Q1 2025 Quanex Building Products Corp Earnings Call
Okay.
Unknown Executive: Good day, and thank you for standing by.
Speaker Change: Good day and thank you for standing by welcome to the first quarter 2025, Quanex building products Corporation earnings Conference call.
Unknown Executive: Welcome to the first quarter 2025 Quanex Building Products Corporation earnings conference call. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message device if your hand is raised. If you have a question, please press star 1 again.
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Speaker Change: After the Speakers' presentation there'll be a question answer session.
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Unknown Executive: We advise that today's conference is being recorded.
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Scott Zuehlke: I'd now like to hand the conference over to your first speaker today, Scott Zuehlke, Senior Vice President, CFO, and Treasurer. Please go ahead. Thanks for joining the call this morning.
Speaker Change: I'd now like to hand, the conference call over to your first speaker today, Scott just key senior Vice President CFO and Treasurer. Please go ahead.
Speaker Change: Thanks for joining the call. This morning on the call with me today is George Wilson, Our Chairman President and CEO. This conference call will contain forward looking statements and some discussion of non-GAAP measures forward 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.
George Wilson: On the call with me today is George Wilson, our Chairman, President, and CEO.
Scott Zuehlke: This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-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, and Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events.
Speaker Change: <unk> from such statements and guidance and Quanex undertakes no obligation to update or revise any forward looking statements to reflect new information or events.
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: 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 I will now turn the call over to George for his prepared remarks.
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.
George Wilson: Thanks, Scott and good morning to everyone joining the call.
George Wilson: Before I begin my commentary, I want to take a moment to acknowledge Kurt Stephens for his many years of dedicated service on the Quanex Board of Directors. Kurt's expertise in the building product space combined with his financial background added immense value to our board. His leadership and chairing the audit committee for many years has been instrumental to our business.
Speaker Change: Before I begin my commentary I wanted to take a moment to acknowledge Curt Stevens for his many years of dedicated service on <unk> Board of directors.
Speaker Change: Her expertise in the building products space combined with his financial background added immense value to our board.
Speaker Change: His leadership and chairing the audit committee for many years has been instrumental to our business.
George Wilson: On behalf of the entire Quanex team, I want to thank Kurt for his service and wish him all the best in his retirement.
Speaker Change: On behalf of the entire quanex team I want to thank Kurt for his service and wish him all the best in his retirement.
George Wilson: Turning to the first fiscal quarter of 2025, our results aligned with expectations, despite significant macroeconomic uncertainties in the challenging winter weather environment in the U.S. Year-over-year improvements in both revenue and earnings were largely driven by the contributions related to the acquisition of payments. Since the acquisition closed last August, our focus has been on integrating the two companies. Our primary objectives are to achieve or exceed the expected financial synergies from the transaction and to establish an organizational structure that both supports our current business and provides a scalable platform for future growth. From a synergy perspective, I'm pleased with the progress our team has made and remain confident we will meet our publicly announced target of $30 million in run rate synergies by the end of year two.
Speaker Change: Turning to the first fiscal quarter of 2025, our results aligned with expectations, despite significant macroeconomic uncertainties and a challenging winter weather environment in the U S.
Speaker Change: Year over year improvements in both revenue and earnings were largely driven by the contributions related to the acquisition of timing.
Speaker Change: Since the acquisition closed last August our focus has been on integrating the two companies.
Speaker Change: Our primary objectives are to achieve or exceed the expected financial synergies from the transaction and to establish an organizational structure that both supports our current business and provides a scalable platform for future growth.
Speaker Change: From a synergy perspective, I am pleased with the progress our team has made and remain confident we will meet our publicly announced target of $30 million in run rate synergies by the end of year two.
George Wilson: We are also working diligently to identify additional synergies and explore opportunities to accelerate the realization.
Speaker Change: We are also working diligently to identify additional synergies and explore opportunities to accelerate our realization.
George Wilson: We look forward to providing a more detailed update during our second quarter call. Regarding organizational design, and as outlined in our recent investor presentation, we will be re-segmenting our business into three new units, hardware solutions, extruded solutions, and custom solutions. Each of these segments will have a global scope and is designed to better serve our existing customers, support new product development, explore adjacent markets, and drive margin improvement through operational excellence in the sharing of best practices. This change will involve significant work from a public reporting perspective, and our team is focused on ensuring that we can report results in these new segments as soon as practical later this year.
Speaker Change: We look forward to providing a more detailed update during our second quarter call.
Speaker Change: Regarding organizational design and as outlined in our recent investor presentation, we will be re segmenting, our business into three new year nuts hardware solutions extruded solutions and custom solutions.
Speaker Change: Each of these segments will have a global scope and is designed to better serve our existing customers support new product development.
Speaker Change: Explore adjacent markets and drive margin improvement through operational excellence and the sharing of best practices.
Speaker Change: This change will involve significant work from our public reporting perspective, and our team is focused on ensuring that we can report results in these new segments as soon as practical later this year.
George Wilson: Looking at the markets, as I mentioned earlier, our first quarter results were in line with expectations. We have returned to our typical seasonal order cadence with a relatively softer Q1 due to holidays and weather. Outside of this normal seasonality, demand has been impacted by uncertainties surrounding future Fed interest rate movements and week-to-week changes regarding potential tariffs. We believe both factors have negatively affected consumer confidence. Likewise, conversations with our customers reflect a general sentiment of caution regarding new projects. However, the benefit of Quanex is that we have proven our ability to respond quickly to changes in demand, both up and down.
Speaker Change: Looking at looking at the markets as I mentioned earlier, our first quarter results were in line with expectations.
Speaker Change: We have returned to our typical season seasonal order cadence with a relatively softer Q1 due to holidays and weather.
Speaker Change: Outside of this normal seasonality demand has been impacted by uncertainties surrounding future fed interest rate movements and week to week changes regarding potential tariffs.
Speaker Change: We believe both factors have negatively affected consumer confidence.
Speaker Change: Likewise conversations with our customers reflect the general sentiment of caution regarding new projects.
Speaker Change: However, the benefit the quantity is that we have proven our ability to respond quickly to changes in demand both up and down.
George Wilson: As for tariffs, the situation remains fluid and unpredictable. However, we are confident that the efforts of our supply chain team over the past three years have positioned us to localize supply in most cases, which we believe will minimize the potential impact on Quanex and our customers. Where tariffs do apply, we are actively engaging with customers on pricing mechanisms and exploring continuous operational improvements to offset their impact. These efforts, combined with our synergy progress, gives us confidence in reaffirming our full year earnings guidance.
Speaker Change: As for tariffs the situation remains fluid and unpredictable. However, we are confident that the efforts of our supply chain team over the past three years have positioned us to localize supply in most cases, which we believe will minimize the potential impact on <unk> and our customers.
Speaker Change: Where tariffs do apply we are actively engaging with customers on pricing mechanisms and exploring continuous operational improvements to offset their impact. These efforts combined with our synergy progress gives us confidence in reaffirming our full year earnings guidance.
George Wilson: Operationally, I'm very pleased with our performance and the improvements we've already seen as part of the integration process. We achieved record safety performance in the first quarter, along with improvements in service and quality metrics. These gains are the results of sharing best practices between the legacy Quanex and Time and Teams, as well as the benefit of migrating to our new operating segment. Moving forward, our operational focus will remain on safety culture, employee engagement, working capital improvements, and optimizing return on net assets to maximize our cash flow generation. Regarding the use of cash flow to generate the best shareholder returns, we will focus on paying down debt and repurchasing our stock in an opportunistic manner.
Speaker Change: Operationally I'm very pleased with our performance and the improvements we've already seen as part of the integration process. We achieved record safety performance in the first quarter, along with improvements in service and quality metrics.
Speaker Change: These gains are the result of sharing best practices between the legacy Quanex and prime and teams as well as the benefit of migrating to our new operating segments.
Speaker Change: Moving forward, our operational focus will remain on safety culture employee engagement working capital improvements and optimizing return on net assets to maximize our cash flow generation.
Speaker Change: Regarding the use of cash flow to generate the best shareholder returns, we will focus on paying down debt and repurchasing our stock in an opportunistic manner.
George Wilson: So in summary, while short-term market headwinds persist, the Quanex team continues to perform well and the anticipated benefits of the time and acquisition are coming to fruition as we expected.
Speaker Change: So in summary, while short term market headwinds persist the quanex team continues to perform well and the anticipated benefits of the climate acquisition are coming to fruition as we expected.
George Wilson: We look forward to continuing our integration efforts and providing updates on our progress throughout the year.
Speaker Change: We look forward to continuing our integration efforts and providing updates on our progress throughout the year.
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 $400 million during the first quarter of 2025, which represents an increase of approximately 67% compared to $239.2 million for the same period of 2024. The increase was primarily driven by the contribution from the time and acquisition that closed on August 1st, 2024. Excluding the time and contribution, net sales would have declined by 6.2% for the first quarter of 2025, largely due to lower volume.
Speaker Change: I'll now turn the call over to Scott, who will discuss our financial results in more detail.
Scott Justkey: Thanks George.
Scott Justkey: On a consolidated basis, we reported net sales of $400 million during the first quarter of 2025, which represents an increase of approximately 67% compared to $239 2 million for the same period of 2024. The increase was primarily driven by the contribution from the time an acquisition that closed on August one 2024.
Scott Justkey: Excluding the time and contribution net sales would've declined by six 2% for the first quarter of 2025, largely due to lower volume.
Scott Zuehlke: We reported a net loss of $14.9 million, or $0.32 per diluted share, during the three months ended January 31, 2025, compared to net income of $6.2 million, or $0.19 per diluted share, during the three months ended January 31, 2024. On an adjusted basis, net income was $9 million, or $0.19 per diluted share, during the first quarter of 2025, compared to $8.4 million, or $0.25 per diluted share, during the first quarter of 2024. The adjustments being made to EPS are as follows, amortization of step-up for purchase price adjustments on inventory, transaction advisory fees and reorg costs, restructuring charges related to severance and disposal of software, amortization expense related to intangible assets and a pension settlement refund, and other net adjustments related to foreign currency transaction gain loss and effective tax recovery.
Scott Justkey: We reported a net loss of $14 9 million or <unk> 32 per diluted share. During the three months ended January 31, 2025, compared to net income of $6 2 million or <unk> 19 per diluted share. During the three months ended January 31, 2024 on an adjusted basis net income was $9 million or <unk> nine.
Scott Justkey: <unk> per diluted share during the first quarter of 2025 compared to $8 4 million or 25 per diluted share during the first quarter of 2020 for the adjustments being made to EPS are as follows amortization of step up for purchase price adjustments on inventory transaction advisory fees and reward costs.
Scott Justkey: Restructuring charges related to severance and disposal of software.
Amortization expense related to intangible assets and a pension settlement refund and other net adjustments related to foreign currency transaction gain loss and effective tax rate.
Scott Zuehlke: On an adjusted basis, EBITDA for the quarter essentially doubled to $38.5 million, compared to $19.3 million during the same period of last year. This equates to adjusted EBITDA margin expansion of approximately 150 basis points year-over-year. The increase in adjusted earnings for the three months into January 31, 2025, was mostly attributable to the contribution from the time and acquisition, combined with the realization of cost center.
Scott Justkey: On an adjusted basis EBITDA for the quarter essentially doubled to $38 5 million compared to $19 3 million. During the same period of last year. This equates to adjusted EBITDA margin expansion of approximately 150 basis points year over year.
The increase in adjusted earnings for the three months ended January 31, 2025 was mostly attributable to the contribution from the time an acquisition combined with the realization of cost synergies.
Scott Zuehlke: Now for the results of the operating. We generated net sales of $134.3 million in our North American Finistration segment for the first quarter of 2025, a decrease of 9.2% compared to $148 million in the first quarter of 2024. We estimate the volumes in this segment declined by approximately 8% year-over-year, with pricing up approximately 1% versus Q1 of 2024. Adjusted EBITDA was $11.6 million in this segment for the first quarter, compared to $13.7 million in the first quarter of 2024. Our European fenestration segment generated revenue of $48.5 million in the first quarter, which represents a decrease of 2% compared to $49.4 million in the first quarter of 2024.
Scott Justkey: Now for the results by operating segment, we generated net sales of $134 3 million and our North American Fenestration segment for the first quarter of 2025, a decrease of nine 2% compared to $148 million in the first quarter of 2024.
Scott Justkey: We estimate the volumes in this segment declined by approximately 8% year over year with pricing up approximately 1% versus Q1 of 2024 <unk>.
Scott Justkey: Adjusted EBITDA was $11 $6 million in this segment for the first quarter compared to $13 7 million in the first quarter of 2024.
Scott Justkey: Our European Fenestration segment generated revenue of $48 5 million in first quarter, which represents a decrease of 2% compared to $49 4 million in the first quarter of 2024. However, after adjusting for foreign currency revenue was basically flat.
Scott Zuehlke: However, after adjusting for foreign currency, revenue was basically flat. We estimate the volumes were down approximately 1% year over year in this segment for the quarter with pricing up approximately 1% and the negative foreign exchange translation impact of about 2%. Adjusted EBITDA declined slightly to $9.9 million in this segment for the quarter versus $10 million during the same period of last year. This means that Adjusted Evita margin improved by 30 basis points year over year in this segment.
Scott Justkey: We estimate the volumes were down approximately 1% year over year in this segment for the quarter with pricing up approximately 1% and a negative foreign exchange translation impact of about 2%.
Scott Justkey: Adjusted EBITDA declined slightly to $9 $9 million in this segment for the quarter versus $10 million during the same period of last year.
Scott Justkey: This means that adjusted EBITDA margin improved by 30 basis points year over year in this segment.
Scott Zuehlke: We reported net sales of $43.8 million in our North American Cabinet Components segment during the quarter, which represented growth of 1.6% compared to prior year. We estimate that volumes declined by approximately 3% and price increased by approximately 5% in this segment for the quarter. This price movement was largely related to index pricing tied to hardwood cost. The adjusted EBITDA was negative $873,000 in this segment for the quarter, which compared to negative $732,000 for the first quarter of 2024. Decreased operating leverage due to soft volume was the reason for the lower profitability in this segment.
Scott Justkey: We reported net sales of $43 8 million in our North American cabinet components segment during the quarter, which represented growth of one 6% compared to prior year, we estimate the volumes declined by approximately 3% and price increased by approximately 5% in this segment for the quarter. This.
Scott Justkey: Price movement was largely related to index pricing tied to hardwood costs.
Scott Justkey: EBITDA was negative 873000 in this segment for the quarter, which compared to negative 732000 for the first quarter of 2024.
Scott Justkey: Decreased operating leverage due to south volume was the reason for the lower profitability in this segment.
Scott Zuehlke: Time and business reported net sales of $175.7 million for the first quarter of 2025. Since we didn't own this business in the first quarter of 2024, there is no comp in the earnings release. However, revenue was down approximately 8% in this segment in the first quarter of 2025, compared to the first quarter of 2024, mostly due to soft market demand, which is consistent with what we saw in the legacy Quanex. Just Adibita came in at $19 million for the quarter, which yielded margin expansion compared to Q1 of 2024, driven largely by cost synergies related to closing Timon's legacy home office in London.
Scott Justkey: Time and business reported net sales of $175 7 million for the first quarter of 2025.
Speaker Change: We didn't own this business in the first quarter of 2024, there is no comp in the earnings release. However revenue was down approximately 8% in this segment in the first quarter of 2025 compared to the first quarter of 2024, mostly due to soft market demand, which is consistent with what we saw in the legacy <unk> business.
Speaker Change: Adjusted EBITDA came in at $19 million for the quarter, which yielded margin expansion compared to Q1 of 2024, driven largely by cost synergies related to closing time and legacy home office in London.
Scott Zuehlke: Moving on to the cash flow in the balance sheet, cash used for operating activities was $12.5 million for the first quarter of 2025, which compares to cash provided by operating activities of $3.8 million for the first quarter of 2024. The first quarter was impacted by layering in the time in acquisition as the legacy time in business is very much make to stock versus legacy Quanex business is very much make to order. Pre-cash flow is negative for the quarter, which isn't abnormal due to the seasonality of our business, combined with one-time items related to integration costs and achieving the cost energies we've targeted.
Speaker Change: Moving on to the cash flow and the balance sheet cash used for operating activities was $12 5 million for the first quarter of 2025, which compares to cash provided by operating activities of $3 8 million for the first quarter of 2024.
Speaker Change: The first quarter was impacted by a later layering in the time an acquisition as the legacy time and business is very much make to stock versus legacy Quanex business is very much make to order.
Speaker Change: Free cash flow was negative for the quarter, which is an abnormal due to the seasonality of our business combined with one time items related to integration costs and achieving the cost synergies we've targeted.
Scott Zuehlke: As a reminder, to acquire time in August 2024, we borrowed a total of $770 million through a $500 million term loan A and drawing $270 million on our revolver. Since that time, we've been able to repay $65 million in debt. As of January 31, 2025, the leverage ratio for our quarterly debt compliance was 2.2 times.
Speaker Change: As a reminder to acquire time in in August 2024, we borrowed a total of $770 million through a $500 million term loan a.
Speaker Change: And drawing $270 million on our revolver.
Speaker Change: Since that time, we've been able to repay $65 million in debt.
Speaker Change: As of January 31, 2025% leverage ratio for our quarterly debt compliance was two two times the debt covenant leverage ratio as defined in amendment number one to our second amended and restated credit agreement, which was filed with the SEC on June 12 2024.
Scott Zuehlke: The debt covenant leverage ratio is defined in Amendment No. 1 to our second amended and restated credit agreement, which was filed with the SEC on June 12, 2024. This debt covenant leverage ratio excludes real estate leases that are considered finance leases under U.S. GAAP and is calculated on a pro forma basis to include last 12 months adjusted EBITDA from the time in acquisition, $30 million of EBITDA for the synergy target related to the acquisition, and cash only from domestic subsidiaries. Debt covenant leverage ratio would be 2.1 times if calculated using the full cash and cash equivalents amount on the balance sheet as of January 31st, 2025.
Speaker Change: This debt covenant leverage ratio excludes real estate leases that are considered finance leases under U S. GAAP and is calculated on a pro forma basis to include last 12 month's adjusted EBITDA from the time of acquisition $30 million of EBITDA for the synergy target related to the acquisition and cash only from domestic subsidiaries.
Speaker Change: The debt covenant leverage ratio would be two one times, if calculated using the full cash and cash equivalent amount on the balance sheet as of January 31 2025.
Scott Zuehlke: As noted in our earnings release, based on year-to-date results combined with our operational execution, conversations with our customers, recent demand trends, and the latest macro data, we are reaffirming net sales guidance of approximately $1.84 to $1.86 billion and adjusted EBITDA guidance of $270 to $280 million for fiscal 2025. From a cadence perspective, on a consolidated basis for the second quarter of this year versus the first quarter of this year, we expect revenue to be up nine to 11% and we expect adjusted even a margin expansion of 350 to 400 basis.
Speaker Change: As noted in our earnings release based on year to date results combined with our operational execution conversations with our customers recent demand trends and the latest macro data. We are reaffirming net sales guidance of approximately $1 eight four to $1 86 billion and adjusted EBITDA guidance of 270 to two.
Speaker Change: <unk> hundred $80 million for fiscal 2025.
Speaker Change: From a cadence perspective on a consolidated basis for the second quarter of this year versus the first quarter of this year, we expect revenue to be up 9% to 11% and we expect adjusted EBITDA margin expansion of 350 to 400 basis points.
Unknown Executive: Operator, we are now ready to take questions. Thank you. At this time, we will conduct the question and answer session.
Speaker Change: Operator, we are now ready to take questions.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Unknown Executive: As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be to withdraw your question, please press star 11 again.
Speaker Change: A reminder to ask a question you will need to press star one wondering if youre on the phone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Reuben Garner: And our first question comes from a line of Reuben Garner of Benchmark. Your line is now open. Thank you. Good morning, guys. Morning. Good morning.
Speaker Change: And our first question comes from the line of Hoopingarner of Benchmark. Your line is now open.
Speaker Change: Thank you good morning, guys.
Speaker Change: Good morning, good morning.
Reuben Garner: I was hoping you could talk about the progression of margins you're expecting for the rest of the year and specifically, Scott, on the gross line. The last two quarters kind of in the low to mid 20s range and the guide for the year is, I believe, closer to 29. So it's a pretty big step up coming.
Speaker Change: I was hoping you could talk about the progression of margins you're expecting for the rest of the year and specifically Scott on the gross line.
Speaker Change: The last two quarters kind of in the low to mid twenties range in the guidance for the year is I believe closer to 2009, so it's pretty.
Scott Zuehlke: Is that just seasonality and timing? Can you just kind of walk us through the components to get there? Yeah, that has everything to do with the PPA step up related to the acquisition, which hit in four Q and ran off in one Q. So the rest of the year, gross margin should be jumping up meaningfully to hit that full year guidance, improving each quarter.
Speaker Change: Pretty big step upcoming is that just seasonality and time and can you just kind of walk us through the components to get there.
Speaker Change: Yes that has everything to do with the PPA step up related to the acquisition, which hit in <unk> and ran off in <unk>. So the rest of the year gross margin should be jumping up meaningfully to hit that full year guidance improving each quarter.
Scott Zuehlke: Okay, and then can you can you talk about the divergence you're seeing in the kind of growth rates between the cabinets business and the fenestration business in in North America kind of went opposite directions in the quarter. Does that tell us that, you know, how big of a role weather might be playing or any other kind of factors going on? Well, I think the weather had a big piece to play in it, especially with the window and door market. A much harsher winter in most of the country, I think did have an impact on demand in our fiscal Q1.
Speaker Change: Okay, and then can you can you talk about the divergence you're seeing in the kind of growth rates between the cabinets business and the penetration business and in North America kind of went opposite directions in the quarter does that tell us that how.
Speaker Change: How big of a role whether might be playing.
Speaker Change: Or any other kind of factors going on.
Speaker Change: Alright.
Speaker Change: I think.
Speaker Change: The weather had a big piece of supply, especially with the window and door market.
Speaker Change: A much harsher winter in most of the country.
Speaker Change: <unk> did have an impact on demand.
Speaker Change: Our fiscal Q1.
Scott Zuehlke: That's why you saw a little better performance in terms of volumes in the cabinet side of the business. I also think, you know, what we had seen is that cabinet segment had been hit harder sooner, and that's kind of been a leading indicator. And we always see the cabinets drop faster and sooner than the window and door markets, and they tend to lead on the improvements in those segments as well. So nothing that we haven't anticipated or expected.
Speaker Change: <unk>.
Speaker Change: That's why you saw a little better performance in terms of volumes.
Speaker Change: In the cabinet side of the business.
Speaker Change: I also think what we have seen is that cabinet segment.
Speaker Change: Segment had been hit harder sooner and Thats kind of been a leading indicator and we always see.
Speaker Change: Uh huh.
Speaker Change: The cabinets dropped faster and sooner.
In the window and door markets and they tend to lead on the <unk>.
Speaker Change: Improvements in those segments as well so nothing that we haven't anticipated or expected.
Reuben Garner: Okay, I'm going to sneak one more in kind of a big picture question about your your confidence level and your outlook and and I guess just the maybe the change in tone now versus a month ago or are you feeling less confident in the market and then just remind us how much market really needs to help to get you to this kind of full year guidance type number because it seems like you would need an improvement in the end market at least to get to the to the top line outlook. Yeah, you know, I think it goes back to what we said in the fourth quarter, I think some people were surprised on our call or question maybe our conservative approach.
Speaker Change: Okay, I'm going to sneak one more in kind of a big picture question.
Speaker Change: Your your confidence level in your outlook and I guess, if that maybe the change in <unk>.
Phone now versus a month ago or are you feeling less confident in the market and then just remind us how much market really needs to help to get you to the kind of full year guidance type numbers, because it seems like you would need an improvement.
Speaker Change: In the end market at least to get to the top line.
Speaker Change: Outlook.
Speaker Change: Yes, I think it goes back to what we said in the fourth quarter I think some people were surprised on our call or question, maybe our conservative approach, but I think we've had a realistic view of this year from day, one and nothing has changed for that so.
Scott Zuehlke: But I think we've had a realistic view of this year from day one, and nothing has changed to that. So for us, yes, the back half of the year shows some improvement, but that's really based off of what we currently see and the normal seasonality of our business. So we feel really good about where we're at in terms of our projections. In addition, I feel extremely confident about the work that we're doing with Synergy. So I think We feel very comfortable with both the revenue and our earnings guidance for the full year based on those items. Great.
Speaker Change: For us.
Speaker Change: Yes, the back half of the year shows some improvement, but thats really based off of what we currently see and the normal seasonality of our business. So.
Speaker Change: So we feel really good about where we're at in terms of our projections.
Speaker Change: In addition, I feel extremely confident about the work that we're doing with synergy so I think.
Speaker Change: We feel.
Speaker Change: Comfortable with both the revenue and our earnings guidance for the full year based on those items.
Reuben Garner: Thanks, guys.
Reuben Garner: Good luck.
Speaker Change: Great. Thanks, guys. Good luck. Thanks.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you for our next question.
Steven Ramsey: Our next question comes from the line of Steven Ramsey of Thompson Research Group.
Speaker Change: Our next question comes from the line of Steven Ramsey of Thompson Research Group. Your line is now open.
Steven Ramsey: Your line is now open. Good morning.
Steven Ramsey: I wanted to maybe ask a follow on question to the guidance outlook and kind of the second half improvement that's part of that, I guess, first. off, you need that second half improvement to get to that full year level. Is there certain segments maybe that are greater drivers to get there?
Speaker Change: Good morning, I wanted to maybe ask the follow on question to the.
Speaker Change: Guidance outlook and kind of the second half improvement.
Speaker Change: That's part of that I guess first.
Speaker Change: Do you need that second half improvement to get to that full year level is there certain segments, maybe that are greater drivers.
Scott Zuehlke: And then maybe secondly, just high level, your full year outlook maybe seems more optimistic on an order of magnitude basis, maybe than the window and cabinet producers that have shared their outlook. So maybe I'm on those two fronts, how you think about those. I mean, in general, what I would say is, the way we forecast the business from a low water mark in 1Q to high in 3Q and 4Q is just typical seasonality. There's nothing different that we're expecting this year than any other normalized seasonality for this year. So that's what gives us some confidence that we will see an uptick in the second half just because of the seasonality.
Speaker Change: Get there and then maybe secondly, just high level.
Speaker Change: Your full year outlook may be seems more optimistic on an order of magnitude basis. Maybe then the window of cabinet producers that have shared their outlook. So maybe I'm curious on those two fronts. How you how you think about those things.
Speaker Change: Yes, I mean in general what I would say is the way we forecast the business.
Speaker Change: A low watermark in <unk> too high high in <unk> and <unk> is just typical seasonality there's nothing different that we're expecting this year than any other normalized sees.
Speaker Change: Seasonal seasonality for this year. So that's what gives us some confidence that we will see an uptick in the second half just because of the seasonality anything above that would be an addition to what we've already forecasted and I think so.
Scott Zuehlke: Anything above that would be in addition to what we've already forecasted. And I think to reiterate my answer to Reuben as well, I think we were more conservative when we came out with guidance in the December year end conference call than most people were. So I think our approach in December was to be very realistic about what we thought and we anticipated. And we were probably a little more conservative than others in our view of this year. And I think that that's coming to fruition. So for us, it's nothing that we didn't anticipate. And to answer your other question, Steven, I think in terms of the segments, I think we see more seasonality in the window and doors than we do in cabinets.
Speaker Change: Ill reiterate my answer.
Speaker Change: <unk> as well.
Speaker Change: I think we were.
More conservative when we came out with guidance.
Speaker Change: In December.
Year end conference call than most people were so I think.
Speaker Change: I think our approach in December was to be very realistic about what we thought and we anticipated and we were probably a little more conservative than others and our view of this year and I think that that's coming to fruition. So for us it's nothing that we didn't anticipate.
Speaker Change: And to answer your other question Stephen I think in terms of the segments. So I think we see more seasonality in the window and door. Because then we're doing cabinets. So I think we will tend to see more of a pickup from the timing piece.
Scott Zuehlke: So I think we will tend to see more of a pickup from the timing piece of our business and what we would consider our NAF segment versus the European business, which is less seasonal, and our cabinet business, which has a different seasonality.
Speaker Change: Piece of our business, saying, what we would consider our NAF segment versus the European business, which is less seasonal and our cabinet business, which has a different seasonality. Yes, just one more a couple of data points that we went over in the in the Investor day, but it's probably important to reiterate.
Scott Zuehlke: Yeah, just one more couple of data points that we went over in the investor day, but it's probably important to reiterate. If you look at the five-year average for free cash flow and adjusted EBITDA, we typically generate about 10% of our free cash flow in the first half with the remaining 90% in the second half, and then about 40% of adjusted EBITDA in the first half with 60% in the second half. Rough numbers. I mean, it just shows you how seasonal our business really is.
Speaker Change: If you look at the five year average for free cash flow and adjusted EBITDA.
Speaker Change: We typically generate about 10% of our free cash flow in the first half with the remaining 90% in the second half and then about 40% of adjusted EBITDA in the first half was 60% in the second half rough numbers I mean, just shows you how seasonal our business really is.
Steven Ramsey: Okay, that's great, Teller. Thanks for sharing all that.
Speaker Change: Okay. That's great color. Thanks for sharing all that maybe to continue the cash flow.
Scott Zuehlke: Maybe to continue the cash flow and cash flow usage topic, your debt pay down aggressive and working nicely. You repurchased some stock in the quarter as well.
Speaker Change: Free cash flow usage topic, your debt paydown aggressive and working nicely you repurchased some stock in the quarter as well I'm curious, how you think about putting capital to work on each of those pads through FY 'twenty five I get you're opportunistic, but maybe share some of your nuance perspective on.
Scott Zuehlke: I'm curious how you think about putting capital to work on each of those paths through FY25. I get you're opportunistic, but maybe share some of your nuanced perspective on how you're choosing to deploy capital into those two areas. Yeah, we obviously analyze it every day, every week as we go on, you know, just being very direct here that I would think where we're trading at today, you know, we feel like directing a large portion of our cash flow to repurchasing our stock at these levels absolutely becomes a priority. So I think, you know, a lot of it depends on the market.
Speaker Change: How you are choosing to deploy capital into those two areas.
Speaker Change: Yes, we obviously analyze every every day every week as we go on.
Speaker Change: I'm, just being very direct here that I would think.
Speaker Change: We're trading at today.
Speaker Change: Yeah.
Speaker Change: We feel like.
Speaker Change: Directing a large portion of our cash flow to repurchasing our stock at these levels absolutely becomes a priority so I think.
Speaker Change: A lot of it depends on the market.
Scott Zuehlke: We do not have any sort of 10B program. So we have limited time to be in the market. But at these levels, I would say that the priority will probably be share buyback versus debt repayment. And depending on cash flow, we'll evaluate that each and every week.
Speaker Change: We do not have any sort of 10 B program. So we have limited time to be in the market at these levels I would say that the priority will probably be share buyback versus debt repayment and depending on cash flow will you evaluate that each and every week.
Unknown Executive: All right.
Scott Zuehlke: And then last quick one for me, good to hear that the synergy target and timeline is intact.
Alright, and then last quick one for me good to hear that the synergy target and timeline is intact and you said that you would have more details on the next call.
Scott Zuehlke: And you said that you would have more details on the next call, but maybe just high level thinking about the new segments that you will have. Is any one of those maybe an outsized beneficiary of the synergies you execute on or another way of asking? Any of the three segments, new segments, have better margin.
Speaker Change: Maybe just high level thinking about the three new segments that you will have.
Speaker Change: Is any one of those maybe an outsized beneficiary of the synergies you execute on or another way of asking do any of the three segments new segments have better margin expansion potential over the next couple of years.
Scott Zuehlke: Transcripts provided by Transcription Outsourcing, LLC. We broke down our synergies really into three buckets. You had the corporate costs, which really don't benefit any sort of segment. That will be applied equally over all the segments on an allocated basis. You had the head counts. that was primarily North American. The overlap between our North American businesses between Tyman and Quanex were very similar. So that will be probably a little more weighted towards hardware and some to the extruded solutions. And then finally, sourcing, which will be equally applied. So maybe a little heavier weighted towards hardware and then to extruded.
Speaker Change: We broke down our.
Speaker Change: Our synergies really into three buckets, you have you have the corporate cost, which really don't benefit any sort of segment that will be applied equally overall of the segments.
Speaker Change: On an allocated basis.
Speaker Change: You have the.
Speaker Change: Head counts in that.
Speaker Change: That was primarily North America and the overlap between our North American business is between climate and Quanex, we're very similar so that will be.
Speaker Change: Probably a little more weighted towards hardware versus and some to the extruded solutions and then finally sourcing which will be equally applied so maybe a little heavily heavier weighted towards hardware.
Speaker Change: And then two extruded probably a pretty good summary would be broken down by how our revenue will be split which was identified.
Scott Zuehlke: Probably a pretty good summary would be broken down by how our revenue will be split, which was identified in that investor deck.
Speaker Change: In that investor deck.
Unknown Executive: Excellent. Thanks for all the color. Thank you.
Thanks, a lot thanks for all the color.
Speaker Change: Thank you.
Unknown Executive: One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Justin Muschietti: Our next question comes from Adam Thalhimer of Thompson Davis, your line is now open. Hey, good morning, guys. Nice quarter. Good morning. Thank you.
Speaker Change: Our next question comes from the line of Adam Thalheimer of Thompson Davis. Your line is now open.
Adam Thalheimer: Hey, good morning, guys nice quarter.
Speaker Change: Good morning morning. Thanks, Thank you.
Scott Zuehlke: Uh, if you did see an impact from tariffs, which segment... As we look at the commodity breakdown, what I would say in our new segments, it will probably impact the hardware business and a little more direct because of their metal buys in the aluminum. But again, we're protected with some of the index pricing mechanisms that we have here in the US and surcharges, the wood, again, hardwood index. So, you know, I think It'll be balanced across all three, but maybe a little more heavily weighted to hardware.
Speaker Change: Yes.
Speaker Change: If you did see an impact from tariffs, which segment would that impact mostly.
Speaker Change: Okay.
Speaker Change: As we look at the commodity breakdown.
Speaker Change: What I would say in our new segments.
Speaker Change: It will probably impact the hardware business and.
Speaker Change: A little a little more direct because of their metal buys.
Speaker Change: And the aluminum.
Speaker Change: But again, we're protected with some of the.
Speaker Change: Index pricing mechanisms that we have here in the U S and surcharges.
Speaker Change: The wood again hard word index so.
Speaker Change: I think.
Speaker Change: It will be balanced across all three but maybe a little more heavily weighted to hardware.
Justin Muschietti: Okay.
George Wilson: And then, George, I was hoping you could give a little more color just on the conversations with customers and kind of their macro. Yeah, you know, all the all the conversations tend to focus around, you know, consumer confidence and It goes back to the macro question, there's a lot of noise in the media, the tariff and you know, that changes on an everyday basis. And so there's unknowns on what what the future costs to the end consumers are going to be in both repair and remodel and new build type of project. So I think our customers are apprehensive because there's not a lot of good visibility and what's going on.
Speaker Change: Okay.
Speaker Change: And then George I was hoping you could give a little more color on the conversations with customers and kind of their macro outlook.
Speaker Change: Yes.
Speaker Change: All in all the conversations.
Speaker Change: To focus around.
Speaker Change: Consumer confidence and.
Speaker Change: Yes. It goes back to the macro question Theres a lot of noise in the media.
Speaker Change: The tariff and.
Speaker Change: That changes on an everyday basis and so there is unknowns on what the future cost to the end consumers are going to be in both repair and remodel and new build.
Speaker Change: Project. So I think our customers are are apprehensive, because theres not a lot of good visibility on what's going on in there is really no. Good visibility on what the fed is going to do nor is there a strong visibility on worthy of the tariffs will shake out so I think.
George Wilson: And there's really no good visibility on what the Fed is going to do, nor is there a strong visibility on where the tariffs will shake out. So I think Customers are cautious and kind of on hold mode on in terms of where they're going to go.
Speaker Change: Customers are cautious on kind of on hold mode on in terms of where theyre going to go in.
George Wilson: And again, as we said, in our script, and it's been proven over the last few years, from a Quanex perspective, our model is built to ramp up or ramp down fairly quick. So we feel good about where we're at, and that we'll be able to adjust well, but You know, until some of the tariff items and consumer confidence rebounds a little bit, I think, again, it's going to be a bumpy year, as we originally anticipated and built into our guidance back in December. So, again, we're not seeing anything that we didn't anticipate, but it's coming to fruition.
Speaker Change: Again, as we said in our script.
Speaker Change: It has been proven over the last few years from.
Speaker Change: From a quantity perspective.
Speaker Change: Our model was built to ramp up or ramp down fairly quick so.
Speaker Change: Feel good about where we're at and that will be able to adjust well but.
Speaker Change: Until some of the tariff items am consumer confidence rebounds, a little bit I think again, it's going to be a bumpy year as we originally anticipated.
Speaker Change: Built into our guidance back in December so again, we're not seeing anything that we didn't anticipate but it's coming to fruition.
Justin Muschietti: And then when does the buyback window? Two days after, three days after earning, so I think Thursday this week. Sounds good.
Speaker Change: Got it and then when does the buyback window open.
Speaker Change: Two days after three days after earnings so I think Thursday this week.
Speaker Change: Okay.
Unknown Executive: Thanks, guys. Thank you.
Speaker Change: Sounds good thanks, guys.
Speaker Change: Thank you.
Unknown Executive: One moment for our next question.
Speaker Change: Thank you Mohammed for next question.
Speaker Change: Okay.
Justin Muschietti: Our next question comes from Justin Muschietti of Sidonian Company, your line is now open. Good morning, this is Justin on for Julio. Thanks for taking questions. Chair. Good morning. So In the first quarter, the time and adjusted EBITDA margin of 10.8% when compared to the strong European segment margin seems a bit low. Anything notable to help us understand the difference between the two? And can you give us a refresher on time and historical seasonality? Yeah, very similar to our historical seasonality, you have to keep in mind that about 60 to 70% of timing is North American focused, which was one of the appeals of when we acquired them.
Speaker Change: Our next question comes from the line of Justin <unk> of Sidoti <unk> Company. Your line is now open.
Speaker Change: Good morning. This is Justin on for Julio Thanks for taking question.
Speaker Change: Sure good morning so.
Speaker Change: In the first quarter.
Speaker Change: <unk> adjusted EBITDA margin of 10, 8% when compared to the strong European segment margin seems a bit low.
Speaker Change: Notable to help us understand the difference between the two and can you give us a refresher on time and its historical seasonality.
Speaker Change: Yes, very similar to our historical seasonality you have to keep in mind that about 60% to 70% of time and is North American focused which is one of the appeals of when we acquired them. So it's not a direct read through to our European Fenestration segment.
Scott Zuehlke: So it's not a direct read through to our European fenestration segment.
Justin Muschietti: Thanks.
George Wilson: And then the Jackson, Georgia facility was highlighted during your investor day. Beyond increasing regional capacity, how does this facility strengthen your competitive position in the southeast? And what unique advantages do you expect it to bring? So, you know, the decision to open the Jackson facility was based, one, on, you know, being able to serve our regional customers. It absolutely capitalizes and protects our customers from freight costs to be able to serve that region. Two, it gives us an opportunity to add some additional capacity for our mixing and our compounding type of business, which will allow us to continue to grow in adjacent markets such as flashing tapes and solar products.
Speaker Change: Thanks, and then the Jackson, Georgia facility was highlighted during your Investor day.
Speaker Change: Beyond increasing regional capacity, how does this facility strengthen your competitive position in the southeast.
Speaker Change: What unique advantages do you expect it to Brian.
Speaker Change: So.
Speaker Change: The decision to.
Speaker Change: Open the Jackson facility was spaced one on.
Speaker Change: Being able to serve our regional customers.
Speaker Change: Absolutely.
Speaker Change: Capitalizes and protects our customers from freight cost to be able to serve that region.
Speaker Change: Two.
Speaker Change: It gives us an opportunity to add some additional capacity for our mixing.
Speaker Change: And our compounding type of business, which will allow us to continue to grow in adjacent markets such as flashing Saracen solar products.
George Wilson: So, you know, it was a strategic decision on numerous fronts and we look forward to being able to deliver that. It was a long-term look for that project and we're excited about what it can potentially deliver.
Speaker Change: So.
Speaker Change: It was a strategic decision on numerous fronts, and we look forward to being able to deliver that.
Speaker Change: It was a long term look for that project and we're excited about what it can potentially deliver.
Justin Muschietti: Great, thanks for the caller there. That's all for me.
Speaker Change: Great. Thanks for the color there that's all for me.
Speaker Change: Thanks.
Unknown Executive: Thank you.
Unknown Executive: I'm showing no further questions at this time.
Speaker Change: Thank you I'm showing no further questions at this time I will now like to turn it back to George Wilson for closing remarks.
George Wilson: I'll now turn it back to George Wilson for closing remarks. Like to thank everyone for joining today and we look forward to providing you with another update when we report our Q2 earnings in June. Thank you for your participation in today's conference.
George Wilson: I would like to thank everyone for joining today and we look forward to providing you with another update when we report our Q2 earnings and drop in June.
Speaker Change: Yes.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Unknown Executive: This does conclude the program. You may now disconnect.
Unknown Executive: Extra Materials
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.