provide the following full year 2021 outlook for revenue to be in the range of 672, two 692 million <unk>.