Quanex Building Products Announces First Quarter 2024 Results and Provides Full Year 2024 Guidance

Margin Expansion on a Consolidated Basis 
Repaid $5 Million in Bank Debt 
Balance Sheet and Liquidity Remain Strong 
Cautiously Optimistic on Second Half of 2024 
Positive Long-Term View on Residential Housing Market Remains Intact

HOUSTON, March 07, 2024 (GLOBE NEWSWIRE) —  Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2024.  

The Company reported the following selected financial results:

      Three Months Ended January 31,
($ in millions, except per share data)     2024   2023
Net Sales     $239.2   $261.9
Gross Margin     $51.4   $51.8
Gross Margin %     21.5%   19.8%
Net Income     $6.2   $1.9
Diluted EPS     $0.19   $0.06
           
Adjusted Net Income     $5.8   $6.1
Adjusted Diluted EPS     $0.18   $0.18
Adjusted EBITDA     $19.3   $20.5
Adjusted EBITDA Margin %     8.1%   7.8%
           
Cash Provided by Operating Activities     $3.9   $3.1
Free Cash Flow     ($5.7)   ($4.4)

(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, President and Chief Executive Officer, stated, “We were able to realize margin expansion on a consolidated basis for the first quarter of 2024 despite market volume softness related to normal seasonality combined with ongoing macroeconomic challenges, and some pricing pressure. Our focus on generating cash and managing working capital enabled us to pay down our bank debt by $5 million during the quarter, which is encouraging considering we have historically been a net borrower during the first quarter of our fiscal year due to the seasonality of our business. Our balance sheet remains strong, and we continue to be positioned well to explore and evaluate both organic and inorganic growth opportunities.”

First Quarter 2024 Results Summary   

Quanex reported net sales of $239.2 million during the three months ended January 31, 2024, which represents a decrease of 8.7% compared to $261.9 million for the same period of 2023. The decrease was largely attributable to softer market demand and lower pricing in North America. Quanex reported a 3.3% decline in net sales for the first quarter of 2024 in its North American Fenestration segment. In its North American Cabinet Components segment, Quanex reported a decline of 21.1% in net sales for the first quarter. Excluding foreign exchange impact, the Company realized a decrease in net sales of 8.4% for the first quarter in its European Fenestration segment. (See Sales Analysis table for additional information)

The increase in earnings for the three months ended January 31, 2024 was mostly attributable to a decline in raw material costs, a decrease in stock-based compensation expense and lower interest expense.  

Balance Sheet Update

As of January 31, 2024, Quanex had total debt of $65.2 million ($13.5 million excluding real-estate leases that are considered “finance” leases under U.S. GAAP) and the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was unchanged at 0.1x (Net Debt free excluding these real-estate leases). As of January 31, 2024, Quanex’s LTM Adjusted EBITDA was $158.4 million and LTM Net Income, the most directly comparable GAAP measure, was $86.8 million.   (See Non-GAAP Terminology Definitions and Disclaimers section, Net Debt Reconciliation table and Last Twelve Months Adjusted EBITDA Reconciliation table for additional information)

Outlook        

Mr. Wilson commented, “As mentioned on our December call, we entered this year with a somewhat cautious outlook for the first half due to the ongoing macroeconomic challenges, but we remain optimistic that demand for our products will improve in the second half as consumer confidence is restored over time. Based on conversations with our customers, recent demand trends, and the latest macro data, we are now comfortable providing guidance for fiscal 2024. Overall, on a consolidated basis, we estimate we will generate net sales of approximately $1.1 billion, which we expect will yield approximately $145 million to $150 million in Adjusted EBITDA* in fiscal 2024. While the near-term outlook for our business remains somewhat cautious, our long-term view has not changed, and we believe the underlying fundamentals for the residential housing market remain positive.”

*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, March 8, 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/BI8100cd976cdb4a18aa0a5bcef75a89d8

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 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) and 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, such as the recent COVID-19 pandemic) on the economy and the demand for Quanex’s products, 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, 2022, 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.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended January 31,
      2024       2023  
         
Net sales   $ 239,155     $ 261,916  
Cost of sales     187,723       210,149  
Selling, general and administrative     32,363       36,744  
Depreciation and amortization     11,152       10,620  
Operating income     7,917       4,403  
Interest expense     (1,068 )     (2,259 )
Other, net     1,042       218  
Income before income taxes     7,891       2,362  
Income tax expense     (1,642 )     (453 )
Net income   $ 6,249     $ 1,909  
         
Earnings per common share, basic   $ 0.19     $ 0.06  
Earnings per common share, diluted   $ 0.19     $ 0.06  
         
Weighted average common shares outstanding:      
Basic     32,825       32,951  
Diluted     33,043       33,137  
         
Cash dividends per share   $ 0.08     $ 0.08  
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         
    January 31, 2024   October 31, 2023
ASSETS        
Current assets:        
Cash and cash equivalents   $ 44,422     $ 58,474  
Accounts receivable, net     80,063       97,311  
Inventories     107,478       97,959  
Income taxes receivable     7,642       8,298  
Prepaid and other current assets     13,390       11,558  
Total current assets     252,995       273,600  
Property, plant and equipment, net     253,681       250,664  
Operating lease right-of-use assets     46,370       46,620  
Goodwill     185,439       182,956  
Intangible assets, net     72,008       74,115  
Other assets     2,927       3,188  
Total assets   $ 813,420     $ 831,143  
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 55,106     $ 74,371  
Accrued liabilities     46,478       50,319  
Income taxes payable           384  
Current maturities of long-term debt     2,500       2,365  
Current operating lease liabilities     7,370       7,224  
Total current liabilities     111,454       134,663  
Long-term debt     61,594       66,435  
Noncurrent operating lease liabilities     40,084       40,361  
Deferred income taxes     30,737       29,133  
Other liabilities     14,522       14,997  
Total liabilities     258,391       285,589  
Stockholders’ equity:        
Common stock     371       372  
Additional paid-in-capital     248,715       251,576  
Retained earnings     412,922       409,318  
Accumulated other comprehensive loss     (32,060 )     (38,141 )
Treasury stock at cost     (74,919 )     (77,571 )
Total stockholders’ equity     555,029       545,554  
Total liabilities and stockholders’ equity   $ 813,420     $ 831,143  
         
         
QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
       
  Three Months Ended January 31,
    2024       2023  
Operating activities:      
Net income $ 6,249     $ 1,909  
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation and amortization   11,152       10,620  
Stock-based compensation   583       679  
Deferred income tax   1,136       179  
Other, net   1,790       1,509  
Changes in assets and liabilities:      
Decrease in accounts receivable   18,147       20,502  
(Increase) decrease in inventory   (8,756 )     645  
Increase in other current assets   (1,680 )     (1,431 )
Decrease in accounts payable   (19,044 )     (21,379 )
Decrease in accrued liabilities   (7,181 )     (12,686 )
Increase in income taxes payable   264       536  
Increase in deferred pension benefits         7  
Increase in other long-term liabilities   852       1,461  
Other, net   342       584  
Cash provided by operating activities   3,854       3,135  
Investing activities:      
Business acquisition         (92,000 )
Capital expenditures   (9,580 )     (7,582 )
Proceeds from disposition of capital assets   31       98  
Cash used for investing activities   (9,549 )     (99,484 )
Financing activities:      
Borrowings under credit facilities         102,000  
Repayments of credit facility borrowings   (5,000 )     (15,000 )
Repayments of other long-term debt   (679 )     (579 )
Common stock dividends paid   (2,645 )     (2,661 )
Issuance of common stock   400       99  
Payroll tax paid to settle shares forfeited upon vesting of stock   (1,193 )     (545 )
Cash (used for) provided by financing activities   (9,117 )     83,314  
Effect of exchange rate changes on cash and cash equivalents   760       997  
Decrease in cash and cash equivalents   (14,052 )     (12,038 )
Cash and cash equivalents at beginning of period   58,474       55,093  
Cash and cash equivalents at end of period $ 44,422     $ 43,055  
       
       
QUANEX BUILDING PRODUCTS CORPORATION
FREE CASH FLOW AND NET DEBT RECONCILIATION
(In thousands)
(Unaudited)
 
           
The following table reconciles the Company’s calculation of Free Cash Flow, a non-GAAP measure, to its most directly comparable GAAP measure. The Company defines Free Cash Flow as cash provided by operating activities less capital expenditures.
           
      Three Months Ended January 31,
        2024       2023  
Cash provided by operating activities     $3,854     $3,135  
Capital expenditures       (9,580)       (7,582)  
Free Cash Flow     ($5,726)     ($4,447)  
           
           
The following table reconciles the Company’s Net Debt which is defined as total debt principal of the Company plus finance lease obligations minus cash.
           
      As of January 31,
        2024       2023  
Revolving credit facility     $10,000     $100,000  
Finance lease obligations(1)       55,211       55,122  
Total debt(2)       65,211       155,122  
Less: Cash and cash equivalents       44,422       43,055  
Net Debt     $20,789     $112,067  
           
(1) Includes $51.7 million and $53.2 million in real estate lease liabilities considered finance leases under U.S. GAAP as of January 31, 2024 and January 31, 2023, respectively.
(2) Excludes outstanding letters of credit.          
QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
LAST TWELVE MONTHS ADJUSTED EBITDA RECONCILIATION
(In thousands, except per share data)
(Unaudited)
                     
Reconciliation of Last Twelve Months Adjusted EBITDA   Three Months Ended
January 31, 2024
  Three Months Ended
October 31, 2023
  Three Months Ended
July 31, 2023
  Three Months Ended
April 30, 2023
  Total
    Reconciliation   Reconciliation   Reconciliation   Reconciliation   Reconciliation
Net income as reported   $ 6,249     $ 27,382     $ 31,698     $ 21,512   $ 86,841
Income tax expense     1,642       4,442       4,099       5,551     15,734
Other, net     (1,042 )     6,110       (402 )     29     4,695
Interest expense     1,068       1,565       2,068       2,244     6,945
Depreciation and amortization     11,152       11,194       10,596       10,456     43,398
EBITDA     19,069       50,693       48,059       39,792     157,613
Cost of sales(1)           (35 )           48     13
Selling, general and administrative(1),(2)     205       109       395       63     772
Adjusted EBITDA   $ 19,274     $ 50,767     $ 48,454     $ 39,903   $ 158,398
                     
(1) Loss on damage to manufacturing facilities caused by weather.
(2) Transaction and advisory fees.
                     
QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands, except per share data)
(Unaudited)
                   
                   
Reconciliation of Adjusted Net Income and Adjusted EPS Three Months Ended
January 31, 2024
  Three Months Ended
January 31, 2023
 
    Net
Income
  Diluted
EPS
  Net
Income
  Diluted
EPS
 
Net income as reported   $ 6,249     $ 0.19     $ 1,909     $ 0.06    
Net income reconciling items from below     (435 )   $ (0.01 )     4,154     $ 0.12    
Adjusted net income and adjusted EPS   $ 5,814     $ 0.18     $ 6,063     $ 0.18    
                   
Reconciliation of Adjusted EBITDA   Three Months Ended
January 31, 2024
  Three Months Ended
January 31, 2023
 
    Reconciliation       Reconciliation      
Net income as reported   $ 6,249         $ 1,909        
Income tax expense     1,642           453        
Other, net     (1,042 )         (218 )      
Interest expense     1,068           2,259        
Depreciation and amortization     11,152           10,620        
EBITDA     19,069           15,023        
EBITDA reconciling items from below     205           5,448        
Adjusted EBITDA   $ 19,274         $ 20,471        
                   
Reconciling Items   Three Months Ended
January 31, 2024
  Three Months Ended
January 31, 2023
 
    Income
Statement
  Reconciling
Items
  Income
Statement
  Reconciling
Items
 
Net sales   $ 239,155     $     $ 261,916     $    
Cost of sales     187,723             210,149          
Selling, general and administrative     32,363       (205 ) (1 )   36,744       (5,448 ) (1 )
EBITDA     19,069       205       15,023       5,448    
Depreciation and amortization     11,152             10,620          
Operating income     7,917       205       4,403       5,448    
Interest expense     (1,068 )           (2,259 )        
Other, net     1,042       (755 ) (2 )   218       (42 ) (2 )
Income before income taxes     7,891       (550 )     2,362       5,406    
Income tax expense     (1,642 )     115   (3 )   (453 )     (1,252 ) (3 )
Net income   $ 6,249     $ (435 )   $ 1,909     $ 4,154    
                   
Diluted earnings per share   $ 0.19         $ 0.06        
                   
                   
(1) Transaction and advisory fees.  
(2) Pension settlement refund and foreign currency transaction losses (gains).  
(3) Tax impact of net income reconciling items.                  
                   
  QUANEX BUILDING PRODUCTS CORPORATION
  SELECTED SEGMENT DATA
  (In thousands)
  (Unaudited)
                       
  This table provides gross margin, operating income (loss), EBITDA, and Adjusted EBITDA by reportable segment. Non-operating expense and income tax expense are not allocated to the reportable segments.
      NA Fenestration   EU Fenestration   NA Cabinet
Components
  Unallocated
Corp & Other
  Total
  Three months ended January 31, 2024                    
  Net sales   $ 147,995     $ 49,437     $ 43,137     $ (1,414 )   $ 239,155  
  Cost of sales     118,368       31,703       38,743       (1,091 )     187,723  
  Gross Margin     29,627       17,734       4,394       (323 )     51,432  
  Gross Margin %     20.0 %     35.9 %     10.2 %         21.5 %
  Selling, general and administrative(1)     15,910       7,745       5,126       3,582       32,363  
  Depreciation and amortization     5,475       2,558       3,065       54       11,152  
  Operating income (loss)     8,242       7,431       (3,797 )     (3,959 )     7,917  
  Depreciation and amortization     5,475       2,558       3,065       54       11,152  
  EBITDA     13,717       9,989       (732 )     (3,905 )     19,069  
  Transaction and advisory fees                       205       205  
  Adjusted EBITDA   $ 13,717     $ 9,989     $ (732 )   $ (3,700 )   $ 19,274  
  Adjusted EBITDA Margin %     9.3 %     20.2 %     -1.7 %         8.1 %
                       
  Three months ended January 31, 2023                    
  Net sales   $ 152,980     $ 54,952     $ 54,674     $ (690 )   $ 261,916  
  Cost of sales     124,717       37,703       48,056       (327 )     210,149  
  Gross Margin     28,263       17,249       6,618       (363 )     51,767  
  Gross Margin %     18.5 %     31.4 %     12.1 %         19.8 %
  Selling, general and administrative(1)     13,295       7,505       4,873       11,071       36,744  
  Depreciation and amortization     5,245       2,348       2,934       93       10,620  
  Operating income (loss)     9,723       7,396       (1,189 )     (11,527 )     4,403  
  Depreciation and amortization     5,245       2,348       2,934       93       10,620  
  EBITDA     14,968       9,744       1,745       (11,434 )     15,023  
  Transaction and advisory fees                       5,448       5,448  
  Adjusted EBITDA   $ 14,968     $ 9,744     $ 1,745     $ (5,986 )   $ 20,471  
  Adjusted EBITDA Margin %     9.8 %     17.7 %     3.2 %         7.8 %
                       
  (1) Includes stock-based compensation expense of $2.6 million and $4.8 million as of January 31, 2024 and January 31, 2023, respectively.
QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
         
    Three Months Ended October 31,
      2024       2023  
         
NA Fenestration:      
  United States – fenestration $ 111,634     $ 120,767  
  International – fenestration   6,144       5,127  
  United States – non-fenestration   25,791       23,066  
  International – non-fenestration   4,426       4,020  
    $ 147,995     $ 152,980  
EU Fenestration:(1)      
  International – fenestration $ 41,751     $ 42,354  
  International – non-fenestration   7,686       12,598  
    $ 49,437     $ 54,952  
NA Cabinet Components:      
  United States – fenestration $ 3,675     $ 3,908  
  United States – non-fenestration   39,179       50,049  
  International – non-fenestration   283       717  
    $ 43,137     $ 54,674  
Unallocated Corporate & Other:      
  Eliminations $ (1,414 )   $ (690 )
    $ (1,414 )   $ (690 )
         
Net Sales $ 239,155     $ 261,916  
         
(1) Reflects an increase of $1.0 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2024.


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