Q4 2021 Quanex Building Products Corp Earnings Call

December 17, 2021

Good day, and thank you for standing by and welcome to the fourth quarter and full-year 2021 Quanex Building products Corporation earnings Conference call. At this time, all participants are in a listen-only mode.

At this time, all participants are in listen only mode.

After the presentation, there will be a question and answer session. To ask a question during the session you will need to press star then one on your telephone. Please be advised today's conference may be recorded. If you require operator assistance during the call. Please press star then zero. I'd now like to hand the conference over to your host today, Scott Zuehlke, SVP, CFO and Treasurer. Please go ahead.

To ask a question during the session you will need to press Star then one on your telephone.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to your host today, Scott Jerky S. P. P CFO and Treasurer. Please go ahead.

Thanks for joining the call. This morning on the call with me today is George Wilson, our President and CEO.

This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results may differ materially from such statements and guidance and Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events.

We're looking statements and guidance discussed on this call and in our earnings release are based on current expectations actual.

Or events may differ materially from such statements and guidance and Quanex undertakes no obligation to update or revise any forward looking statement to reflect new information or events.

For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Please see our earnings release issued yesterday and posted to our website. I will now discuss the financial results. Net sales increased by 14.2% and 25.9% during the fourth quarter and full year of 2021, respectively record growth for both periods.

Net sales increased by 14, 2% and 25, 9% during the fourth quarter and full year of 2021, respectively record growth for both periods as.

As a reminder, both of our manufacturing facilities in the UK were shut down in late March of 2020 and did not resume operations until mid to late May last year. The increases in revenue were mostly due to improved demand across all product lines and operating segments combined with higher prices primarily related to the pass-through of raw material cost inflation.

The increases in revenue were mostly due to improved demand across all product lines and operating segment combined with higher prices primarily related to the pass through of raw material cost inflation.

More specifically for the fourth quarter and full year. We posted net sales growth of 10.1% and 19.6% respectively in our North American Fenestration segment. 15.9% and 17.1%, respectively in our North American Cabinet components segment. And 17.6% and 45.6%, respectively in our European Fenestration segment, excluding the foreign exchange impact.

We posted net sales growth of 10, 1% and 19, 6% respectively in our North American Fenestration segment.

<unk>, 9% and 17, 1%, respectively in our North American Cabinet components segment.

17, 6% and 45, 6%, respectively in our European Fenestration segment, excluding the foreign exchange impact.

We reported net income of $20.9 million or 62 cents per diluted share for the three months ended October 31st, 2021, compared to net income of $22.2 million or 67 cents per diluted share during the three months ended October 31st, 2020. For fiscal 2021, we reported net income of $57 million or $1.70 per diluted share compared to net income of $38.5 million or $1.17 per diluted share for fiscal 2020.

For fiscal 2021, we reported net income of $57 million or $1 70 per diluted share compared to net income of $38 5 million or $1 17 per diluted share for fiscal 2020.

On an adjusted basis net income was $20.8 million or 62 cents per diluted share during the fourth quarter of 2021 compared to $22 million or 67 cents per diluted share during the fourth quarter of 2020. Adjusted net income was $58.6 million or $1.75 per diluted share for fiscal '21 compared to $40.7 million or $1.24 per diluted share for fiscal 2020.

'twenty, one compared to $40 7 million or $1 24 per diluted share for fiscal 2020.

The adjustments being made to EPS are for restructuring charges certain executive severance charges. Foreign currency transaction impacts and transaction and advisory fees. On an adjusted basis EBITDA decreased by 5.3% to $37.3 million in the fourth quarter of 2021 compared to $39.4 million in the fourth quarter of last year. For the full year 2021, adjusted EBITDA increased by 21.3% to $126.8 million compared to $104.5 million in 2020.

Foreign currency transaction impacts and transaction and advisory fees.

On an adjusted basis EBITDA decreased by five 3% to $37 3 million in the fourth quarter of 2021 compared to $39 4 million in the fourth quarter of last year for the full year 2021, adjusted EBITDA increased by 21, 3% to $126 8 million compare.

To $104 5 million in 2020.

The decrease in earnings for the quarter was mainly due to inflationary pressures and supply chain challenges. The increase in earnings for the 12 months ended October 31st, 2021 was largely due to higher volumes and improved operating leverage and better pricing. This increase was somewhat offset by higher raw material costs and an increase in selling general and administrative expenses.

The increase in earnings for the 12 months ended October 31, 2021 was largely due to higher volumes and improved operating leverage and better pricing. This increase was somewhat offset by higher raw material costs and an increase in selling general and administrative expenses.

I'll now move on to cash flow and the balance sheet. Cash provided by operating activities was $78.6 million for the 12 months ended October 31st, 2021, compared to $100.8 million for the 12 months ended October 31st, 2020. We generated free cash flow of $54.6 million in 2021 compared to $75.1 million in 2020. The decrease was primarily driven by an increase in working capital more specifically the value of our inventory due to inflation.

Cash provided by operating activities was $78 6 million for the 12 months ended October 31, 2021, compared to $100 8 million for the 12 months ended October 31 2020.

We generated free cash flow of $54 6 million in 2021 compared to $75 1 million in 2020.

The decrease was primarily driven by an increase in working capital more specifically the value of our inventory due to inflation.

We were able to repurchase $11.2 million in stock and we repaid $65 million of bank debt during fiscal 2021. $20 million of which was repaid in the fourth quarter. Our balance sheet is strong. Our liquidity position is solid and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to .1 time as of October 31st, 2021, which is a half turn lower than where we exited fiscal 2020.

Our balance sheet is strong our liquidity position is solid and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to one times as of October 31, 2021, which is a half turn lower than where we exited fiscal 2020.

As for 2022, and as noted in our outlook section in the earnings release. We have chosen not to issue guidance just yet. Demand remains strong, but ongoing supply chain disruptions continue to create uncertainty. With this backdrop, we believe it would be premature to give guidance at this time. We do believe that we should be able to realize margin expansion on a consolidated basis in fiscal 2022, but we also think that margin expansion will be second-half loaded.

We have chosen not to issue guidance just yet.

Demand remains strong, but ongoing supply chain disruptions continue to create uncertainty.

With this backdrop, we believe it would be premature to give guidance at this time.

We do believe that we should be able to realize margin expansion on a consolidated basis in fiscal 2022, but we also think that margin expansion will be second half loaded.

As we sit here today and to set appropriate expectations for the first quarter of 2022. We currently expect mid-single-digit net sales growth for the first quarter, mostly due to price increases, but margins will be pressured compared to the first quarter of 2021. We hope to provide an update on full-year guidance when we report earnings for the first quarter of 2022. As a reminder, there is a fair amount of seasonality to our business. The first quarter of each year is typically the low watermark with the second half contributing most of our earnings and free cash flow. I'll now turn the call over to George for his prepared remarks.

We hope to provide an update on full year guidance. When we report earnings for the first quarter of 2022.

As a reminder, there is a fair amount of seasonality to our business. The first quarter of each year is typically the low watermark with the second half contributing most of our earnings and free cash flow. I'll now turn the call over to George for his prepared remarks.

I'll now turn the call over to George for his prepared remarks.

Thanks, Scott. We are extremely pleased to announce that 2021 was a record year for Quanex despite numerous challenges. We reported record revenue and earnings and return on invested capital continued to improve. In addition, we reported another year with solid free cash flow in fact cumulative free cash flow over the past five years is approximately $325 million.

We are extremely pleased to announce that 2021 was a record year for quanex. Despite numerous challenges.

We reported record revenue and earnings and return on invested capital continued to improve.

In addition, we reported another year with solid free cash flow in fact cumulative free cash flow over the past five years is approximately $325 million.

Also, as Scott mentioned, we were able to pay down $65 million returned $11.2 million to shareholders through share repurchases during the year. While we are very pleased with these results, we're not surprised. In an environment with strong demand, the operational improvements we've made in our manufacturing facilities over the past four years combined with the systemic and permanent changes we've made to our working capital management continued to yield strong results.

While we are very pleased with these results we're not surprised.

In an environment with strong demand the operational improvements we've made in our manufacturing facilities over the past four years combined with the systemic and permanent changes we've made to our working capital management continued to yield strong results.

I am very proud of the entire Quanex team for the energy effort and performance they continue to deliver to our customers, communities, and shareholders. Before providing comments on segment results, I will give some additional color on our view of the events of 2021, the markets we serve and the macroeconomic environment we currently face.

Before providing comments on segment results I will give some additional color on our view of the events of 2021 the markets, we serve and the macroeconomic environment. We currently face.

As we entered 2021, there was optimism and hope that the COVID-19 pandemic, which seem to be under control and the operating environments would return to some level of normalcy. As different variance spread and vaccine uptake prove lower than expected. The optimism was soon replaced by the reality that the battle against Covid is far from over and that measures to contain or minimize the spread of the virus will continue around the world.

As different variance spread and vaccine vaccine uptake prove lower than expected. The optimism was soon replaced by the reality that the battle against Covid is far from over and that measures to contain or minimize the spread of the virus will continue around the world.

The year also ushered in a new and in some respects more significant challenge, supply chain stress some disruption. With the infusion of COVID relief payments into our economy, demand for goods in the building products segment increased at record rates. At the same time, the supply chain's ability to ramp up with continually impeded by labor constraints, plant shutdowns or slowdowns, freed issues, and significant weather events. As a result backlogs for finished goods dramatically increased over the year to record levels and suppliers have been unable to close the gap.

With the infusion of Covid relief payments into our economy demand for goods in the building products segment increased at record rates.

At the same time, the supply chain's ability to ramp up with continually impeded by labor constraints plant shutdowns or slowdowns freed issues and significant weather events as.

As a result backlogs for finished goods dramatically increased over the year to record levels and suppliers have been unable to close the gap.

All of these factors have worked together to add an unprecedented amount of stress to the entire chain and as a result, everyone around the world is now seeing high levels of inflation, sporadic deliveries, and unexpected back orders or stock outs with little or no notice. This last piece limited to no visibility on the delivery of goods is currently our biggest challenge. All told, the planning and operational environment, we see today is significantly more challenging than in 2020, when our primary concern was the labor disruption caused by the pandemic.

This last piece limited to no visibility on the delivery of goods is currently our biggest challenge.

All told the planning and operational environment, we see today is significantly more challenging than in 2020, when our primary concern was the labor disruption caused by the pandemic.

When looking at the markets, we serve demand continues to be strong across all segments. Low existing housing inventory and low mortgage rates continue to support strong housing demand and R&R remains healthy due to high levels of backorders and continued strong consumer confidence. Although we continue to watch for a pullback in demand due to inflationary pressures. We are not seeing signs of this at this time.

Low existing housing inventory and low mortgage rates continue to support strong housing demand and R&R remains healthy due to high levels of back orders and continued strong consumer confidence.

Although we continue to watch for a pullback in demand due to inflationary pressures we.

We are not seeing signs of this.

At this time.

I will now discuss segment results. Our North American Fenestration segment reported revenue of $156.3 million in the fourth quarter, which was 10.1% better than prior year fourth quarter. Solid demand across all product lines combined with higher index pricing additional surcharges and permanent price increases accounted for the stronger revenue performance. Adjusted EBITDA of $20.2 million in this segment was 15% less than prior year fourth quarter. Volume related benefits were more than offset by increases in material costs normalized medical costs and higher SG&A driven by incentive compensation.

Our North American Fenestration segment reported revenue of $156 3 million in the fourth quarter, which was 10, 1% better than prior year fourth quarter.

Solid demand across all product lines combined with higher index pricing additional surcharges and permanent price increases accounted for the stronger revenue performance.

Adjusted EBITDA of $20.2 million in this segment was 15% less than prior year fourth quarter. Volume related benefits were more than offset by increases in material costs normalized medical costs and higher SG&A driven by incentive compensation.

Volume related benefits were more than offset by increases in material costs normalized medical costs and higher SG&A driven by incentive compensation.

As a reminder, approximately 80% of our North American Fenestration business has contractual raw material pricing index mechanisms. The timing lag of these indices are typically 60 and 90 days and therefore, we are in arrears and chasing price until the rate of inflation flattens or reversals. At such time, we would expect to see a period of margin improvement or catch up.

At such time, we would expect to see a period of margin improvement or catch up.

For the full year. This segment had revenue of $578.3 million and adjusted EBITDA of $75.4 million, which represents a 20 basis point margin decrease from prior year and a very challenging inflationary environment. We generated revenue of $69.7 million and our European Fenestration segment in Q4, which was $12.9 million or 22.7% higher than prior year or up 17.6% after excluding the foreign exchange impact. Strong demand in the UK and Continental Europe combined with price increases resulted in record revenue levels for the segment.

We just we generated revenue of $69 7 million and our European Fenestration segment in Q4, which was $12 9 million or 22, 7% higher than prior year or up 17, 6% after excluding the foreign exchange impact.

Strong demand in the UK and Continental Europe combined with price increases resulted in record revenue levels for the segment.

Adjusted EBITDA of $12 million in the quarter was 10.1% less than prior year Q4. The drop in margin percent for the quarter was driven by material inflation, normalization of SG&A expenses and increases for incentives. On a full-year basis, this segment had revenue of $251.6 million and adjusted EBITDA of $50 million, which equates to margin expansion of 160 basis points versus prior year. Our North American Cabinet components segment reported net sales of $66.6 million in Q4, which was 15,.9% better than prior year. Strong demand combined with higher index pricing and additional permanent price increases were the drivers for higher performance.

The drop in margin percent for the quarter was driven by material inflation.

Normalization of SG&A expenses and increases for incentives.

On a full year basis. This segment had revenue of $251 6 million and adjusted EBITDA of $50 million, which equates to margin expansion of 160 basis points versus prior year.

Our North American Cabinet components segment reported net sales of $66 6 million in Q4, which was 15, 9% better than prior year.

Strong demand combined with higher index pricing and additional permanent price increases were the drivers for higher performance.

Adjusted EBIT for the segment was $5.4 million, which represents an increase of 16,.3% compared to prior year fourth quarter. Volume benefits combined with pricing actions improved wood yields and normalized expenses all contributed to the favorable performance by larger largely neutralizing inflationary pressures during the quarter. For the full year, this segment had revenue of $246.1 million and adjusted EBITDA of $14.2 million, which was an improvement of 17.1% and 22.5% respectively.

Volume benefits combined with pricing actions improved wood yields and normalized expenses all contributed to the favorable performance by larger largely neutralizing inflationary pressures during the quarter.

For the full year. This segment had revenue of $246 1 million and adjusted EBITDA of $14 2 million, which was an improvement of 17, 1% and 22, 5% respectively.

We were able to realize margin expansion of approximately 30 basis points in this segment, even though we chase price all year. And as a reminder, 100% of our cabinet business has contractual raw material pricing index mechanisms. Finally, unallocated corporate SG&A costs were $2.1 million lower than the prior-year fourth quarter. The primary drivers of the lower expenses were true ups for stock-based compensation expense and lower than planned medical expenses in the quarter.

And as a reminder.

100% of our cabinet business has contractual raw material pricing index mechanisms.

Finally, unallocated corporate SG&A costs were $2 $1 million lower than the prior year fourth quarter.

The primary drivers of the lower expenses were true ups for stock based compensation expense and lower than planned medical expenses in the quarter.

For the full year, unallocated corporate SG&A costs were $12.8 million, which returned to normalized levels versus 2020, which was a year impacted by COVID-19. As Scott mentioned in his financial commentary, cash flow generation remained solid despite a significant increase in the value of our inventory due to inflation and our balance sheet is strong. Our board of directors recently authorized a new $75 million share repurchase program and we will continue to utilize this authority. In the open market and on an opportunistic basis.

As Scott mentioned in his financial commentary cash flow generation remained solid despite a significant increase in the value of our inventory due to inflation and our balance sheet is strong.

Our board of directors recently authorized a new $75 million share repurchase program and we will continue to utilize this authority.

In the open market and on an opportunistic basis.

We have positioned ourselves well and we will continue to evaluate all opportunities to create value for our shareholders. As we look forward into 2022, we remain very optimistic on the demand environment. Our customers are reporting record levels of backlogs and this combined with current favorable housing and R&R markets should translate into continued strong demand.

As we look forward into 2022.

We remained very optimistic on the demand environment.

Our customers are reporting record levels of backlogs and this combined with current favorable housing and R&R markets should translate into continued strong demand.

Operationally, we feel we have made progress on our hiring needs by raising starting wages by an average of $1.80 per hour in our manufacturing facilities. Outside of the index pricing and the associated timelines, we have been able to implement surcharges and permanent price increases to help offset inflation. The major challenge we currently face as supply chain and freight uncertainty and it is for this reason alone that we have decided not to provide specific financial guidance for 2022 at this time. Due to continuing supply chain disruptions, we have very little if any visibility into our short term delivery schedules. In this environment, it is extremely difficult to predict the cadence for shipments over the next few months or the potential costs associated with sudden changes in schedules.

Outside of the index pricing and the associated timelines, we have been able to implement surcharges and permanent price increases to help offset inflation.

The major challenge, we currently face as supply chain and freight uncertainty and it is for this reason alone that we have decided not to provide specific financial guidance for 2022 at this time.

Due to continuing supply chain disruptions, we have very little if any visibility into our short term delivery schedules.

In this environment as it is extremely difficult to predict the cadence for shipments over the next few months or the potential costs.

with sudden changes in schedules.

And therefore, we think it is prudent to not provide guidance until such time as we can gain some forward visibility. In summary, we continue to execute on our strategy and are proud to have delivered a record year in a very challenging environment. Demand remains strong and if the global supply chain stabilizes and our businesses continue their excellent operational performance. Then we believe it will translate into revenue and earnings growth and another solid year in 2022.

In summary, we continue to execute on our strategy and are proud to have delivered a record year in a very challenging environment.

<unk> remains strong and if the global supply chain stabilizes and our businesses continue their excellent operational performance.

Then we believe it will translate into revenue and earnings growth and another solid year in 2022, we.

We will continue to stay focused on executing on our strategic plan and we look forward to reaching a point where we can give more definitive guidance. And with that operator, we're now ready to take questions. If you'd like to ask a question at this time. Please press the star then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from Daniel Moore with CJS Securities.

And with that operator, we're now ready to take questions.

If you'd like to ask a question at this time. Please press the star then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from Daniel Moore with CJS Securities.

To withdraw your question press the pound key.

Our first question comes from Daniel Moore with CJS Securities.

Good morning, George. Good morning, Scott, Thanks for all the color and taking my questions. Good morning. Wanted to start with maybe just kind of price versus quantity in Q4. Is it possible to give us a sense of how much of the revenue growth and in the case of Europe ex currency revenue growth came from price adjustments versus quantity?

Good morning.

Wanted to start with maybe just kind of price versus quantity in Q4 is it possible to give us a sense of how much of the revenue growth and in the case of Europe ex currency revenue growth came from price adjustments versus quantity.

I don't have a specific breakdown, but unlike prior quarters I can say that price slash surcharge had, was really the driver more so than volume, although volume was up as well. Across all three for the most part at least? Yes, that's correct. That's helpful. And even more difficult question, but, if you had to guesstimate kind of true underlying demand for each segment relative to quantity in other words, how much faster revenue could have grown in the quarter had that not been for supply chain and logistics. Any color or sense there and maybe order of magnitude for rank order each one where are the biggest challenges are if you will. Dan, you are right. It is a very difficult question and for the reason that.

It was really the driver more so than volume, although volume was up as well.

Across all three for the most part at least.

Yes, that's correct.

That's helpful.

And.

Even more difficult question, but.

If you had to guesstimate kind of true underlying demand for each segment relative to quantity in other words, how much faster revenue could have grown in.

In the quarter had that not been for supply chain and logistics.

Any color or sense, there and maybe order of magnitude for.

Rank order each one where are the biggest challenges are if you will.

Dan you are right. It is a very difficult question and for the reason that.

Yes.

What we're seeing in our order pattern right now in our current orders. Demand remains extremely strong across all product lines, but in some areas, we actually have our customers deciding to pull back on their schedules to give their workforce some breaks. As many hours as they are working. So it's really hard to determine how much more volume could have went through the chain because, again, our customer bases are making decisions to pull back. And so I don't want to give you a number of what that would be if everybody was fault. All of these things are intertwined and I think right now you have a combination of uncertain deliveries impacting it but you also have again, our customer base deciding that they have to give their labor forces some relief to the amount of time that they are working so it's really hard to determine and give you an accurate answer.

Demand remains extremely strong across all product lines, but in some areas, we actually have our customers deciding to pull back on their schedules to give their workforce some breaks.

As many hours as they are working so.

It's really hard to determine how much more value.

You could have went through the chain because.

Again, our customer bases are making decisions to pull back.

And so I don't want to give you a number of what that would be if everybody was fault.

All of these things are intertwined and I think right now you have a combination of both.

Uncertain deliveries impacting it but you also have again, our customer base deciding.

have to give their labor forces some relief to the amount of time that they are working so it's really hard to determine and give you an accurate answer.

Understood. Just trying to get a flavor of the relative size of kind of underlying demand. But I appreciate that. What I can tell you that in almost every case our customers are seeing significant growth in their back orders. So as you go out and look at other companies that report publicly, you'll be able to get a good feel for what they're seeing. Still significant pent up demand. Yes, no that's very consistent, certainly. Maybe another one if you based on the prices increases that we put through in fiscal '21. If we didn't raise prices again from here and volumes were flat what type of revenue growth with that ballpark roughly translate to in fiscal '22?

Trying to get a flavor of that.

The relative size of kind of underlying demand.

That.

What I can tell you that in almost every case our customers are seeing significant growth in their back orders. So.

As you go out and look at other companies that report publicly you'll be able to get a good feel.

For what Theyre seeing in there.

Still significant pent up demand.

Yes, no thats very consistent certainly.

Maybe another one if you based on the prices increases that we put through in fiscal 'twenty one.

If we didn't raise prices again from here and volumes were flat what type of revenue growth with that ballpark roughly translate to in fiscal '22?

Ballpark roughly translate to in fiscal 'twenty two.

Yes, I mean, if you're talking about flat volume just from a price standpoint, you're probably low single-digit growth. Got it. Just on what's gone through already not additional price increases. Yes, timing impact of the price increases because obviously they have been staggered throughout the year. Exactly, okay. That's helpful. And then, the what are your well, at this probably part and parcel with the comments you've made but do you have an outlook for the overall windows market, either in North America and Europe? As we think about fiscal or calendar '22. That's part of the uncertainty here, but what we have referenced in the past is for North America anyway, Ducker is a third party we use in last update they showed for '22 versus '21 on window shipments was low single-digit growth around the 2% range.

Got it just on what's gone through already not additional price increases.

Yes timing impact of the price increases because obviously they have been staggered throughout the year.

Exactly okay. That's helpful.

And then.

The what are your well.

Part and parcel with the comments you've made but do you have.

Outlook for the overall windows market, either in North America, and Europe, as we think about fiscal or calendar 'twenty two.

That's.

That's part of the uncertainty here, but what we have.

Referenced in the past is for North America anyway.

Ducker as a third party we use in last update they showed for 'twenty two versus 21 on window shipments was low single digit growth around the 2% range.

And in Europe, I would say what our customers are predicting again with very little and limited visibility is relatively flat year over year on volume. [inaudible]. From an extremely high base. It's been a heck of a run, no question. Maybe shifting gears, one more just Capex expectations for fiscal '22. And then in terms of buybacks. The prior repurchase authorization executed over two to three years do you anticipate a similar timeline or maybe being more accelerating that given where we are at the balance sheet? And thanks for all the color. So on the Capex front. If you recall our guidance for 2021 for Capex was 30 to $35 million.

<unk> got high Bay from.

From an extremely high base.

It's been a heck of a run no question.

Maybe shifting gears, one more just capex expectations for fiscal 'twenty two.

And then in terms of buybacks.

The prior repurchase authorization.

Executing over two to three years do you anticipate a similar timeline or maybe being more accelerating that given where we are at the balance sheet and thanks for all the color.

So on the Capex front.

If you recall our guidance for 2021 for Capex.

30% to $35 million.

I think we're comfortable staying around the same amount for 2022 guidance for Capex. We underspent that budget last year and it wasn't because we are pulling back on any project is just lead times for equipment are such that everything moving to the right. Yes. On the buyback question. Really there's not an answer I can give or clarity there. It's on an opportunistic basis. If we continue to feel that our stock is undervalued versus our peers, which obviously, we feel that way today.

We underspent that budget last year and it wasn't because we are pulling back on any project is just lead times for equipment are such that everything moving to the right.

Yes.

On the buyback question.

Really theres not theres not an answer I can give or clarity there. It's it on an opportunistic basis.

If we continue to feel that.

Our stock is undervalued versus our peers, which obviously, we feel that way today.

We could ramp that up over the next several years. I mean 75 million is actually considerably more in the open market than we had last time, because if you recall the $60 million half of that was purchased by one firm. So essentially we sold $30 million in the open market over a three year period. I would think that we could ramp that up. Alright, very good thanks for the color again. Sure.

I would think that we could ramp that up.

Alright, very good thanks for the color again.

Sure.

Our next question comes from Reuben Garner with Benchmark company. Thanks. Good morning, everybody. Morning. Let's see. I think Dan asked about the price versus volume in the fourth quarter, Scott what about the full year in your fiscal '21, can you give us like a ballpark? How much of the 26% revenue growth was price versus volume?

Thanks, Good morning, everybody.

Morning, gentlemen.

Let's see.

I think Dan asked about the price versus volume in the fourth quarter, Scott what about the full year in your fiscal 'twenty. One can you give us like a ballpark.

How much of the 26% revenue growth was price versus <unk>.

Volume.

For the full year it was more volume than price on a full-year basis out of that 26% growth I would say 15%, 20%, it's probably volume. Okay. That's helpful. Let's see so the supply chain issues you are having I mean are you guys from what you gather from the competition, are you guys doing better than your peers and being able to get product out the door? Are you seeing any different behavior from anyone on the pricing front? Does anyone have any advantages or disadvantages relative to you that you are dealing with? So I'll answer that one. In terms of our competition. A lot of it is based on your size and scale and we are unique in the space that we serve there were larger.

15%, 20%, it's probably volume.

Okay. That's helpful.

Let's see so the supply chain issues you are having I mean are you guys.

From what you gather from competition are you guys doing better than your peers and being able to get product out the door.

Are you seeing any different behavior from anyone on the phone.

Our pricing front.

Anyone have any advantages or disadvantages relative to you that you are.

Dealing with.

So I'll answer that one of them.

In terms of our competition.

Lot of it is based on your size and scale and.

We are unique in the space that we serve there were large.

So I think we're doing equally we're better than any of our competitors in acquiring raw materials that we purchased. What we see in the market. There's no one that's getting crazy with praise for doing anything. And it's putting pressure on any sort of volumes I think for everyone right now is facing significant inflationary and supply challenges. And really where we're at in the market today is everyone's kind of protecting their base of customers and doing everything they can fulfill those needs. So there's not a lot of we're not at a point where people were [inaudible]. We're kind of we're all trench them. Because of the limits. You can acquire or so. It's kind of a trench warfare right now. Really how I would xharacterize it.

Equally we're better than any of our competitors in acquiring raw materials.

We purchased <unk>.

What we see in the market.

Theres no one thats getting crazy with praise for doing anything.

It's putting pressure on any sort of volumes I think for everyone. Right now is facing significant inflationary and supply challenges and really where we're at in the market today is everyone's kind of protecting their base of customers and doing everything they can fulfill those needs. So there's not a lot of we're not at a point where people were russell withdrawing to take shirts.

We're kind of we're all trench them.

Because of the limits.

You can acquire or so.

It's kind of a.

Trench warfare right now.

Really how I would.

Characterize it.

Okay, and then a couple questions on capacity. So two sides of the question here the first is. Do you have any plans for increases in areas where you are either low or looking to expand the screen's operation or cabinets? And then on the flip side, any updates on maybe the areas where you are under utilizing your assets and you guys have been working on trying to offer other products or services any progress there that you can talk about.

Capacity. So two sides of the question here the first is.

Do you have any plans for increases in areas, where you are either low or looking to expand the screens operation or cabinets and then on the flip side any updates on maybe the areas where you are.

Under utilizing your assets and you guys have been working on trying to offer other products or services any progress.

There that you can talk about.

So on your first question in terms of capacity expansion, I think we continue to go forward, we've talked about adding some mixing and blending capacity in the UK for our vinyl extrusion business that will continue and that project's in process. Again as Scott mentioned, the timing of such is impacted because of just the lead times to get equipment extended but we're looking to add capacity there. We continue to evaluate the screen market single in areas where we're underserved.

Mixing and blending capacity in the UK for our vinyl extrusion business that will that will continue and that projects.

In process.

Again as Scott mentioned.

The timing of such is impacted because of just the lead times to get equipment extended but we're looking to add capacity. There we continue to evaluate the screen market single.

In areas, where we're underserved.

We will look to expand our geographical footprint, but that's also going to be predicated on not getting, being able to get enough raw materials to be able to support it. We also have a product in our spacer business in Germany adding additional capacity for our rubber extrusion for those spaces in Germany. And that continues. In certain pockets, we are going forward and investing and spending in the business. The second piece of your question. On any parts of our business that we have a lot of spare capacity. Yes, the best example of that. It has been a win is on our vinyl extrusion business in North America, we've talked a lot about focusing on return on assets return on invested capital.

Not getting.

And being able to get enough raw materials to be able to support it.

We also have a product.

And our spacer business in Germany.

Adding additional capacity.

For our rubber extrusion for those spaces in Germany and that continues so.

In certain pockets, we are going forward and investing and spending in the business.

The second piece of your question.

On any.

Any parts of our business that are that we have a lot of spare capacity.

Yes, the best example of that.

It has been a win is on our vinyl extrusion business in North America, we've talked a lot about focusing on return on assets return on invested capital.

We continue to expand our capabilities in producing white parts primarily in fence post in [fencing] components and I think we've proven that we're a very reliable supplier and supporting that industry and that continues. It's had a positive impact on our vinyl extrusion business in North America. Any comment on how big of an industry or opportunity that is for you guys? We're pretty early into this and so as we continue to develop it we will try to give a little more guidance on the future. I don't want to come out and give targets or guidance at this time on the sides. We're relatively new into the space. I mean, I can add a little bit there I think the main difference between the fencing sector of the industry versus the window profile sector of the industry for vinyl extrusion is that the sensing sector is bumping up against capacity, so they're looking to add capacity, where that's where we can come in and help. Whereas on the windows side there's a lot of spare capacity. So it's just about getting our assets up and running. We are an expert in extruding vinyl. It doesn't really matter what the product is.

Parts or primarily in fence post in.

Sensing <unk> funds in components and I think we've.

We've proven that we're a very reliable supplier and supporting that industry and that continues it's had a positive impact on our vinyl extrusion business in North America.

Any any comment on how big of an industry or opportunity that is for you guys.

We're pretty early into this room and so as we continue to develop it we will try to give a little more guidance on the future I don't want to come out.

targets or guidance at this time on the sides. We're relatively new into the space. I mean, I can add a little bit there I think the main difference between the fencing sector of the

industry versus the window profile sector of the industry for vinyl extrusion is that the sensing sector is bumping up against capacity, so they're looking to add capacity, where that's where we can come in and help. Whereas on the windows side there's a lot of spare capacity. So it's just about getting our assets up and running.

The sensing sector is bumping up against capacity, so they're looking to add capacity, where that's where we can come in and help whereas on the windows side Theres a lot of spare capacity. So it's just about getting our assets up and running.

We are an expert in extruding vinyl. It doesn't really matter what the product is.

Great. Thanks, guys. Congrats on the quarter. I know it's a tough time happy holidays. Thanks, you too. Our next question comes from Julio Romero with [inaudible] Company. Hey, good morning, Thanks for taking the questions. Good morning.

Thanks, you too.

Our next question comes from Julio Romero with Sidoti <unk> Company.

Hey, good morning, Thanks for taking the questions.

Good morning.

Can you talk about supply chain and freight in Europe and how that differs from your US operations? Yes. In the products that we have in Europe. The supply chain is very similar. Although the logistics piece of it is a little more complicated in Europe. So we utilize for our spacer business in Europe and in North America, the exact same supply base. So they will face the same challenges as it relates to demand and pricing. We've seen anything that's being shipped internationally. It is added some additional stress as you can imagine with trying to get containers letter shift or anything that's put on a boat. I'm not going to rehash that store everyone's seen it. That's the biggest difference between what we see. Luckily in Europe, our largest silicones supplier is located in Continental Europe so that has added some stability.

Yes.

In the products that we have in Europe.

The supply chain is very similar.

Although the logistics piece of it is a little more complicated in Europe.

So we utilize.

For our spacer business.

Europe and in North America, the exact same supply base. So they will face the same challenges as it relates to demand.

Pricing.

We've seen.

Anything thats being shipped internationally.

<unk> added some additional stress as you can imagine with trying to get containers letter shift or or anything thats put on a boat.

I'm not going to rehash that store everyone's seen it.

That's the biggest difference between what we see home.

Luckily in Europe.

Our largest silicones supplier is located.

In Continental Europe so.

That has added some stability.

But very very similar when we compare the two. Okay. So similar challenges. Whether you're in Europe, or the US. Okay. And I guess piggybacking on an earlier question that you talked about your supply chain issues relative to your competition, but how about relative to customers just given your business model. Your customers are oftentimes your competitor as well so. Are you seeing greater or less supply chain challenges and your customers?

Okay. So similar challenges.

Whether you're in Europe, or the U S. Okay.

And I guess.

Piggybacking on an earlier question that you talked about your supply chain issues relative to your competition, but how about relative to customers just given your business model. Your customers are oftentimes your competitor as well so.

Are you seeing greater or less supply chain challenges and your customers.

For us what it what it's done is we have such sticky relationships and loan relationships with these guys. We've actually kind of partnered up with the majority of them to try to either parlay our buying power together, so it's become more collaboratively rather than adversarial. And in both trying to find ways to help each other and alleviate the supply chain issues that we have across the board. So I think it's forced us to communicate more clearly. The labor piece of it's still preventing people from sourcing that environment still cures, although we're talking about supply chain challenges. In many cases they are still. Although I think we've done a very good job of addressing the labor markets. It's still competitive. Which prohibits their ability to in source to the extent where it would be a risk.

Parlay, our buying power together, so it's become more collaboratively rather than adversarial.

And in both trying to find ways to help each other and alleviate the supply chain issues that we have across the board. So.

I think it's forced us to communicate more clearly on the labor piece of it.

Still preventing people from from in sourcing that environment still cures, although we're talking about supply chain challenges.

In many cases they are still.

Although I think we've done a very good job of addressing the labor markets.

Still competitive.

Which prohibits their ability to in source to the extent where it would be a risk.

Understood. I'll pass it on. Thanks very much okay. Thank you. Our next question comes from Ken [inaudible] with Keybanc. Good morning, guys. Good morning. So not your average quarter. The earlier question about fence posts and life products. Really where I was going to go. Your extrusion plants had real issues in the past there was capacity. The windows side, but what are the big things obviously in extrusion. Just having long cycle runs right, where you don't have to change out the profiles et cetera et cetera. It seems to me I'm not an expert on the fence posts or is it really just wrapping around, it's just a forage by four-inch right and so you not only have the growth potential of your fixed asset. But it seems to me that it's essentially the same run constantly. Because it's a white gray or black fence post where you don't have to change our profile. Is that correct?

Our next question comes from Ken <unk> with Keybanc.

Good morning, guys.

Good morning, Tim.

So.

Our average quarter.

Bob.

The earlier question about fence posts.

And life products.

Really where I was going to go by.

Youre extrusion plants had real issues in the past there was capacity.

Thanks.

The windows side, but what are the big things obviously in extrusion. Just having long cycle runs right, where you don't have to change out the profiles et cetera et cetera. It seems to me I'm not an expert on the fence posts or is it really just wrapping around, it's just a forage by four-inch right and so you not only have the growth potential of your fixed asset. But it seems to me that it's essentially the same run constantly. Because it's a white gray or black fence post where you don't have to change our profile. Is that correct?

Just having long cycle runs right, where you don't have to change out.

It profiles et cetera et cetera.

It seems to me I'm not an expert on the fence posts or is it really just wrapping around it's just a forage by four inch right and so you.

Not only have the growth potential of your fixed asset.

But it seems to me that it's essentially the same run constantly.

Because it's a white gray or black fence post where you don't have to change our profile is that correct.

I would say generally you're absolutely right, the window profiles that we do are very complex and each customer has something different so. The level of complexity on that extrusion is pretty significant. The fence posts, although not identical are fairly close and yes, they tend to be much longer runs with recycled material or more favorable to what you would think on a continuous extrusion process. If I would ask the guys in the plant, they would fit with love loading up on tons, both, yes. And just a point of clarification. George was referring to our vinyl business here in North America.

That we do are very complex and each customer has something different so.

Level of complexity on that extrusion is pretty significant the fence posts. Although not identical are are fairly close and yes. They tend to be much longer runs with recycled material or more favorable to what you would think on a continuous extrusion process. So.

If I would ask the guys in the plant, they would fit with love loading up on tons, both, yes. And just a point of clarification. George was referring to our vinyl business here in North America.

And in the UK completely different. Yes, yes, yes. Apologies. Can I just go further. What do you find in terms of the distribution channel requirements? I think it's nascent for you, George. I get it you don't want to put numbers you added in step, but it's clearly something that makes sense from asset utilization perspective, that's why right. Siding, vinyl siding is so good right. They just how these long runs but they have a very tight distribution network are there unique distribution challenges you've faced there versus the window manufacturer? No. I mean is there a lot more SG&A. Expenses start building that relationship even though you get good gross margins. What are some of the dynamics there?

Yes, yes, yes.

Apologies.

Can I just go.

What do you find in terms of the distribution channel.

Requirements.

I think it's nascent for you George I get it you don't want to put numbers you added in step, but it's clearly.

makes sense from asset utilization perspective, that's why right. Siding, vinyl siding is so good right. They just how these long runs but they have a very tight distribution network are there unique distribution challenges you've faced there versus the window manufacturer? No. I mean is there a lot more SG&A. Expenses start building that relationship even though you get good gross margins. What are some of the dynamics there?

<unk> vinyl siding is so good right. They just how these long runs but they have a very tight distribution network are there unique distribution.

Challenges you've faced there versus that.

That window manufacturer.

No.

I mean is there a lot more SG&A.

Expenses start building that relationship even though you get good gross margins what are some of the dynamics there.

It's very similar for us at this point in time, we are in OE supplier to not only the window manufacturers by malware and OE supplier to fencing. They have a combination of manufacturing and distributing and we are also selling to just distribute [fence posts,] so. At this point in time, we're 100% OE supplier for those guys, who have no and distribution to the consumer. And regional distribution constraints, given that you are running out of Kentucky. Is that in [inaudible] and that's kind of the end of your market or is there something. We're selling the guys all over the country right now so I would say what we see is that the fencing market tends to be regional. With the competitors that we're selling to.

They have a combination.

Of manufacturing and distributing and we are also selling to just distribute funds Paul so.

Yeah.

At this point in time, we're 100% OE supplier for those guys, who have no and distribution to the consumer.

And regional distribution constraints, given that you are running out of Kentucky.

Is that in the Texas and Thats kind of the end of your market or is there something now.

We're selling the guys all over the country right now so.

I would say what we see what we see is that the fencing market tends to be regional.

With the competitors that we're selling too.

But we're selling product that would cover national geographies. Good to hear that. Alright, now to the more complex part. Appreciate your first-quarter guidance. So I think you are clearly helping us there. You did say margins would be up you are not quantifying that for the full year. [inaudible] Go ahead. On the revenue side, we're saying we should see some revenue growth mid-single digits in the first quarter. Margins will be pressured first quarter not [inaudible]. In the first half yes in the first quarter.

Matt Good to hear that guide alright, now to the more complex part.

Sure.

Appreciate your first quarter guidance. So I think you are clearly helping US there you did say margins would be up you are not quantifying that for the full year with a bang.

Paul <unk>.

Go ahead on the revenue side.

see some revenue growth mid-single digits in the first quarter. Margins will be pressured first quarter not [inaudible]. In the first half yes in the first quarter.

Yes, no. I got that exactly. I misspoke. So I do appreciate that near term guidance realizing you're holding off on the year, but you did say margins up for the year with your expectations, correct? For the full year. Yes, assuming no disasters in the supply chain, we would expect [inaudible]. Further. So can we go into the shorts because you did say it was the transportation issue. So it sounds like you are having the right. There is raw material costs, which are an index and lag, but you're seeing actually skyrocketing transportation costs or is that transportation access in terms of you cant get trucks so your customers can't get trucks? I was a little unclear on that.

Holding off on the year, but you did say margins up for the year with your expectations correct.

For the full year.

Yes, assuming no no disasters in the supply chain, we would expect.

Okay.

Further.

So can we go into the shorts because you did say it was the transportation.

Issue. So it sounds like you are having the right. There is raw material costs, which are an index and lag, but youre seeing actually skyrocketing transportation costs or is that transportation.

Access in terms of you cant get trucks are your customers tanker trucks eight I was a little unclear on that.

I think the answer is yes, and yes, I mean, there are times. Inflationary pressures on freight. Everyone's seeing it, whether it's through fuel surcharges are just absolute increases in freight prices. The reality right now. But we will be on a go-forward basis, but the hard and part of the reason why we're not giving specific guidance right now. We could be at the end of a month or end of a quarter and have $2 million to $3 million worth of shipments. A trucker doesn't show up that day. And that can be normal. So it's a little bit of both. Yes, now. As a component supplier, you have to wait for your customer who might or might not. Do you think because your extrusion coming out of Kentucky would need to go somewhere. Your screens are more or less adjacent to your customers. is that a fair statement? Obviously, your space is that in Ohio.

Inflationary pressures on freight.

Everyone, everyone seeing whether it's through fuel surcharges are just absolute increases in freight prices.

The reality right now.

But we will be on a go forward basis, but.

The hard.

And part of the reason why we're not giving specific guidance right now.

We could be at the end of a month or end of a quarter and half.

$2 million to $3 million worth of shipments.

A trucker doesn't show up.

Sure.

And that can be normal.

So it's a little bit of both.

Yes now.

As a component supplier you have to wait for your customer who might or might not do you think.

because your extrusion coming out of Kentucky would need to go somewhere. Your screens are more or less adjacent to your customers. is that a fair statement? Obviously, your space is that in Ohio.

That is a fair statement. Screens tend to be a very defined shipment and we usually control our own freight and have a small fleet of our own four screens. That's what we [inaudible] Or is this both the edgers and the extrusions that we're seeing in the transportation issue arise? Primarily yes, it is definitely more weighted towards spacers and run extrusions. Until the freight challenge. Well.

Very defined shipment and we usually control our own freight can have a small fleet of our own four screens.

That's what we will do that.

Great story.

<unk>.

Right. So there will be a julien.

Reason guard or is this both the <unk> and the extrusion that we're seeing in the transportation issue arise.

Primarily yes, it is definitely more weighted towards spacers and Ronald.

Ronald Surgeons.

Until the freight challenge well.

Yeah. So cost neutrality, if you think about the pricing on the lag. So you might get $10 of inflation. You recovered $10 of inflation. Is that generally like a six month lag due to your cost indexes? Is that how it kind of works for you? If there was a number of three months six months. It's usually 60 to 90 days are typically the range we see. I don't think we have any index was better six months on lines, but okay 60 to 90 days is pretty standard. The longest lag is in the cabinet business. Okay, and I really appreciate you guys answering these questions. Seems like you guys are running the business well and I don't want it. And improving. So do you have if you have these cost, right dollar cost recoveries on the index as you just described. How do you think about that in terms of being having margin neutrality just to catch up for the math right the ratio changes? Is that something you guys have in mind? I mean, I get the cost part. Obviously, we've got margins a lot. How should we think about that perhaps?

So cost neutrality, if you think about the pricing on the lag.

So you might get $10 of inflation you recovered $10 of inflation is that generally like.

A six month lag due to your cost indexes.

Is that how it kind of works for you.

If there was a numbers of three months six months.

It's usually 60 to 90 days are typically the range. We see I don't think we have any index was better six months on lines, but okay 60 to 90 days is pretty standard longest lag isn't.

Our cabinet business.

Okay and I really appreciate you guys answering these questions.

Seems like you guys are running the business well and I don't want it.

And improving so do you have if you have these cost.

<unk> dollar cost recoveries on the index as you just described how do you think about that in terms of being having margin neutrality just to catch up for the math right the ratio changes.

Is that something you guys have in mind, I mean, I get the cost part.

Obviously, we've got margins a lot. How should we think about that perhaps?

How should we think about that perhaps.

I mean that's a difficult question to ask. I mean, when we look at how the pricing has impacted our raw material pricing specifically over the last six to nine months. What we've found is that even when we think we're going to catch up with the rate of inflation, where it's been heading. There have been times when we didn't catch up enough. So we're at a point in time where we need to try to be more proactive and forward-looking and try to at least become margin neutral.

What we've found is that even when we think we're going to catch up with the rate of inflation, where it's been heading.

There have been times, when we didn't catch up enough. So we're at a point in time, where we need to try to be more proactive and forward looking and try to at least become margin neutral.

Alright, what's your guidance seems to suggest for '20, I mean not guidance I don't want to put words in your mouth, but your comment that margins will be up, suggest that's where your competence lies for FY '22. Yes, I mean I think for margins to be up like we think, we expect at some point, probably more towards the half or the second half of the year that the inflationary environment will lease somewhat stabilized. So we can catch up. The rate of inflation or the slope of the inflation line will flatten or decrease to such a point that we'll be able to catch up on some of the industries.

Yes, I mean, I think for margins to be up like we think.

We expect at some point, probably more towards the half or the second half of the year that inflationary environment will lease somewhat stabilized. So we can catch up the.

The rate the rate of inflation or the slope of the inflation line will flatten.

Or decrease.

To such a point that we'll be able to catch up on some of the industries.

Thank you very much for your answers, gentlemen. Sure. Thanks. I'm showing no further questions in queue at this time. I would like to turn the call back to George Wilson for closing remarks. I'd like to thank everyone for joining today and we look forward to providing an update on our next earnings call. Have a very safe happy and joyous holiday. This concludes today's conference call. Thank you for participating. You may now disconnect.

Sure. Thanks.

I'm showing no further questions in queue at this time I would like to turn the call back to George Wilson for closing remarks.

I'd like to thank everyone for joining today and we look forward to providing an update on our next earnings call have a very safe happy and joyous holiday.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Sure.

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Yes.

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Okay.

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Sure.

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Good day, and thank you for standing by and welcome to the fourth quarter and full year 2021 Panics building products Corporation earnings Conference call.

At this time, all participants are in listen only mode.

After the presentation, there will be a question and answer session.

I ask a question during the session you will need to press Star then one on your telephone please.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to your host today, Scott Silky SVP CFO and Treasurer. Please go ahead.

Thanks for joining the call. This morning on the call with me today is George Wilson, our President and CEO.

This conference call will contain forward looking statements and some discussion of non-GAAP measures.

We're looking statements and guidance discussed on this call and in our earnings release are based on current expectations actual results or events may differ materially from such statements and guidance and quanex undertakes no obligation to update or revise any forward looking statements to reflect new information or events.

For a more detailed description of our forward looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Please see our earnings release issued yesterday and posted to our website I will now discuss the financial results.

Net sales increased by 14, 2% and 25, 9% during the fourth quarter and full year of 2021, respectively.

Record growth for both periods.

As a reminder, both of our manufacturing facilities in the UK were shut down in late March of 2020 and did not resume operations until mid to late May last year.

More specifically for the fourth quarter and full year.

We posted net sales growth of 10, 1% and 19, 6% respectively in our North American Fenestration segment.

<unk> 15, 9% and 17, 1%, respectively, and our North American Cabinet components segment, and 17, 6% and 45, 6% respectively in our European Fenestration segment, excluding the foreign exchange impact.

We reported net income of $20 9 million or <unk> 62 per diluted share for the three months ended October 31, 2021, compared to net income of $22 2 million or <unk> 67 per diluted share. During the three months ended October 31 2020.

For fiscal 2021, we reported net income of $57 million or $1 70 per diluted share compared to net income of $38 5 million or $1 17 per diluted share for fiscal 2020.

On an adjusted basis net income was $20 8 million or <unk> 62 per diluted share during the fourth quarter of 2021 compared to 22 million or <unk> 67 per diluted share during the fourth quarter of 2020 <unk>.

Adjusted net income was $58 6 million or $1 75 per diluted share for fiscal 2021, compared to $40 7 million or $1 24 per diluted share for fiscal 2020.

The adjustments being made to EPS are for restructuring charges certain executive severance charges.

Foreign currency transaction impacts and transaction and advisory fees.

To $104 5 million in 2020.

The decrease in earnings for the quarter was mainly due to inflationary pressures and supply chain challenges the.

I'll now move on to cash flow and the balance sheet.

Cash provided by operating activities was $78 6 million for the 12 months ended October 31, 2021, compared to $100 8 million for the 12 months ended October 31 2020.

We generated free cash flow of $54 6 million in 2021 compared to $75 1 million in 2020.

The decrease was primarily driven by an increase in working capital more specifically the value of our inventory due to inflation.

We were we were able to repurchase $11 2 million in stock and we repaid $65 million of bank debt during fiscal 2021 $20 million of which was repaid in fourth quarter.

Our balance sheet is strong our liquidity position is solid and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to a 0.1 times as of October 31, 2021, which is a half turn lower than where we exited fiscal 2020.

As for 2022 and as noted in our outlook section in the earnings release.

We have chosen not to issue guidance just yet.

<unk> remained strong but ongoing supply chain disruptions continue to create uncertainty.

With this backdrop, we believe it would be premature to give guidance at this time.

We do believe that we should be able to realize margin expansion on a consolidated basis in fiscal 2022, but we also think that margin expansion will be second half loaded.

As we sit here today and to set appropriate expectations for the first quarter of 2022. We currently expect mid single digit net sales growth for the first quarter, mostly due to price increases, but margins will be pressured compared to the first quarter of 2021.

We hope to provide an update on full year guidance. When we report earnings for the first quarter of 2022.

I'll now turn the call over to George for his prepared remarks.

Thanks Scott.

We are extremely pleased to announce that 2021 was a record year for quanex. Despite numerous challenges.

We reported record revenue and earnings and return on invested capital continue to improve.

In addition, we reported another year with solid free cash flow in fact cumulative free cash flow over the past five years is approximately $325 million.

Also as Scott mentioned, we were able to pay down $65 million returned $11 2 million to shareholders through share repurchases during the year.

While we are very pleased with these results we're not surprised.

I am very proud of the entire quanex team for the energy effort and performance they continue to deliver to our customers communities and shareholders.

Before providing comments on segment results I will give some additional color on our view of the events of 2021 the markets, we serve and the macroeconomic environment. We currently face.

As we entered 2021, there was optimism and hope that the Covid pandemic would soon be under control and that operating environments would return to some level of normalcy.

As different variance spread and vaccine and vaccine uptake prove lower than expected. The optimism will soon replaced by the reality that the battle against Covid is far from over and that measures to contain or minimize the spread of the virus will continue around the world.

The year also ushered in a new and in some respects more significant challenge supply chain stress some disruption.

With the infusion of Covid relief payments into our economy demand for goods in the building products segment increased at record rates.

At the same time, the supply chain's ability to ramp up with continually impeded by labor constraints plant shutdowns or slowdowns freed issues and significant weather events.

As a result backlogs for finished goods dramatically increased over the year to record levels and suppliers have been unable to close the gap.

This last piece limited to no visibility on the delivery of goods is currently our biggest challenge.

All told the planning and operational environment, we see today is significantly more challenging than in 2020, when our primary concern was the labor disruption caused by the pandemic.

When looking at the markets, we serve demand continues to be strong across all segments.

So existing housing inventory and low mortgage rates continue to support strong housing demand and R&R remains healthy due to high levels of back orders and continued strong consumer confidence.

Although we continue to watch for a pullback in demand due to inflationary pressures we.

We are not seeing signs of this.

At this time.

I will now discuss segment results.

Our North American Fenestration segment reported revenue of $156 3 million in the fourth quarter, which was 10, 1% better than prior year fourth quarter.

Solid demand across all product lines.

Combined with higher index pricing additional surcharges and permanent price increases accounted for the stronger revenue performance.

Adjusted EBITDA of $20 2 million in this segment was 15% less than prior year fourth quarter.

Volume related benefits were more than offset by increases in material costs normalized medical costs and higher SG&A driven by incentive compensation.

As a reminder, approximately 80% of our North American fenestration business has contractual raw material pricing index mechanisms.

The timing lag of these indices are typically 60 to 90 days and therefore, we are in arrears and chasing price until the rate of inflation flattens or reversals.

At such time, we would expect to see a period of margin improvement or catch up.

For the full year. This segment had revenue of $578 3 million and adjusted EBITDA of $75 4 million, which represents a 20 basis point margin decrease from prior year and a very challenging inflationary environment.

We generally we generated revenue of $69 7 million and our European Fenestration segment in Q4, which was $12 9 million or 22, 7% higher than prior year.

We're up 17, 6% after excluding the foreign exchange impact.

Strong demand in the UK and Continental Europe combined with price increases resulted in record revenue levels for the segment.

Adjusted EBITDA of $12 million in the quarter was 10, 1% less than prior year Q4.

The drop in margin percent for the quarter was driven by material inflation.

Normalization of SG&A expenses and increases for incentives.

On a full year basis. This segment had revenue of $251 6 million and adjusted EBITDA of $50 million, which equates to margin expansion of 160 basis points versus prior year.

Our North American Cabinet components segment reported net sales of $66 6 million in Q4, which was 15, 9% better than prior year.

Strong demand combined with higher index pricing and additional permanent price increases were the drivers for higher performance.

Adjusted EBITDA for the segment was $5 4 million, which represents an increase of 16, 3% compared to prior year fourth quarter.

For the full year. This segment had revenue of $246 1 million and adjusted EBITDA of $14 2 million, which was an improvement of 17, 1% and 22, 5% respectively.

We were able to realize margin expansion of approximately 30 basis points in this segment, even though we chase price all year.

And as a reminder.

100% of our cabinet business has contractual raw material pricing index mechanisms.

Finally, unallocated corporate SG&A costs were $2 $1 million lower than the prior year fourth quarter.

The primary drivers of the lower expenses were true ups for stock based compensation expense and lower than planned medical expenses in the quarter.

For the full year unallocated corporate SG&A costs were $12 8 million, which returned to normalized levels versus 2020, which was a year impacted by COVID-19.

As Scott mentioned in his financial commentary cash flow generation remains solid despite a significant increase in the value of our inventory due to inflation and our balance sheet is strong.

Our board of directors recently authorized a new $75 million share repurchase program and we will continue to utilize this authority.

In the open market and on an opportunistic basis.

We have positioned ourselves well and we will continue to evaluate all opportunities to create value for our shareholders.

As we look forward into 2022.

We remained very optimistic on the demand environment.

Our customers are reporting record levels of backlogs and this combined with current favorable housing and R&R markets should translate into continued strong demand.

Operationally, we feel we have made progress on our hiring needs by raising starting wages by an average of $1 80 per hour in our manufacturing facilities.

Outside of the index pricing and the associated timelines, we have been able to implement surcharges and permanent price increases to help offset inflation.

The major challenge, we currently face as supply chain and trade uncertainty and it is for this reason alone that we have decided not to provide specific financial guidance for 2022 at this time.

Due to continuing supply chain disruptions, we have very little if any visibility into our short term delivery schedules in.

In this environment is extremely difficult to predict the cadence for shipments over the next few months or the potential costs.

Associated with sudden changes in schedules.

And therefore, we think it is prudent to not provide guidance until such time as we can gain some forward visibility.

In summary, we continue to execute on our strategy and are proud to have delivered a record year in a very challenging environment.

<unk> remains strong and if the global supply chain stabilizes and our businesses continue their excellent operational performance.

And we believe it will translate into revenue and earnings growth and another solid year in 2022, we.

We will continue to stay focused on executing on our strategic plan and we look forward to reaching a point, where we can give more definitive guidance.

And with that operator, we are now ready to take questions.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

To withdraw your question press the pound key.

Our first question comes from Daniel Moore with CJS Securities.

Good morning, George Good morning, Scott, Thanks for all the color and taking my questions.

Good morning.

I want to start with maybe just kind of price versus quantity in Q4 is it possible to give us a sense of how much of the revenue growth and in the case of Europe ex currency revenue growth came from price adjustments versus quantity.

I don't have a specific breakdown, but unlike prior quarters I can say that price flash surcharge had.

It was really the driver more so than volume, although volume was up as well.

Across all three for the most part at least.

Yes, that's correct.

That's helpful.

And.

Even more difficult question, but.

If you had to guesstimate kind of true underlying demand for each segment relative to quantity in other words, how much faster revenue could have grown in.

In the quarter had that not been for supply chain and logistics.

Any color or sense, there and maybe order of magnitude for.

Great quarter, each one where are the biggest challenges are if you will.

Dan you are right. It is a very difficult question and for the reason that.

Yes.

What we're seeing in our order pattern right now in our current orders.

As demand remains extremely strong across all product lines, but in some areas, we actually have our customers deciding to pull back on their schedules to give their workforce some breaks.

As many hours as they are working so.

It's really hard to determine how much more value.

All you could have went through the chain because.

Again, our customer base and are making decisions to pull back.

And so I don't want to give you a number of what that would be if everybody was fall.

All of these things are intertwined and I think right now you have a combination of uncertain.

Uncertain deliveries impacting it but you also have again, our customer base deciding.

They have to give their labor forces some relief to the amount of time that they are working so it's really hard to determine and give you an accurate answer.

Understood.

Just trying to get a flavor of that.

The relative size of kind of underlying demand, but I appreciate that.

What I can what I can tell you that in almost every case our customers are seeing significant growth in their back orders. So.

As you go out and look at other companies that report publicly you'll be able to get a good feel.

For what Theyre seeing and there's still significant pent up demand.

Yeah, no that's very consistent certainly.

Maybe another one if you based on the prices increases that we've put through in fiscal 'twenty one.

If we didn't raise prices again from here and volumes were flat what type of revenue growth with that.

Ballpark roughly translate to in fiscal 'twenty two.

I mean, if youre talking about flat volume.

From a price standpoint, you're probably low single digit growth.

Got it just on what's gone through already not additional price increases.

Net timing impact of the price increases because obviously they've been staggered throughout the year.

Exactly okay. That's helpful.

And then.

The what.

Are your well.

Probably part and parcel with the comments you've made but do you have an outlook for the overall windows market either in North America, and Europe, as we think about fiscal or calendar 'twenty two.

Well.

That's part of the uncertainty here, but what we have.

Referenced in the past is for North America anyway.

Ducker as a third party we use in last update they showed for 'twenty two versus 21 on window shipments was low single digit growth around the two plus percent range.

And in Europe, and in Europe, I would say, what our customers are predicting again with very little and limited visibility as well.

Relatively flat year over year on volume.

Hello, Scott High Bay, Yes from a from a.

Extremely high base.

A heck of a run no question.

Maybe shifting gears, one more just capex expectations for fiscal 'twenty two.

And then in terms of buybacks.

The prior repurchase authorization.

Executed over two to three years do you anticipate a similar timeline or maybe being more accelerating that given where we are at the balance sheet and thanks for all the color.

So on the Capex front if.

If you recall our guidance for 2021 for Capex was I think 30% to $35 million.

I think we're comfortable staying around the same amount for 2022 guidance for Capex.

We underspent that budget last year and it wasn't because we are pulling back on any project is just lead times for equipment are such that everything moving to the right.

Yes.

On the buyback question.

Really theres not theres not an answer I can give or clarity there it's an on an opportunistic basis.

If we continue to feel that our stock is undervalued versus our peers, which obviously, we feel that way today.

We could ramp ramp that up over the next several years on a $75 million is actually considerably more in the open market than we had last time, because if you recall the $60 million half of that was purchased by one firm. So essentially we sold $30 million in the open market over a three year period.

I would think that we could ramp that up.

Alright, very good thanks for the color again.

Sure.

Our next.

Western comes from Reuben Garner with benchmark company.

Thanks, Good morning, everybody.

Morning, gentlemen.

Yeah.

Let's see.

I think Dan asked about the price versus volume in the fourth quarter, Scott what about the full year in your fiscal 'twenty. One can you give us like a ballpark.

How much of that.

26% revenue growth was price versus.

Volume.

For the full year it was more volume than price on a full year basis out of that 26% growth I would say.

15%, 20% is probably volume.

Okay. That's helpful.

Let's see so the supply chain issues you are having I mean are you guys.

From what you gather from competition are you guys doing better than your peers and being able to get product out the door.

Are you seeing any different behavior from anyone on the call.

The pricing front.

Does anyone have any advantages or disadvantages relative to you that you are.

Dealing with.

So I'll answer that one.

In terms of competition I think.

Lot of it is based on your size and scale.

We are unique in the space that we serve there were larger so I think we're doing it.

Equal to or better than any of our competitors in acquiring raw materials.

That we purchased.

What we see in the market.

Theres no one thats getting crazy with price we're doing anything.

And it is putting pressure on any sort of volumes I think for everyone. Right now is facing significant inflationary and supply challenges.

And really where we're at in the market today is everyone's kind of protecting their base of customers and doing everything they can fulfill those needs. So there's not a lot of we're not at a point where people were aggressively trying to take shirts were kind of current were all trench them.

Because of the limits and what you can acquire so.

It's kind of a.

Trench warfare freight now is really how I would.

Characterize it.

Okay, and then a couple questions on.

On capacity so two sides of the question here the first is.

Do you have any plans for increases in areas, where you are either low or looking to expand the screens operation or cabinets and then on the flip side any updates on maybe the areas where you are under utilizing your assets and you guys have.

<unk> been working on trying to offer other products or services any progress.

There that you can talk about.

So on your first question in terms of capacity expansion I think we continue to go forward, we talked about adding some some.

Mixing and blending capacity in the UK for our vinyl extrusion business that will that will continue and that projects.

In process.

Again as Scott mentioned.

Timing of such is impacted because of just the lead times to get equipment, it's extended but we're looking to add capacity. There we continue to evaluate the screen market single.

In areas, where we're underserved.

Yes.

We will look to expand our geographical footprint, but that's also going to be predicated on.

Not getting.

Being able to get enough raw materials to be able to support it.

We also have a product project in our spacer business in Germany.

Adding additional capacity.

For our rubber extrusion for those spaces in Germany and that continues so.

In certain pockets, we are going forward and investing and spending in the business.

The second piece of your question.

On any.

Any parts of our business that are that we have a lot of spare capacity.

Okay.

The Best example of that.

It has been a win is on our vinyl extrusion business in North America, we've talked a lot about focusing on return on assets return on invested capital.

We continue to expand our capabilities in producing oil.

Parts of primarily in a fence post in.

Fencing Ronald function components and Martin.

We've proven that we're a very reliable supplier and supporting that industry and that continues it's had a positive impact on our vinyl extrusion business in North America.

Any any comment on how big of an industry or opportunity that is for you guys.

We're pretty early into this room and so as we continue to develop it we will try to give a little more guidance in the future I don't want to come out.

<unk> targets or guidance at this time on the sides, we're relatively new into this space and I can add a little bit there I think the main difference between the fencing.

Sector of the industry versus the window profile sector of the industry for vinyl extrusion is that.

The sensing sector is bumping up against capacity. So they are looking to add capacity, where that's where we can come in and help whereas on the windows side Theres a lot of spare capacity. So it's just about getting our assets up and running.

We are an expert extruding vinyl it doesn't really matter what the product is.

Great. Thanks, guys. Congrats on the quarter I know, it's a tough time happy holidays.

Yeah. Thanks, Thanks, you too.

Our next question comes from Julio Romero with Sidoti <unk> Company.

Hey, good morning, Thanks for taking the questions.

Good morning.

Can you talk about supply chain and freight in Europe, and how that differs from your U S operations.

Yes.

In the products that we have in Europe.

The supply chain is very similar.

Although the logistics piece of it is a little more complicated in Europe.

So we utilize for.

For our spacer business in Europe, and in North America in the exact same supply base. So they will face the same challenges as it relates to demand and.

And pricing.

We've seen.

Anything thats being shipped internationally.

As <unk> added some additional stress as you can imagine with trying to get containers letter shipped or or anything thats put on a boat.

I'm not going to rehash that story everyone's seen it.

That's the biggest difference between what we see home.

Luckily in Europe.

Our largest silicones supplier is located.

In Continental Europe so.

That has added some stability.

But very very similar when we compare the two.

Okay. So similar challenges.

Whether you're in Europe, or the U S. Okay.

Yes, and I guess.

Are you seeing greater or less supply chain challenges and your customers.

For us what it what it's done is we have such sticky relationships and long relationships with these guys. We've actually kind of partnered up with the majority of them to try to to either.

Parlay, our buying power together, so it's become more collaborative rather than adversarial.

And in both trying to find ways to help each other and alleviate the supply chain issues that we have across the board so I <unk>.

It's forced us to communicate more clearly the labor piece of it.

Preventing people from from in sourcing that environment still choose although we're talking about supply chain challenges.

<unk>.

In many cases theres still although I think we've done a very good job of addressing the labor markets, it's still competitive.

Which prohibits their ability to in source to the extent, where it would be a risk.

Understood.

Thanks, very much okay. Thank you.

Our next.

Question comes from Ken <unk> with Keybanc.

Good morning, guys.

Hey, Ken Good morning, Tim.

So not your average corridor.

The earlier question about fence posts.

And life products.

Really where I was going to go.

Youre extrusion plants had real issues in the past there was capacity.

Mix.

The window side, but what are the big things obviously in extrusion.

Just having long cycle rides right, where you don't have to change out.

It profiles et cetera et cetera.

It seems to me I'm not an expert on the fence posts are you really just wrapping around it's just a forage by four inch right now.

Not only have the growth potential of your fixed asset.

But it seems to me that it's essentially the same run constantly.

Because it's a white gray or black fence post where you don't have to change our profile is that correct.

I would say generally youre, absolutely right the window profiles.

That we do are very complex and each customer has something different so.

On the plant they will they will stay with love loading up on <unk>, just and just to point a clarification George we are referring to our vinyl business here in North America.

Correct, Okay in fact completely different yes, yes.

Yes, yes, yes, yes.

Apologies.

Can I just go.

What do you find in terms of the distribution channel.

Requirements.

I think it's nascent for you George I get it you don't want to put numbers around and stuff, but it's clearly.

Something that makes sense from asset utilization perspective, Thats why right, citing vinyl siding is that rite aid is how these long right, but they are.

Have a very tight distribution network are there unique distribution.

Challenges you faced there versus that.

Window manufacturer.

Is this now I mean is there a lot more SG&A.

Very expensive to start building that relationship even though you get good gross margins what are some of the dynamics there.

It's very similar for us at this point in time.

Or an OE supplier to not only the window manufacturers, the malware and OE supplier to Vodafone.

They have a combination of manufacturing and distributing and we are also selling two guys just distribute funds both so.

<unk>.

But at this point in time, we're 100% OE supplier for those guys, who have no and distributions were concerned.

And regional.

Distribution constraints given that you are running out of Kentucky.

In the Texas and Thats kind of the end of your market or is there something.

We're selling the guys all over the country right now so I would say what we see what we see is that the fencing market tends to be regional.

With the competitors that we're selling too but.

But we are selling product that would cover national geographies.

Matt good to hear that guys alright, now to the more complex part.

<unk>.

Appreciate your first quarter guidance. So I think you are clearly helping US there you did say margins would be up you are not quantifying that for the full year with about a fall launch.

Go ahead on the revenue side, we are saying, we should see some revenue growth mid single digits in the first quarter margins will be pressured first quarter not in the first half in the first quarter yes.

Yes, no no I got that exactly I misspoke. So I do appreciate that near term guidance realizing year.

Holding off on the year, but you did say margins up for the year was your expectations correct.

Full year, yes.

Yes, assuming no no disasters in the supply chain, we would expect.

Yes.

Further.

So can we go into the store you did say it was the transportation issue. So it sounds like Youre, having the right. There is raw material costs, which are an index and lag, but youre seeing actually skyrocketing transportation costs or is that transportation.

Access in terms of you cant get trucks are your customers can't get trucks eight I was a little unclear on that.

I think the answer is yes, and yes, so I mean, there are times.

Okay.

Inflationary pressures on freight.

Everyone, everyone seeing it whether it's through fuel surcharges are just absolute increases in freight prices.

The reality right now.

And probably will be on a go forward basis.

Hard.

And part of the reason why we're not giving specific guidance right. Now is we could be at the end of a month or end of a quarter and half.

$2 million to $3 million worth of shipments.

We have a trucker doesn't show up.

<unk>.

And that can be normal.

And so it's a little bit of both.

Yes now.

Yes.

As a component supplier you have to wait for your customer who might or might not do you think.

Youre extrusion coming out of Kentucky would need to go somewhere youre screens are more or less adjacent to your customers is that a fair statement. Obviously your spaces is that Ohio.

Yeah.

That is a fair statement screens tend to be a <unk>.

Define shipment and we usually control our own freight can have a small fleet of our own four screens.

<unk>.

It's true of our abilities.

Right. So it's really about.

<unk> garners this both the <unk> and the extrusion that we're seeing this transportation issue arise.

Primarily yes, it is definitely more weighted toward spacers and Ronald.

Ronald Surgeons.

Until the freight challenge well.

Yeah Yeah.

So cost neutrality, if you think about the pricing on the lag.

So you might get $10 of inflation recovered $10 of inflation is that generally like.

What a six month lag due to your cost indexes.

Is that how it kind of works for you.

If there was a numbers of three months six months.

It seems like it's usually 60 to 90 days are typically the range that we see I don't think we have any indexes whether six months on lines, but okay 60 to 90 days is pretty standard longest lag as in.

Cabinet business.

Okay and I really appreciate you guys answering these questions.

Seems like you guys are running the business well and I don't want it to be.

And improving so do you have if you have these costs.

<unk> dollar cost recovery on the index as you just described how do you think about that in terms of being having margin neutrality just to catch up for the math right.

The ratio change it.

Is that something you guys have in mind, I mean, I get the cost part of it.

Obviously, we've got margins a lot.

How should we think about that perhaps.

That's a difficult question to ask I mean, when we when we look at how the pricing is impacted us raw material pricing specifically over the last six to nine months.

We've found is that even when we think we're going to catch up with the rate of inflation, where it's been heading.

There have been times, when we didn't catch up enough.

So we're at a point in time, where we need to try to be more proactive and forward looking and try to at least become margin neutral.

Alright, what's your guidance seems to suggest for 'twenty guidance I don't want to put words in your mouth, but your comment that margins will be up suggests that we're.

Your competence lies for FY 'twenty two.

Sure.

Yes, I mean, I think for margins to be up like we think we.

We expect at some point, probably more towards the half or the second half of the year that inflationary.

And air environment will at least somewhat stabilized or we can catch up.

The rate the rate of inflation or the slope of the inflation line will flatten.

Or decrease.

Such a point that we'll be able to catch up on some of the industries.

Thank you very much for your answers gentlemen.

Sure.

I'm showing.

No further questions in queue at this time I'd like to turn the call back to George Wilson for closing remarks.

I'd like to thank everyone for joining today and we look forward to providing an update on our next earnings call.

Very safe happy and joyous holiday.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Quanex Building Products Corp Earnings Call

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