Quanex Building Products Announces Third Quarter 2024 Results and Updates Full Year 2024 Guidance

Results Consistent with Expectations
Transformative Tyman Acquisition Closed August 1, 2024
Acquisition Integration Underway

HOUSTON, Sept. 05, 2024 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (:NX) (“Quanex” or the “Company”) today announced its results for the three months ended July 31, 2024.

The Company reported the following selected financial results:

(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table, Selected Segment Data table and reconciliation tables for additional information)

George Wilson, Chairman, President and Chief Executive Officer, stated, “Overall, the results we reported for the third quarter of 2024 were consistent with our expectations. Consistent with the seasonality of our business, volumes increased across all operating segments in the third quarter of this year when compared to the second quarter. However, when compared to the prior year, demand remained soft, but we believe the building products industry will benefit from pent up demand once interest rates start to trend lower and consumer confidence is restored. All things considered, profitability for the quarter was as expected, but due to the decrease in volumes, coupled with lower operating leverage, margins declined year-over-year. Our continued focus on cash flow and managing working capital enabled us to generate approximately $40 million in free cash flow during the quarter.

“Looking ahead, work on integrating the recently acquired Tyman business and creating something new and special within the building products industry is in progress. Our internal Integration Management Office team is executing on the plan to capture the targeted synergies. In addition, we are working to structure the organization in a manner that will enable us to capitalize on existing commercial opportunities and tap into new innovative solutions. We are excited about creating additional value for our shareholders by realizing the anticipated synergies related to this acquisition and building a stronger, more profitable company over time.”

Third Quarter 2024 Results Summary

Quanex reported net sales of $280.3 million during the three months ended July 31, 2024, which represents a decrease of 6.4% compared to $299.6 million for the same period of 2023. The decrease was mostly attributable to softer market demand across all operating segments. Quanex reported a 3.9% decrease in net sales for the third quarter in its North American Fenestration segment primarily due to lower volume. In its North American Cabinet Components segment, the Company reported a decline of 7.1% in net sales for the third quarter largely because of lower volume. Excluding foreign exchange impact, Quanex realized a decrease in net sales of 10.8% for the third quarter in its European Fenestration segment mainly due to lower volume and pricing pressure. (See Sales Analysis table for additional information)

The decrease in adjusted earnings for the three months ended July 31, 2024 was largely attributable to decreased operating leverage as a result of lower volumes related to softer market demand combined with higher material costs in the Company’s North American Fenestration and North American Cabinet Components segments.

Balance Sheet Update

As of July 31, 2024, prior to the Tyman closing, Quanex had total debt of $55.0 million (primarily finance leases) and the Company was Net Debt free. As of July 31, 2024, the Company’s LTM Net Income was $74.4 million and LTM Adjusted EBITDA was $152.1 million. (See Non-GAAP Terminology Definitions and Disclaimers section, Net Debt Reconciliation table and Last Twelve Months Adjusted EBITDA Reconciliation table for additional information)

Recent Events

As previously disclosed on August 1, 2024, Quanex announced it had closed on its acquisition of Tyman, creating a comprehensive solutions provider in the building products industry. The transaction creates a larger, more diversified supplier of components to OEMs; strengthens brand leadership by adding Tyman’s highly recognizable brands with wide customer bases; and enhances the combined company’s financial profile with the goal of accelerating growth and increasing profitability through greater scale and stronger cash flow. The Company intends to complete approximately 50% of the integration within the first 12 months and expects the acquisition to be accretive to earnings within the first full year after closing.

Outlook

Mr. Wilson commented, “Since we closed on the Tyman acquisition at the beginning of our fourth fiscal quarter, prior guidance for 2024 is no longer valid. While we still feel comfortable with the prior guidance for the legacy Quanex business, we are simply layering in the contribution from the Tyman business for the fourth quarter, which includes the impact related to performing full physical inventory counts at every legacy Tyman location prior to the end of our fiscal year. 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 of Adjusted EBITDA* in fiscal 2024.”

*When Quanex provides expectations for Adjusted EBITDA on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and corresponding GAAP measures is generally not available without unreasonable effort. Certain items required for such a reconciliation are outside of the Company’s control and/or cannot be reasonably predicted or estimated, such as the provision for income taxes.

Conference Call and Webcast Information

The Company has also scheduled a conference call for Friday, September 6, 2024 at 11:00 a.m. ET (10:00 a.m. CT) to discuss the release. A link to the live audio webcast will be available on Quanex’s website at http://www.quanex.com in the Investors section under Presentations & Events.

Participants can pre-register for the conference call using the following link: https://register.vevent.com/register/BI899b4025b8dc44e086b54362366d6727

Registered participants will receive an email containing conference call details for dial-in options. To avoid delays, it is recommended that participants dial into the conference call ten minutes ahead of the scheduled start time. A replay will be available for a limited time on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events.

About Quanex

Quanex is a global manufacturer with core capabilities and broad applications across various end markets. The Company currently collaborates and partners with leading OEMs to provide innovative solutions in the window, door, vinyl fencing, solar, refrigeration, custom mixing, building access and cabinetry markets. Looking ahead, Quanex plans to leverage its material science expertise and process engineering to expand into adjacent markets.

For more information contact Scott Zuehlke, Senior Vice President, Chief Financial Officer & Treasurer, at 713-877-5327 or [email protected].

Non-GAAP Terminology Definitions and Disclaimers

Adjusted Net Income (defined as net income further adjusted to exclude purchase price accounting inventory step-ups, transaction costs, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges, asset impairment charges, other net adjustments related to foreign currency transaction gain/loss and effective tax rates reflecting impacts of adjustments on a with and without basis) and Adjusted EPS are non-GAAP financial measures that Quanex believes provide a consistent basis for comparison between periods and more accurately reflects operational performance, as they are not influenced by certain income or expense items not affecting ongoing operations. EBITDA (defined as net income or loss before interest, taxes, depreciation and amortization and other, net), Adjusted EBITDA and LTM Adjusted EBITDA (defined as EBITDA further adjusted to exclude purchase price accounting inventory step-ups, transaction costs, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges and asset impairment charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making. Net Debt is defined as total debt (outstanding balance on the revolving credit facility plus financial lease obligations) less cash and cash equivalents. The leverage ratio of Net Debt to LTM Adjusted EBITDA is a financial measure that the Company believes is useful to investors and financial analysts in evaluating Quanex’s leverage. In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in the Company’s credit agreement.

Free Cash Flow is a non-GAAP measure calculated using cash provided by operating activities less capital expenditures. Quanex uses the Free Cash Flow metric to measure operational and cash management performance and assist with financial decision-making. Free Cash Flow is measured before application of certain contractual commitments (including capital lease obligations), and accordingly is not a true measure of the Company’s residual cash flow available for discretionary expenditures. Quanex believes Free Cash Flow is useful to investors in understanding and evaluating the Company’s financial and cash management performance.

Quanex believes that the presented non-GAAP measures provide a consistent basis for comparison between periods and will assist investors in understanding the Company’s financial performance when comparing results to other investment opportunities. The presented non-GAAP measures may not be the same as those used by other companies. Quanex does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with U.S. GAAP.

Forward Looking Statements

Statements that use the words “estimated,” “expect,” “could,” “should,” “believe,” “will,” “might,” or similar words reflecting future expectations or beliefs are forward-looking statements. The forward-looking statements include, but are not limited to, the following: impacts from public health issues (including pandemics) on the economy and the demand for Quanex’s products, timing estimates or any other expectations related to the Acquisition, the Company’s future operating results, future financial condition, future uses of cash and other expenditures, expenses and tax rates, expectations relating to Quanex’s industry, and the Company’s future growth, including any guidance discussed in this press release. The statements and guidance set forth in this release are based on current expectations. Actual results or events may differ materially from this release. For a complete discussion of factors that may affect Quanex’s future performance, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2023, and the Company’s Quarterly Reports on Form 10-Q under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”. Any forward-looking statements in this press release are made as of the date hereof, and Quanex undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.