Q2 2022 Janus International Group Inc Earnings Call

[music].

Hello, and welcome to the Janus International's second quarter 2022 earnings Conference call.

Currently all participants are in a listen only mode. A question and answer session will follow the phone.

If anyone should require assistance during the conference you May Press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the call over to your host Mr. John Rolling Vice President of Investor Relations and S. P. N N. Thank you you may begin Mr. Rollins.

Thank you operator, and thank you all for joining our second quarter 2022 earnings Conference call.

You have seen our earnings release issued this morning.

Note that we have also posted a presentation as part of this call, which can be found in the investors section of our website at Janice I N T L dotcom as.

As a reminder, today's conference call May include forward looking statements regarding the company's future plans and prospects. These statements are based on our current expectations.

No duty to update them. It is important to note that the company's actual results may differ materially from Goldman.

Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission.

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 Yeah.

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, Randy Jackson, who will provide an overview of our business and give an operations update and our chief financial officer, and someone who will continue with a discussion of our financial results and outlook before we open up the call for your questions at.

At this point I will turn the call over to Ray.

Thank you John and good morning, everyone.

We had a remarkable quarter and continue to build out our record incredible results. It's an exciting time to be a Janice. We recently had the opportunity to ring. The bell at the New York Stock Exchange in July .

This event celebrated our one year anniversary since becoming a publicly traded company and our 20 year anniversary to delivering leading solutions products and services to our customers.

Now turning to the second quarter of 2022.

Janus produced strong operational and financial results that included record revenues.

Sequential margin improvement record backlog and strong cash generation.

Against the backdrop of macroeconomic uncertainties, the self storage industry continues to flourish.

As it has in the past with persistently high demand and occupancy rates driving the need for new capacity additions in the form of expansions conversions relocatable storage units and unit mix changes.

Our customers are larger better funded and more strategically focused than at any point in our industry has passed.

As the leading provider of value added solutions for customers across the self storage commercial and industrial building industries. We believe we are uniquely positioned to continue benefiting from these market dynamics and to gain market share regardless of how that capacity is added.

As a reminder, our margin profile was similar for Greenfield, new construction and for our three.

We remain focused on a number of key growth strategies and our commercial segment, we continue to build out their rolling still product line at our Aster business unit and are benefiting from additional opportunities that the D. B C. I acquisition brings to that segment.

On the Nokia front, we are leveraging the prior year acquisition of <unk> to accelerate growth.

Which once again resulted in strong revenue quarter to date.

As we mentioned on our last call in April we launched gnocchi screen. The latest in a line of award winning Smart security products in this low key smart entry product line.

Gnocchi screen boasts several exciting design features it's controller in key pad design improves functionality and reduces the cost of upgrading access control systems. We're very excited about the gnocchi product line and its growth trajectory and look forward to it being at an increasing part of our solutions offering and prep profitability.

<unk>.

Now shifting to the financial highlights for the quarter, we delivered consolidated revenues of $247 7 million, an increase of approximately 42% as compared to the same period last year or approximately 27% on an organic basis.

This growth reflected strength in all three of our sales channels with commercial and other leading the way.

And we continue to benefit from the contributions from the <unk> and ACG acquisitions that closed during the third quarter last year.

Our adjusted EBITDA of $50 7 million came in at approximately 41% higher than Q2 of 2021.

Which was a solid performance given the higher cost we are experiencing in many parts of our business.

Adjusted EBITDA margins were roughly stable year over year, but due to our volume growth commercial actions and productivity initiatives margins increased sequentially for the second consecutive quarter rising by 100 basis points over the first quarter of 2022.

And while we continue to see inflationary pressures on raw materials labor and logistics, the cumulative margin improvement over 200 basis points as compared to our recent trough in Q4 of last year provides clear evidence that our commercial actions and cost saving initiatives, we implemented last year.

Working.

Our company continues to generate strong cash flows when Janssen will discuss in further detail shortly.

Year to date, our free cash flow conversion was 84% 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 goal of two and a half to three and a half times adjusted EBITDA, while being opportunistic as M&A situations present themselves.

We have earned a market leadership position within self storage industry and continue to gain market share with the commercial sales channel. This is a testament to our role as a full lifecycle partner and solutions provider to our customers.

In summary, our end markets remains strong in Brazil, yet, particularly the self storage industry.

Which as we have highlighted before is an event driven end market as facility owners accelerate investment to meet the increased demand for capacity, we look to leverage our leading market position to capture additional share and create long term value for our stakeholders.

All of this has resulted in our increased outlook for revenue and EBITDA in 2022.

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

Thank you Amy and good morning, everyone in the second quarter revenue of $247 7 million was up 42, 2% compared to the prior year quarter and 27, 4% on an organic basis driven by solid execution in all three of our sales channels.

<unk> and other was up 81, 6% restore rebuild and replace or what we referred to as our three was up 34, 3% and new construction was up 17, 3% versus the prior year quarter.

The impressive 82% growth from our commercial and other segment was attributable to a favorable market gains driven by the growing need for E. Commerce logistics among the many end markets that this sales channel services, along with share gains in both the commercial steel roll up their market and their asked a rolling steel door statements.

Alright.

While the industry faces ongoing supply constraints or lead times continue to be favorable resulting in superior execution with our customers, particularly in the commercial sales channel.

Our three growth of 34% in the quarter continues to be bolstered by new capacity additions in the form of conversion and expansions.

The focus of new capacity additions remain weighted towards our three offering as opposed to Greenfield site, but it is rainy alluded to previously we're largely indifferent from a margin perspective.

And new construction, we continue to see growth in that sales channel as we worked through the pent up demand caused by permitting and other construction delays that occurred during pandemic impacted 2021.

Our consolidated revenue growth continues to reflect improved demand across all our end markets. The benefits of commercial actions taken to address the inflationary pressures and contribution from the D. B C. I N S.

ACP acquisition, which occurred in the third quarter of 2021.

Adjusted EBITDA of $50 7 million was up 41, 1% compared to the year ago quarter.

Higher revenue was the primary driver of EBITDA growth, partially offset by higher cost of sales and general administrative expenses, along with incremental costs associated with being a public company.

Higher year over year raw material costs remain although I would point out that the price of steel, which is our largest input has come off from its recent spike in February .

The decrease value, we do have a lag from when order to production standpoint of when that decrease will come into effect within our business.

In the quarter, we initiated another round of commercial actions to further offset inflationary pressures, which we have seen like many others across the board from raw materials to labor.

Adjusted EBIT margin for the quarter was 25% a decrease of only 10 basis points from the year ago quarter. Despite the inflationary impact of raw materials labor and logistics, our head of commercial actions taken pulled back.

More importantly, the result for the quarter showed an improvement of 100 basis points from the first quarter and over 200 basis points versus for <unk> 2021.

Recall that on our fourth quarter call, we talked about how we expected margins to bottom out in the fourth quarter of 'twenty, 'twenty, one and improve as commercial and productivity actions take hold.

We started the year with approximately 15% of our backlog representing legacy price contract.

And finished the end of Q2 with an immaterial amount of legacy price contracts remaining within your backlog.

These steps along with progress we are making in achieving D. B C identity are all positive signs of how our strategy to grow the business and improve margin is working.

For the second quarter 2022 we produced adjusted net income of $24 8 million, which was up 22, 8% from second quarter 2021.

Adjusted net income was favorably impacted by higher revenue during the quarter offset somewhat by an increase in SG&A expense.

Adjusted diluted earnings per share of 17 cents compares to 25 in the year ago quarter.

And adjusted EPS, primarily reflects a significantly higher outstanding share count as a result of becoming a public company in 2020 one.

We had another solid quarter of cash flow generation second quarter cash from operating activities was approximately $18 4 million and free cash flow was approximately $16 million.

This represented 65% free cash flow conversion for the quarter and 84% year to date, adding to our multi year trend of strong conversion of adjusted net income to cash.

We expect to generate strong cash flows going forward, putting us in a solid position to lower leverage over time, while remaining flexible for accretive M&A.

From a balance sheet perspective, we closed the quarter with $710 1 million of total debt.

47 million of cash and equivalents and a net leverage of three nine times net debt to adjusted trailing 12 months EBITDA down from four three times at the end of the first quarter.

Our performance continues to demonstrate our ability to delever quickly.

Turning to outlook I'm pleased to announce that based on our solid first half of 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 940 to 960 million up from the range of 890 to 910 million previously.

At the midpoint. This represents a 26, 6% increase compared to full year 2021 result.

Driven primarily by a combination of commercial action and volume related organic growth and the addition of D. B C. I N D C T.

We now expect adjusted EBITDA to be in the range of $204 million to $211 million.

Up from a previous range of $193 million to $200 million.

At the midpoint. This represents a 40% increase versus the full year 2021 results.

From a revenue perspective, our upwardly revised outlook reflects our strong first half results, including the execution of pent up demand in the new construction sales channel to start the year and continued strength in our commercial and other sales channels.

Expect growth the balance of the year to reflect the strong underlying fundamentals, we see across all three sales channels.

We expect adjusted EBITDA margins in the third and fourth quarter to continue to improve.

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.

Thank you I will now turn the call back to Randy for closing remarks.

Great. Thank you again and some we.

We are proud of how Janus has performed in the first half of 2022.

Particularly in such uncertain times, 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.

These results are a testament to the execution by our team and the strength of our end markets.

We will continue to build on this momentum 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, ladies and gentlemen at this time well 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 May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment it may be necessary.

To pick up your handset before pressing the star kit.

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

Thank you good morning, everybody morning Ribbon morning.

So.

I think in the broader building products States inventory risks has has been a topic of late can you just talk about.

Why that doesn't impact you guys I know, what you're building in both sides of your business or our <unk>.

Custom made to order, but can you just kind of confirmed.

Confirm that end and I guess in the same vein talk about visibility you have into the second half.

And then if you could.

Yeah Ruben.

Thanks for your question. This rainy yeah. Good question I think you know that the best way to look at it from an inventory perspective as you know considering the end market. The robust kind of end market that we're in today in storage. We've we've chosen to invest in inventory to make sure we have enough supply for our customers.

But as you mentioned.

You know we are a build to order a solutions provider.

So we're not seeing a lot of those headwinds that others that are that are speaking to them and then in addition to that our backlog remains at an all time high. So when you when you think about visibility all of our early indicators into our business are at all time highs right now so you.

You know a tremendous amount of confidence in and you know in terms of the momentum to continue the momentum through the second half of the year.

Okay and I appreciate the color on the second half EBITDA margin you talk more specifically about the gross margin line, where do you stand from a price cost stem.

You know the law.

Max being virtually all how.

How should we expect kind of a.

Step function higher in and when do you start to see the benefits of the lower.

Steel costs broker.

Sure. Thanks for the question if you look at the prior guidance. We talked about is that we said that the first two quarters would be at a certain merger in the second half would be at our increased marketing.

That's due to the commercial activities and actions that we've put in place in those and the last one he ended at end of Q2. So we'll start seeing the benefit it was starting at the end of Q2 into the second half.

In terms of your question about steel prices as we said in prior calls it the lump the lead time for our from our coil steel to our doors is a fairly significant time and if you actually factored in for US will most likely not see a large benefit until the end of the quarter four and into 2023 is when we'll see.

The benefits from this deal.

Okay, Great and just a quick so.

Directionally can you tell on where.

Gross margin is kind of like the midpoint of your EBITDA margin guidance is is most of the sequential margin improvement or all of it coming at the gross line.

Yeah, it's approximately about 60 parent is going to be about price and the balance is going to be about volume.

Okay perfect. Thank you guys congrats on the Hello.

Thanks Reuben.

Our next question comes from the line of Jeffrey Hammond with Keybanc. Please proceed with your question.

Hey, Good morning, everyone. This is David Tarantino on for Jeff.

Hey, David.

Yeah, Yeah, so given the improvement in commercial was specifically impressive could you give us some more color on the raise guidance more broadly by each of the sales channels in both self storage and commercial and kind of how that plays out in the second half.

Yeah, I'll actually growth is it was spread actually but when all three of our major channels and Thats. What we saw so it wasn't just the commercial we actually saw the growth across all the major channels.

Great and then kind of looking out more specifically kind of.

On the back of the margin questions kind of how do you see that playing out sequentially through the second half.

Yes, we will see a bump in Q3 as we got it and then I'll see another bump in Q4 as the commercial actions.

Okay.

Take hold.

Great. Thanks, guys.

Thank you.

As a reminder, it is star one to ask your question. 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.

First one is kind of dovetailing off that last question there.

You know as we move forward how are you thinking about business mix I mean do you still I know, it's been pretty even in this most recent quarter, but do you expect particular strength in any segment as we move forward.

Yeah. Good question good morning, John .

I think to answer your question you know, we see consistency in growth with all the sales channels I think what you'll see kind of in the back half of this year as new construction will start to pull through more on the self storage side.

As you may remember kind of permitting issues as it relates to the pandemic you know those are start starting to cycle through our our backlog as we speak and I see that to be relatively strong with the remainder of the year.

Okay. That's helpful. And then just getting back to the steel a flow through into the P&L.

Is that timing pretty consistent with what you've seen historically has it been kind of expanded or extended given what's going on in Russia, Ukraine, maybe in the lockdowns in China or anything like that.

I think it's been relatively consistent if anything a little bit longer I think if you'll remember back last year, you know, there's a scarcity of supply of steel. So we chose to to buy ahead and make sure we had enough inventory to.

To satisfy our end markets and the growth that they're experiencing so I would say a little bit longer than normal.

Great. Thanks, very much guys.

Thank you. Thank you.

There are no further questions in the queue at this time I'd like to hand, the call back to Mr. Jackson for closing remarks.

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

Yeah.