Q2 2024 Janus International Group Inc Earnings Call
Speaker Change: Good morning and welcome to the Janus International Second Quarter 2024 earnings conference call.
Operator: Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Sara Macioch, Senior Director of Investor Relations. Please go ahead.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Sara Macioch, Senior Director of Investor Relations. Please go ahead.
Sara Macioch: Thank you, Operator, and thank you all for joining our Earnings Conference call. I am joined today by our Chief Executive Officer, Ramey Jackson, and our Chief Financial Officer, Anselm Wong.
Sara Macioch: Thank you, Operator, and thank you all for joining our Earnings Conference Call. I am joined today by our Chief Executive Officer, Ramey Jackson, and our Chief Financial Officer, Anselm Wong.
Sara Macioch: We hope that you have seen our earnings release issued this morning. We have also posted a presentation in support of this call, which can be found in the Investor section of our website at janusintl.com. Before we begin, I would like to remind you that today's call may include forward-looking statements. Any statements made describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements. The company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control.
Speaker Change: We hope that you have seen our earnings release issued this morning. We have also posted a presentation in support of this call, which can be found in the investor section of our website at janusintl.com.
Speaker Change: Before we begin, I would like to remind you that today's call may include forward-looking statements.
Speaker Change: Any statements made describing our beliefs, goals, plans, strategies, expectations, projections, forecasts and assumptions are forward-looking statements.
Speaker Change: The company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control.
Sara Macioch: Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business, prospects, and future results. We assume no obligation to update publicly any forward-looking statements, and any forward-looking statement made by us during this call is based only on information currently available to us and speaks only as of the date when it is made. 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.
Speaker Change: Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business, prospects, and future results.
Speaker Change: We assume no obligation to update publicly any forward-looking statements, and any forward-looking statements made by us during this call is based only on information currently available to us and speaks only as of the date when it is made.
Speaker Change: 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.
Speaker Change: Please see our release and filings for a reconciliation of these non- GAAP measures to their most directly comparable GAP measure.
Sara Macioch: Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. On today's call, Ramey will provide an overview of our business, Anselm will continue with the discussion of our financial results and 2024 guidance before Ramey shares some closing thoughts, and we open up the call for your questions. At this point, I will turn the call over to Ramey.
Speaker Change: On today's call, Ramey will provide an overview of our business. Anselm will continue with the discussion of our financial results and 2024 guidance before Ramey shares some closing thoughts and we open up the call for your questions. At this point, I will turn the call over to Ramey.
Ramey Jackson: Thank you, Sara. Good morning, everyone, and thank you for joining us. As I go through my prepared remarks, I'd like you to focus on some key themes. First, Janus is demonstrating resilience during a dynamic time in our end market. Second, looking beyond the current headwinds, we believe the long-term fundamentals in each of our sales channels remain intact. And finally, our financial results, balance sheet strength, and reliable cash generation reflect the durability of our business model and continued strong execution by our team.
Ramey Jackson: Thank you, Sara. Good morning, everyone, and thank you for joining us. As I go through my prepared remarks, I'd like you to focus on some key themes.
Ramey Jackson: First, Janus is demonstrating resilience during a dynamic time in our end markets.
Speaker Change: Second, looking beyond the current headwinds, we believe the long-term fundamentals in each of our sales channels remain intact.
Speaker Change: And finally, our financial results, balance sheet strength, and reliable cash generation reflect the durability of our business model and continued strong execution by our team.
Ramey Jackson: During the second quarter, we encountered a more cautious environment in our end markets as a number of factors combine to impact demand from our customers. Concerns around the higher for longer interest rate environment resulted in some temporary deferrals of projects until the outlook is clear.
Speaker Change: During the second quarter, we encountered more cautious environment in our end markets as a number of factors combined to impact demand from our customers.
Speaker Change: Concerns around higher-for-longer interest rate environment resulted in some temporary deferrals of projects.
Ramey Jackson: Self-storage is a long-term business, and our customers are continuing to invest in the long-term future of their assets while keeping a watchful eye on broader market trends. We bolstered our offerings in the commercial market during the quarter through organic investment and M&A in an exciting adjacent category. Working with our customers to better align our structure with their needs, during the quarter, we opened a distribution center in Mount Airy, North Carolina, allowing us to stock on site and fill orders in a timelier fashion.
Speaker Change: Until the outlook is clear.
Speaker Change: Self Storage is a long-term business and our customers are continuing to invest in the long-term future of their assets while keeping a watchful eye on broader market trends.
Speaker Change: We bolstered our offerings in the commercial market during the quarter through organic investment and M&A in an exciting adjacent category.
Speaker Change: Working with our customers to better align our structure with their needs, during the quarter we opened a distribution center in Mount Airy, North Carolina, allowing us to stock on-site and fill orders in a timelier fashion.
Ramey Jackson: We expect to see benefits from this beginning in the third quarter. On the M&A front, in May, we acquired Terminal Maintenance and Construction, or TMC, a premier provider of terminal maintenance services for the LTL freight industry in the southeastern United States. TMC will focus on commercial customers, where it provides trucking terminal renovation, remodeling, and maintenance services.
Speaker Change: We expect to see benefits from this beginning in the third quarter.
Speaker Change: On the M&A front, in May, we acquired Terminal Maintenance and Construction, or TMC, a premier provider of terminal maintenance services for LTL freight industry in the southeastern United States. Thank you. Thank you. Thank you.
Speaker Change: TMC will focus on commercial customers where they provide trucking terminal renovation, remodeling, and maintenance services.
Ramey Jackson: Over time, we expect to unlock further value by integrating their capabilities to support the growth of our Facilitate division, which provides complete facility maintenance services for self-storage. The integration of TMC is on track, and we are pleased with the contribution they made during the quarter. On a broader note, adding capabilities and adjacent categories complements our core sales channels and increases our total addressable market. We believe that our strong track record of delivering on synergy targets and executing smart M&A transactions has positioned us to deliver growth increases and profitability. Now, let me give you some high-level thoughts on our performance in the second quarter.
Speaker Change: Over time, we expect to unlock further value by integrating their capabilities to support growth of our Facilitate division, which provides complete facility maintenance services for self-storage.
Speaker Change: The integration of TMC is on track, and we are pleased with the contribution they made during the quarter.
Speaker Change: On a broader note, adding capabilities and adjacent categories complements our core sales channels and increases our total addressable market.
Speaker Change: We believe that our strong track record of delivering on synergy targets and executing smart M&A transactions has positioned us to deliver growth, increases in profitability.
Speaker Change: Now let me give you some high-level thoughts on our performance in the second quarter. As always, everything we do at Janus is a team effort, and I'd like to thank our employees for the continued hard work, dedication, and professionalism they show every day.
Ramey Jackson: As always, everything we do at Janus is a team effort, and I'd like to thank our employees for the continued hard work, dedication, and professionalism they show every day. We delivered financial results in the second quarter that reflected continued growth in our new construction sales channel that was more than offset by softness in both the R3 and commercial and other sales channels. Those results included continued solid adjusted EBITDA margin performance and a continuation of our robust cash generation despite a decrease in revenue.
Speaker Change: We delivered financial results in the second quarter that reflected continued growth in our new construction sales channel that was more than offset by softness in both the R3 and commercial and other sales channels.
Speaker Change: Those results included continued solid adjusted EBITDA margin performance and a continuation of our robust cash generation despite a decrease in revenue.
Ramey Jackson: Our ability to effectively manage our margins speaks to the inherent flexibility in our business model. Our balance sheet strength remains a differentiator, with net leverage at the end of the second quarter of 1.7 times, down 0.3 times year over year, and below our stated long-term target range of 2 to 3 times. Turning to the performance of our sales channels, which Anselm will expand upon shortly for the second quarter of 2024, total self-storage revenue was down 6.2%.
Ramey Jackson: As strength and new construction was more than offset by weakness in R3 compared to the prior year period, this is a continuation of a trend over the last several quarters that has favored investment in self storage capacity via Greenfield sites. As we have discussed previously, there has been a return to normal levels of retail to storage conversion activity as compared to the high water marks we saw during the pandemic, which was the primary driver of the decline in R3.
Speaker Change: As we have discussed previously, there has been a return to normal levels of retail to storage conversion activity as compared to the high water marks we saw during the pandemic, which was the primary driver of the decline in R3.
Ramey Jackson: This quarter, we also saw impacts from tighter lending standards and elevated interest rates, causing operators to delay R3 work until economic conditions improve. Our commercial and other sales channel was down 12.5% in the second quarter compared to the year-ago period. The results reflected general market softness and a continued decline in demand for carports and sheds, which had risen to represent a substantial portion of the sales channel during the pandemic.
Speaker Change: Our commercial and other sales channel was down 12.5% in the second quarter compared to the year ago period.
Ramey Jackson: Despite the year-over-year top-line decline, we're excited about the addition of TMC in the quarter, our opportunities across the broader commercial space, and the potential we see to improve margins over time. On a consolidated basis, overall second quarter revenue impacts were driven roughly equally by price and volume.
Speaker Change: We're excited about the addition of TMC in the quarter, our opportunities across the broader commercial space and potential we see to improve margins over time. On a consolidated basis, overall second quarter revenue impacts were driven roughly equally by price and volume.
Ramey Jackson: Noki, our innovative suite of remote access solutions, had another strong quarter during which we increased the number of installed units to 323,000 from 300,000 at the end of the first quarter, representing a sequential growth of 7.6%. In April, we announced the addition of Nokia ION to our Nokia Smart Entry product lineup. ION, an inside the door magnetic hardwired smart locking system, represents the next step in the expansion of Nokia's capabilities to drive accelerating adoption across our customers' portfolios.
Ramey Jackson: Beta testing is underway, and we are already seeing interest from customers. We expect ION to be available for sale at the end of the third quarter, with installations and corresponding revenue impacts beginning in the fourth quarter. We continue to innovate our offerings in partnership with customers to better serve their needs. One of these needs is combating theft, which is becoming an important issue for the industry in select markets.
Ramey Jackson: In July, we announced the NS Series, which includes two new roll-up door solutions engineered to provide a heightened level of safety and security for self-storage facilities. The NS Series incorporates an enhanced design that includes anchored guides to the floor, ensuring stability and durability. A robust lower bar, equipped with secure clips that smoothly glide within the guides, combines with firmly anchored support angles on the floor to provide elevated strength and support.
Speaker Change: In July, we announced the NS Series, which includes two new roll-up door solutions engineered to provide a heightened level of safety and security for self-storage facilities.
Ramey Jackson: The NS series includes the NS plus door and the NS retro kit. The NS-Plus door is ideal for both replacements as well as new construction. The NS-Retro kit is not a door but a package that can be installed on existing Janus doors.
Speaker Change: The NS Series includes the NS Plus door and the NS Retro Kit.
Speaker Change: The NS Plus door is ideal for both replacements as well as new construction. The NS Retro Kit is not a door, but a package that can be installed on existing Janus doors.
Ramey Jackson: Our combination of strong liquidity and continued robust cash generation put us in a position to be active in our capital allocation activities during the quarter, including an acquisition in an adjacent market, share repurchases, and proactive management of our balance sheet. In summary, despite some challenges, we remain encouraged by the fundamentals that we expect to drive long-term growth for our company. We are focused on things that we can control, safely and reliably delivering services and solutions for our customers.
Speaker Change: In summary, despite some challenges, we remain encouraged by the fundamentals that we expect to drive long-term growth for our company. We are focused on things that we can control, safely and reliably delivering services and solutions for our customers.
Ramey Jackson: We look forward to working to expand our strong market position and create long-term value for all of our stakeholders in 2024 and beyond. With that, I'll turn the call over to Anselm for a further overview of our results, along with updates to our 2024 guidance.
Speaker Change: We look forward to working to expand our strong market position and create long-term value for all of our stakeholders in 2024 and beyond.
Speaker Change: With that, I'll turn the call over to Anselm for a further overview of our results, along with updates to our 2024 guidance. Anselm?
Anselm Wong: Thanks Ramey and good morning everyone. As Ramey stated, we are executing against a more muted landscape, focusing on what is within our control to better position Janus through all market cycles. Now let me dive deeper into the numbers. In the second quarter, consolidated revenue of $248.4 million was 8.2% lower as compared to the prior year quarter, with strength in new construction more than offset by declines in R3 and commercial and other. Together, our self-storage business was down 6.2%. However, new construction continued its momentum with growth in the quarter of 7.3% as customers continued to add new greenfield capacity.
Anselm Wong: In the second quarter, consolidated revenue of $248.4 million was 8.2% lower as compared to the prior year quarter, with strength in new construction more than offset by declines in R3 and commercial and other.
Anselm Wong: Together, our self-storage business was down 6.2%. New construction continued its momentum with growth in the quarter of 7.3% as customers continue to add new greenfield capacity.
Anselm Wong: R3 was off 23.5% for the quarter, driven by continued declines in retail-to-storage conversion activity as well as slowdowns in redevelopment and renovation activity. As the quarter progressed, we saw impacts from our customers delaying projects in both new construction and R3 due to uncertainty around the sustained challenging interest rate environment. While we haven't seen a material increase in cancellations, we expect that slower activity is likely to persist into the second half of the year.
Anselm Wong: R3 was off 23.5% for the quarter, driven by continued declines in retail-to-storage conversion activity as well as slowdowns in redevelopment and renovation activity.
Anselm Wong: As the quarter progressed, we saw impacts from our customers delaying projects in both new construction and R3 due to uncertainty around the sustained challenging interest rate environment. While we haven't seen a material increase in cancellations, we expect this slower activity is likely to persist into the second half of the year.
Anselm Wong: Touching on the price and volume split for the quarter, which, as Ramey mentioned, was roughly 50-50 this quarter. As we have told you before, our commercial actions are meant to reflect the premium solutions we offer, while always being mindful of defending or expanding our market share. The price component of the impact on Ramey's this quarter reflected our proactive efforts to defend that market share. Looking forward, we have the capabilities and intent to manage the margin impacts from future commercial actions as they are implemented. It's important to also note that input costs are down compared to the year-ago level.
Anselm Wong: Touching on the price and volume split for the quarter, which as Ramey mentioned, was roughly 50-50 this quarter.
Speaker Change: As we have told you before, our commercial actions are meant to reflect the premium solutions we offer, while always being mindful of defending or expanding our market share.
Ramey Jackson: The price component of the impact on Ramey's this quarter reflected our proactive efforts to defend that market share.
Speaker Change: Looking forward, we have the capabilities and intent to manage the margin impacts from future commercial actions as they are implemented. It's important to also note that input costs are down compared to the year ago level.
Anselm Wong: Given a roughly six-month lag, we expect the benefits of these lower costs to be reflected in the results starting in the early 2025, helping to offset the impact of commercial actions. Our commercial and other segments saw a 12.4% decline in the second quarter, driven by overall market softness and continued weakness in demand for carports and sheds. Second quarter adjusted EBITDA of $64.5 million was down 12.8% compared to the year-ago quarter.
Speaker Change: Given a roughly six-month lag, we expect the benefits of these lower costs to be reflected in the results starting in the early 2025, helping to offset the impact of commercial actions.
Speaker Change: Our commercial and other segments saw a 12.4% decline in the second quarter driven by overall markets and continued weakness in demand for carports and shed.
Speaker Change: Second quarter adjusted EBITDA of $64.5 million was down 12.8% compared to the year-ago quarter.
Anselm Wong: This resulted in an adjusted EBITDA margin of 26%, off 130 basis points for the prior year period. The year-over-year decrease in adjusted EBITDA margin is primarily due to lower revenues as well as a sales channel mix and increased operating expenses.
Speaker Change: This resulted in an adjusted EBITDA margin of 26% off 130 basis points from the prior year period. The year-over-year decrease in adjusted EBITDA margin is primarily due to lower revenues as well as sales channel mix and increased operating expenses.
Anselm Wong: For the second quarter, we produced adjusted income of $30.1 million, an 18.9% year-over-year decline and adjusted diluting earnings per share of 21 cents. We generated cash from operating activities of $31 million, continuing to demonstrate the robust cash generation profile of the business. Capital expenditures for the quarter were $5.7 million, up from $3.5 million in the second quarter of 2023. Our free cash flow profile reflects the resilience of our business. For the second quarter, we generated free cash flow of $25.3 million.
Speaker Change: We generated cash from operating activities of $31 million dollars to continue to demonstrate the robust cash generation profile of the business.
Anselm Wong: On a trailing 12-month basis, this represented a free cash flow conversion of adjusted net income of 116%. We finished the quarter with $234.7 million of total liquidity, including $110.1 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $600 million, and our net leverage was 1.7 times.
Speaker Change: We finished the quarter with $234.7 million of total liquidity, including $110.1 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $600 million, and our net leverage was 1.7 times.
Anselm Wong: In April, Moody's upgraded our credit rating to BA3 from B1 and revised our outlook to positive. During the quarter, we again executed against our $100 million share repurchase program and addressed our long-term debt. Year-to-date, we have repurchased 1.8 million shares for $25.4 million, prepaid $21.9 million of our first lean term loan, and repriced our first lean term loan. Now, moving to our 2024 guidance. We expect the rest of 2024 to be challenged for both volume and price, consistent with what we saw in the second quarter, with self-story results likely to remain weighted more favorably towards new construction activity versus R3.
Speaker Change: In April , Moody's upgraded our credit rating to BA3 from B1 and revised our outlook to positive.
Speaker Change: During the quarter, we again executed against our $100 million share repurchase program and addressed our long-term debt.
Speaker Change: Year to date, we have repurchased 1.8 million shares for $25.4 million, prepaid $21.9 million of our first lien term loan, and repriced our first lien term loan.
Speaker Change: Now, moving to our 2024 guidance. We expect the rest of 2024 to be challenged for both volume and price, consistent with what we saw in the second quarter with self-story results likely to remain weighted more favorably towards new construction activity versus R3.
Anselm Wong: In commercial and other, we expect the return to growth will now be pushed into 2025 compared to our previous expectation of a latter half recovery. Based on our results for the first half of the year, increased macro uncertainty, concerns around interest rates, and our current visibility into our end markets, we are adjusting our full year 2024 guidance for revenues and EBITDA as follows. We now expect revenue to be in the range of $1.005 billion to $1.035 billion, compared to $1.092 billion to $1.125 billion previously.
Speaker Change: In commercial and other, we expect the return to growth will now be pushed into 2025 compared to our previous expectation of latter half recovery. Based on our results for the first half of the year, increased macro uncertainty.
Speaker Change: We now expect revenue to be in the range of 1.005 billion to 1.035 billion dollars compared to 1.092 billion to 1.125 billion dollars previously. At the midpoint, this represents a decline of approximately 4.3% versus 2023.
Anselm Wong: At the midpoint, this represents a decline of approximately 4.3% versus 2023. We anticipate adjusted EBITDA to be in the range of $255 million to $275 million compared to $286 million to $310 million previously. That is roughly a 7.2% decline at the midpoint relative to the prior year. This equates to an adjusted EBITDA margin at the midpoint of 26% for 2024. The strength in our margin outlook despite the decline in revenues highlights the resilience of our business model and our ability to adapt to market volatility.
Anselm Wong: We have the flexibility to react quickly when fundamentals shift, and our scale means we are well positioned to manage our largest cost inputs. So far in the third quarter, we are seeing a continuation of trends that began in the second quarter with some softness in demand and project delays persisting. We also experienced weather outages at our Houston facility due to Hurricane Mero. While we are adjusting the outlook for 2024 down from our original guidance, our long-term framework remains in place. As a reminder, that long-term outlook does not contemplate any impact from commercial actions.
Speaker Change: So far in the third quarter, we are seeing a continuation of trends that began during second quarter with some softness in demand and project delays persisting. We also experienced weather outages at our Houston facility due to Hurricane Mero.
Speaker Change: While we are adjusting the outlook for 2024 down from our original guidance, our long-term framework remains in place. As a reminder, that long-term outlook does not contemplate any impact from commercial actions. Thank you. I will now turn the call over to Ramey for his closing remarks. Ramey?
Anselm Wong: Thank you. I will now turn the call over to Ramey for his closing remarks. Ramey? Thank you.
Ramey Jackson: Thank you again, Anselm. The hard work we have done and the momentum we have built is allowing us to face current challenges while executing against our capital application goals on multiple fronts, including the TMC acquisition, debt repricing, and share repurchases in the quarter. Our long-term objectives remain intact, and we are laser focused on delivering strong margins in another year of solid cash flow generation. We intend to continue expanding our differentiated suite of offerings and capabilities, helping to cement our position as the industry leader in self-steward solutions.
Ramey Jackson: Our long-term objectives remain intact, and we are laser-focused on delivering strong margins in another year of solid cash flow generation.
Ramey Jackson: Our balance sheet and expertise put us in a position to seek out and deliver accretive shareholder value-enhancing opportunities. I look forward to continuing to execute our plan as we work to drive long-term value creation for all of our stakeholders. Operator, we can now open up the lines for Q&A, please.
Ramey Jackson: Helping to cement our position as the industry leader in self-storage solutions.
Ramey Jackson: Our balance sheet and expertise put us in a position to seek out and deliver accretive shareholder value-enhancing opportunities. I look forward to continuing to execute our plan as we work to drive long-term value creation for all of our stakeholders.
Speaker Change: Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Daniel Moore with CJS Securities.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: The first question comes from Daniel Moore with CJS Securities. Please go ahead.
Daniel Moore: Thank you. Good morning, Ramey. Good morning, Anselmo.
Daniel Moore: Thank you. Good morning, Ramey. Good morning, Anselm. Good morning, David. Let me start with...
Daniel Moore: Let me start with the obvious decline in self-storage revenue was a bit surprising, more specifically R3, in relation to your typical visibility. So just talk about what you're hearing from customers. You mentioned not seeing material cancellations but more pushouts. What are they looking or waiting for specifically before moving forward on these projects?
Speaker Change: Obviously the decline in self-storage revenue was a bit surprising, more specifically R3.
Ramey Jackson: Yeah, I think, you know, when we look at new construction, we're still seeing growth there. You know, there's over 7% kind of growth. Q2, what we're seeing is, you know, customers kind of hit pause around interest rates, you know, around the broader macro. On the R3 side, we're seeing a continuation of the conversions and expansions. I think when you strip that out and look at, you know, the true conventional kind of remix refurbishment, that's relatively flat, it's still active.
Speaker Change: Yeah, I think.
Speaker Change: You know, when we when we look at new construction, we're still seeing growth there is over 7% kind of growth in
Speaker Change: On the R3 side, it's a continuation of the conversions and expansions. I think when you look at, when you strip that out and look at, you know, true conventional
Ramey Jackson: And then on the commercial side, it's, again, a continuation of the carport shed sector of that business that we anticipated a little bit of growth this year, but that's been pushed out to kind of early next year.
Speaker Change: And then on the commercial side, it's, again, a continuation of the carport and shed sector of that business that we anticipated a little bit of growth this year, and that's been pushed out to kind of early 25.
Ramey Jackson: Got it. And in our three, are we now back to more normal levels, you know, sort of pre-pandemic levels, or do you see more correction likely? And how do we think about kind of where backlogs are today overall, versus maybe six or 12 months ago?
Speaker Change: Got it. And in R3, are we now back to more normal levels, you know, sort of pre-pandemic or do you see more correction likely? And how do we think about kind of where backlogs are today overall versus maybe 6 or 12 months ago?
Ramey Jackson: Yeah, the backlogs remain healthy. Projects are just in the backlog for a little bit longer, and I think that's a testament to the uncertainty around the macro. And I still think there's softness in R3 because of the kind of, you know, pandemic highs around the conversion. So, you know, again, strip those out, and it's relatively back to normal, kind of normalization on the refurbishment remixes. We still think there's great opportunity as it relates to some of the acquisitions that were made this past year. But again, just a pause in the market due to interest rates and, you know, the presidential election and things of that nature. That's what our customers are telling us.
Ramey Jackson: Yeah, the
Speaker Change: Yeah, the backlogs remain healthy.
Speaker Change: Projects are just in the backlog a little bit longer, and I think that's a testament to the uncertainty around the macro.
Speaker Change: And I still think there's softness in R3 because of the kind of the, you know, pandemic highs around the conversion. So, you know, again, strip those out and it's relatively back to normal.
Speaker Change: kind of normalization on the refurbishment remixes. We still think there's great opportunity as it relates to some of the acquisitions that were made, you know, this past year.
Speaker Change: But again, just a pause in the market due to interest rates and the presidential election and things of that nature. That's what our customers are telling us.
Daniel Moore: Okay, and extending that out, you know, a crystal ball kind of question, but maybe talk to your visibility in the outlook as we think about fiscal 25. You know, your expectations for growth and self storage as well as commercial, and what gives you confidence given, you know, kind of increasing economic uncertainty and some of the recent declines in capital spend that we've seen from the recent
Speaker Change: Okay, and extending that out, you know, crystal ball kind of question, but maybe talk to your visibility and the outlook as we think about fiscal 25.
Speaker Change: You know, your expectations for growth and self-storage as well as commercial and what gives you confidence given, you know, kind of increasing economic uncertainty and some of the recent declines in capital spend that we've seen from the REITs.
Anselm Wong: Yeah, thanks, Dan. I think what we're seeing at this point is that, like Ramey's point, the higher interest rates have really just pushed out a lot of projects. I think there are customers that we've always talked about the smaller guys getting impacted, and now it's that mid-sized guy, you know, pushing out until they see some movement there. And I think, you know, with all the market trends indicating that it could be a drop, they're just waiting to see, hey, look, I can save that half a point if I push it out a couple of months here.
Speaker Change: Yeah, thanks, Dan. I think what we're seeing at this point is that, like to Ramey's point, the higher interest rates have really just pushed out a lot of projects. I think they're
Speaker Change: Our customers that we've always talked about the smaller guys get impacted and now it's that mid-sized guy You know pushing out until we see some movement there, and I think
Speaker Change: You know, with all the market trend indicating that it could be a drop, they're just waiting to see, hey, look, I can...
Speaker Change: Save that half a point. If I push it out a couple months here, I think as we go into 2025, the market has become more competitive from just pricing on steel price. So if you think of steel, we talked about it last quarter,
Anselm Wong: I think as we go into 2025, the market has become more competitive from just pricing steel. So if you think of steel, we talked about it last quarter, steel was holding down from the high of 1100, you know, a pound down to call it the 800s, 850s. If you look at that equivalent price today, it's down to 650. So there's a bit of pressure there in terms of pricing. So unless that really changes, we expect it to go into next year.
Speaker Change: Steel was holding down from the high of $1,100 a pound down to call it the $800s, $850s. If you look at that equivalent price today, it's down to $650. So, there's a bit of pressure there.
Anselm Wong: Now, while the good thing is that, as you guys know how we buy steel in our profile, that five to six month lag time, our goal is to kind of match that with any commercial actions we take so that we maintain the margin. That's what you've seen us do; even despite the volume drop here, we've been able to manage our costs to get that margin in that range.
Speaker Change: In terms of pricing, so unless that really changes, we expect that to go into next year.
Speaker Change: Now, while the good thing is that, as you guys know how we buy steel in our profile that five to six month lag time, our goal is to kind of match that with any commercial actions we take.
Speaker Change: So that we maintain the margin. That's what you've seen us do even despite the volume drop here. We've been able to manage our cost To get that margin in that range
Daniel Moore: So it sounds like pricing could be a headwind for next year, but more than solid. And you expect, well, you know, at least some offset in terms of volumes.
Speaker Change: So it sounds like pricing could be a headwind for next year but more than solid and you expect at least some offset in terms of volumes? Yeah, I think as the market returns to what we'd say a bit normal from the interest rate side, we should see that start freeing up some of the project delays we've seen.
Anselm Wong: Yeah, I think, as the market returns to what we'd say a bit normal on the interest rate side, we should see that start freeing up some of the project delays we've seen.
Daniel Moore: Okay, and just talk a little bit about TMC in terms of strategic fit for the business. Is that a platform for additional acquisitions? And looking at the cash flow statement, it looks like you paid about $60 million. Is that right? And just talk about kind of run rate revenue EBITDA and what accretion could look like when we get out to fiscal 25. Thanks again.
Speaker Change: Okay. And just talk a little bit about TMC in terms of strategic fit for the business. Is that a platform for additional acquisitions?
Speaker Change: Looking at the cash flow statement, looks like you paid about $60 million, is that right? And just talk about kind of run rate revenue EBITDA and what accretion could look like when we get out to...
Ramey Jackson: Yeah, thanks. Great question. Look, that was a bright spot M&A acquisition for us. Totally different market. These guys are leaders in the southeast for terminal maintenance and refurbishment, very similar to our R3 work. We feel like they have a playbook that we can replicate on the facilitation side.
Speaker Change: Yeah. Yeah. Thanks. Great question. Look, that was a bright spot M&A acquisition for us.
Speaker Change: Totally different market. These guys are leaders in the southeast in kind of terminal maintenance, refurbishment, very similar to our R3 work. We feel like they have a playbook that we can replicate on the facilitate side.
Anselm Wong: Very fragmented market. There is certainly a lot of room for the kind of additional roll-up that we're looking at right now. Strong leadership group, strong margins, you know, a lot of blue sky with that business. And Anselm, if you want to talk about some of the financial metrics. Yeah, I think Dan, if you look at the revenue, obviously it was a partial quarter for that, but I think it's in line with kind of what we thought.
Speaker Change: Very fragmented market. There is certainly a lot of room for kind of additional roll-up that we're looking at right now.
Speaker Change: Strong leadership group, strong margins.
Anselm Wong: You know, a lot of blue sky with that business. And Anselm, if you want to talk about some of the financial... Yeah, I think, Dan, if you look at the revenue, obviously, there's a partial quarter for that buddy thing. It's in line with kind of what we thought.
Anselm Wong: It is the price point you said is about what we paid in that $60 million range that you saw. I am excited about the margin. I think the one thing that we were really scrutinizing in this acquisition was the strategic side of it to make sure that, hey, we could buy something that could help our facilitating business grow. But at the same time, as we dug into the diligence, the margins, and the growth opportunities were really strong and good there.
Speaker Change: It is the price point you said is about what we paid in that $60 million range that you saw.
Speaker Change: Excited about the March. I think the one thing that we were really scrutinizing about this acquisition was the strategic
Speaker Change: side of it to make sure that hey, we could buy something that could help our facilitate business grow.
Speaker Change: At the same time, as we dug into the diligence, the margins, the growth opportunities were really strong and good there. Even on margins, it's similar to what we've seen on the storage side. So we're excited about adding this business to the portfolio and helping to do a roll-up strategy, like Reuben said.
Anselm Wong: Even on margins, it's similar to what we've seen on the storage side. So we're excited about adding this business to the portfolio and helping to implement a roll-up strategy. All right, I'll jump out with all of us. Thank you again.
Rick: All right, I'll jump out with all of us. Thank you again.
Operator: The next question comes from Reuben Garner with the Benchmark Company. Please go ahead. Thank you.
Speaker Change: The next question comes from Reuben Garner with the Benchmark Company. Please go ahead.
Reuben Garner: Thank you. Good morning, everybody.
Speaker Change: Thank you. Good morning, everybody. Morning, Reuben.
Reuben Garner: Unknown Participant, I know you didn't have the R3 business in the last kind of downturn, but were you surprised at all to see how kind of abruptly that seemed to slow? And, I guess, can you talk to us about how the backlog works? I understand there's delays, but the backlog still looks solid. Could those projects still be canceled in the backlog? Are there any kind of penalties in place if they are? Just kind of walk us through how that looks if things get worse than you kind of anticipated.
Speaker Change: I know you didn't have the R3 business.
Reuben Garner: In the last kind of downturn, but were you surprised at all to see how kind of abruptly that seemed to slow and and
Speaker Change: I guess, can you talk to us about how backlog works? I understand there's delays, but backlog still looks solid, like, what, how, how...
Speaker Change: Could those projects still be canceled in backlog? Are there any kind of penalties in place if they are? Just kind of walk us through how that looks, if things get worse than you kind of anticipate.
Ramey Jackson: Yeah, great question. Look, during the last, I guess the GFC we did not have it. That was the genesis of it with one of our partners. Really, the theme here is, when you look at True R3, the remix renovation, that's hanging in there. It's really the expansions and conversions that really have taken the hit. And that we're pandemic darlings, that's what you're seeing kind of burn off. We're still very optimistic.
Speaker Change: Yeah, great question. Look, you know, during the last, I guess, the GFC, we did not have
Speaker Change: The R3 division that's kind of where that was the genesis of it with one of our partners and I think the I think the
Speaker Change: Really the theme here is...
Speaker Change: When you look at True R3, the remix renovation, that's hanging in there.
Speaker Change: It's really the expansions and conversions that really have taken the hit, and that we're pandemic darlings. That's what you're seeing kind of burn off.
Ramey Jackson: We're hearing some good things from a planning perspective, and some of the data we have internally on the drawing side for that R3 sector. But the, you know, conversions and expansions have to roll off from pandemic highs.
Speaker Change: We're still very optimistic. We're hearing some good things from a planning perspective in some of the data we have internally on the drawing side.
Speaker Change: for that R3 sector. But the, you know, conversions and expansions have to roll off from pandemic highs.
Ramey Jackson: In terms of visibility, we're still very confident in the long-term framework of the business. You know, the backlog's healthy. It's slowed a little bit due to, like Anselm mentioned, some weather-related items in the quarter, and then also uncertainty around interest rates. Are we going to get some interest rate cuts, you know, in months to come? I think that's what our customers are waiting for. But long term, Reuben, you know, we're very confident we're going to use our balance sheet to be creative around M&A and share buybacks, and paying down debt will be opportunistic there. You know, we're just in a lull right now in terms of the R3 kind of projects and the velocity in which new construction typically cycles through the backlog.
Speaker Change: In terms of visibility, we're still very confident in the long-term framework of the business.
Speaker Change: You know, the backlog's healthy. It's slowed a little bit due to, like Anselm mentioned, some weather-related items in the quarter, and then also uncertainty around the interest rates. Are we going to get some interest rate, you know, cuts, you know, in months to come?
Speaker Change: I think that's what our customers are waiting on.
Speaker Change: But long term, Reuben, you know, we're very confident we're going to use our balance sheet to be
Reuben Garner: Creative around M&A and share buybacks and paying down debt will be opportunistic there.
Speaker Change: We're just in the lull right now in terms of the R3 kind of projects and the velocity in which new construction typically cycles through the backlog.
Ramey Jackson: And just to be clear, Ramey, are the delays? Are these projects that you know, new construction and expansion projects that are just stopping midway through? Are they jobs that were delayed? The start was delayed months ago, and you're you're just now getting insight into it. Can you, can you talk about that? It's a little, it's more of the latter.
Speaker Change: And just to be clear, Ramey, are the delays, are these projects that, you know, new construction and expansion projects that are just stopping mid...
Ramey Jackson: are they mid-job, are they jobs that were delayed, the start was delayed months ago and you're just now getting insight into it, can you talk about that? It's a little, it's more of the latter, there are certainly some projects that are mid-stream that have been put on hold.
Ramey Jackson: It's a little bit of the latter. There are certainly some projects that are midstream that have been put on hold, particularly, I'll kind of point to the West Coast. There's a big portfolio on that side of the country that's in that situation. But the lion's share of it is really just new starts, you know, hitting pause, there's a risk, and cancellations, there's always a risk, but we're not seeing that today, which gives us confidence that these projects will move forward.
Speaker Change: Particularly, I'll kind of point to the West Coast, there's a big portfolio on that side of the country that's in that situation.
Speaker Change: But the lion's share of it is really just new starts, you know, hitting pause. Is there a risk in cancellations? There's always a risk. We're not seeing that today, which gives us confidence that these projects will move forward. So that's where we are.
Reuben Garner: Okay, I'm going to sneak one more in. Are there any particular customers? I know you're more exposed to the smaller players now than you have been in the past. Is it the size of the customer, geography? You mentioned the West Coast. Anything else that you call out?
Speaker Change: Okay, I'm going to sneak one more in. Are there any particular customers? I know you're more exposed to the smaller players now than you have been in the past. Is it size of the customer, geography, you mentioned the West Coast, anything else that you call out?
Reuben Garner: Got it. Sorry I missed that. That's really helpful. Thank you. Good luck, guys.
Speaker Change: No, I think Anselm mentioned it, it's the layer below the public REITs, which we consider institutional.
Anselm Wong: They're being impacted by.
Anselm Wong: You know financing restriction guidelines and obviously interest rates it so we we said last quarter of past two quarters It was kind of a smaller mom-and-pop. It's it's kind of crept up into the more larger
Anselm Wong: Players that we consider institutional
Anselm Wong: I mean, I think when you look at the REITs, their status quo.
Anselm Wong: They recently reported and you look at the kind of occupancy rates and you're looking at like 94 92% which is very healthy.
Anselm Wong: So, you know, I think the market remains strong. Self-storage is resilient. We just need to get past some of this uncertainty around interest rates.
Ramey Jackson: Thanks, Reuben. Thanks, Reuben.
Anselm Wong: Got it. Sorry, I missed that. That's really helpful. Thank you. Good luck, guys.
Operator: The next question comes from Phil Ng with Jeffreys. Please go ahead.
Speaker Change: Thanks Reuben. Thanks Reuben.
Speaker Change: The next question comes from Phil Ng with Jeffreys. Please go ahead.
Phil Ng: Hey guys, sales were down about 8% in 2Q, and I think implicitly your second half guide implies organic sales down at a similar level. So that doesn't seem crazy, just give, and comps do get a little easier.
Phil Ng: Hey guys. Um,
Phil Ng: You know, sales were down about 8% in 2Q, and I think implicitly your second half guide implies organic sales down in a similar level, so that doesn't seem crazy, just give and comps do get a little easier.
Phil Ng: So I'm just trying to get a gauge. How did orders and sales progress into the quarter and trend into July? Have you started seeing that pricing dynamic you called out stabilize, or is there still actually some risk to the downside here? And then you called out weather as well. So when we think about the sales cadence decline to the back half, will 3Q be harder hit versus fourth quarter?
Speaker Change: So I'm just trying to get a gauge. How did orders and sales progress inter-quarter and trend into July ? Have you started seeing that pricing dynamic you called out stabilize or there's still actually...
Speaker Change: Some risk to the downside here, and then you called out weather as well So when we think about the sales cadence decline to the back half will 3Q be harder hit versus fourth quarter?
Anselm Wong: Yeah, a lot of things there, so thanks, so I'll try to get all of them. So our Houston factory was shut down for a week with the hurricane out there. So that impacted the July numbers that we saw. Outside of that trend, obviously, that'll have a bigger impact on Q3. That's why the way we're looking at it is that, hey, that's a weather-related thing that we said does impact us, and that's going to impact the numbers there. In terms of your other question about pricing, what we're talking about, if you look at this quarter, pricing was about half of the decline that we did. That was just being competitive here and there.
Speaker Change: Yeah, a lot of things there, so thanks, so I'll try to get all of them. So our Houston factory was shut down for a week with the hurricane out there, so that impacted July numbers that we saw. Outside of that trend, obviously, that'll have a bigger impact on Q3. That's why the way we're looking at it is that, hey, that's a weather-related thing that we said does impact us, and that's going to impact the numbers there.
Speaker Change: In terms of
Speaker Change: Your other question about the pricing, what we're talking about, if you look at this quarter, pricing was about half of the decline that we've done that was, you know, just being competitive in here and there. I think what we're referring to is just the longer term trend is that steel staying at this lower point. And honestly, you think about the variance going from $1,100 a pound down to $650, that's a meaningful drop. So the way we've always managed, and Ramey has done a great job of being competitive, we manage how much we give back, but we manage it with our cost so that we maintain our margin. So we're just giving kind of an early look and say, hey, we see this coming, going into 2025, that's where majority of the impact of that price.
Anselm Wong: I think what we're referring to is just a longer-term trend, steel staying at this lower point, and honestly, you think about the variance going from $1,100 a pound down to $650. That's a meaningful drop, so the way we've always managed, and Raymond has done a great job of being competitive, we manage how much we give back, but we manage it with our costs so that we maintain our margins. So we're just giving kind of an early look and saying, hey, we see this coming going into 2025. That's where the majority of the impact of that price commercial adjustment will come in versus this year.
Phil Ng: So could pricing step down even more than that, call it a 4% run rate as steel prices flow through, or is that kind of a good guy?
Speaker Change: Commercial Jetson will come in versus this year.
Speaker Change: So could pricing step down even more than that, call it 4% run rate as steel prices flow through, or that's kind of a good guy?
Anselm Wong: Yeah, for the balance of this year, it's probably going to hold in that range because again, we're bleeding off the backlog that has that kind of range already in there. The further commercial action that we would take based on where the steel price is going or staying would be for 2025.
Speaker Change: Yeah, for the balance of this year, it's probably going to hold in that range, because again, we're leaning off the backlog that has that kind of range already in there. The further commercial action that we would take based on where the steel price is going or staying would be a 2025 impact.
Phil Ng: Okay, that's helpful. R3 started to soften in the back half of last year. So, you called out conversion still perhaps not fully flushed out. Ramey, give us a sense of when you expect that to be kind of flushed out to more normalized levels. And can you just give us some perspective, like what percent of your business is more conversion versus remix?
Speaker Change: R3 started to soften the back half of last year.
Ramey Jackson: You called out conversion still perhaps not fully flushed out. You know, Ramey, give us a sense When do you expect that to be kind of flushed out to more normalized levels? And can you just give us some perspective like what percent of your business is more conversion versus remix?
Ramey Jackson: Yeah, I'll let Anselm speak to the actual metrics. That's a tough question.
Ramey Jackson: Yeah, I'll let Anselm speak to the actual metrics. That's a tough question. You know, there's still conversions in the backlog.
Anselm Wong: There are still conversions in the backlog. We continue to quote conversions, just not at the levels that we have in the past year or two. So that's a tough one to feel. It feels like probably 25 in terms of when that gets flushed out totally.
Anselm Wong: We continue to quote conversions, just not at the levels that we have in the past year or two. So that's a tough one to fill. It feels like probably 25 in terms of when that gets flushed out totally.
Phil Ng: But we'll just have to monitor that again. You know, the opportunity around some of the acquisitions that have happened in the aging facilities. There's been a lot of new capacity put into the market, and markets with older facilities. So these operators are going to be forced to do something to compete with the new supply that's coming online. Yeah, I think that, Phil, we don't disclose the kind of the split, but, you know, the conversion piece was, as to the end point, it's down to, it's still, like Ramey said, there's still a piece in there.
Anselm Wong: But we'll just have to, we'll just have to monitor that.
Anselm Wong: again.
Anselm Wong: You know the opportunity around some of the acquisitions that have happened in the aging facilities There's been a lot of new capacity put in the market
Anselm Wong: and markets with older facilities, so these operators are going to be forced to do something to compete with the new supply that's coming online.
Phil Ng: I think there will always be a certain amount. So, just high level, you're probably talking in an R3 bucket. There's probably less than a quarter of it is conversions now, whereas it was meaningful before. Au revoir.
Phil Ng: Oh wow, that's helpful; great color.
Operator: The next question comes from Jeff Hammond with Key Bank; please go ahead.
Anselm Wong: The next question comes from Jeff Hammond with KeyBank. Please go ahead.
Jeffrey Hammond: Hey, good morning, everyone. I guess lost in the, you know, some of the macro headwinds is this ION rollout, which you guys seem pretty excited about. Talk about what's new in that product, the feedback you're getting in beta testing, and how you think that maybe, you know, changes the growth trajectory for the Nokia business. Yeah, great question.
Speaker Change: you know, changes the growth trajectory for the, for the Nokia business? Yeah, great question. Look, it's certainly a bright spot. And I understand why.
Ramey Jackson: Yeah, a great question. Look, it's certainly a bright spot. And I understand why it's kind of being overlooked this quarter. But at the same time, we're super excited. We're getting customer feedback during beta, a lot of buildup on the sidelines waiting for, and you know, customers have been waiting for a price point that makes sense to them. So essentially, what we've done is we've designed an inside the door wired solution. It's stripped down from, at its base case, it's stripped down from a lot of options.
Speaker Change: It's kind of being overlooked this quarter, but at the same time, we're super excited. We're getting customer feedback during beta.
Speaker Change: A lot of buildup on the sidelines waiting for, and customers have been waiting for a price point that makes sense to them. So essentially what we've done is we've designed a inside the door wired solution.
Ramey Jackson: And if the customer wants to add options, they can certainly pay for it on the R&D side of it. But we feel like we've hit a sweet spot on the go-to-market pricing. It's extremely stable.
Speaker Change: But we feel like we've hit a sweet spot on the go-to-market pricing. It's extremely stable. The beta that we're doing right now, we're learning a lot, getting a lot of good feedback. And like I said, have a growing book of business, anticipating the release of that.
Ramey Jackson: The beta that we're doing right now, we're learning a lot, getting a lot of good feedback, and, like I said, we have a growing book of business anticipating the release of that. So we couldn't be more excited. You know, the Nokia One solution and some of the other kinds of IoT things are still doing great. You saw the growth that we had last quarter, so we're excited about it. And that's certainly a growth engine for the business. And you know the long-term impact that it can have on this industrial company, an industrial technology company, once we get the penetration rates that we know that we deserve.
Speaker Change: So we couldn't be more excited. You know, the Nokia One solution and some of the other kind of IoT things are still doing great. You saw the growth that we had last quarter.
Speaker Change: So we're excited about it, and that's certainly a growth engine for the business, and you know the long-term impact that it can have to make this industrial company, industrial technology company, once we get the penetration rates that we know that we deserve.
Jeffrey Hammond: Okay, and then
Speaker Change: Okay, then.
Speaker Change: TMC, I don't know if I missed the revenue, or can you give us what the revenue contribution was this quarter? I guess it was in there for, yeah, it was about $4 million of revenue for the business. It's what we expected. It's tracking there. So, like Ramey said, we're excited about it because, again, we didn't disclose the margin, but it's similar to that storage EBITDA margins.
Jeffrey Hammond: Yeah, I mean, yeah, it was about four.
Ramey Jackson: Okay, then last one back to I think you said, you know, you're excited about some of the consolidation in the space and what it holds for our three opportunities, but, you know, it sounds like some of that's been on hold. So what's the feedback you're getting around when they ultimately do some of that remix remodel rebrand? Yeah.
Speaker Change: Okay, and then last one back to, I think you said, you know, you're excited about...
Speaker Change: Some of the consolidation in the space and what it, you know, what it holds for for our three opportunity, but
Speaker Change: It sounds like some of that's been on hold, so what's the feedback you're getting around when they ultimately do some of that remix, remodel, rebrand?
Ramey Jackson: Yeah, I won't go into particulars in terms of the customer or customers, but yeah, it's active. It's been slower coming out of the gate. You know, I've always referenced that opportunity, a multi-year opportunity for us, again, doing a lot of work in the background on the design side of it, and feel good about, you know, that pulling through to revenue.
Speaker Change: Yeah, I won't go into particulars in terms of the customer but our customers, but yeah that it's active It's been slower coming out of the gate
Speaker Change: You know, I've always referenced that opportunity, a multi-year opportunity for us, again, doing a lot of work in the background on the design side of it and feel good about, you know, that pulling through to revenue.
Jeffrey Hammond: Is it more of a pull through into 25? I mean, do you have visibility that it starts to build momentum, and I think I think that's fair, Jeff. Yeah, 25 feels right. Okay, thanks so much.
Speaker Change: Is it more of a pull through into 25?
Speaker Change: I mean, do you have visibility that it starts to build momentum in 2014? I think that's fair, Jeff. Yeah, 2015 feels right.
Speaker Change: Okay, thanks so much. Thank you.
Operator: The next question comes from John Lovallo with UBS; please go ahead.
Speaker Change: The next question comes from John Lovallo with UBS. Please go ahead.
John Lovallo: Good morning, guys. Thanks for taking my question.
John Lovallo: Good morning, guys. Thanks for taking my question. The first one is that the Outlook
Speaker Change: For second half EBITDA margins of about 26% that'd be
Speaker Change: Ramey Jackson, Anselm Wong, John Rohlwing, Sara Macioch
Speaker Change: Yeah, I think what we said in prior calls, that
Speaker Change: There's a little investment that we've done in the Nokia, as we've said, in terms of the back end and some of the sales people adds. In terms of the other margin pieces, you know, we're seeing from a price point of view, we're pursuing this similar, what we just saw in Q2, from a price.
John Lovallo: The first one is that the outlook for second half EBITDA margins of about 26%, that'd be flattish versus the first half. I mean, sales will be up slightly, half over half, but what are some of the other puts and takes within that? I mean, how are you thinking about price cost, channel mix, and maybe G&A investments?
Speaker Change: versus volume mix, probably in that range, could be a little.
Anselm Wong: Yeah, I think what we said in prior calls, the G&A side is, you know, the first half is more the year-over-year, you know, carryover costs, that's why it was a big step up from the prior year. I think the second half will be slower from that point of view because, again, you were lapping the ads that we did in the second half, so probably a little more in Q3 and then Q4 will probably be, you know, flattish from a year-over-year perspective in that range.
Speaker Change: you know, fit on each side, which probably in that range is probably a good way to think about the second half.
Anselm Wong: There's a little investment that we've made in Nokia, as we've said, in terms of the back-end, some of the salespeople ads. In terms of the other margin pieces, you know, we're seeing from a price point of view, we're pursuing this similar to what we just saw in Q2, from a price versus volume mix, probably in that range. It could be a little, you know, fit on each side, but probably in that range is probably a good way to think about the second half.
Anselm Wong: And then the other thing is that we haven't talked about it much yet, but the commercial, the way we've looked at it is that we're just assuming, unfortunately, the similar trend for the back half of the year that we saw in Q2. It doesn't, that overall market, while we're still, you know, like the long-term trends, at least the short-term looks like it's still staying in that negative year- We thought there'd be some recovery in the back half, but it's just happening slower than we thought.
Speaker Change: Negative year over year. We thought there'd be some recovery in the back half. It's just happening slower than we thought.
John Lovallo: Okay, that makes sense. And then you mentioned a couple times how higher rates have been a headwind to the business, particularly for the R3, which makes sense. You know, we have seen some pullback here with the 10-year below, you know, 395 at this point versus call it 450 as recently as July 1. I mean, how long of a lag is there in a pullback in rates before you think you'd start seeing some of that impact in your business?
Speaker Change: Okay, makes sense. And then you mentioned a couple times how higher rates have been a headwind to the business, particularly for the R3, which makes sense. You know, we have seen some pullback here with the 10-year below, you know, $3.95 at this point versus call it $4.50 as recently as July 1st.
Speaker Change: I mean, how long of a lag is there in a pullback in rates before you think you'd start seeing some of that impact in your business?
Anselm Wong: Yeah, it's hard to tell. I think what we know is the impact is when we talk to our customers, they specifically mention the rate has made some decisions to say, hey, put some of this in a hole and, you know, trying to be If I put myself in their shoes, if I look at it, makes sense, you get, you know, a potential rate drop in probably September. So if you have the opportunity to lay something before you pull on your construction loans, you probably would do it to get that benefit.
Speaker Change: Yeah, it's hard to tell. I think what we know is the impact is when we talk to our customers.
Speaker Change: They're specifically mentioning the rate has...
Speaker Change: You know, put some decisions to say, hey, put some of this at home and, you know, trying to be, if I put myself in their shoes, if you look at it, it makes sense. You got, you know, potential rate drop in probably September . So if you have the opportunity to delay something before you pull on your construction loans, you probably would do it to get that benefit.
John Lovallo: Got it. Thank you, guys. Thanks. Thanks, John.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Ramey Jackson for any closing remarks.
Speaker Change: Got it. Thank you guys.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Ramey Jackson for any closing remarks.
Ramey Jackson: Yeah, thank you everyone for joining us today. We appreciate your support of Janus and look forward to updating you on our progress. Have a great day!
Ramey Jackson: Yeah, thank you everyone for joining us today. We appreciate your support of Janus and look forward to updating you on our progress. Have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.