Q3 2024 Quanex Building Products Corp Earnings Call

September 6, 2024

Speaker Change: Good day and thank you for standing by and welcome to the Q3 2024 Q1X Building Product School of Operation Ernest Conference Call. At this time, I will participate in a listen-only mode after the speaker's presentation. There will be a question and answer session.

Speaker Change: That's a question during this session. You'll need to press star 1 on your telephone. Star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.

Scott Zuehlke: please be advised that today's conference is being recorded. I would not like to hand the conference over to your speaker today. Scott Zuehlke, Senior Vice President, CFO, and Treasurer. Please go ahead.

Scott Zuehlke: Thanks for joining the call this morning. On the call with me today is George Wilson, our president, Chairman and CEO. This conference call will contain forward-looking statements and some discussions on on-gap measures.

Speaker Change: for looking statements and guidance discussed on this call and in our earnings release are based on current expectations.

Speaker Change: Actual results are events made differently from such statements and guidance. In quannax undertakes no obligation to update or revise any four-licking statements to reflect new information or events.

Speaker Change: For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-gap measures to the most directly comparable gap measures, please see our earnings release issued yesterday and posted to our website. I'll now turn the call over to George for his prepared remarks.

George Wilson: Thanks Scott, and good morning to everyone joining the call.

George Wilson: Today, I'll be providing an overview of our quarterly performance, the state of our serve to markets, and our perspective on the macro-economic environment.

George Wilson: Additionally, I'll discuss our recent acquisition of time and including our integration plans and expectations moving forward.

George Wilson: Overall, we are satisfied with our operational performance, as we exceeded consensus expectations across all my metrics.

George Wilson: The spite of challenging demand environment.

George Wilson: Williams for the third quarter of this year, exceeded those of the second quarter, reinforcing our prior comments about a return to a more traditional seasonality pattern for orders.

Speaker Change: will provide a more detailed analysis, but on a consolidated basis, revenue decreased by 6.4% in the third quarter compared to the same period last year, and adjusted to the same period, and the same period that I felt by 13.2%.

Speaker Change: Although softer than the prior year, these results align with our expectations and our previous comments on the cadence for the third quarter.

Speaker Change: In our served markets and across all geographic regions, consumer confidence remains somewhat low due to macro related uncertainty.

Speaker Change: While we expect the Fed to cut interest rates before the end of the calendar year, these cuts are likely to be more beneficial for the 20-25 build season, rather than having a significant impact in the current year.

Speaker Change: Even with relatively soft orders resulting from this low consumer confidence, the quenix team has continued to generate solid free cash flow and remains focused on operational improvements.

Speaker Change: This financial stability has enabled us to invest in future organic growth opportunities.

Speaker Change: These investments include an expansion of mixing capacity for our specialty sealants, product lines, the introduction of new products in our UK vinyl extrusion business, and the funding of several operational improvement projects for our space or business.

Speaker Change: All these initiatives are expected to bear fruit as we move into 2025 and beyond.

Speaker Change: Moving on to an update on our recent acquisition of Prime Min. We were pleased to announce the successful closure of this transformational deal on August 1st.

Speaker Change: We look forward to creating a new and improved company that leverages the strengths of both organizations.

Speaker Change: Shareholder approval for the transaction was overwhelmingly positive on both sides, with a 99% forevote from the quonic shareholders, and an 86% forevote from Prime Minister holders.

Speaker Change: This strong support underscores the solid financial and strategic rationale behind this acquisition.

Speaker Change: Once the deal was finalised, we hit the ground running by continuing to work closely with our integration consultants while also engaging with a legacy time and team.

Speaker Change: We set up a full-time integration management office that includes cross-functional leaders from both legacy companies.

Speaker Change: and we are working quickly to establish a new organizational structure that is scalable and will drive us successfully into the future.

Speaker Change: Our integration management teams are working collaboratively both to capture identified synergies and to identify additional achievable synergies that we may not have previously understood.

Speaker Change: The progress made to date reinforces our confidence in achieving our state at goal of $30 million in cost synergies within two years.

Speaker Change: We plan to unveil our new organizational structure publicly in early calendar 2025, and moving forward we plan to provide quarterly updates on our progress towards achieving these synergies.

Speaker Change: Additionally, we are excited about the opportunities for new product development and system improvements.

Speaker Change: With our expanded capabilities in the window and door market manufacturing everything except the glass. We will challenge our development and engineering teams to leverage this product breath to create new innovative solutions that add value and reduce cost for customers.

Speaker Change: In summary, we are pleased with the operational foundation we've established and believe the company is well positioned to navigate any market condition regardless of the macro economic dynamics.

Speaker Change: The time in acquisition has enhanced our scale and product depth. Our combined team is actively engaged in the integration process, and I'm confident that we will leverage the strengths of both legacy companies to create something greater than either company standing alone.

Speaker Change: We are optimistic about the future and confident in our ability to achieve a but market growth while creating value for our shareholders.

Speaker Change: I'll now turn to Callover to Scott who will discuss our financial results in more detail.

Scott Zuehlke: Thanks, George. On a consolidated basis, we reported net sale of 280.3 million during the third quarter of 2024.

Scott Zuehlke: which represents a decrease of 6.4% compared to 299.6 million during the third quarter of 2023. The decrease was mostly attributable to softer market demand across all operating segments.

Speaker Change: Net income decreased to 25.4 million or 77 cents per diluted chair for the 3 months in July 31st, 2024 compared to 31.7 million or 96 cents per diluted chair for the 3 months in July 31st, 2023.

Speaker Change: After adjusting for one time items, net income decreased to 24.2 million or 73 cents per diluted share for the quarter compared to 31.9 million or 97 cents per diluted share for the same period of last year.

Speaker Change: on an adjusted basis, EBITDA for the quarter decreased to 42 million. Compared to 48.5 million during the same period of last year.

Speaker Change: The decrease in adjusted earnings for the three months in July 31, 2024 was mostly due to decreased operating leverage because of lower volumes related to softer market demand, combined with higher material costs in both of our North American segments.

Speaker Change: Now for results by operating segment.

Speaker Change: We generated net sales of 170.3 million in our North American Finestations segment for the third quarter of 2024. We represent the decrease of 3.9% compared to 177.1 million in the third quarter of 2023. Primarily due to lower volume.

Speaker Change: We have to make the volumes in the segment decreased by approximately 5% year or a year offset by a slight increase in pricing.

Speaker Change: and Jeff said he but had decreased to 24.7 million in the segment compared to 27.7 million for the same period of 2023.

Speaker Change: Our European Administration segment generated revenue of 59.6 million in the third quarter, which represents a decrease of approximately 11% compared to the third quarter of 2023, after adjusting for the foreign exchange impact.

Speaker Change: We estimate that volumes declined by approximately 8% year-year in this segment, with pricing down by approximately 2.5% and a negative foreign exchange translation impact of about 1%.

Speaker Change: Joseph Ivada decreased and came in at 15.3 million for the quarter compared to 18.6 million in the third quarter of 2023.

Speaker Change: We generated net sales of 51.5 million in our North American cabinet component segment during the quarter, which was 7.1% lower than prior year. This decrease was driven by lower volumes and lower index pricing for hardwoods.

Speaker Change: We estimate the volumes declined by approximately 8% in this segment year of a year, offset slightly by an increase in pricing.

Speaker Change: Adjusted even, it was 3.4 million for the third quarter in this segment compared to 5.4 million in the third quarter of 2023.

Speaker Change: Moving on to Casual on the balance sheet, Cas provided by operating activities was 46.4 million for the third quarter of 2024, compared to 64.1 million for the third quarter of 2023.

Speaker Change: Freak Hashtelow decrease for the quarter mainly driven by lower net income because of softer demand, higher SG&A that included 6 million in transaxment advisory fees related to the time and acquisition, and the higher income tax expense.

Speaker Change: Our leverage ratio of net debt to last 12 months adjusted even though was negative point three times as of July 31st, 2024, or set another way we were net debt free. Of course, this was prior to closing on the time and acquisition on August 1st.

Speaker Change: As a reference in the earnings release, our completion of the time and acquisition means that our prior guidance for fiscal 2024 is no longer valid.

Speaker Change: Note that we still feel comfortable with our prior guidance for the Legacy Quantics business and our update at guidance is simply layering in the contribution from the legacy time and business for the fourth quarter.

Speaker Change: On a consolidated basis, we now estimate net sales of 1.275 billion to 1.285 billion, which should result in 171 million to 176 million in a just to e-beta for fiscal 2024.

Speaker Change: Please note that this revised guidance incorporates an expected cost impact of approximately $3 million related to performing a full physical inventory count at all legacy time and manufacturing plants prior to our fiscal year-end on October 31st.

Speaker Change: Performing physical inventory counts following acquisitions and annually thereafter, is vital to ensuring the accuracy and integrity of financial records and regulatory compliance.

Speaker Change: These counts verify the inventory records match actual stock levels, support accurate financial reporting, meat regulatory requirements.

Speaker Change: and Hans operational efficiency and safeguard against fraud and errors. It's also worth noting that we plan to report the legacy time and results for the fourth quarter of 2024 as a separate operating segment.

Speaker Change: As George said, we're in the process of establishing a new operating and segment reporting structure which will be implemented in fiscal 2025 and which will we hope to unveil it in investor day in early calendar 2025.

Speaker Change: In addition, from modeling purposes, please use the following additional guidance for the full year 2024, which incorporates the legacy time and business for Q4.

Speaker Change: Depreciation and amortization of approximately 53 to 55 million.

Speaker Change: S GNA of 168 to 170 million after adjusting for one-time transaction and advisory cost.

Speaker Change: Interest expense of 18 to 20 million, and a tax rate of 22%.

Speaker Change: from a cadence perspective for the fourth quarter of this year versus the third quarter of this year. We expect revenue to be flat to up 2% for the legacy quannics business.

Speaker Change: and up approximately 75% on a consolidated basis, including the legacy time and business.

Speaker Change: By segment for the fourth quarter of this year compared to the third quarter of this year, we expect revenue to be flat to up 2% in our North American Finestration segment.

Speaker Change: Flat to down 2% in our European Finestration segment and flat in our North American Cabinet Component segment.

Speaker Change: We're forecasting revenue of 210 to 250 million for the legacy time and business for the fourth quarter.

Speaker Change: Adjusted the EBITDA margin is expected to be up approximately 25 basis points for the legacy quannics business in the fourth quarter of 2024. Again, compared to the third quarter of this year.

Speaker Change: On a consolidated basis, which includes the legacy time and business and the previously mentioned costs related to physical inventory accounts. Adjusted even a margin is expected to be down 25 to 50 basis points for the fourth quarter compared to the third quarter.

Speaker Change: Operator, we will now take your questions.

Speaker Change: and thank you as a reminder that ask a question, please press star one one on your telephone and wait for your name to be announced. So we'll draw your question, please press star one one again. Please stand by when we compile the Q&A roster. And one moment for our first question.

Speaker Change: and our first question comes from Steve and Ramsey, even TRG, your line is not open.

Speaker Change: Hi, good morning. Maybe you wanted to start with the legacy company for your outlook being unchanged.

Speaker Change: wanted to think about this in the context of many.

Speaker Change: Building Product Companies in our coverage and more broadly, who reduced their outlook.

Speaker Change: for Fiscal for calendar 24.

Speaker Change: for the lower demand you guys are keeping your legacy outlook. Can you talk about maybe why you are able to hold that outlook and then looking within your different in markets and products?

Speaker Change: Did you adjust anything up or down by market or by product in results or your outlook? Thanks.

Speaker Change: Yeah, great questions, Stephen. You know, in terms of our full-year guidance, I think, you know, our projections for what we've given in the past two quarters.

Speaker Change: I think we've always been somewhat conservative in our approach and really had had built in not a lot of movement from the Fed early in the year, so I think we were.

Speaker Change: We are probably a little more conservative than some of our peers and that's didn't have to change our outlook on a go forward basis.

Speaker Change: You know, I think our operating teams and the sales teams have done a good job of going out and trying to get some spot-one-time business or picking up some different things that helps offset some of those softness.

Speaker Change: and you know in addition some introduction of some new products that are starting to roll out so I think it's a combination of things but

Speaker Change: again being relatively conservative in our four-year outlook early in the year, combined with just the sales teams going out and pushing hard to get spot-business has enabled us to stay fairly flat.

Speaker Change: Okay, that's not full, and then maybe too.

Speaker Change: uh, get you to build more on the potential fair gains you've gotten in winning business and get, can you go into more detail on maybe where that has come from and then maybe put

Speaker Change: This business that you've won put it in the context in the prior years and maybe if it's comparable or even superior to prior years in winning business at this point in a calendar year.

Speaker Change: Yeah, I think...

Speaker Change: The markets themselves, especially coming out of some pretty challenging supply chain year, year and a half, there hasn't been an enormous amount of shifts in terms of market share through with our competitors or in the markets own.

Speaker Change: I think we've seen the most market share gain probably over in our European administration business and that's really because of some competitors.

Speaker Change: had filed for administration so there's fewer competitors and I think all of all of the people that still exist in that market have picked up some market share but that's been some nice wins for us on volume.

Speaker Change: you know we've continued to utilize our...

Speaker Change: So-called performance as-

Speaker Change: a selling point to get new business as for our spacer products.

Speaker Change: you know, it adds some...

Speaker Change: around the world, the thermal performance and thermal efficiency of windows continues to grow. I think we continue to find opportunities to build off of that sustainability platform. And it had some nice winds globally there. But I've sort of had really the markets have kind of been stable. I think...

Speaker Change: What we see when we do pick up businesses that's usually short turns and I'll use for example our cabinet business there You know, it's pretty trenched in but we've been able to pick up some spot business and

Speaker Change: with some smaller customers. Those are the types of wins we see. So, not a lot of shift and long contractual wins on that side of our business but some nice spot wins.

Operator: Operation, Ernest Conference Call. At this time, our participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone, star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded.

Operator: Operation, Ernest conference call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Speaker Change: Okay, that's helpful. And then one more from the one of the positive aspects of the time and deal was the limited product overlap between the two companies.

Operator: To ask a question during the session, you'll need to press star one on your telephone, star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.

Speaker Change: and another positive feature with Simon's greater mix of highly engineered products that carry better pricing. Can you talk about...

Operator: Please be advised that today's conference is being recorded.

Operator: I would not like to hand the conference over to your speaker today.

Scott Zuehlke: I would not like to hand the conference over to your speaker today. Scott Zuehlke, Senior Vice President, CFO, and Trejora.

Scott Zuehlke: Scott Zuehlke, Senior Vice President, CFO, and Trejora. Please go ahead. Thanks for joining the call this morning. On the call with me today is George Wilson, our President, Chairman, and CEO. This conference call will contain four-looking statements in some discussion, non-gap measures. Four-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance. Inquanax undertakes no obligation to update or revise any four-looking statement to reflect new information or events.

Speaker Change: If there is any overlap on products where time and mix of highly engineered products is better than yours and maybe where you see that evolving strategically over the next year as you put the companies together as go to market.

Scott Zuehlke: Please go ahead.

Scott Zuehlke: Thanks for joining the call this morning. On the call with me today is George Wilson, our president, chairman, and CEO.

Scott Zuehlke: For more detailed description of our four-looking statement disclaimer and a reconciliation of non-gap measures to the most directly comparable gap measures, please see our earnings release issued yesterday and posted to our website.

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

Speaker Change: Another great question, um, you know, I think.

Speaker Change: Again, we're one month into this but what we anticipated through our due diligence and what we've seen in the first 30 days.

Speaker Change: 45 days is exactly that. There's very little overlap in the products and little channel conflict in what we do. So for us being able to effectively, as I mentioned in my script, doing everything but the class.

Scott Zuehlke: For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website.

Speaker Change: We're pretty excited about the opportunities, one to sell a full basket of goods. We become more of a distributor type approach to all of our customers, but on new product development, you know, I think you'll see a...

George Wilson: I'll now turn the call over to George for his prepared remarks. Thanks Scott, and good morning to everyone joining the call. Today, I'll be providing an overview of our quarterly performance, the state of our surge markets, and our perspective on the macroeconomic environment.

George Wilson: I'll now turn the call over to George for his prepared remarks. Thanks, Scott, and good morning to everyone joining the call. Today, I'll be providing an overview of our quarterly performance, the state of our surge markets, and our perspective on the macroeconomic environment.

Speaker Change: Stranger Focus for us too.

Speaker Change: My grade even more into systems development, effectively doing everything but the glass trying to find ways to create systems that integrate multiple components to create something new and different.

George Wilson: Additionally, I'll discuss our recent acquisition of time and including our integration plans and expectations moving forward. Overall, we are satisfied with our operational performance as we exceeded consensus expectations across all metrics. Despite a challenging demand environment, volumes for the third quarter of this year exceeded those of the second quarter, reinforcing our prior comments about a return to a more traditional seasonality pattern for orders. Scott will provide a more detailed analysis, but on a consolidated basis, revenue decreased by 6.4% in the third quarter compared to the same period last year, and adjusted even a fell by 13.2%.

Speaker Change: It's too early to tell those types of engineered and development projects take time, but I will tell you where extremely excited about the potential opportunity of doing exactly that.

Speaker Change: Thanks for watching, thank you.

Speaker Change: Thank you and one moment for our next question.

Speaker Change: And our next question comes from Julio Romero from Suddodian Company, your line is not open.

Speaker Change: Thanks, hey, good morning, guys. I want to just stay on time and for a little bit. Good morning. You know, can you maybe just talk about how the reception has been from, you know, employees, customers, suppliers, etc. You know, given the first month of

George Wilson: Although softer than the prior year, these results aligned with our expectations and our previous comments on the cadence for the third quarter. In our surge markets and across all geographic regions, consumer confidence remains somewhat low due to macro related uncertainty. While we expect the Fed to cut interest rates before the end of the calendar year, these cuts are likely to be more beneficial for the 2025 build season rather than having a significant impact in the career year.

George Wilson: Although softer than the prior year, these results aligned with our expectations and our previous comments on the cadence for the third quarter. In our surge markets and across all geographic regions, consumer confidence remains somewhat low due to macro-related uncertainty. While we expect the Fed to cut interest rates before the end of the calendar year, these cuts are likely to be more beneficial for the 2025 build season rather than having a significant impact in the career year. Even with relatively soft orders resulting from this low consumer confidence, the Quantix team has continued to generate solid free cash flow and remains focused on operational improvements.

Speaker Change: Integration Post-Lose.

Speaker Change: You know we've been very busy trying to get out to visit the plants, meet as many people. A lot of work to do, especially when you're at a quarter end. So it's been a balance, but we have been extremely pleased with you.

Speaker Change: the level of talent of people that we see in the organization, the excitement. One of the things that we identified fairly early, you know, the cultures are very similar on things that are extremely important to us.

George Wilson: Even with relatively soft orders resulting from this low consumer confidence, the Quantix team has continued to generate solid free cashflow and remains focused on operational improvements. This financial stability has enabled us to invest in future organic growth opportunities. These investments include an expansion of mixing capacity for our specialty sealants product lines, the introduction of new products in our UK vinyl extrusion business, and the funding of several operational improvement projects for our space or business.

George Wilson: All these initiatives are expected to bear fruit as we move into 2025 and beyond.

George Wilson: This financial stability has enabled us to invest in future organic growth opportunities. These investments include an expansion of mixing capacity for our specialty sealants product lines, the introduction of new products in our UK vinyl extrusion business, and the funding of several operational improvement projects for our space or business.

Speaker Change: and how we serve our customers the focus most importantly the focus on safety or willingness and anxiousness to develop people. All of those things are extremely similar.

Speaker Change: [inaudible]

Speaker Change: Once the deal closed, the level of sharing of data and obviously starting to build together, I mentioned in my script that we have a integration management office that has, uh...

George Wilson: All these initiatives are expected to bear fruit as we move into 2025 and beyond.

George Wilson: Moving on to an update on our recent acquisition of Pymon, we were pleased to announce the successful closure of this transformational deal on August 1st. We look forward to creating a new and improved company that leverages the strengths of both organizations. Shareholder approval for the transaction was overwhelmingly positive on both sides, with a 99% for vote from aquatic shareholders and an 86% for vote from Pymon shareholders. This strong support underscores the solid financial and strategic rationale behind this acquisition.

Speaker Change: you know, folks from...

Speaker Change: you know, prick pre-acquisition, both sides of the table and these folks are working as though they've been colleagues for 30 years.

Speaker Change: It's been great to see, I'm excited to see what sort of energy that an opportunity that they're going to create.

Speaker Change: I think our customers have been very supportive.

Speaker Change: and we spent time talking to many of them about learning, you know, in their eyes, what are the strengths and the weaknesses of each and it's our job to build.

Speaker Change: on the strength of those companies and minimize...

Speaker Change: you know what would be a perceived weakness. And I think we overlay very, very well. I mean, I think quonics.

George Wilson: Once the deal was finalized, we hit the ground running by continuing to work closely with our integration consultants while also engaging with a legacy time and team. We set up a full-time integration management office that includes cross-functional leaders from both legacy companies. And we are working quickly to establish a new organizational structure that is scalable and will drive us successfully into the future. Our integration management teams are working collaboratively both to capture identified synergies and to identify additional achievable synergies that we may not have previously understood. The progress made to date reinforces our confidence in achieving our stated goal of $30 million in cost synergies within two years.

Speaker Change: has been very strong manufacturing-based company, and, you know, I think the time and team was probably a little more commercial-driven and engineered types of solutions. And I think when you overlay those two, it's going to create something very special.

George Wilson: We set up a full-time Integration Management Office that includes cross-functional leaders from both legacy companies. And we are working quickly to establish a new organizational structure that is scalable and will drive us successfully into the future. Our integration management teams are working collaboratively both to capture identified synergies and to identify additional achievable synergies that we may not have previously understood. The progress made to date reinforces our confidence in achieving our stated goal of $30 million in cost synergies within two years.

Speaker Change: Absolutely, a really helpful call there and then

Speaker Change: You know, do you expect maybe to implement a new ERP, you know, some data tracking and maybe reduce that physical and mature count impact over time?

George Wilson: We plan to unveil our new organizational structure publicly in early calendar 2025. And moving forward, we plan to provide quarterly updates on our progress towards achieving these synergies. Additionally, we are excited about the opportunities for new product development and system improvements. With our expanded capabilities in the window and door market, manufacturing everything except the glass, we will challenge our development and engineering teams to leverage this product breadth to create new innovative solutions that add value and reduce cost for customers.

Speaker Change: Yeah, absolutely. We're going to get much more efficient on it the second time around. I mean, this was something that they weren't expecting to have to get done by October 31st or something that we feel is very necessary.

Speaker Change: There will be a financial impact. I quantify the cost side.

Speaker Change: There will be some downtime that will affect a little of the revenue side, which is also reflected in that.

Speaker Change: and the guidance that we gave. So, it's a learning process on there and it's something we're used to here at Legacy Quonics.

George Wilson: In summary, we are pleased with the operational foundation we've established and believe the company is well positioned to navigate any market condition regardless of the macroeconomic dynamics. The time and acquisition has enhanced our scale and product depth. Our combined team is actively engaged in the integration process and I'm confident that we will leverage the strengths of both legacy companies to create something greater than either company standing alone. We are optimistic about the future and confident in our ability to achieve above market growth while creating value for our shareholders.

George Wilson: In summary, we are pleased with the operational foundation we've established and believe the company is well positioned to navigate any market condition, regardless of the macroeconomic dynamics. The time and acquisition has enhanced our scale and product depth. Our combined team is actively engaged in the integration process, and I'm confident that we will leverage the strengths of both legacy companies to create something greater than either company standing alone. We are optimistic about the future and confident in our ability to achieve above-market growth while creating value for our shareholders.

Speaker Change: We're partners now, we're going to work with them to make sure they're going for this is a more efficient process.

Speaker Change: and from an ERP perspective, your question there, I think once we finalize the new reporting structures, we'll obviously do an in-depth look at what ERP is exist within the legacy organizations and how they match up with the new reporting structure and we'll do everything that we can to streamline.

Speaker Change: That's one of the things in terms of trying to optimize margin, take out costs while not impacting our customers. It's always been a focus for the quenix team and we'll make sure that that continues to exist on a real forward basis.

Scott Zuehlke: I'll now turn the call over to Scott who will discuss our financial results in more detail. Thanks George. On a consolidated basis, we reported net sales with 280.3 million during the third quarter of 2024. Which represents a decrease of 6.4% compared to 299.6 million during the third quarter of 2023. The decrease was mostly attributable to softer market demand across all operating segments. Net income decreased to 25.4 million or 77 cents per diluted share for the three months into July 31st, 2024 compared to 31.7 million or 96 cents per diluted share for the three months into July 31st 2021.

Scott Zuehlke: I'll now turn the call over to Scott, who will discuss our financial results in more detail. Thanks, George. On a consolidated basis, we reported net sales of 280.3 million during the third quarter of 2024. Which represents a decrease of 6.4% compared to 299.6 million during the third quarter of 2023. The decrease was mostly attributable to softer market demand across all operating segments. Net income decreased to 25.4 million, or 77 cents per diluted share, for the three months into July 31st, 2024, compared to 31.7 million, or 96 cents per diluted share, for the three months into July 31st, 2021.

Speaker Change: got it. How does the skew count for a time in compared to legacy quanix? Is it meaning fully different or?

Speaker Change: You know, it's, oh, did you just write that? I would say that it tends to be more skews on the legacy time and business.

Speaker Change: Thank you.

Speaker Change: It is a different type of business model, you know, Aquatics is typically been made to order.

Speaker Change: I would say time and is more make-to-stock.

Speaker Change: They typically have higher levels of inventory.

Speaker Change: You know, they're engineered in the specific window systems, so for example, when a customer engineers in a product into a window system, even if the window system...

Scott Zuehlke: After adjusting for one time items, net income decreased to 24.2 million or 73 cents per diluted share for the quarter compared to 31.9 million or 97 cents per diluted share for the same period of lash, last year. On an adjusted basis, EBITDA for the quarter decreased to 42 million compared to 48.5 million during the same period of last year. The decrease in adjusted earnings for the three months in July 31, 2024 was mostly due to decreased operating leverage because of lower volumes related to softer market demand combined with higher material costs in both of our North American segments.

Scott Zuehlke: After adjusting for one-time items, net income decreased to 24.2 million or 73 cents per diluted share for the quarter compared to 31.9 million or 97 cents per diluted share for the same period of last year. last year. On an adjusted basis, EBITDA for the quarter decreased to 42 million compared to 48.5 million during the same period of last year. The decrease in adjusted earnings for the three months in July 31, 2024 was mostly due to decreased operating leverage because of lower volumes related to softer market demand, combined with higher material costs in both of our North American segments.

Speaker Change: goes out of manufacturer Bill kind of like an OE when a for an automotive when a car your expires you still have to have the ability to make that product through that after market life it's it's very similar with with their organization and that regard. So a little more stews, a little more inventory, a little more work to kind of.

Speaker Change: Drive that as much as we can to make the order versus make the stock, but a little different of a business model.

Scott Zuehlke: Now for results by operating segment. We generated net sales of 170.3 million in our North American Finestration segment for the third quarter of 2024, which represents a decrease of 3.9 percent compared to 177.1 million in the third quarter of 2023, primarily due to lower volume. We estimate the volumes in the segment decreased by approximately 5 percent year-over-year, offset by a slight increase in pricing. Adjusted to 27.7 million for the same period of 2023. Our European Finestration segment generated revenue of 59.6 million in the third quarter, which represents a decrease of approximately 11 percent compared to the third quarter of 2023, after adjusting for the foreign exchange impact.

Speaker Change: Okay, I'll pass it along. Thanks very much, guys.

Speaker Change: and thank you.

Speaker Change: and one moment for our next question.

Speaker Change: and our next question comes from Ruben Gardner from Benchmark, your line is not open.

Speaker Change: Thanks for the morning everybody.

Speaker Change: So just a follow-up on Collie's question about...

Speaker Change: The time and deal and customer conversations. I think revenue potential synergies or cross-selling opportunities with something mentioned around the initial announcement of the deal. It was just curious what your feedback was from customers on that front. Are there any...

Scott Zuehlke: Our European Finestration segment generated revenue of 59.6 million in the third quarter, which represents a decrease of approximately 11 percent compared to the third quarter of 2023, after adjusting for the foreign exchange impact. We estimate that volumes declined by approximately 8 percent year-over-year in this segment, with pricing down by approximately 2.5 percent and a negative foreign exchange translation impact of about 1 percent. Adjusted even a decrease and came in at 15.3 million for the quarter compared to 18.6 million in the third quarter of 2023.

Speaker Change: This energy risk, any customers that maybe don't want to get overly exposed to one supplier. Any other kind of thoughts there would be helpful.

Scott Zuehlke: We estimate that volumes declined by approximately 8 percent year-over-year in this segment, with pricing down by approximately 2.5 percent and a negative foreign exchange translation impact of about 1 percent. Adjusted even a decrease and came in at 15.3 million for the quarter compared to 18.6 million in the third quarter of 2023. We generated net sales of 51.5 million in our North American Cabinet Component Segment during the quarter, which was 7.1 percent lower than prior year. This decrease was driven by lower volumes and lower index pricing for hardwoods. We estimate that volumes declined by approximately 8 percent in this segment year-over-year, offset slightly by an increase in pricing.

Speaker Change: I don't see any initial disc energy, you know, it's too early into the process to identify, you know, the revenue opportunities, we obviously think that they're there and not only by selling a basket of goods but also, you know, the future development of new systems utilizing the whole breadth of our portfolio.

Scott Zuehlke: We generated net sales of 51.5 million in our North American Cabinet Component Segment during the quarter, which was 7.1 percent lower than prior year. This decrease was driven by lower volumes and lower index pricing for hardwoods. We estimate that volumes declined by approximately 8 percent in this segment year-over-year offset slightly by an increase in pricing. Adjusted EBITDA was 3.4 million for the third quarter in this segment compared to 5.4 million in the third quarter of 2023.

Speaker Change: Again, I want to remind people in our projections and pre-enouncement. We've never baked in any sort of revenue upside. So, you know, we feel good about that.

Speaker Change: You know, I think any sort of...

Speaker Change: Protection from customers isn't necessarily based on the size of the supplier, it'll be product one by product one that you know everyone will look to evaluate the risk profile and I feel very, very good about our position. I think.

Scott Zuehlke: Adjusted EBITDA was 3.4 million for the third quarter in this segment compared to 5.4 million in the third quarter of 2023.

Scott Zuehlke: Moving on to cash flow on the balance sheet, cash provided by operating activities was 46.4 million for the third quarter of 2024 compared to 64.1 million for the third quarter of 2023. Free cash flow decreased for the quarter mainly driven by lower net income because of softer demand, higher SGNA, that included 6 million in transaction advisory fees related to the time and acquisition, and a higher income tax expense. Our leverage ratio of net debt to last 12 months adjusted EBITDA was negative 0.3 times as of July 31, 2024, or set another way we were net debt free. Of course, this was prior to closing on the time and acquisition on August 1.

Scott Zuehlke: Moving on to cash flow on the balance sheet, cash provided by operating activities was 46.4 million for the third quarter of 2024 compared to 64.1 million for the third quarter of 2023. Free cash flow decreased for the quarter, mainly driven by lower net income because of softer demand, higher SG&A, that included 6 million in transaction advisory fees related to the time and acquisition, and a higher income tax expense. Our leverage ratio of net debt to last 12 months adjusted EBITDA was negative 0.3 times as of July 31, 2024, or, set another way, we were net debt free.

Speaker Change: I actually think the scale that Quonics has become actually protects.

Speaker Change: are customers from the smaller type of customer base that has more financial risk. I mean, we become a pretty large OE supplier and with that scale.

Speaker Change: comes from security in terms of our financial wearable.

Speaker Change: So, you know, it's our job to make sure that they understand that we have a...

Speaker Change: a supply chain that is able to support every one of our product lines and that they don't have risk in terms of a supply chain side of it. So I feel pretty good at where we're at and we'll continue to have these discussions and build the relationships with our customer on a go forward basis.

Scott Zuehlke: Of course, this was prior to closing on the time and acquisition on August 1.

Scott Zuehlke: As referenced in the earnings release, our completion of the time and acquisition means that our prior guidance for fiscal 2024 is no longer valid. Note that we still feel comfortable with our prior guidance for the legacy Qannex business, and our updated guidance is simply layering in the contribution from the legacy time and business for the fourth quarter. On a consolidated basis, we now estimate net sales of 1.275 billion to 1.285 billion, which should result in 171 million to 176 million in adjusted EBITDA for fiscal 2024. Please note that this revised guidance incorporates an expected cost impact of approximately $3 million related to performing a full physical inventory count at all legacy time and manufacturing plants prior to our fiscal year end on October 31st.

Speaker Change: I'm really excited, I think.

Speaker Change: got it and then switching gears, any, uh...

Speaker Change: Signs, you know, it's been a few years since we've had really kind of focused on affordability, but

Scott Zuehlke: Please note that this revised guidance incorporates an expected cost impact of approximately $3 million related to performing a full physical inventory count at all legacy time and manufacturing plants prior to our fiscal year end on October 31st. Performing physical inventory counts following acquisitions and annually thereafter is vital to ensuring the accuracy and integrity of financial records and regulatory compliance. These counts verify the inventory records match actual stock levels, support accurate financial reporting, meet regulatory requirements, enhance operational efficiency and safeguard against fraud and errors.

Speaker Change: I just want to hear what you're kind of seeing from a trade-down standpoint whether it can win those or...

Speaker Change: Um...

Speaker Change: the cabinet side. Any has that picked up at all and can you just remind us how that kind of impacts you on both the spacers front and then in the cabinet business.

Scott Zuehlke: Performing physical inventory counts following acquisitions and annually thereafter is vital to ensuring the accuracy and integrity of financial records and regulatory compliance. These counts verify the inventory records match actual stock levels, support accurate financial reporting, meet regulatory requirements, enhance operational efficiency, and safeguard against fraud and errors.

Speaker Change: You know, I think on the affordability front

Speaker Change: You know, I really think it impacts our cabinet side of the business more than the window side of our business. If you're going to get to the point where you need to replace a window, it's either because it's broken or failed or you're trying to reduce your energy cost. I mean, the one thing that we are still seeing across the globe is energy cost.

Scott Zuehlke: It's also worth noting that we plan to report the legacy time and results for the fourth quarter of 2024 as a separate operating segment. As George said, we're in the process of establishing a new operating and segment reporting structure which will be implemented in fiscal 2025 and which we hope to unveil at an investor day in early calendar 2025.

Scott Zuehlke: It's also worth noting that we plan to report the legacy time and results for the fourth quarter of 2024 as a separate operating segment. As George said, we're in the process of establishing a new operating and segment reporting structure, which will be implemented in fiscal 2025 and which we hope to unveil at an investor day in early calendar 2025.

Speaker Change: are not getting cheaper so.

Speaker Change: Um, you know, there's an opportunity you get a payback by up, up selling your window and becoming more thermally performing.

Speaker Change: The cabinet piece of our business, you know, we're very happy with what our team has done operationally, but at the end of the day it is a little more of a discretionary spend.

Speaker Change: as consumer confidence still lags and they tend to be kind of a higher level purchase that may require some borrowing to redo cabinets so it's going to be impacted more in our opinion than the windows and I think we're seeing that right now.

Scott Zuehlke: In addition, for modeling purposes, please use the following additional guidance for the full year 2024 which incorporates the legacy time and business for Q4. Depreciation and amortization of approximately 53 to 55 million SGNA of 168 to 170 million after adjusting for one time transaction and advisory cost, interest expense of 18 to 20 million and a tax rate of 22%. From a cadence perspective for the fourth quarter of this year versus the third quarter of this year, we expect revenue to be flat to up 2% for the legacy.

Scott Zuehlke: In addition, for modeling purposes, please use the following additional guidance for the full year 2024, which incorporates the legacy time and business for Q4. Depreciation and amortization of approximately 53 to 55 million SGNA of 168 to 170 million after adjusting for one-time transaction and advisory cost, interest expense of 18 to 20 million, and a tax rate of 22%. From a cadence perspective for the fourth quarter of this year versus the third quarter of this year, we expect revenue to be flat to up 2% for the legacy. Quantum business and up approximately 75% on a consolidated basis, including the legacy time and business by segment for the fourth quarter of this year compared to the third quarter of this year.

Speaker Change: Great, I'm going to think one more in. I know it's a little early for initial 25 outlook, but just kind of big picture.

Speaker Change: Revenue guide for the fourth quarter implies some improvement on a year of a year basis, maybe kind of Starting the flatten out is it is it too early to expect that maybe we've turned a corner and growth can resume in 25

Speaker Change: Yeah, I mean, good question. I'm sure a lot of people are thinking the same thing and it is too early for us to get in any sort of

Scott Zuehlke: Quantum business and up approximately 75% on a consolidated basis, including the legacy time and business by segment for the fourth quarter of this year compared to the third quarter of this year. We expect revenue to be flat to up 2% in our North American registration segment, flat to down 2% in our European registration segment and flat in our North American cabinet component segment. We're forecasting revenue of 210 to 215 million for the legacy time and business for the fourth quarter.

Speaker Change: Early looking next year, but I will say that...

Speaker Change: There is, we feel like there is prospect to return to growth next year. I think that...

Scott Zuehlke: We expect revenue to be flat to up 2% in our North American registration segment, flat to down 2% in our European registration segment, and flat in our North American cabinet component segment. We're forecasting revenue of 210 to 215 million for the legacy time and business for the fourth quarter. Adjusted to even a margin is expected to be up approximately 25 basis points for the legacy quantum business in the fourth quarter of 2024, again compared to the third quarter of this year. On a consolidated basis, which includes the legacy time and business and the previously mentioned costs related to physical inventory counts.

Speaker Change: The second half is more, we're more optimistic about the second half next year than we are in the first half just because near-term uncertainty, but yeah, I think there's not too many for growth in the timing of those, you know

Speaker Change: I think we saw today that the jobs report came out. It's nothing spectacular and there's more points starting to lead that the Fed will probably cut rates.

Scott Zuehlke: Adjusted to even a margin is expected to be up approximately 25 basis points for the legacy quantum business in the fourth quarter of 2024, again compared to the third quarter of this year. On a consolidated basis, which includes the legacy time and business and the previously mentioned costs related to physical inventory counts. Adjusted to even a margin is expected to be down 25 to 50 basis points for the fourth quarter compared to the third quarter.

Speaker Change: You know, here over the next 30 to 60 days when we see how large of a cut that that potentially could be in the impact that has on consumer confidence.

Speaker Change: will give us a better feel kind of December and into the beginning of the calendar year of how strong we're going to believe 2025 is. We think there's an opportunity for it to be a pretty decent year, but there's still a lot of noise between the interest rates in the election.

Scott Zuehlke: Adjusted to even a margin is expected to be down 25 to 50 basis points for the fourth quarter compared to the third quarter.

Speaker Change: Great thing. Thank you very much.

Speaker Change: Thank you, thank you. Congratulations, thank you.

Operator: Operator, we will now take your questions. And thank you. As a reminder to ask a question, please press star 111 on your telephone and wait for your name to be announced. To withdraw your question, please press star 111 again. Please stand by, we'll be compiled a Q&A roster.

Speaker Change: and thank you.

Speaker Change: To one moment for our next question.

Speaker Change #100: and our next question comes from Adam Dalmer from Thompson Davis, you line of no open.

Speaker Change #101: Hey, good morning, guys. Drafts on the corner of your hand closing time and early.

Stephen Ramsey: At one moment for our first question, and our first question comes from Stephen Ramsey from TRG. Your line is now open. Hi, good morning.

Speaker Change #101: Thanks!

Speaker Change #102: and given it it's a full quarter of time and that's pretty cool.

Speaker Change #103: Yeah, we play it perfectly. Nice and clean. Tony and Lyme with Rubin's last question. I was wondering if you guys are seeing any green shoots in the EU.

Steven Ramsey: Hi, good morning. Maybe one of the start with the legacy company for your outlook being unchanged. Wanted to think about this in the context of many building product companies in our coverage and more broadly who reduced their outlook for fiscal or calendar 24 for lower demand. You guys are keeping your legacy outlook. Can you talk about maybe why you are able to hold that outlook and then looking within your different in markets and products? Did you adjust anything up or down by market or by product in results or your outlook? Thanks. Yeah, great question, Steven.

George Wilson: Maybe one of the start with the legacy company for your outlook being unchanged. Wanted to think about this in the context of many building product companies in our coverage and more broadly who reduced their outlook for fiscal or calendar 24 for lower demand, you guys are keeping your legacy outlook. Can you talk about maybe why you are able to hold that outlook and then looking within your different in markets and products?

Speaker Change #103: Yeah!

Speaker Change #103: you know

Speaker Change #104: I think consumer confidence has started to show a little more of a bounceback in the UK. And a little not as much yet in Europe, UK has been a little more positive than what we've seen in Continental Europe. I think that the Bank of England has been a little more...

Speaker Change #105: had, but their economy is lagged a little longer than the U.S. has. So I think that they, you know, the UK market is suffered a little bit. So I think that there is some, there's probably more optimism for us in the UK than we do see in continental Europe on a short term basis.

George Wilson: Did you adjust anything up or down by market or by product in results or your outlook? Thanks. Yeah, great question, Steven. You know, in terms of our full-year guidance, I think, you know, our projections for what we've given in the past two quarters. I think we've all always been somewhat conservative in our approach and really had built in not a lot of movement from the Fed early in the year. So I think we were probably a little more conservative than some of our peers and thus didn't have to change our outlook on a go-forward basis.

Speaker Change #105: God, it's okay.

Speaker Change #105: Scott, what was the net debt after the quiz?

George Wilson: You know, in terms of our full-year guidance, I think, you know, our projections for what we've given in the past two quarters. I think we've all always been somewhat conservative in our approach and really had built in not a lot of movement from the Fed early in the year. So I think we were probably a little more conservative than some of our peers, and thus didn't have to change our outlook on a go-forward basis. You know, I think our operating teams and the sales teams have done a good job of going out and trying to get some spot one-time business or picking up some different things that helps offset some of the softness.

Speaker Change #106: Yeah, we haven't since it's during our fourth quarter, we haven't disclosed that, but it's not, it's pretty much in line with what we thought it would be.

Speaker Change #107: And then if I'm doing this correctly, the Q4 tax rate jumps up a little bit to call a 24% that right.

Speaker Change #108: Roughly, yeah. So, yeah, 22 for the whole year, so a little higher in Q4.

Speaker Change #108: and is that, like, a good tax rate to use going forward?

George Wilson: You know, I think our operating teams and the sales teams have done a good job of going out and trying to get some spot one-time business or picking up some different things that helps offset some of the softness. And, you know, in addition, some introduction of some new products that are starting to roll out. So I think it's a combination of things, but again, being relatively conservative in our full-year outlook early in the year combined with just the sales teams going out and pushing hard to get spot business has enabled us to stay fairly flat. Okay, that's helpful.

Speaker Change #109: Pretty close. We'll get more clarity there as we look into next year, but the reason for the uptick a little bit is mainly related to the UK patent box, which is a for a lower rate that we enjoy as legacy quanex, which legacy time and did not enjoy, so we're trying to do a little work there to help us.

George Wilson: And, you know, in addition, some introduction of some new products that are starting to roll out. So I think it's a combination of things, but again, being relatively conservative in our full-year outlook early in the year, combined with just the sales teams going out and pushing hard to get spot business, has enabled us to stay fairly flat.

Speaker Change #109: Y'all it.

Speaker Change #109: and then...

Speaker Change #110: Um, what's share-canner you using for Q4, not that you gave EPS guidance, but

Speaker Change #110: I've never heard of him.

George Wilson: Okay, that's helpful. And then maybe to get you to build more on the potential share gains you've gotten in winning business.

George Wilson: And then maybe to get you to build more on the potential share gains you've gotten in winning business. And, Kate, can you go into more detail on maybe where that has come from and then maybe put these business that you've won put it in the context in the prior years and maybe if it's comparable or even superior to prior years in winning business at this point in a calendar year? Yeah, I think the markets themselves, especially coming out of some pretty challenging supply chain year, year and a half, there hasn't been an enormous amount of shifts in terms of market share through with our competitors or in the market zone.

Speaker Change #110: Um, okay, and then do you have any sense for...

Speaker Change #110: Go for a cat-back for the combined company, or thoughts on Q4.

George Wilson: And, Kate, can you go into more detail on maybe where that has come from and then maybe put these businesses that you've won, put it in the context in the prior years and maybe if it's comparable or even superior to prior years in winning business at this point in a calendar year? Yeah, I think the markets themselves, especially coming out of some pretty challenging supply chain year, year and a half, there hasn't been an enormous amount of shifts in terms of market share through with our competitors or in the market zone. I think we've seen the most market share gained probably over in our European fenestration business, and that's really because some competitors had filed for administration, so there's fewer competitors. I think all of the people that still exist in that market have picked up some market share, but that's been some nice wins for us on volume.

Speaker Change #110: [inaudible]

Speaker Change #110: Probably a little too early for that work, you know, we've come in and I don't think it all is.

Speaker Change #111: If you were to go back and look at the standard render rates of both companies that will probably be pretty consistent. We're in the process of evaluating all of the current projects that we have in place. I don't think that there will be anything significantly out of line and as of right, you know, we don't have any plans for any like.

Speaker Change #111: Plant consolidation types of projects that would chew up cap-box, so I think it'll be a pretty standard year in terms of spending.

George Wilson: I think we've seen the most market share gained probably over in our European fenestration business and that's really because some competitors had filed for administration so there's fewer competitors and I think all of the people that still exist in that market have picked up some market share, but that's been some nice wins for us on volume. We've continued to utilize our thermal performance as a selling point to get new business as for our spacer products.

Speaker Change #112: Outside of the one one project that we've mentioned in the past is we're expanding in the southeast. We're opening a new plant in Jackson, Georgia Help follow some of our bigger customers so that'll take a little bit of cat-backs next year. Yeah, that was already building doors.

Speaker Change #112: Okay, got it, great, thank you guys.

George Wilson: We've continued to utilize our thermal performance as a selling point to get new business for our spacer products. You know, as around the world the thermal performance and thermal efficiency of windows continues to grow, I think we continue to find opportunities to build off of that sustainability platform, and I've had some nice wins globally there. But outside of that, really the markets have kind of been stable.

Speaker Change #112: All right, appreciate it. Thank you. And thank you.

Speaker Change #113: And I'm showing no further questions I would not like to turn the call back over to George Wilson for our closing remarks.

Speaker Change #114: I'd like to thank everyone for joining today but before we go I do want to take this opportunity to again welcome all our new teammates who have joined us as part of the time and transaction and to thank the entire team for all of their hard work during the transaction and now as we move forward together with the integration.

George Wilson: You know, as around the world the thermal performance and thermal efficiency of windows continues to grow, I think we continue to find opportunities to build off of that sustainability platform and I've had some nice wins globally there, but outside of that really the markets have kind of been stable. I think What we see when we do pickup business is it's usually short terms and I'll use for example our cabinet business they're own you know it's pretty trenched in but we've been able to pick up some spot business and with some smaller customers those are the types of wins we see so not a lot of shift in long contractual wins on that side of our business but some nice spot wins.

Speaker Change #114: We're really excited about the future for Quonix and look forward to updating you all again on our progress. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

George Wilson: I think what we see when we do pickup business is it's usually short terms, and I'll use for example our cabinet business. They're own, you know, it's pretty trenched in, but we've been able to pick up some spot business and with some smaller customers. Those are the types of wins we see, so not a lot of shift in long contractual wins on that side of our business, but some nice spot wins.

George Wilson: Okay that's helpful and then one more for me one of the positive aspects of the time and deal was the limited product overlap between the two companies and another positive feature was time and greater mix of highly engineered products that carry better pricing can you talk about if there is any overlap on products where time and mix of highly engineered products is better than yours and maybe where you see that evolving strategically over the next year as you put the company together as go to market. Yeah another great question um you know I think again we're one month into this but what we anticipated through our due diligence and what we've seen in this first 30 days 45 days is exactly that there's very little overlap in the products and little channel conflict in what we do so for us being able to effectively as I mentioned in my script doing everything but the class we're pretty excited about the opportunities one to to sell a full basket of goods you become more of a distributor type approach to all of our customers but on new product development you know I think you'll see a stronger focus for us to migrate even more into systems development effectively doing everything but the class trying to find ways to to create systems that integrate multiple components to create something new and different and it's too early to tell those types of engineered and in development projects take time but I will tell you we're extremely excited about the potential opportunity of doing exactly that excellent thank you and thank you and one moment for our next question and our next question comes from Julio Romero from Sedodian Company your line is not open thanks hey good morning guys I wanted to stay on time and for a little bit morning you know can you maybe just talk about how the reception has been from you know employees customers suppliers etc you know given the first month of integration post-close yes you know we've been very busy trying to get out to visit the plants meet as many people a lot of work to do especially when you're at a quarter end so it's it's been a balance but we have been extremely pleased with the level of talent of people that we see in the organization the excitement one of the things that we identified fairly early you know the cultures are very similar on things that are extremely important to us how we how we serve our customers the focus most importantly the focus on safety are our willingness and anxiousness to develop people all of those things are extremely similar so We're very excited.

George Wilson: Okay, that's helpful, and then one more for me. One of the positive aspects of the time and deal was the limited product overlap between the two companies, and another positive feature was time and greater mix of highly engineered products that carry better pricing. Can you talk about if there is any overlap on products where time and mix of highly engineered products is better than yours, and maybe where you see that evolving strategically over the next year as you put the company together as go to market? Yeah, another great question. Um, you know, I think again we're one month into this, but what we anticipated through our due diligence and what we've seen in this first 30 days, 45 days, is exactly that: there's very little overlap in the products and little channel conflict in what we do. So for us, being able to effectively, as I mentioned in my script, doing everything but the class, we're pretty excited about the opportunities. One, to sell a full basket of goods, you become more of a distributor-type approach to all of our customers. But on new product development, you know, I think you'll see a stronger focus for us to migrate even more into systems development, effectively doing everything but the class, trying to find ways to create systems that integrate multiple components to create something new and different. And it's too early to tell; those types of engineered and development projects take time. But I will tell you we're extremely excited about the potential opportunity of doing exactly that. Excellent, thank you. And thank you, and one moment for our next question. And our next question comes from Julio Romero from Sedodian Company; your line is not open. Thanks. Hey, good morning, guys. I wanted to stay on time and for a little bit morning. You know, can you maybe just talk about how the reception has been from, you know, employees, customers, suppliers, etc., you know, given the first month of integration post-close? Yes, you know, we've been very busy trying to get out to visit the plants, meet as many people. A lot of work to do, especially when you're at a quarter end, so it's been a balance. But we have been extremely pleased with the level of talent of people that we see in the organization, the excitement. One of the things that we identified fairly early, you know, the cultures are very similar on things that are extremely important to us: how we serve our customers, the focus, most importantly, the focus on safety, our willingness and anxiousness to develop people. All of those things are extremely similar, so we're very excited.

George Wilson: I think once the deal closed, the level of sharing of data and obviously starting to build together, I mentioned in my script that we have an integration management office that has folks from pre-acquisition both sides of the table and these folks are working as though they've been colleagues for 30 years. It's been great to see. I'm excited to see what sort of energy and opportunities that they're going to create. I think our customers have been very supportive.

George Wilson: I think once the deal closed, the level of sharing of data and obviously starting to build together. I mentioned in my script that we have an integration management office that has folks from pre-acquisition both sides of the table, and these folks are working as though they've been colleagues for 30 years.

George Wilson: It's been great to see. I'm excited to see what sort of energy and opportunities that they're going to create. I think our customers have been very supportive. We've spent time talking to many of them about learning in their eyes, what are the strengths and the weaknesses of each, and it's our job to build on the strengths of those companies and minimize what would be a perceived weakness. I think we overlay very, very well. I mean, I think Quanex has been a very strong manufacturing-based company, and I think the time and team was probably a little more commercial-driven and engineered types of solutions, and I think when you overlay those two, it's going to create something very, very special.

George Wilson: We've spent time talking to many of them about learning in their eyes, what are the strengths and the weaknesses of each and it's our job to build on the strengths of those companies and minimize what would be a perceived weakness. I think we overlay very, very well. I mean, I think Quanex has been very strong manufacturing based company and I think the time and team was probably a little more commercial driven and engineered types of solutions and I think when you overlay those two, it's going to create something very, very special. Absolutely, and the cost impact related to that.

George Wilson: Absolutely, and the cost impact related to that.

George Wilson: Do you also lose any days of operations to do that and if so, how many days? Secondly, do you expect maybe to implement a new ERP, some data tracking and maybe reduce that physical inventory count impact over time? Yeah, absolutely. We're going to get much more efficient on it the second time around. This was something that they weren't expecting to have to get done by October 31st. It's something that we feel is very necessary.

George Wilson: Do you also lose any days of operations to do that, and if so, how many days?

George Wilson: Secondly, do you expect maybe to implement a new ERP, some data tracking, and maybe reduce that physical inventory count impact over time? Yeah, absolutely. We're going to get much more efficient on it the second time around. This was something that they weren't expecting to have to get done by October 31st. It's something that we feel is very necessary. There will be a financial impact. I quantified the cost side. There will be some downtime that will affect a little of the revenue side, which is also reflected in the guidance that we gave. So it's a learning process on their end.

George Wilson: There will be a financial impact. I quantified the cost side. There will be some downtime that will affect a little of the revenue side, which is also reflected in the guidance that we gave. So it's a learning process on their end. It's something we're used to here at Legacy Quanex, but we're partners now. We're going to work with them to make sure that going forward. This is a more efficient process. And from an ERP perspective, your question there, I think once we finalize the new reporting structures, we'll obviously do an in-depth look at what ERPs exist within the legacy organizations and how they match up with the new reporting structure.

George Wilson: It's something we're used to here at Legacy Quanex, but we're partners now. We're going to work with them to make sure that going forward. This is a more efficient process.

George Wilson: And from an ERP perspective, your question there, I think once we finalize the new reporting structures, we'll obviously do an in-depth look at what ERPs exist within the legacy organizations and how they match up with the new reporting structure. We'll do everything that we can to streamline. I think that's one of the things, in terms of trying to optimize margin, takeout costs, while not impacting our customer. That's always been a focus for the Quanex team, and we'll make sure that that continues to exist on a go-forward basis.

George Wilson: We'll do everything that we can to streamline. I think that's one of the things in terms of trying to optimize margin, takeout costs, while not impacting our customer that's always been a focus for the Quanex team and we'll make sure that that continues to exist on a go-forward basis. Got it.

George Wilson: Got it. How does the SKU count for time and compared to Legacy Quanex? Is it meaningfully different, or? You know, I would say that it tends to be more SKUs on the legacy time and business. It is a different type of business model. Quanex has typically been made to order. I would say time and is more make to stock. So, you know, they've typically had higher levels of inventory. They're engineered into specific window systems. So, for example, when a customer engineers in a product into a window system, even if the window system goes out of manufacturer, they'll kind of like an OE for an automotive.

George Wilson: How does the SKU count for time and compared to Legacy Quanex? Is it meaningfully different or? You know, I would say that it tends to be more SKUs on the legacy time and business. It is a different type of business model. Quanex has typically been made to order. I would say time and is more make to stock. So, you know, they've typically had higher levels of inventory. They're engineered into specific window systems.

George Wilson: So, for example, when a customer engineers in a product into a window system, even if the window system goes out of manufacturer, they'll kind of like an OE for an automotive. When a car year expires, you still have to have the ability to make that product through the after-market life. It's very similar with their organization in that regard. So, a little more SKUs, a little more inventory. We'll work to kind of drive that as much as we can to make the order versus make the stock, but a little different of a business model.

George Wilson: When a car year expires, you still have to have the ability to make that product through the after-market life. It's very similar with their organization in that regard. So, a little more SKUs, a little more inventory.

George Wilson: We'll work to kind of drive that as much as we can to make the order versus make the stock, but a little different of a business model.

George Wilson: Okay, I'll pass it along. Thanks very much, guys. And thank you.

George Wilson: Okay, I'll pass it along. Thanks very much, guys.

Operator: And thank you.

Reuben Garner: And one moment for our next question. And our next question comes from Reuben Garner from Benchmark. Your line is now open. Thanks. Good morning, everybody. So just a follow up on Julio's question about the time and deal and customer conversations. I think revenue potential synergies or cross-selling opportunities with something mentioned around the initial announcement of the deal was just curious what your kind of feedback was from customers on that front. Are there any disenergy risks, any customers that maybe don't want to get overly exposed to one supplier, any other kind of thoughts there would be helpful.

Reuben Garner: And one moment for our next question. And our next question comes from Reuben Garner from Benchmark. Your line is now open.

George Wilson: Thanks.

George Wilson: Good morning, everybody. So just a follow-up on Julio's question about the time and deal and customer conversations. I think revenue potential synergies or cross-selling opportunities with something mentioned around the initial announcement of the deal was just curious what your kind of feedback was from customers on that front. Are there any disenergy risks, any customers that maybe don't want to get overly exposed to one supplier, any other kind of thoughts there would be helpful.

Reuben Garner: I don't see any initial disenergy. You know, it's too early into the process to identify, you know, the revenue opportunities. We obviously think that they're there. And I'm not only by selling a basket of goods, but also the future development of new systems utilizing the whole breadth of our portfolio. Again, I want to remind people in our projections and pre-announcement, we've never baked in any sort of revenue upside. So, you know, we feel good about that.

George Wilson: I don't see any initial disenergy. You know, it's too early into the process to identify, you know, the revenue opportunities. We obviously think that they're there. And I'm not only by selling a basket of goods, but also the future development of new systems utilizing the whole breadth of our portfolio.

George Wilson: Again, I want to remind people, in our projections and pre-announcement, we've never baked in any sort of revenue upside. So, you know, we feel good about that. You know, I think any sort of protection from customers isn't necessarily based on the size of the supplier. It'll be product line by product line that, you know, everyone will look to evaluate the risk profile, and I feel very, very good about our position. I actually think the scale that Quantix has become actually protects our customers from the smaller type of customer base that has more financial risk. I mean, we become a pretty large OE supplier.

Reuben Garner: You know, I think any sort of protection from customers isn't necessarily based on the size of the supplier. It'll be product line by product line that, you know, everyone will look to evaluate the risk profile and I feel very, very good about our position. I actually think the scale that Quantix has become actually protects our customers from the smaller type of customer base that has more financial risk. I mean, we become a pretty large OE supplier.

Reuben Garner: And with that scale comes from security in terms of our financial wearable. So, you know, it's our job to make sure that they understand that we have a supply chain that is able to support every one of our product lines and that they don't have risk in terms of a supply chain side of it. So, I feel pretty good aware we're at and we'll continue to have these discussions and build the relationships with our customer on a go-forward basis.

George Wilson: And with that scale comes from security in terms of our financial wearable. So, you know, it's our job to make sure that they understand that we have a supply chain that is able to support every one of our product lines and that they don't have risk in terms of a supply chain side of it.

George Wilson: So, I feel pretty good aware we're at, and we'll continue to have these discussions and build the relationships with our customer on a go-forward basis.

George Wilson: I'm really excited. I think the combination will be able to, you know, you hear it a lot. But I do think that this can be a win-win for us and our customers as we learn and work with each one of these customers to develop engineered solutions on a go-forward basis. So, that's where our focus is going to be. Got it.

George Wilson: Got it. And then switching gears.

George Wilson: And then switching gears. Any signs, you know, it's been a few years since we've had really kind of focus on affordability, but just wanted to hear what you're kind of seeing from a trade-down standpoint, whether it's in windows or the cabinet side. Any, has that picked up at all and can you just remind us how that kind of impacts you on both the spacers front and then in the cabinet? You know, I think on the affordability front, I really think it impacts our cabinet side of the business more than the window side of our business.

George Wilson: Any signs, you know, it's been a few years since we've had really kind of focus on affordability, but just wanted to hear what you're kind of seeing from a trade-down standpoint, whether it's in windows or the cabinet side. Any, has that picked up at all, and can you just remind us how that kind of impacts you on both the spacers front and then in the cabinet? You know, I think on the affordability front, I really think it impacts our cabinet side of the business more than the window side of our business. If you're going to get to the point where you need to replace a window, it's either because it's broken or it's failed, or you're trying to reduce your energy cost.

George Wilson: If you're going to get to the point where you need to replace a window, it's either because it's broken or it's failed or you're trying to reduce your energy cost. I mean, the one thing that we are still seeing across the globe is energy cost are not getting cheaper. So, you know, there's an opportunity to get a payback by up selling your window and becoming more thermally performing. The cabinet piece of our business, you know, we're very happy with what our team has done operationally, but at the end of the day it is a little more of a discretionary spend as consumer confidence still lags and they tend to be kind of a higher level purchase that may require some borrowing to redo cabinets.

George Wilson: I mean, the one thing that we are still seeing across the globe is energy costs are not getting cheaper. So, you know, there's an opportunity to get a payback by upselling your window and becoming more thermally performing. The cabinet piece of our business, you know, we're very happy with what our team has done operationally, but at the end of the day it is a little more of a discretionary spend as consumer confidence still lags, and they tend to be kind of a higher level purchase that may require some borrowing to redo cabinets. So, it's going to be impacted more, in our opinion, than the windows.

George Wilson: So, it's going to be impacted more in our opinion than the windows. And I think we're seeing that right now. Great. I'm going to think one more and I know it's a little early for an initial 25 outlook, but just kind of big picture your revenue guide for the fourth quarter implies improvement on a year of your basis, maybe kind of starting to flatten out. Is it too early to expect that maybe we've turned a corner and growth can resume in 25.

George Wilson: And I think we're seeing that right now.

George Wilson: Great.

George Wilson: I'm going to think one more, and I know it's a little early for an initial 25 outlook, but just kind of big picture your revenue guide for the fourth quarter implies improvement on a year of your basis, maybe kind of starting to flatten out. Is it too early to expect that maybe we've turned a corner and growth can resume in 25. Yeah, I mean, good question. I'm sure a lot of people are thinking the same thing, and it is too early for us to get any sort of early look at next year. But I will say that there is we feel like there is prospect of return to growth next year.

George Wilson: Yeah, I mean, good question. I'm sure a lot of people are thinking the same thing and it is too early for us to get any sort of early look at next year, but I will say that there is we feel like there is prospect of return to growth next year. I think that the second half is more or more optimistic about the second half next year than we are in the first half just because near term uncertainty, but yeah, I think there's an opportunity for growth in the timing of those.

George Wilson: I think that the second half is more or more optimistic about the second half next year than we are in the first half, just because near term uncertainty. But yeah, I think there's an opportunity for growth in the timing of those. You know, I think we saw today that the jobs report came out. It's nothing spectacular, and there's more points starting to lead that the Fed will probably cut rates. I think, you know, here over the next 30 to 60 days when we see how large of a cut that that potentially could be and the impact that has on consumer confidence will give us a better feel kind of December and into the beginning of the calendar year.

George Wilson: You know, I think we saw today that the jobs report came out. It's nothing spectacular and there's more points starting to lead that the Fed will probably cut rates. I think, you know, here over the next 30 to 60 days when we see how large of a cut that that potentially could be and the impact that has on consumer confidence will give us a better feel kind of December and into the beginning of the calendar year. How strong we're going to believe 2025 is we think there's an opportunity for it to be a pretty decent year, but you know, there's still noise between the interest rates and the election.

George Wilson: Thank you. And thank you.

George Wilson: How strong we're going to believe 2025 is. We think there's an opportunity for it to be a pretty decent year, but you know, there's still noise between the interest rates and the election.

Operator: Thank you. And thank you.

Adam Dalma: The one moment for our next question and our next question comes from Adam Dalma from Thompson Davis, your line of no open. Hey, good morning, guys, grads on the corner hand closing time and early. Thanks. And given us a full quarter of time and that's pretty cool. Yeah, we planted perfectly nice and clean. Kind of in line with Ruben's last question, I was wondering if you guys are seeing any green shoots in the EU.

Adam Dalma: The one moment for our next question, and our next question comes from Adam Dalma from Thompson Davis. Your line is now open. Hey, good morning, guys. Grads on the corner, hand closing time and early. Thanks. And given us a full quarter of time, and that's pretty cool. Yeah, we planted perfectly nice and clean.

George Wilson: Kind of in line with Ruben's last question, I was wondering if you guys are seeing any green shoots in the EU. You know, I think I think consumer confidence has started to show a little more of a bounce back in the UK. And a little, not as much yet in Europe. UK has been a little more positive than what we've seen in continental Europe. I think the Bank of England has been a little more. Ahead, but their economy is lagged a little longer than the U.S. has. So I think that the, you know, the UK market has suffered a little bit.

Adam Dalma: You know, I think I think consumer confidence has started to show a little more of a bounce back in the UK. And a little not as much yet in Europe, UK has been a little more positive than what we've seen in continental Europe. I think the bank of England has been a little more. Ahead, but their economy is lagged a little longer than the U.S, has. So I think that the, you know, the UK market is suffered a little bit.

Adam Dalma: So I think that there is some, there's probably more optimism for us in the UK than we do see in continental Europe on a short term basis. Got it. Okay. Scott, what is the, what was the net debt after the quiz? Yeah, we haven't, since it's during our fourth quarter, we haven't disclosed that, but it's not, it's pretty much in line with what we thought it would be. And then if I'm doing this correctly, the Q4 tax rate jumps up a little bit to call 24%.

Scott Zuehlke: So I think that there is some, there's probably more optimism for us in the UK than we do see in continental Europe on a short-term basis. Got it.

Scott Zuehlke: Okay. Scott, what is the, what was the net debt after the quiz? Yeah, we haven't; since it's during our fourth quarter, we haven't disclosed that, but it's not, it's pretty much in line with what we thought it would be. And then if I'm doing this correctly, the Q4 tax rate jumps up a little bit to call 24%. Is that right? Roughly, yeah. So, yeah, 22 for the whole year. So a little higher in Q4.

Adam Dalma: Is that right? Roughly, yeah. So, yeah, 22 for the whole year. So a little higher in Q4. And is that like a good tax rate to use going forward? Pretty close. We'll get more clarity there as we look into next year. But the reason for the uptick a little bit is mainly related to the UK patent box, which is for a lower rate that we, we enjoy as legacy Quanex, which legacy time and did not enjoy.

Scott Zuehlke: And is that like a good tax rate to use going forward? Pretty close. We'll get more clarity there as we look into next year. But the reason for the uptick a little bit is mainly related to the UK patent box, which is for a lower rate that we, we enjoy as legacy Quanex, which legacy time and did not enjoy. So we're trying to do a little work there to help us.

Adam Dalma: So we're trying to do a little work there to help us. Got it. And then, what share counter are you using for Q4? Not that you gave EPS guidance, but? Yeah, it's roughly 47 million. Okay. And then, do you have any sense for? Go forward catbacks for the combined company or thoughts on Q4? Probably a little too early for that. You know, we've come in and I don't think it all is.

Scott Zuehlke: Got it. And then, what share counter are you using for Q4? Not that you gave EPS guidance, but? Yeah, it's roughly 47 million. Okay.

Scott Zuehlke: And then, do you have any sense for? Go forward catbacks for the combined company or thoughts on Q4? Probably a little too early for that. You know, we've come in, and I don't think it all is. If you were to go back and look at the standard run rates of both companies, it'll probably be pretty consistent. We're in the process of evaluating all of the current projects that we have in place. I don't think that there will be anything significantly out of line and as of right. You know, we don't have any plans for any like plant consolidation types of projects that would chew up catbacks.

Adam Dalma: If you were to go back and look at the standard run rates of both companies, it'll probably be pretty consistent. We're in the process of evaluating all of the current projects that we have in place. I don't think that there will be anything significantly out of line and as of right. You know, we don't have any plans for any like plant consolidation types of projects that would would chew up catbacks. So I think it'll be a pretty standard year in terms of spending.

Scott Zuehlke: So I think it'll be a pretty standard year in terms of spending. Outside of the one one project, I think we mentioned in the past is we're expanding in the Southeast. We're opening a new plant in Jackson, Georgia. Help follow some of our bigger customers so that'll take a little bit of catbacks next year. That was already building ours.

Adam Dalma: Outside of the one one project, I think we mentioned in the past is we're expanding in the southeast. We're opening a new plant in Jackson, Georgia. Help follow some of our bigger customers so that'll take a little bit of catbacks next year. That was already building ours. Got it. Great. Thank you guys. Appreciate it. Thank you. And thank you. And I'm showing no further questions.

Scott Zuehlke: Got it. Great.

Scott Zuehlke: Thank you, guys. Appreciate it.

Operator: Thank you. And thank you.

Operator: And I'm showing no further questions.

George Wilson: I would not like to turn the call back over to George Wilson for closing remarks. I would like to thank everyone for joining today. But before we go, I do want to take this opportunity to again welcome all of our new teammates who have joined us as part of the time in transaction and to thank the entire team for all their hard work during the transaction. And now as we move forward together with the integration, we're really excited about the future for quantum and look forward to updating you all again on our progress.

George Wilson: I would not like to turn the call back over to George Wilson for closing remarks. I would like to thank everyone for joining today.

George Wilson: Thank you.

George Wilson: But before we go, I do want to take this opportunity to again welcome all of our new teammates who have joined us as part of the time in transaction and to thank the entire team for all their hard work during the transaction. And now, as we move forward together with the integration, we're really excited about the future for quantum and look forward to updating you all again on our progress. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now. Disconnect .

Operator: This concludes today's conference call. Thank you for participating. You may now. Disconnect.

Q3 2024 Quanex Building Products Corp Earnings Call

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