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Quanex Building Products Announces First Quarter 2020 Results and Reaffirms Full Year 2020 Guidance

Improved Profitability
Margin Expansion Realized in EU Fenestration & NA Cabinet Components Segments
Above Market Growth in EU Fenestration Segment Continues

HOUSTON, March 05, 2020 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2020.

The Company reported the following selected financial results:

    Three Months Ended January 31,  
    2020   2019  
Net Sales   $196.6   $196.8  
Gross Margin   $39.2   $38.3  
Gross Margin %   19.9%   19.4%  
Net Income (Loss)   $0.0   ($3.6)  
Diluted EPS   $0.00   ($0.11)  
         
Adjusted Net Income (Loss)   $1.2   ($2.3)  
Adjusted Diluted EPS   $0.04   ($0.07)  
Adjusted EBITDA   $15.7   $12.1  
Adjusted EBITDA Margin %   8.0%   6.1%  
         
Cash Used for Operating Activities   ($3.7)   ($20.2)  
Free Cash Flow   ($13.0)   ($26.5)  
(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table Selected Segment Data table and Free Cash Flow Reconciliation table for additional information)
 

George Wilson, President and Chief Executive Officer, stated, “We had a good start to fiscal 2020 and we are optimistic looking ahead into the spring selling season as leading indicators for residential housing remain favorable.  As such, we are reaffirming our full year 2020 guidance of $865 million to $885 million in net sales and $102 million to $110 million in Adjusted EBITDA*.

“Demand for our fenestration components remained strong in Europe and volumes were in line with our expectations in North America.  On a consolidated basis, we were able to realize Adjusted EBITDA margin expansion of approximately 190 basis points in the first quarter, led again by our European segment where those margins improved by 100 basis points.  Despite lower volumes in our cabinet components segment, we realized Adjusted EBITDA margin expansion of approximately 70 basis points, mainly as a result of ongoing and continued operational efficiency gains.  Due to the typical seasonality in our business, we were a net borrower during the first quarter, but our balance sheet remains strong.  In fact, as expected, free cash flow for the quarter improved significantly compared to the same period of 2019 and we repurchased approximately $4.6 million in stock.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

*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.

First Quarter 2020 Results Summary  

The slight decrease in net sales during the first quarter of 2020 was driven by volume loss in the North American Cabinet Components segment related to a strategy change specific to one customer and the shift in the market from semi-custom to stock cabinets.  Volume losses in the North American Cabinet Components segment were somewhat offset by above market growth in the European Fenestration segment coupled with low single-digit growth in the North American Fenestration segment.  (See Sales Analysis table for additional information)

The increase in earnings was driven by a concentrated focus on controlling costs, improved operating leverage, operational efficiency gains and lower medical expenses. 

As of January 31, 2020, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 1.4x.  (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Share Repurchases

The Company’s Board of Directors authorized a $60 million share repurchase program in September of 2018.  Repurchases under this program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors.  The program does not have an expiration date or a limit on the number of shares that may be repurchased.  Quanex repurchased 269,862 shares of common stock for approximately $4.6 million at an average price of $17.19 per share during the three months ended January 31, 2020.  As of January 31, 2020, approximately $13.8 million remained under the existing share repurchase authorization.  

Recent Events

The Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share on Quanex’s common stock, payable March 31, 2020, to shareholders of record on March 17, 2020.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, March 6, 2020, at 11:00 a.m. ET (10:00 a.m. CT).  To participate in the conference call dial (877) 388-2139 for domestic callers and (541) 797-2983 for international callers, in both cases using the conference passcode 2790569, and ask for the Quanex call a few minutes prior to the start time.  A link to the live audio webcast will also be available on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events.  A telephonic replay of the call will be available approximately two hours after the live broadcast ends and will be accessible through March 13, 2020.  To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 2790569. 

About Quanex

Quanex Building Products Corporation is an industry-leading manufacturer of components sold to Original Equipment Manufacturers (OEMs) in the building products industry.  Quanex designs and produces energy-efficient fenestration products in addition to kitchen and bath cabinet components.  For more information contact Scott Zuehlke, Senior Vice President, Chief Financial Officer & Treasurer, at 713-877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

Adjusted Net Income (Loss) (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.  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.  The Company is not able to provide reconciliations of forward-looking Adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of Quanex’s control and/or cannot be reasonably predicted, such as the provision for income taxes.  Net Debt is calculated using the sum of current maturities of long-term debt and long-term debt, minus 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.   Free Cash Flow is measured before application of certain contractual commitments (including capital lease obligations), and accordingly is not a true measure of Quanex’s residual cash flow available for discretionary expenditures.  The Company believes that the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding Quanex’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.  The Company 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 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, 2019, 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.

 
QUANEX BUILDING PRODUCTS CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (LOSS) 
(In thousands, except per share data) 
(Unaudited) 
         
         
    Three Months Ended January 31,
     2020     2019 
         
Net sales   $ 196,597     $ 196,808  
Cost of sales     157,427       158,557  
Selling, general and administrative     24,132       28,026  
Restructuring charges     153       103  
Depreciation and amortization     12,905       12,572  
Operating income (loss)     1,980       (2,450 )
Interest expense     (1,582 )     (2,442 )
Other, net     36       256  
Income (loss) before income taxes     434       (4,636 )
Income tax (expense) benefit     (424 )     987  
Net income (loss)   $ 10     $ (3,649 )
         
Earnings (loss) per common share, basic   $ 0.00     $ (0.11 )
Earnings (loss) per common share, diluted   $ 0.00     $ (0.11 )
         
Weighted average common shares outstanding:        
Basic     32,861       33,098  
Diluted     33,078       33,098  
         
Cash dividends per share   $ 0.08     $ 0.08  
         

 

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
         
    January 31, 2020   October 31, 2019
ASSETS        
Current assets:        
Cash and cash equivalents   $ 23,114     $ 30,868  
Accounts receivable, net     64,036       82,946  
Inventories, net     78,117       67,159  
Prepaid and other current assets     7,931       9,353  
Total current assets     173,198       190,326  
Property, plant and equipment, net     192,148       193,600  
Operating Lease Right-of-Use Assets     41,661       -  
Goodwill     146,590       145,563  
Intangible assets, net     104,338       107,297  
Other assets     9,265       8,324  
Total assets   $ 667,200     $ 645,110  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable   $ 49,092     $ 63,604  
Accrued liabilities     28,982       39,221  
Income taxes payable     5,265       6,183  
Current maturities of long-term debt     707       746  
Current Operating Lease Liabilities     6,532       -  
Total current liabilities     90,578       109,754  
Long-term debt     166,711       156,414  
Noncurrent Operating Lease Liabilities     35,505       -  
Deferred pension and postretirement benefits     11,251       13,322  
Deferred income taxes     19,741       19,363  
Other liabilities     13,481       16,070  
Total liabilities     337,267       314,923  
Stockholders’ equity:        
Common stock     373       374  
Additional paid-in-capital     252,495       254,673  
Retained earnings     182,989       185,703  
Accumulated other comprehensive loss     (29,164 )     (33,817 )
Treasury stock at cost     (76,760 )     (76,746 )
Total stockholders’ equity     329,933       330,187  
Total liabilities and stockholders' equity   $ 667,200     $ 645,110  
         

 

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
       
  Three Months Ended January 31,
  2020   2019
Operating activities:      
Net income (loss) $ 10     $ (3,649 )
Adjustments to reconcile net income (loss) to cash used for operating activities:      
Depreciation and amortization   12,905       12,572  
Stock-based compensation   (239 )     224  
Deferred income tax   (413 )     (1,877 )
Other, net   1,096       785  
Changes in assets and liabilities:      
Decrease in accounts receivable   18,641       12,679  
Increase in inventory   (10,657 )     (11,601 )
Decrease in other current assets   1,200       15  
Decrease in accounts payable   (12,063 )     (11,738 )
Decrease in accrued liabilities   (12,519 )     (18,850 )
(Decrease) increase in income taxes payable   (936 )     422  
Increase in deferred pension and postretirement benefits   448       684  
Decrease in other long-term liabilities   (405 )     (27 )
Other, net   (725 )     118  
Cash used for operating activities   (3,657 )     (20,243 )
Investing activities:      
Capital expenditures   (9,312 )     (6,271 )
Proceeds from disposition of capital assets   -       74  
Cash used for investing activities   (9,312 )     (6,197 )
Financing activities:      
Borrowings under credit facilities   34,500       43,000  
Repayments of credit facility borrowings   (24,500 )     (23,000 )
Repayments of other long-term debt   (285 )     (454 )
Common stock dividends paid   (2,659 )     (2,675 )
Issuance of common stock   3,075       27  
Payroll tax paid to settle shares forfeited upon vesting of stock   (454 )     (322 )
Purchase of treasury stock   (4,639 )     (2,016 )
Cash provided by financing activities   5,038       14,560  
Effect of exchange rate changes on cash and cash equivalents   177       333  
Decrease in cash and cash equivalents   (7,754 )     (11,547 )
Cash and cash equivalents at beginning of period   30,868       29,003  
Cash and cash equivalents at end of period $ 23,114     $ 17,456  
       

 

QUANEX BUILDING PRODUCTS CORPORATION 
FREE CASH FLOW 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,
    2020   2019
Cash used for operating activities   (3,657)   (20,243)
Capital expenditures   (9,312)   (6,271)
Free Cash Flow   ($12,969)   ($26,514)

 

QUANEX BUILDING PRODUCTS CORPORATION 
NON-GAAP FINANCIAL MEASURE DISCLOSURE 
(In thousands, except per share data) 
(Unaudited) 
                     
                     
    Three Months Ended     Three Months Ended  
Reconciliation of Adjusted Net Income (Loss) and Adjusted EPS   January 31, 2020     January 31, 2019  
    Net
Income
  Diluted
EPS
    Net
Loss
  Diluted
EPS
 
Net income (loss) as reported   $ 10     $ 0.00       $ (3,649 )   $ (0.11 )  
Reconciling items from below     1,216       0.04         1,334       0.04    
Adjusted net income (loss) and adjusted EPS   $ 1,226     $ 0.04       $ (2,315 )   $ (0.07 )  
                     
Reconciliation of Adjusted EBITDA   Three Months Ended
January 31, 2020
    Three Months Ended
January 31, 2019
 
    Reconciliation         Reconciliation      
Net income (loss) as reported   $ 10           $ (3,649 )      
Income tax expense (benefit)     424             (987 )      
Other, net     (36 )           (256 )      
Interest expense     1,582             2,442        
Depreciation and amortization     12,905             12,572        
EBITDA     14,885             10,122        
Reconciling items from below     771             1,971        
Adjusted EBITDA   $ 15,656           $ 12,093        
                     
Reconciling Items   Three Months Ended
January 31, 2020
    Three Months Ended
January 31, 2019
 
    Income
Statement
  Reconciling
Items
    Income
Statement
  Reconciling
Items
 
Net sales   $ 196,597     $ -       $ 196,808     $ -    
Cost of sales     157,427       -         158,557       -    
Selling, general and administrative     24,132       (618 ) (1)     28,026       (1,868 ) (1)
Restructuring charges     153       (153 ) (2)     103       (103 ) (2)
EBITDA     14,885       771         10,122       1,971    
Depreciation and amortization     12,905       (731 ) (3)     12,572       -    
Operating income (loss)     1,980       1,502         (2,450 )     1,971    
Interest expense     (1,582 )     -         (2,442 )     -    
Other, net     36       60   (4)     256       21   (4)
Income (loss) before income taxes     434       1,562         (4,636 )     1,992    
Income tax (expense) benefit     (424 )     (346 ) (5)     987       (658 ) (5)
Net income (loss)   $ 10     $ 1,216       $ (3,649 )   $ 1,334    
                     
Diluted earnings (loss) per share   $ 0.00           $ (0.11 )      
                     
(1) Transaction and advisory fees, $0.6 million related to executive severance charges in 2020, and $1.2 million of severance charges related to a reorganization in 2019.
(2) Restructuring charges relate to the closure of manufacturing plant facilities.
(3) Accelerated depreciation and amortization for equipment replacement in the North American Fenestration segment and in 2020, accelerated depreciation related to the closure of a North American Cabinet Components plant.
(4) Foreign currency transaction losses.
(5) Impact on a with and without basis, and in 2019, an adjustment of $0.2 million related to the Tax Cuts and Jobs Act.
                     

 

QUANEX BUILDING PRODUCTS CORPORATION
SELECTED SEGMENT DATA
(In thousands)
(Unaudited)
                     
This table provides gross margin, operating (loss) income, 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, 2020                    
Net sales   $ 110,452     $ 36,766     $ 50,044     $ (665 )   $ 196,597  
Cost of sales     88,696       25,244       43,842       (355 )     157,427  
Gross Margin     21,756       11,522       6,202       (310 )     39,170  
Gross Margin %     19.7 %     31.3 %     12.4 %         19.9 %
Selling, general and administrative     13,055       5,950       4,853       274       24,132  
Restructuring charges     91       -       62       -       153  
Depreciation and amortization     6,979       2,408       3,402       116       12,905  
Operating income (loss)     1,631       3,164       (2,115 )     (700 )     1,980  
Depreciation and amortization     6,979       2,408       3,402       116       12,905  
EBITDA     8,610       5,572       1,287       (584 )     14,885  
Transaction and advisory fees     -       -       -       55       55  
Executive severance charges     -       -       -       563       563  
Restructuring charges     91       -       62       -       153  
Adjusted EBITDA   $ 8,701     $ 5,572     $ 1,349     $ 34     $ 15,656  
Adjusted EBITDA Margin %     7.9 %     15.2 %     2.7 %         8.0 %
                     
Three months ended January 31, 2019                    
Net sales   $ 109,049     $ 35,254     $ 53,853     $ (1,348 )   $ 196,808  
Cost of sales     87,153       24,526       47,856       (978 )     158,557  
Gross Margin     21,896       10,728       5,997       (370 )     38,251  
Gross Margin %     20.1 %     30.4 %     11.1 %         19.4 %
Selling, general and administrative     13,077       5,711       4,925       4,313       28,026  
Restructuring charges     103       -       -       -       103  
Depreciation and amortization     6,873       2,236       3,339       124       12,572  
Operating income (loss)     1,843       2,781       (2,267 )     (4,807 )     (2,450 )
Depreciation and amortization     6,873       2,236       3,339       124       12,572  
EBITDA     8,716       5,017       1,072       (4,683 )     10,122  
Transaction and advisory fees     -       -       -       717       717  
Severance related to reorganization     -       -       -       1,151       1,151  
Restructuring charges     103       -       -       -       103  
Adjusted EBITDA   $ 8,819     $ 5,017     $ 1,072     $ (2,815 )   $ 12,093  
Adjusted EBITDA Margin %     8.1 %     14.2 %     2.0 %         6.1 %
                     

 

QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
       
  Three Months Ended
  January 31, 2020   January 31, 2019
       
NA Fenestration:      
United States - fenestration $ 96,847     $ 93,884  
International - fenestration   6,434       8,207  
United States - non-fenestration   4,563       3,505  
International - non-fenestration   2,608       3,453  
  $ 110,452     $ 109,049  
EU Fenestration (1):      
International - fenestration $ 30,964     $ 30,724  
International - non-fenestration   5,802       4,530  
  $ 36,766     $ 35,254  
NA Cabinet Components:      
United States - fenestration $ 3,147     $ 3,352  
United States - non-fenestration   46,450       49,962  
International - non-fenestration   447       539  
  $ 50,044     $ 53,853  
Unallocated Corporate & Other:      
Eliminations $ (665 )   $ (1,348 )
  $ (665 )   $ (1,348 )
       
Net Sales $ 196,597     $ 196,808  
       
(1) Reflects increase of $0.2 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2020.
       

  

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Source: Quanex Building Products Corporation