Q3 2022 Janus International Group Inc Earnings Call
Hello, and welcome to the Janus International third 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 then zero on your telephone keypad.
As a reminder, this conference is being recorded.
I'd now like to turn the call over to your host Mr. John Rolling Vice President of Investor Relations and F. P&I. Thank you Mr. Rolling you may begin.
Thank you operator, and thank you all for joining our third 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.
M S.
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 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.
Or is 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 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 margins adjusted net income and adjusted EPS. Please see our earnings release 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, Anthony Wong, 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 Randy.
Thank you John good morning, everyone.
We delivered yet another quarter of outstanding results as we continue to build on our momentum in 2022.
Especially encouraging is the fact that we achieved these results against the backdrop of significant economic uncertainty.
Which is a testament to the fundamentals of our industry and the execution by our company.
It also illustrates how our customers, particularly in self storage continue to enjoy high demand and business fundamentals that should drive a sustained period of investment to add new greenfield capacity conversions or expansions within an industry in need of it.
These results wouldnt be possible without the combined effort of all of our employees and I want to take a moment to personally thank them for their professionalism and hard work.
Now turning to some specific thoughts around the quarter Janus once again produced outstanding operational and financial results that included record revenues strong margin improvement a meaningful decrease in leverage and solid cash generation.
Bundle metals inherent throughout the industry that I. Just described are fueling investment decisions by our customers, providing the strong tailwind we enjoy today and expect to realize for years to come.
Their choice to add much needed capacity through conversions and expansions continue to power our restore rebuild and replace business. In addition to robust greenfield new construction activity benefiting net side of our business.
The strong results for the quarter were also driven by our integration activities with respect to <unk> and ICT business.
The synergies from those two acquisitions are coming in above our initial expectations and at a faster pace.
I am proud of our integration teams effort to drive additional value from both and I'm excited for how each expands our exposure to key end markets.
Nokia had another strong quarter.
As the addition of Acte's high quality low voltage installation and integration capabilities is helping us enhance our offerings there.
Growth in Nokia continues consistent with our expectations and we look forward to adding additional color on its performance as it becomes more meaningful portion of our results.
Now shifting to the financial highlights for the quarter.
We delivered consolidated revenues of $263 million, an increase of approximately 40% as compared to the same period last year or approximately 35% on an organic basis.
The growth reflected strength in all of our sales channels with commercial another once again, leading the way and we continue to benefit from the contributions from the <unk> and <unk> acquisitions, which contributed $8 7 million in the quarter.
Our adjusted EBITDA of $63 million came in approximately 74% higher than Q3 of 'twenty one.
Which represents an adjusted EBITDA margin of 24, 1% an improvement of 480 basis points year over year during the quarter commercial actions cost saving initiatives and volume growth had a significant impact helping to offset higher costs. We continue to experience in many parts of our business.
Our company also continues to generate strong cash flows with Janssen will discuss in further detail shortly.
Year to date, our free cash flow conversion was 71% of adjusted net income.
We expect cash conversion to remain solid over time, putting us in a strong position to focus on maintaining our leverage within our target range of two 5% to three five times, adjusted EBITDA, well being flexible for value enhancing opportunities.
I want to expand on the point about leverage I am extremely proud that we've been able to achieve our target range less than 18 months after becoming a public company solid execution strong underlying fundamentals and prudent uses of cash put us in the enviable position today, where we can run the business.
With a healthy balance sheet, while being able to analyze both organic and inorganic growth opportunities.
Our end markets remains strong and resilient and we look to leverage our leading market position to capture additional share and create long term value for all stakeholders.
All of this has resulted in an increased outlook for revenue and EBITDA in 2022.
With that I'll turn the call over to Ann sung for an overview of the financials and updated outlook for the full year.
Thanks, Amy and good morning, everyone in the third quarter revenue of $262 $5 million was up 39, 8% compared to the prior year quarter and 35, 2% on an organic basis, driven once again by solid execution in all three of our sales channels commercial and other was up 15, 3%.
<unk> are three of the 49.1% and new construction was up 13, 8% versus the prior year quarter.
The impressive 58, 3% growth from our commercial and other segment demonstrates another strong quarter of marquee games that were driven by the growing need among the many end markets. At this sales channel services. It also was driven by continued share gains in both the commercial sheet roll up door market and in our Aster Rolling steel door segments product line.
Benefit from continued synergy realization from BBC.
Our three growth of 49, 1% in the quarter continues to be bolstered by new capacity additions in the form of conversions and expansions the focus of new capacity additions remains weighted towards our three offerings as opposed to Greenfield new construction site driven by the availability of Idaho brick and mortar retail capacity to our customers.
We continue to see growth in new construction, albeit at a lower pace than commercial in our three as pent up demand caused by permitting and other construction delays that occurred in pandemic impacted 2021 continues to flow through to our results.
On a consolidated basis, our revenue growth continues to reflect improved demand across all our end markets commercial actions taken to address inflationary pressures can trap of contributions from the <unk> and ECT acquisitions and synergy realization from those acquisitions occurring ahead of expectations.
Adjusted EBITDA of $63 3 million was up 74, 3% compared to the year ago quarter higher revenue from a mix of price and volume was the primary driver of EBITDA growth, partially offset by higher year over year cost of sales.
Raw material costs as compared to three EQ last year continued for steel labor and logistics the combination of solid demand commercial actions cost saving initiatives and acquisition synergies is expected to help offset continued high labor and logistics costs and keep us closer to the margin profile, we view as more representative of our business.
Is it.
Adjusted EBITDA margin for the quarter was 24, 1% an increase of 480 basis points from the year ago quarter. Despite the inflationary impacts of raw material labor and logistics since.
Since the fourth quarter of last year, we have worked through all of our legacy price contracts and our contracts going forward are designed to much more closely match moves in our input cost by design, eliminating prolonged legs in cost recovery in times of high inflationary impacts.
These steps along with the progress, we're making in seeding or expectation for D. B Ci and ACP synergies are all positive signs of our strategy to grow the business and improve margins is working.
For the third quarter 2022, we've reduced adjusted net income of $32 3 million.
Which was up 111, 4% from third 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 22 compares to 11 cents in the year ago quarter.
We had another solid quarter of cash flow generation third quarter cash from operating activities was approximately $19 4 million and free cash flow was approximately $16 $8 million.
This represented a 52% free cash flow conversion of net income for the quarter and 71% year to date, adding to a multi year trend of strong conversion of adjusted net income to cash continued investment working count was the primary driver of the lower than typical rate of net income conversion to free cash flow, we expect to return to more typical low the free cash flow conversion of men.
Income in the coming quarters.
From a balance sheet perspective, we closed the quarter with $709 6 million of total debt.
$55 3 million of cash and equivalents and a net leverage of three three times net debt to adjusted trailing 12 months EBITDA down from three nine times at the end of the second quarter. Our performance continues to demonstrate our ability to delever quickly. We are now focused on maintaining our leverage within our target range of two five to three five times.
Turning to our outlook I am pleased to announce that based on our solid year to date results continuous drove backlog and our current visibility of end markets. We are raising our full year 2020 outlook for revenue and adjusted EBITDA revenue is now expected to be in the range of 990 million to 1.01 billion up from the range of.
$940 million to $960 million previously at the midpoint. This represents a 33, 3% increase compared to full year 2021 results driven primarily by a combination of commercial actions and volume really the organic growth and the full year additions of <unk> and ECT, we expect growth in the fourth quarter to reflect the strong.
Underlying fundamentals, we see across all three sales channels.
We now expect adjusted EBITDA to be in the range of $218 million to $225 million up from the previous range of $240 million to $211 million at the midpoint. This represents a 49, 5% increase versus the full year 2021 results. We expect adjusted EBITDA margin in the fourth quarter to be in line to slightly higher sequentially.
From the third quarter, resulting in a solid year of margin improvement in our business.
Thank you I will now turn the call back to rainy for closing remarks.
Great. Thank you again anthem, our results continue to reflect the power of the Janus platform as we execute well in the early innings of what we believe is a strong multiyear demand environment we.
We delivered record revenues achieved significant recovery in EBITDA margins realized acquisition synergies ahead of schedule and attained our leverage targets ahead of schedule. These.
These results are a testament to the execution by our team and the strength in our end markets I expect we will 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, we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is now do you May press star two if he 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 keys.
One moment, please while we poll for questions.
Our first question comes from the line of Jeffrey Hammond with Keybanc capital markets. Please proceed.
Hey, Good morning, everyone. This is David Tarantino on for Jeff.
Hey, David Hi, David.
Could you maybe give us a little bit more color on margins both in the third quarter and what's implied in guidance, maybe just kind of splitting out the moving pieces between price realization volume and it sounds like there was also some benefits from the integration of D. B C and D PCI in ACD.
Sure Great question, and if you look at our margins as we have discussed previously we expected a step up from Q2, and if you look at what happened this quarter.
Ballpark it breaks out to about 80% of the increase was due to price, but 10% was inorganic and about the balance of the 10% was organic growth from the margin.
Okay, Great and then maybe just flipping to commercial.
As of late it's been really impressive maybe could you give.
Give your thoughts on how sustainable both kind of the growth and the share gains can be.
Yeah. Great question. This is Ronnie look I think.
We continue to outperform in that business segment.
I think it's proven that our products not only our products, but our services to our new customers are sticky. So we're retaining those accounts, but what's interesting and what we're finding out is a lot of those sales are kind of gear kind of multi and usage rights. So different markets that they are servicing.
And more geared to R&R.
So less of more of a specification new construction type of sell it it's more of a replacement. So it's a good question on sustainability, we certainly didn't expect or forecast. This type of growth that we're going to do everything we can to.
To retain these customers.
Great. Thanks, guys.
Thank you.
Our next question comes from the line of Reuben Garner with the benchmark company. Please proceed.
Thank you good morning, everybody.
Hum.
So the progression you just gave for margin from Q2 to Q3 can you talk about what's kind of implied in the guidance in the fourth quarter.
And where we're going to exit the year from a gross and EBITDA margin standpoint are those.
It's the right way to think about that but that's the base for next year and any volume growth or declines would would drive increases or decreases in that margin for.
For next year or is there seasonality to the margin just talk about the progression.
It's a great way to put it so thanks for the question. So our expectation is implied is that what you saw in Q3 is what youll see again in Q4, and it's a good way to think about what's the step up point thrown into going into next year I think at the same time, we just want to remind is that.
It's still an uncertain market and there's still other costs, they're managing and hopefully as we go roll into the new year, we will actually start seeing some of the lower steel prices.
We said that we would probably start seeing in Q1, but that's kind of how you should think about it.
Sure.
Okay. So in other words.
There could be upside as the steel costs come down if youre able to hold that hold the pricing.
Initiatives that you've that you've had.
But I think as we said prior calls will be competitive in the market, where we need to be so it's a balance that we're looking at but I think thats kind of thinking about it.
Okay, Great and then.
The self storage.
Market in general as you're having conversations with your customers in the last few months any.
Thoughts on how there.
Thinking about next year from an investment standpoint on there and obviously a lot of eyes on housing and mortgage rates and that sort of thing any changes to the trajectory in that business.
I think.
Things are getting back to kind of normalization from a seasonality perspective, but the actual drivers are still tremendously robust.
When you think about the pandemic and some additional drivers that were created with kind of work from home Decluttering and then also commercial warehouse space is more expensive and we're starting to see a lot more commercial tenant usage.
So that's that's certainly.
And thats at the backdrop of kind of the housing market right. So I guess the question is how meaningful it is are those additional drivers and how will they impact long term sustainability.
But everything seems to be robust as you know Reuben in terms of our design services, we have great visibility in a year or two in advance and all of those kind of leading indicators still remain robust and strong.
Notwithstanding kind of the overall kind of global economy, where certainly conscientious of that as well, but from our perspective things seem very very kind of robust and moving forward very optimistic.
Great. Thanks, Congrats on the results and good luck going forward.
Thank you.
Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed.
Good morning, Congrats on the really strong results. Thanks for taking the questions remain and some.
It's just getting too.
Piggybacking on the demand question any meaningful differences or change in demand.
Construction in our three by region as we kind of think about.
Looking at the different regions across the U S. And then what are you seeing internationally as well, yes, great question.
I think when you look at the demand. This is more around kind of pandemic driven youre seeing a lot more capacity.
Being brought online in the suburban kind of tertiary markets.
Kind of new construction and cover conversions, but when you think about.
And the top Msas, we're seeing a tremendous amount of our our three work being deployed through M&A and then also just old facilities.
Being upgraded to remain competitive.
And so that's kind of what we're seeing with new demand capacity as it moves around the country and then as it relates to international obviously Europe is a mess right now that we're still very optimistic around Canada. The yen market as it relates to self storage again, our pipelines.
Our I'm sorry, our early indicators are still telling us there's a tremendous amount of demand and pick up there. So we're very encouraged by.
Our early indicators in terms of what we see to drive the business.
Very helpful.
Hum.
And then.
Just a couple of housekeeping things just kind of your blended interest rates, where we sit today, you know exiting the quarter and borrowing capacity as leverage continues to tick lower.
And I think as you saw leverage again delever six down to three three range and I think if you look at the cash balance again improved as well to about $55 million range in terms of the blended interest rates. You know we have a floating rate and I believe the kind of the in rate was approximately the net.
6% range that we got and I think from a affordability managed point of view I think still that we are in a range that makes sense for us to manage and at the current time I'm cognizant of the <unk>.
As interest rates increase we're looking at all options in terms of what we do and the good thing is that we're in a good position with the strong cash flow that we're generating.
Okay.
No question.
You did seem to indicate that.
<unk> been now comfortably below the high end of your target range.
You know you start to look a little bit and just more in terms of M&A is in addition to internal investment.
Or would you kind of lean on.
It may be paying debt down debt a little bit faster.
Yes.
Continuously rising rate environment.
Sure Yeah, we're definitely always looking out for what's the right capital allocation decision I think all options are on the table that we look at including the ones. You mentioned there I think you can kind of give a bit more further but I think everything's on the table. As you said, we look at yes. As you know M&A is very important to us. It's a part of who we are and puts us to where we are.
Today, So we're certainly.
Being opportunistic there and looking at opportunities and it feels like there will be some good opportunities as it relates to valuations moving forward. So.
With like anthem said, it's really about option that optionality and enjoying that.
Alright, and last for me and I'll jump out, but maybe and maybe this is a little bit high level, but.
This morning, notwithstanding nice to see the recovery, but.
Sure sure so some of your.
Customers publicly traded Reits you now we're closer to a 52 week lows you know at least as over the last few days, maybe just talk about what investors are missing not necessarily for self storage story, but the Janus story and how it may be a little bit different differentiated from.
Some of those some of your customers that are you kind of get painted with the same brush.
That's a very good question Dan I appreciate it so I think the best way to answer that as you.
You can look at the diversity of our platform. So we're not 100% tied to new construction we have.
Our growth drivers that are around kind of gnocchi smart entry commercial and then our three.
And typically when we've seen self storage new construction slowdown, we've seen a tremendous investment into existing portfolios.
One of the listed customers that is one of our top accounts announced a $1 billion kind of capital allocation towards redevelopment and why that's music to our years as its 100% or three opportunity for us. So I think it's a testament to the diversity of the platform.
And then notwithstanding the commercial ASP.
Aspect as well, we continue to make meaningful.
Market share gains in that segment.
And then also the gnocchi smart entry, it's again, it's not a big part of our revenue today, but it's growing we're very happy with the progress that we've been able to achieve.
See again, a greater opportunity in terms of it becoming more.
A meaningful part of our revenue so I think that's kind of the difference between.
The service provider into the industry as opposed to the.
Kind of end market so to speak.
Thanks again for the color I appreciate it.
Thanks, Dan Thanks, Dan.
Our next question comes from the line of Stanley Elliott with Stifel. Please proceed.
Hey, good morning, Thank you guys for taking the question.
You mentioned, you know could still be small I mean, what are some of the things you're doing or what are you hearing from some of the tests that are out there in the marketplace.
Maybe some of the other things you're doing to position us to grow and when it start when you start to get more traction I mean, how quickly can this ramp up do you think.
Yes, great question.
Look at in terms of.
It's growth, it's on par with our expectations at the moment.
What we're doing in terms of.
The customer experience is the ACD acquisition is allowing us from an installation perspective to really get it right theyre low voltage professionals and we're in the process of scaling that out for the future growth that we're expecting.
In terms of outsized growth, we certainly know it's going to happen, we're working with the largest.
Operators in the business to see how that kind of integrates into their platforms and so we're optimistic around that as well and keep in mind Stanley. It's really just a baseline opportunity to expand right. So once we get in with the Gnocchi Smart entry Theres a lot of opportunities for other sensors.
And so it's really.
From our perspective, just a baseline opportunity that can accelerate in a meaningful way.
And Rami.
Amy you mentioned.
Good backlog good visibility could you remind us a little bit.
How far does this backlog extend.
Just curious kind of what sort of visibility you have here.
Yes in our design.
Pipeline looks from a year or two in advance right. So we're doing a lot of the design work before construction even starts and we're doing a lot of design work on projects that may not even go so we have great visibility there and as it relates to our.
Backlog in new construction, it's around a year.
Burn rate on our backlog so again.
From our perspective very good visibility into what's what's coming in the next 12 months.
Perfect guys. Thanks for the time and congratulations and best of luck. Thank you.
Okay.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of John Lovallo with UBS. Please proceed.
Good morning, guys. Thanks for taking my questions.
The first one is if I remember correctly fourth quarter of 'twenty, one had some pull forward in new construction I was hoping you could quantify what that is and maybe adjusting for that would you expect organic revenue growth.
And then in the fourth quarter.
I guess I can hit on Q4 of last year that really was kind of pandemic related as it relates to permitting and things of that nature I think thats, that's normalized as it relates to new construction flowing through our backlog and we expect more normalized kind of growth rates in new construction moving.
Forward.
Got you, Okay, and then maybe you touched on this before but just kind of crosscurrents with the macro deteriorating, but self storage industry and are in a good spot. How do you kind of think about those dynamics as we move into next year from an organic revenue perspective.
Yes, great question.
Again, let's just assume there is normalization in new construction.
With the <unk>.
<unk> momentum and the age of the self storage asset class, there is meaningful opportunity and a drive towards bringing older facilities up to today's standards to be competitive and also look at the technology upgrade opportunity is meaningful as well so from my perspective, when you look.
Our growth drivers on the platform it's.
I see a very robust outlook.
Got it thanks guys.
Thanks, John .
Thank you. This concludes the question and answer session I would like to turn the call back to Randy Jackson for closing remarks.
Thank you everyone for joining us today, we appreciate your support of Janus International and look forward to updating you on our progress have a great day.
Thank you. This concludes today's conference you may now disconnect. Thank you for your participation.
Okay.