Q3 2021 Janus International Group Inc Earnings Call
Hello, and welcome to the dentist International third quarter 2021 earnings Conference call.
Currently all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
No one should require operator assistance during the conference.
Please 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 Janet.
Thank you you may begin.
Thank you operator, and thank you all for joining our third 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 Dot com.
Before we begin I would like to remind you that today's call may include forward looking statements and these statements describing our beliefs goals plans and strategies expectations projections 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.
Adjusted EBITDA margins.
Management adjusted EBITDA management, 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, Raimi, Jackson, who will provide an overview of our business and give an operations update I will continue with a 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 Remy.
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 the recency of our public company status.
This 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 with over 50% share of the fastest growing self storage market.
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.
That's approximately 60% of self storage facilities are over 20 years old.
Sales channel provides janus with significant growth opportunities, we were a first mover in providing smart lock technology through our proprietary gnocchi wireless solutions.
In addition, we provide a full line of complete self storage building systems with our best go Division.
As well as a complete offerings up rolling steel doors for the commercial industrial and warehousing space with our Aster Division.
Even though we manufacture products Janus is viewed in the industry as a solutions provider.
This go to market strategy is what helps drive the margin profile of the business.
Over the past five years, we've doubled our business through a balanced mix of organic and acquisitive growth and expect to continue to grow attractively in the future.
We have a very strong position in the self storage and leading position with our customers in all of our business segments.
The third quarter of 2021 was an exciting one for Janice It was our first full quarter as a public company.
We built on our momentum with the closing of our strategic acquisition of D. B C I, adding a premier provider of still roll up doors and building products for both the commercial and self storage industries.
The complementary combination of D. B C as core general contractor and distributor base and Janus is leading self storage customer set will help grow our self storage commercial and Nokia access control businesses.
Together, we can now offer a more comprehensive and value added solutions to our combined customer set.
During the quarter, we also announced and closed on the acquisition of access control technologies or a C. T, which is a premium provider of access control and low voltage installation and integration services for the self storage and other industrial end markets.
The acquisition will help accelerate the growth of the Nokia access control product line.
And allow both a C T and Janus to offer a more comprehensive suite of products and services to the self storage owners and operators.
A C T will continue to operate under its own brand and gives Janus and enhanced geographic footprint via hubs on both the east and West coast of the U S.
We backed up our strong first half of the year by delivering outstanding growth for the quarter, even in the face of unprecedented inflationary pressures from raw materials labor and logistics, while continuing to invest in our strategic growth initiatives and closing on these two strategic acquisitions.
On a macro level high occupancy rates continue to drive new capacity additions in the self storage industry.
Those investment decisions are bolstered by a larger more investment driven and better capitalized group of owners for the self storage facilities such as the rights.
This provides a significant tailwind for the business.
<unk> is a leading beneficiary of capacity additions no matter, which form they take.
Be it new construction or repurposing and refurbishing existing facilities, both of which have similar margin profiles.
We continue to remain keenly focused on several key growth strategies, including Gnocchi, where we continue to invest in building out the infrastructure that supports the growth of our access control product lines. As I. Previously mentioned, we are excited about bolstering the gnocchi ground game with the recent <unk> acquisition.
We also continue to grow the installed base quarter over quarter.
Our three where we continue to focus on the aging self storage facilities.
Current trend of bringing additional self storage capacity online through expansions and conversions into our recently launched facilitate division and lastly, commercial where we continue to focus on building out their rolling steel product line at our Aster business unit and are excited about the additional opportunities that at D. C. I.
<unk> brings to the commercial side of the business.
We delivered gross revenue of $187 8 million, an increase of 33, 8% as compared to the same period last year.
Or 27, 1% on an organic basis, excluding the impacts from M&A activity.
This growth was fueled by the continued strength in both our our three and commercial and other sales channels.
Janus also experienced strong recovery across our end markets from the Covid impacted year ago quarter and benefited from the partial quarter contributions that came from D. C. I N C T acquisitions that closed during the quarter.
The pandemic continues to present challenges in certain areas of our business, including raw material availability and inflation labor availability and inflation and logistical challenges.
Despite these impacts our teams are working together to execute efficiently and effectively to fulfill our commitments to our customers the.
The company has taken actions to offset these inflationary effects through both commercial and cost containment initiatives, but we continue to face headwinds from sustained inflationary pressures coupled with the churn of legacy price products via executed contracts in backlog.
Our adjusted EBITDA of $36 3 million came in two 9% stronger than Q3 of 2020.
The higher EBITDA was driven by higher revenues, partially offset by higher cost of sales and general and administrative expenses as well as incremental new costs associated with being a public company.
We are excited that we were able to build on the momentum we had coming out of our becoming a public company in June with two strategic acquisitions and another quarter of outstanding growth, even in the face of global inflationary pressures.
As our end markets accelerate to meet increased demand for capacity, we look to leverage our strong market positions to capture additional share and create long term value for our stakeholders with that I'll 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 the third quarter revenues of $187 $8 million were up 33, 8% or 27, 1% on an organic basis compared to the prior year quarter, driven primarily by solid execution and performance in our art.
Three and commercial and other sales channels or three was up 68, 6% commercial and other was up 104, 1%, while new construction was down 11, 5% versus the prior year quarter, a contributing factor to the exceptional growth rate in the commercial.
<unk> sales channel for the quarter was our lead times, even with the industry supply constraints or lead times continue to be significantly better than many of our competitors, resulting in superior growth.
The consolidated revenue growth was bolstered by the Covid related recovery across all end markets, along with partial quarter contributions from the <unk> and <unk> acquisitions, which occurred in the quarter.
Nixon revenues with our three and commercial showing strong growth compared with new construction reflects the trend we discussed on last quarter's call and that continues we're facility owners and operators are adding new capacity via conversions and expansions rather than greenfield construction as a rig.
Minder, our margin profile is generally similar across new construction in our three but the commercial margins are slightly dilutive. So the change in mix is impacting the overall margin profile of the business on a consolidated basis.
Adjusted EBITDA of $36 3 million was up two 9% compared to the year ago quarter.
Revenue was the primary driver of EBITDA growth, partially offset by higher cost of sales and general and administrative expenses. We also experienced higher raw material labor and logistics costs Janus continues to take actions to offset the inflationary effects through commercial and cost.
Tainment initiatives, we also experienced incremental costs related to being a public company.
Keeping our employees safe as a result of COVID-19, and strategic growth related investments, including strategic investments in our facilitate initiative and the continued build out of our gnocchi Smart entry ground game and customer service Department.
For the third quarter 2021, we produced adjusted net income of $19 million and adjusted diluted earnings per share of 11 cents.
Adjusted net income was impacted by the following items during the quarter incremental SG&A cost pursuant to public company costs and continued investment in strategic growth initiatives.
Incremental expense associated with warrant accounting in Q3 2021.
Favorable contingent consideration adjustment in Q3 2020 that didn't exist in Q3, 2021 and increased income tax expense as the company is now taxed as a C Corporation.
Adjusted diluted earnings per share were negatively impacted by a new capital structure in Q3, 2021 versus Q3, 2020, and which the outstanding share count was significantly higher in 2020, what we.
We also generated $14 9 million in cash from operating activities, we experienced an increase in inventory in terms of price based on the continued inflationary pressures coupled with an intentional buildup of inventory levels to manage supply constraints.
In addition accounts receivable increased based on revenue increases in terms of both volume and price.
We also experienced higher capital expenditures in the quarter, principally as a result of purchasing a building in Houston, Texas with the intent of executing a sale leaseback transaction in the near term.
Temporary cash outflow is highly strategic and that it will allow us to consolidate two manufacturing facilities and two distribution centers located in the Houston, Texas area into one campus. This is an important step for the business and capturing some of the synergies identified as part of the <unk>.
Acquisition.
At quarter end, our outstanding share balance was $138 million 384360.
We report results in two business segments Janus.
Janus North America, and Janus International.
Janus North America contributed 95% of revenue for the quarter.
Janus International which sells primarily in Europe, and Australia provided the balance of revenues.
Janus North America revenues were up 35, 2% year over year, driven primarily by increased volumes as a result of favorable industry dynamics and the our three and commercial markets coupled with improved market conditions as a result of the COVID-19 related recovery in <unk>.
Partial quarter contributions from the <unk> and <unk> acquisitions, which occurred in the quarter.
Janus International revenues were up 41, 2% year over year, driven primarily by increased sales volumes experienced in the new construction sales channel coupled with improved conditions as a result of the COVID-19 related recovery in those end markets.
Now moving to our sales channel results for the North American segment.
We break revenues into three categories, new construction self storage or three self storage and commercial and other in North America, New construction self storage was 34% of sales down from 51, 1% in the prior year quarter and experienced in <unk>.
Approximately 20% decrease in revenue.
Our three self storage was 31, 9% of sales up from 23, 1% in the prior year quarter experienced an approximately 86% increase in revenue commercial and other was 37, 7% of sales up from 25 eight.
8% in the prior year quarter and delivered an approximately 98% increase in revenue in the quarter.
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 our our three business, where we derive similar margins as new construction the gains in commercial.
And the other were driven by the continued ecommerce movement share gains in the commercial steel roll up door market and asked US launch of the Rolling steel product line in the fourth quarter last year, along with the contribution of <unk> in the quarter.
Turning to guidance I'm pleased to provide the following full year 2021 outlook for revenue to be in the range of $718 million to $738 million.
At the midpoint. This represents a 32, 6% increase compared to full year 2020 results driven primarily by a combination of organic growth and the addition of <unk> and ACD.
Management adjusted EBITDA is expected to be in the range of $149 million to $155 million at the midpoint. This represents a five 9% increase versus the full year 2020 results.
Growth wise, we saw higher organic revenues, including recovery from Covid impacted periods last year and the addition of <unk> and <unk> in the third quarter, both of which began to contribute to results. We expect their contribution to improve over time as we integrate the business and realize the four.
Cast at synergies.
From a profitability perspective, we continue to battle inflationary factors related to the cost of raw materials labor and logistics, which we are addressing through commercial and cost saving initiatives that by their nature tend to lag the inflationary pressure.
Steel prices represent the vast majority of these continued headwinds.
The raw material supply constraints also worsened in Q3, but we have been successful in navigating these challenges as we indicated previously lastly, we continue to work through legacy priced products via executed contracts in backlog.
Thank you I will now turn the call back to Randy for closing remarks.
Great. Thank you again Scott.
We are once again proud of how Janus performed during the quarter since becoming a public company our business delivered another quarter of outstanding growth, even as we were completing two strategic acquisitions that have begun to deliver positive results and while addressing cost pressures seen across the industry.
I firmly believe in the power of this organization and our ability to deliver strong margin performance and earnings growth, though good long term.
Look forward to continuing our positive momentum through the end of 2021 and beyond.
Thank you again for joining US operator, we can now open up the lines for Q&A. Please.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your liners in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment and that would be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is from Jeff Hammond with Keybanc capital markets. Please proceed with your question.
Hey, good morning, guys, Hey, Jeff Good morning.
Okay. So if we look at the guide it looks like margins are going to be pressured a little more sequentially into <unk> and I'm. Just wondering as you look at kind of the cost inflation in your pricing actions, where you think the trough is it <unk> or do you think there's further pressure into the first half of 'twenty one.
Yes. Good question Geoff So I think the way that we've modeled this is we do see some continued.
Pressure, if you will in Q4.
Again, largely due to the continued cost.
Creases in terms of material labor and logistics, coupled again with the churn rate.
Backlog in the legacy priced products, if you will that had been contractually.
<unk> executed.
As that continues to burn through as.
As far as where that ends up in 'twenty, two we're kind of in the midst of our budget process for 'twenty two when we'll be able to provide further guidance on that at our next earnings call.
Okay, and then can you give us what you what price was in the quarter and what you think it'll be into <unk> into <unk>.
In terms of the split between kind of price and volume yes, yes.
So in Q3.
Circa probably 60% was volume, 40% price and we would expect that to be slightly reduced.
<unk> reduced in Q4 from Q3, so probably something around maybe two thirds kind of one third.
A little again, a little bit reduction in price in Q4.
Okay, and then sorry go ahead, that's largely again being driven by the what I'll call. It was an acceleration or some incremental legacy price product in backlog churning through in Q4 versus Q3.
Okay, and then last one just.
On the guidance change.
In revenue can you split that between.
The acquisitions coming in.
Versus incremental price versus incremental volume.
Yes, so I guess the service so just in terms of organic versus inorganic would be circa 75% inorganic 25% organic.
And then.
Call it somewhere split that organic then again.
60, 40 or something slightly below the 60 40 split.
Okay. Thanks, so much.
Thanks, Joe Thanks, Jeff.
Thank you. Our next question is from Josh <unk> with Morgan Stanley. Please proceed with your question.
Hey, good morning, guys.
Hey, good morning, Josh.
And just a follow up on Jeff's question on price.
I understand kind of the <unk> backlog dynamics and tend to respecting when you had out there.
And that that book already if we were to just sort of wrap price around and into 'twenty two based on what's already.
Been announced and has not yet been anniversaried, how should we think about the carryover pricing because it seems like <unk> may not be kind of the right launch point, given some of those legacy backlog issues.
Okay.
Yes. So again good question I think there there will definitely be some additional legacy priced contracts.
I E backlog that will churn through in 2022.
So we're still but again as far as 'twenty two guidance, we're still working through that in the midst of our budget process.
But there will be some overhang if you will that will bleed into first half of 'twenty two.
Got it and then on the kind of pricing.
Philosophy is the endeavor here to try to do more with.
Surcharges are indexing or something that sort of offer some protection for both sides on on whats happening or are you guys got more of the the list price route.
Yes go on more of the list price route.
And I guess, it's important to note when we refer to legacy pricing those are strictly orders that.
That we're committed that.
Or.
The contracts were executed.
Since then we've.
Amended contracts that allow for escalation clauses, so we've put it into.
The contractual language that keeps us from from raising prices based off of obviously the inflationary environment today.
Typically what happens, we'll just get market.
Percentage increases as it relates to the cost moving forward.
Got it that's helpful. And then just last one if I may.
And conversion versus new construction I think you mentioned that you know those are kind of similar margin wise.
Is there an appreciable difference in Canada.
Revenue mix or or or anything else.
Yeah that would change as you know new construction kind of throughput issues abate and that market's able to pick up a little bit more maybe versus conversion.
Yeah, so as it relates to the conversion specifically our dollar content.
<unk> per square foot increases tremendously versus.
New construction kind of Greenfield.
Project, So think about circa $8 per square foot with new construction, and then circuit $20 per square foot potentially on conversions.
Got it Thats helpful.
I appreciate it thanks for the color I'll get back to Josh Thanks, Josh.
Okay.
Thank you. Our next question is from Reuben Garner with the benchmark company. Please proceed with your question.
Thank you good morning, everybody good morning, Reuben Morten.
Maybe just to follow up on the new versus.
Our three it sounds like you're you're sort of expecting this.
Dynamic that played out is the is the extent of the delta between the two something we should expect going forward.
And then maybe just to tie in gnocchi is that a product that is more successful I guess in the Ark three space or is it predominantly used in in the Greenfield.
Greenfield cases.
Yes.
Look I think when you look at.
The industry occupancy rates.
Being very high north of 90%, what we're seeing is the market trying to bring on capacity.
As quickly as possible and I think thats indicative of our kind of the mix as it relates to our three in new construction.
Our customers are choosing to add capacity with through conversions and expansions.
Then as it relates to new construction.
That's really when you get into the supply chain constraints. So we're kind of.
Downstream, if you will where we're at the very end of the construction schedule and so all of the delays from a supply chain perspective kind of compound to us which is why you are seeing.
New construction contracts flow.
Slower than than they have historically.
So it's more market driven we expect the.
The acceleration of the our three and convergent and expansion.
Moving forward.
While kind of waiting for that supply chain relief on new construction.
And then as far as the gnocchi opportunity.
Look I think I think when you look at the opportunity we kind of look at it as Theres 22 million doors in the marketplace. So that's really.
The opportunity as it relates to Nokia.
And we're seeing a kind of a probably a.
Our balance between new construction and our three as it relates to new customers and installations.
But there's no question that the.
Largest opportunity as it relates to access control the technology is in the existing marketplace.
Great that's helpful and then.
You mentioned <unk>.
Share gains can you I mean can you talk about.
You know youre your share position.
You know how that in these sort of times youre going to be able to pick up incremental business are you guys working.
Through you know the inflationary environment with your customers more than your competitors. What are you doing exactly that you think will allow you to pick up share and take advantage of in this environment.
<unk>.
A question I think if you look at our position in the marketplace, we are a meaningful customer to our steel suppliers.
I believe that puts us in a very competitive situation in terms of access to steel, albeit higher than than we would like.
We're able to take advantage of spot buys to to accommodate our customers and then when you look at the manufacturing lead times were certainly better than our competitors and peers and that's allowing us to pick up market share specifically around the construction side of the business.
That end market is very robust with commercial warehousing, but we're able to like I said able to deliver on shorter lead times than than most of our competitors, which is allowing us to pick up new business and new customers.
Great I'm going to sneak one more in if that's all right.
Geographically are you seeing anything meaningful in terms of growth rates are they faster than.
Smaller markets are you what are you seeing in the major metropolitan areas anything else that stands out to you. Yeah. I think if you look at just kind of followed the trend of Covid in terms of where people moved I think the suburbs are theres certain states, Florida, Texas.
You know states that are that are obviously, adding additional capacity quicker than others, but I would I would really.
We're really focused obviously on all the top msas, but the suburbs that really picked up in terms of kind of new construction or capacity additions, but great question.
Great. Thanks, guys. Good luck navigating through everything going forward. Thanks, Reuben Thanks, Rob.
Thank you. Our next question is from Jeff Hammond with Keybanc capital markets. Please proceed with your question.
Hey, guys just a couple of follow ups here, just any update you can give us on the warrant redemption.
They were a few days out from it it kind of closing and kind of how you're thinking about <unk>.
Dilution or new share count as a result.
It's Scott Yeah. So good question, Jeff I think the.
We gave warrant holders the option on either a cashless or a cash basis.
What I can tell you is I think you are correct. The cutoff I believe is Friday at five o'clock.
The vast majority.
The data points that I've seen.
Most current are the preponderance are proceeding with the cashless.
Exercise so from a.
Modeling of a dilution I guess, it's going to be the conversion rate was 0.3. So I think that would be we'd be at the lower end. If you will of the dilution in terms of modeling.
Okay Perfect and then just as you talk about these these contracts lingering contracts or contracts that are in place just anything you're thinking about differently in terms of contract structure, given the learnings of kind of all of this inflation we've seen.
Yeah, that's a great question I hit on it a little bit but more specifically.
You know the legacy contracts or the contracts that have been existence from the beginning did not allow esque.
Escalation clauses, so we've gone back and amended contracts that that adds language that protects us in these types of environments. So this this issue of kind of legacy being legally tied to contracts from a legacy perspective.
He was dealt with a few months ago. It's.
It's an issue that's behind US now and we Shouldnt experienced this again.
Great to hear thanks, guys.
Thanks.
Thank you there are no further questions at this time I would like to turn the floor back over to Randy Jackson for any closing comments.
Yeah. 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 great day.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
[noise] [music].