Q1 2022 Janus International Group Inc Earnings Call

Hello, and welcome to the Janus International first quarter 2022 earnings conference call.

Currently all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference you May Press Star Zero on your telephone keypad. As a reminder, this conference is being recorded I would now.

Now I'd like to turn the call over to your host Mr. John Rolling Vice President of Investor Relations and F. P&A. Thank you you may begin Mr. Rolling.

Thank you operator, and thank you all for joining our first quarter 2022 earnings Conference call. We hope that you have seen our earnings release issued this morning. Please note that we have also posted a presentation in support of this call, which can be found in the investors section of our website at Janice I N T L Dot com.

As a reminder, today's conference call May include forward looking statements regarding the company's future plans and prospects. These statements are based upon our current expectations and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated.

Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release.

Periodically filings with the Securities and Exchange Commission and we encourage you to review those factors carefully.

In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA adjusted EBITDA margin adjusted net income and adjusted EPS. Please see our earnings release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure.

I'm joined today by our Chief Executive Officer, Rodney Jackson, who will provide an overview of our business and give an operations update.

And our Chief Financial Officer, Scott, Santi, who will continue with the discussion of our financial results and outlook before we open up the call for your questions. At this point I will turn the call over to Amy.

Thank you John and good morning, everyone.

2022 marks our 20th year in business at Janice and I'm proud to say, we're off to a very strong start.

Over the 20 years, we've experienced a lot of Janus, we've grown to approximately 1600 employees and over 10000 active customers and have operations around the world in the past five years alone we doubled our business through a balanced mix of organic and inorganic growth and are well positioned to <unk>.

Turning to grow attractively in the future.

We have a strong position in self storage in a leading position with our customers in all of our business segments, which we expanded with last year's D. B C. I N. A C. T acquisitions, we had a momentous 2021 that saw us become a public company complete our largest acquisition to date make.

Significant progress in our D B C. Our synergy plan.

And meet inflationary pressures on multiple fronts head on.

We continue to focus on the relentless execution of our plan to drive both top and bottom line growth and create long term value for our shareholders.

At Janus, we're far more than a still roll up door company. We are at heart a value added solutions provider for our customers across the self storage commercial and industrial building industries.

Filling that role for self storage and adjacent industries helps drive the strong margin profile for the business and contributes to a high level of stickiness, we have with our customers.

It's an exciting time as the self storage industry experienced unprecedented growth in 2021 and we continue to see investor demand and capital inflows into the industry.

Each of the self storage REIT that has reported earnings so far highlighted how industry fundamentals remain strong and then they are positioning themselves for the coming busy season <unk>.

Collectively they expect favorable performance trends seen in 2021 to continue in 2022.

That outlook was reflected in their updated guidance.

High occupancy rates continue to drive demand for new capacity additions in the self storage industry increasingly from a larger more investment driven and better capitalized group of owners in self storage facilities like Reits.

In fact, several self storage focused Reits reported occupancy levels at quarter end in a range of 93% to 95%, reflecting strong demand for products as well as the near term need to add additional capacity in the forms of expansions conversions relocatable storage units and unit mix changes we possess.

[noise] ourselves to be the leading beneficiary of capacity additions no matter, which form they take as we derived similar margin profiles from either new construction or the repurposing and refurbishing of existing facilities.

We remain keenly focused on several key growth strategies on the gnocchi front, we leverage the acquisition of a C. T last year to accelerate growth, resulting in our highest revenue quarter to date.

And then the commercial segment, we continue to build out their rolling still product. One that are asked the business unit bolstered by the additional opportunities that D. V. C. I acquisition brings to the commercial side of the business.

Also on the Nokia front subsequent to quarter end, we announced the launch of Gnocchi screen. The latest in a line of award winning Smart security products and the Nokia Smart entry product line.

Okey screen boasted a number of exciting design features like a customizable full graphic display screen.

Wifi and Bluetooth connectivity and an all in one design that combines the controller and the key pad in a single device.

This controller and key pad design improves functionality and reduce cost of upgrading as access control systems by eliminating one of the most expensive and most commonly replace pieces of the access control puzzle the controller.

The design of Gnocchi screen also significantly mitigates vulnerability to lightning strikes and other electrical surges that are prevalent in the access control market today.

Now shifting to the financial highlights for the quarter we.

We delivered consolidated revenues of $229 5 million, an increase of 52% as compared to the same period last year or 35.7 on an organic basis.

This growth reflected the strength in all three of our sales channels on the new construction side, we saw strong demand and our second consecutive bounce back quarter as the pent up demand caused by permitting and other construction delays during 'twenty 'twenty. One was converted to revenue we benefited from the contributions from D. B C.

And the a C T acquisitions that closed during the third quarter of last year.

Our adjusted EBITDA of $44 7 million.

Came in at 37% higher than Q1 of 'twenty, one driven primarily by higher revenues and was partially offset by higher cost of sales and general and administrative expenses, reflecting the growth in inflation we were experiencing.

However, as a result of our volume growth commercial actions and productivity initiatives, our adjusted EBITDA margins increased by more than 100 basis points over the fourth quarter of 2021.

We continue to see challenges in certain areas of our business, including raw material and labor availability and inflation as well as logistical challenges last year, we took actions to offset these inflationary effects through both commercial and productivity initiatives and over the 100 basis points sequential improvement in adjusted EBITDA.

<unk> margin reflects the benefits of those actions.

Many of those challenges are ongoing with the continued volatility in steel prices continued inflationary pressures in labor availability as a result, and supported by our continued strong market fundamentals and demand for our products were taken additional commercial and productivity actions to ensure recovery of these calls.

Cost in 2022.

Each company also continues to generate impressive cash flow, which Scott will discuss in further detail shortly in the first quarter. Our free cash flow conversion was 109% of adjusted net income we expect cash conversion to remain solid over time, putting us in a strong position to further reduce leverage towards our <unk>.

We'll have two and a half to three five times adjusted EBITDA, well being opportunistic as M&A situations present themselves.

We are pleased that we were able to build on the momentum we had coming out of a very exciting 2021 with another quarter of outstanding growth even in the face of continued global inflationary and geopolitical pressures.

As our end markets accelerate to meet increased demand for capacity, we look to leverage our strong market position to capture additional share and create long term value for all of our stakeholders.

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

Thanks, Rodney and good morning, everyone in the first quarter revenue of $229 5 million was up 52% compared to the prior year quarter and 35, 7% on an organic basis, driven primarily by solid execution.

And all three of our sales channels.

Our three was up 56, 6% commercial and other was up 51, 1%, while new construction was up 44, 3% versus the prior year quarter.

Our three growth continues to be bolstered by new capacity additions in the form of conversions and expansions and ongoing factor contributing to the exceptional growth rate in the commercial sales channel for the quarter as our lead times.

Even with the industry's ongoing supply constraints or lead times continue to be better than many of our competitors, resulting in superior execution for our customers as Remy.

He mentioned, we continued to see growth in the new construction sales channel as we worked through the pent up demand caused by permitting and other construction delays during 2021.

The consolidated revenue growth reflected improved demand across all of our end markets along with contributions from the <unk> and <unk> acquisitions, which occurred in the third quarter of 2021.

We report results in two business segments, Janus North America, and Janice International Janus North America contributed 92, 2% of revenue for the quarter Genesis International which sells primarily in Europe , and Australia provided the balance of revenues.

Adjusted EBITDA of $44 7 million was up 37% compared to the year ago quarter higher revenue was the primary driver of EBITDA growth, partially offset by higher cost of sales and general and administrative expenses as Rami mentioned previously we continue to it.

Experienced higher raw material labor and logistics costs as compared to the prior year period.

Janice continues to take actions to offset the inflationary effects through commercial and productivity initiatives. In addition, we experienced incremental costs related to being a public company and continued growth related investments.

Adjusted EBITDA margin for the quarter was 19, 5% a decrease of approximately 175 basis points from the year ago quarter, but an improvement of more than 100 basis points from the fourth quarter on our fourth quarter call. We talked about how we expected margins to bottom out in the fourth quarter of last year.

<unk> and improve his commercial and productivity actions take hold.

We started the year with approximately 15% of our backlog representing legacy price contracts and we finished the quarter at approximately 10% also we are pleased with the progress we are making in achieving the <unk> synergies.

We are happy to report as previously communicated that we have eliminated the need to report out on management adjusted EBITDA for 2022 and beyond.

For the first quarter 2022, we produced adjusted net income of $20 1 million up 22, 8% from first quarter 'twenty, one and adjusted diluted earnings per share up 14.

Adjusted net income was favorably impacted by the revenue increase during the quarter. Despite an increase in the effective tax rate as a result of the company now being taxed as a C Corporation.

Adjusted diluted earnings per share were negatively impacted by a new capital structure in Q1, 2022 versus Q1, 2021 and which the outstanding share count was significantly higher in 2022 at.

At quarter end, our outstanding share balance was approximately 146 6 million shares.

As Randy mentioned earlier, we had another strong quarter of cash flow generation.

First quarter cash from operating activities was approximately 25 million and free cash flow was approximately $22 million, representing 109% free cash flow conversion, continuing our multi year trend of strong conversion of adjusted net income to cash.

We expect to continue to generate strong cash flows going forward, putting us in a solid position to lower leverage over time, while being opportunistic with regard to M&A.

From a balance sheet perspective, we closed the quarter with 724 million of total debt $26 6 million of cash and equivalents and a net leverage of four three times net debt to adjusted trailing 12 months EBITDA down from four four times at.

Year end 2021.

Turning to guidance.

I am pleased to announce that based on our solid start to the year continued strong backlog and our current visibility of end markets. We are raising our full year 2022 outlook for revenue and adjusted EBITDA revenue is now expected to be in the range of $890 million to $910 million.

Up from a range of $8 $45 million to $865 million previously at the midpoint. This represents a 20% increase compared to full year 2021 results.

<unk>, primarily by a combination of price and volume related organic growth and the addition of <unk> and a C T.

The 20% growth approximately 60% is organic and 40% inorganic we.

We now expect adjusted EBITDA to be in the range of $193 million to $200 million up from the previous range of $183 million to $190 million at the midpoint. This represents a 32, 6% increase versus the full year 2021 results.

From a revenue perspective, our upwardly revised outlook reflects our strong first quarter results, including the execution of the majority of pent up demand in the new construction sales channel to start the year, we expect growth the balance of the year to reflect the strong underlying fundamentals, we see across all three.

These sales channels.

We expect adjusted EBITDA margins in the second quarter to be similar to the first quarter result, as previously communicated we expect adjusted EBITDA margins in the second half to be higher than margins in the first half, resulting in a solid year of margin improvement in our business.

I will now turn the call back to <unk> for closing remarks.

Great. Thank you again, Scott returning to the 20 year anniversary, we've worked hard to stay ahead of the ever changing self storage commercial and industrial building solution industry's needs through constant innovation attention to quality and unmatched service.

We are appreciative of the no thanks to our employees customers and vendors who have helped us in our success.

We're excited about what the next 20 years will bring and where we can take this company.

We're proud of how Janus came out of the gate in 2022, our business delivered another quarter of outstanding growth and solid adjusted EBITDA margin contribution even as we were addressing cost pressures seen across the industry I expect our results to be the foundation for a powerful 2022.

As we look to deliver strong margin performance and earnings growth over the long term.

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

Thank you.

Gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.

Our first question comes from the line of Jeff Hammond with Keybanc capital markets. Please proceed with your question.

Hey, good morning, guys good.

Morning, Jeff Jeff.

So just on the margins it sounds like <unk> is going to be similar to <unk>, which to kind of get to your full year guidance suggests you know, 24% EBITDA margin in the back half and I'm just trying to you know kind of bridge you.

Is it.

Sequentially better <unk>, and then even better in <unk> or you know kind of how do we get from you know this is kind of mid 19th to the 24 you need in the back half.

Yeah. Good question Geoff so.

You know your assumption is correct Q2 margin profile similar to Q1, and then obviously to get to the.

Midpoint of guidance of the 21 eight we.

We do believe that the Q3 will be obviously sequentially better than Q1, and Q2 with Q4 being a slightly.

Slightly or sequentially better than Q3.

How we get there.

Legacy priced contracts as we've talked about should really.

Flush out.

Through the first half of the year and then just continued.

Productivity measures.

The full impact of commercial actions.

Et cetera should all help benefit as well as continued <unk> synergies should all help get that sequential margin improvement in the second half of the year.

Okay helpful. And then I think seasonally <unk> tends to be one of your lower quarters, maybe for Q1, Q just trying to understand kind of how you think the business builds seasonally into two Q end and maybe within that if you can just talk about you know price in the quarter and in price.

<unk> for the year.

Yeah sure I'll take the second question first so in terms of kind of price price volume metrics for <unk>.

For the first quarter.

It was about two thirds price.

One third volume in terms of the organic growth and then for guidance for the year.

It's basically the reciprocal of that so it's going to be about two thirds volume one third price.

It's how we've guided.

And then in terms of the seasonality question.

As we've kind of previously mentioned.

Revenue for Q1 came in about $230 million.

There was a relatively significant I'll call it pull through of the pent up new construction demand that occurred in Q1.

We estimate that to be somewhere between probably $10 million to $15 million.

So as far as the cadence of what the revenue looks like the rest of the year. If you kind of pull that out of Q1, you're at $2 15 to 20.

And then we built in you know from our guidance, we built in some continual increases in terms of revenue run rate for the.

For the back half of the for the back half of the year for the remaining nine months of the year I should say.

So <unk> is kind of flattish with <unk>.

I think that I think it should be again I think generally speaking, yes, I think we we have a slight slight increase I believe in Q2 over Q1, but relatively speaking similar profile with then continued.

Ramp up as you get to the second half of the year.

Okay. Thanks, so much.

Sure. Thanks, Jeff.

Our next question comes from the line of Reuben Garner with the benchmark Company. Please proceed with your question.

Thank you and good morning, everybody and congrats on the strong results.

Great. Thanks for maybe so I think historically, our folks look at the self storage industry as being highly correlated with with housing turnover and Theres. Some concern that the rise in mortgage rates may may reduce that metric can you just talk about your thoughts on on that correlation in what.

It might be different this time, and then maybe any conversations you've had with the actual storage operators, it's about what their kind of seen here recently.

Yes, good morning, Reuben this is remy.

Look I think our view is different and I think you've heard us say many times that self storage is that the base business.

So good economic bad economic times self storage thrives.

And I think if you look at some of the.

The rights and what they're forecasting for the year I think it's fundamentally robust.

I think when you look at just kind of the end market from a capacity perspective, you know the industry is sold out.

And so I see that as a major tailwind for the business going forward.

So again I'll come to conclude that we do not view kind of housing as a driver as the main driver for self storage whatsoever.

So I'll pause there.

Okay and.

No. That's helpful. And then on the margin side wondering how you guys think about kind of getting back to or getting to your.

Longer term margin goals with with your input costs are elevated like they are do you think there will be more pricing actions to come to help you get there or is it going to be you know volume.

Driven I guess, if you could just give us an update on the long term margin thoughts in maybe the components to get there.

I'll kind of start.

Yeah look I think once we continue to.

Accelerate the integration with the acquisitions I think youll see a margin pick up there.

The volumes are tremendous.

Backlog and pipeline are at an all time high.

And then the commercial actions that we took last year are taking effect and as I mentioned on the call earlier that.

We will continue to address those kind of inflationary pressures with with.

Cost containment.

Productivity and then commercial actions on the price side as well so.

Our view is that we will certainly get back to those levels and we're working really hard to get there.

If I could just clarify so post the hurts the inflation, we've seen in post the acquisitions that you've.

You've made are you guys kind of maintaining that you still think you can get a I think it was 26, 27% EBITDA margins over the midterm is that the is that the right target or bogey to look at.

Yes, I think I think the depending on what your definition of midterm is I think the way that we would respond is the second half of the year, We think we'll get there.

The margin profile as Jeff mentioned earlier kind of 24.

24, 25%, so kind of mid 25% margin profile with then obviously over time. Our goal is to continue to enhance the margin profile into 'twenty three and beyond.

Great. Thanks, Scott.

Thanks Ruben.

Our next question comes from the line of John Lovallo with UBS. Please proceed with your question.

Good morning, guys and thank you for taking my questions as well.

The first one kind of dovetailing off of what we've been asked I think.

And if things do slow from an economic standpoint, I mean, what should we expect our three to hold up better than the new construction component of your business and how would you think about higher interest rates on both our three in new construction.

Look I think that's a great question.

But I think when you look at over the past few years with the kind of uptick within kind of institutional investment I think.

The dynamics are different right I think the cost of capital still remains low at that level with the institutional investors.

These facilities as you're as you're aware generate a lot of cash and I think there is a tremendous need for.

The <unk> service to continue so I'll look at it as more of a balance I think that there is pent up demand on the new construction side and there is a meaningful amount of kind of our three opportunities to you know as it relates to consolidation and just.

Aging facilities. So I look I look at kind of the fundamentals to remain strong as it relates to interest rates.

Okay. That's helpful and then in terms of the international business.

Has there been or do you anticipate any impact from Russia, Ukraine or the shutdowns in China.

Yeah, I think the certainly the war has its impacts more around availability of steel.

But as you probably know there is a tremendous kind of pent up demand from a from a new construction perspective.

As a result of the pandemic, obviously those countries behaved a little differently than we did here in the states. So there's a longer lag. So we look at that as a.

Kind of a meaningful tailwind if you will from a new construction perspective, but we're certainly keeping an eye on.

Still availability and all of those things associated with the impact of the war.

Great. Thank you.

Thanks, Tom.

As a reminder, it is star one to ask a question. Our next question comes from the line of.

Josh <unk> with Morgan Stanley . Please proceed with your question.

Hi, Good morning, guys good morning.

Josh do.

So you see the prep when you did the pregnant pause before the name pronunciation I can take myself off mute on.

[laughter].

So well just digging in on the on the <unk> side I'm wondering what you guys are seeing on the on the conversion front.

How that is kind of progressing and any kind of visibility you have there.

Yeah, Great question Nothing's changed there Josh.

<unk> continue to be.

Leading way of adding capacity I think when you look at the kind of e-commerce affected retail kind of big box retail availability, it's still meaningful.

And it's quicker to get the market from a construction or capacity perspective.

And then I mentioned on our backlog.

And at all time high.

From a percentage standpoint that conversion component remains.

Over the past few quarters, so to speak so still very bullish on the convergence.

Got it that's helpful and then the that sequential margin dynamic from <unk>.

I guess on the adjusted side it looks like margins are flat and actually see gross margin gross profit and margins down a little bit.

Any any color on the gross margin.

For Q2, <unk> progression and then anything we should keep in mind over the balance of the year.

Yes, so in terms of gross margins.

I believe both had sequential margin improvement Q4s.

Gross margins.

Versus Q1 gross margins they were it looks like there were just under 100 basis point improvement in.

And in gross margins.

So I think generally.

We're pleased with the progress being made on the on the margins. Despite all of the inflationary pressures and as we've talked.

We feel that the margin profile for Q2 will be relatively consistent with Q1.

Largely due to the preponderance of the remaining legacy price contracts should be flowing through in Q2 and then.

That's kind of the jump off point, if you will to head to the second half and start experiencing some.

Some significant.

Or meaningful sequential margin improvement in the back half of the year.

Yeah.

Alright, Thanks, a lot.

Thanks, Josh.

There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.

Thank you.

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

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.