Quanex Building Products Announces First Quarter 2021 Results and Increases Full Year 2021 Guidance

Quanex Corporation
·18 min read

Solid Growth and Significant Margin Expansion Realized Across All Operating Segments
Balance Sheet Remains Strong
Positive Outlook Intact

HOUSTON, March 04, 2021 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2021.

The Company reported the following selected financial results:

Three Months Ended January 31,

2021

2020

Net Sales

$230.1

$196.6

Gross Margin

$53.8

$39.2

Gross Margin %

23.4%

19.9%

Net Income

$7.9

$0.0

Diluted EPS

$0.24

$0.00

Adjusted Net Income

$9.0

$1.2

Adjusted Diluted EPS

$0.27

$0.04

Adjusted EBITDA

$24.3

$15.7

Adjusted EBITDA Margin %

10.6%

8.0%

Cash Used for Operating Activities

($3.4)

($3.7)

Free Cash Flow

($8.6)

($13.0)

(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 posted another very strong quarter as demand for our products remained high throughout the first quarter of 2021. In fact, we realized solid growth and significant margin expansion in each of our operating segments. On a consolidated basis, net sales increased by 17.1% and Adjusted EBITDA margin improved by approximately 260 basis points year-over-year as compared to the first quarter of 2020. Once again, volumes during the quarter were especially strong in Europe, and we remain optimistic on the global economic outlook despite the ongoing challenges related to the COVID-19 pandemic.

“Our balance sheet is strong, and we were able to repay $5.0 million in bank debt while repurchasing approximately $1.9 million of our common stock during the quarter. We are especially proud of this accomplishment since we are typically a net borrower during the first quarter of each year. We will remain focused on managing working capital and generating cash as the year progresses. Overall, we are delighted with the way our business is performing and we continue to be well positioned to benefit from tailwinds in the residential housing industry.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

First Quarter 2021 Results Summary

The increase in net sales during the three months ended January 31, 2021 was primarily the result of increased demand for the Company’s products across all product lines and operating segments. (See Sales Analysis table for additional information)

The increase in earnings for the first quarter of 2021 was largely due to higher volumes and improved operating leverage. The increase in earnings was somewhat offset by an increase in selling, general and administrative expenses, which was mostly attributable to elevated medical costs coupled with an increase in stock-based compensation expense that resulted from the shareholder value created by the appreciation of Quanex’s stock price during the period.

Balance Sheet & Liquidity Update

As of January 31, 2021, the Company had total debt of $113.6 million and its leverage ratio of Net Debt to LTM Adjusted EBITDA remained unchanged at 0.6x. (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Quanex’s liquidity was $265.9 million as of January 31, 2021, consisting of $43.4 million in cash on hand plus availability under its Senior Secured Revolving Credit Facility due 2023, less letters of credit outstanding.

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 76,495 shares of common stock for approximately $1.9 million at an average price of $25.20 per share during the three months ended January 31, 2021. As of January 31, 2021, approximately $9.3 million remained under the existing share repurchase authorization.

Outlook

George Wilson, President and Chief Executive Officer, commented, “Our outlook remains positive, and we continue to be optimistic about the economic recovery. It appears that the typical seasonality in our business may not be as pronounced this year, but we do expect inflationary pressures to be a factor as the year unfolds. Based on our strong first quarter results and ongoing conversations with our customers, we are raising our expectations for the year and now expect approximately 12% sales growth in our North American Fenestration segment, approximately 5% sales growth in our North American Cabinet Components segment, and approximately 22% sales growth in our European Fenestration segment. Overall, on a consolidated basis and assuming there is no adverse impact from the ongoing pandemic, we now believe this will equate to net sales of approximately $945 million to $965 million, which we expect will generate between $112 million and $122 million in Adjusted EBITDA* in fiscal 2021.”

*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.

Recent Events

The Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share on the Company’s common stock, payable March 30, 2021, to shareholders of record on March 15, 2021.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, March 5, 2021, 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 9481425, 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 12, 2021. To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 9481425.

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. 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. 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 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, 2020, 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.

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)

Three Months Ended January 31,

2021

2020

Net sales

$

230,147

$

196,597

Cost of sales

176,397

157,427

Selling, general and administrative

30,861

24,132

Restructuring charges

39

153

Depreciation and amortization

11,015

12,905

Operating income

11,835

1,980

Interest expense

(751

)

(1,582

)

Other, net

192

36

Income before income taxes

11,276

434

Income tax expense

(3,424

)

(424

)

Net income

$

7,852

$

10

Earnings per common share, basic

$

0.24

$

0.00

Earnings per common share, diluted

$

0.24

$

0.00

Weighted average common shares outstanding:

Basic

32,872

32,861

Diluted

33,212

33,078

Cash dividends per share

$

0.08

$

0.08


QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

January 31, 2021

October 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

43,426

$

51,621

Accounts receivable, net

82,538

88,287

Inventories, net

76,076

61,181

Prepaid and other current assets

7,213

6,217

Total current assets

209,253

207,306

Property, plant and equipment, net

182,371

184,104

Operating Lease Right-of-Use Assets

53,252

51,824

Goodwill

149,941

146,154

Intangible assets, net

91,806

93,068

Other assets

7,648

9,129

Total assets

$

694,271

$

691,585

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

62,553

$

77,335

Accrued liabilities

37,450

38,289

Income taxes payable

3,768

6,465

Current maturities of long-term debt

704

692

Current Operating Lease Liabilities

7,738

7,459

Total current liabilities

112,213

130,240

Long-term debt

112,090

116,728

Noncurrent Operating Lease Liabilities

46,086

44,873

Deferred pension and postretirement benefits

10,871

10,923

Deferred income taxes

21,580

19,116

Other liabilities

13,723

13,946

Total liabilities

316,563

335,826

Stockholders’ equity:

Common stock

373

373

Additional paid-in-capital

252,277

253,458

Retained earnings

218,732

213,517

Accumulated other comprehensive loss

(24,424

)

(33,024

)

Treasury stock at cost

(69,250

)

(78,565

)

Total stockholders’ equity

377,708

355,759

Total liabilities and stockholders' equity

$

694,271

$

691,585

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)

Three Months Ended January 31,

2021

2020

Operating activities:

Net income

$

7,852

$

10

Adjustments to reconcile net income to cash used for operating activities:

Depreciation and amortization

11,015

12,905

Stock-based compensation

523

(239

)

Deferred income tax

1,925

(413

)

Other, net

3,189

1,096

Changes in assets and liabilities:

Decrease in accounts receivable

7,103

18,641

Increase in inventory

(14,061

)

(10,657

)

(Increase) decrease in other current assets

(873

)

1,200

Decrease in accounts payable

(14,577

)

(12,063

)

Decrease in accrued liabilities

(2,692

)

(12,519

)

Decrease in income taxes payable

(2,790

)

(936

)

(Decrease) increase in deferred pension and postretirement benefits

(52

)

448

Decrease in other long-term liabilities

(399

)

(405

)

Other, net

442

(725

)

Cash used for operating activities

(3,395

)

(3,657

)

Investing activities:

Capital expenditures

(5,246

)

(9,312

)

Proceeds from disposition of capital assets

64

-

Cash used for investing activities

(5,182

)

(9,312

)

Financing activities:

Borrowings under credit facilities

-

34,500

Repayments of credit facility borrowings

(5,000

)

(24,500

)

Repayments of other long-term debt

(541

)

(285

)

Common stock dividends paid

(2,637

)

(2,659

)

Issuance of common stock

10,030

3,075

Payroll tax paid to settle shares forfeited upon vesting of stock

(492

)

(454

)

Purchase of treasury stock

(1,927

)

(4,639

)

Cash (used for) provided by financing activities

(567

)

5,038

Effect of exchange rate changes on cash and cash equivalents

949

177

Decrease in cash and cash equivalents

(8,195

)

(7,754

)

Cash and cash equivalents at beginning of period

51,621

30,868

Cash and cash equivalents at end of period

$

43,426

$

23,114


QUANEX BUILDING PRODUCTS CORPORATION
FREE CASH FLOW AND NET DEBT RECONCILIATIONS
(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,

2021

2020

Cash used for operating activities

$

(3,395

)

$

(3,657

)

Capital expenditures

(5,246

)

(9,312

)

Free Cash Flow

$

(8,641

)

$

(12,969

)

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,

2021

2020

Revolving Credit Facility

$

98,000

$

152,500

Finance Lease Obligations

15,619

16,047

Total Debt (1)

113,619

168,547

Less: Cash and cash equivalents

43,426

23,114

Net Debt

$

70,193

$

145,433

(1) Excludes outstanding letters of credit and deferred financing fees.


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 and Adjusted EPS

January 31, 2021

January 31, 2020

Net
Income

Diluted
EPS

Net
Income

Diluted
EPS

Net income as reported

$

7,852

$

0.24

$

10

$

0.00

Reconciling items from below

1,157

0.03

1,216

0.04

Adjusted net income and adjusted EPS

$

9,009

$

0.27

$

1,226

$

0.04

Reconciliation of Adjusted EBITDA

Three Months Ended
January 31, 2021

Three Months Ended
January 31, 2020

Reconciliation

Reconciliation

Net income as reported

$

7,852

$

10

Income tax expense

3,424

424

Other, net

(192

)

(36

)

Interest expense

751

1,582

Depreciation and amortization

11,015

12,905

EBITDA

22,850

14,885

Reconciling items from below

1,478

771

Adjusted EBITDA

$

24,328

$

15,656

Reconciling Items

Three Months Ended
January 31, 2021

Three Months Ended
January 31, 2020

Income
Statement

Reconciling
Items

Income
Statement

Reconciling
Items

Net sales

$

230,147

$

-

$

196,597

$

-

Cost of sales

176,397

-

157,427

-

Selling, general and administrative

30,861

(1,439

)

(1

)

24,132

(618

)

(1

)

Restructuring charges

39

(39

)

(2

)

153

(153

)

(2

)

EBITDA

22,850

1,478

14,885

771

Depreciation and amortization

11,015

-

12,905

(731

)

(3

)

Operating income

11,835

1,478

1,980

1,502

Interest expense

(751

)

-

(1,582

)

-

Other, net

192

78

(4

)

36

60

(4

)

Income before income taxes

11,276

1,556

434

1,562

Income tax expense

(3,424

)

(399

)

(5

)

(424

)

(346

)

(5

)

Net income

$

7,852

$

1,157

$

10

$

1,216

Diluted earnings per share

$

0.24

$

0.00

(1) Transaction and advisory fees, $1.4 million related to the loss on a sale of a plant in 2021, and $0.6 million related to executive severance charges in 2020.

(2) Restructuring charges related to the closure of manufacturing plant facilities.

(3) Accelerated depreciation and amortization for equipment replacement in the North American Fenestration segment in 2020.

(4) Foreign currency transaction losses.

(5) Impact on a with and without basis.


QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands)
(Unaudited)

Reconciliation of Last Twelve Months Adjusted EBITDA

Three Months Ended
January 31, 2021

Three Months Ended
October 31, 2020

Three Months Ended
July 31, 2020

Three Months Ended
April 30, 2020

Total

Reconciliation

Reconciliation

Reconciliation

Reconciliation

Reconciliation

Net income as reported

$

7,852

$

22,152

$

10,833

$

5,501

$

46,338

Income tax expense

3,424

4,906

4,345

2,129

14,804

Other, net

(192

)

(164

)

220

(300

)

(436

)

Interest expense

751

935

1,165

1,563

4,414

Depreciation and amortization

11,015

11,378

11,060

11,886

45,339

EBITDA

22,850

39,207

27,623

20,779

110,459

Selling, general and administrative (1)

1,439

-

-

780

2,219

Restructuring charges (2)

39

145

73

251

508

Adjusted EBITDA

$

24,328

$

39,352

$

27,696

$

21,810

$

113,186

(1) Transaction and advisory fees, loss on the sale of a plant, and executive severance charges.

(2) Restructuring charges relate to the closure of manufacturing plant facilities.


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, 2021

Net sales

$

128,116

$

49,091

$

53,994

$

(1,054

)

$

230,147

Cost of sales

99,393

31,791

45,874

(661

)

176,397

Gross Margin

28,723

17,300

8,120

(393

)

53,750

Gross Margin %

22.4

%

35.2

%

15.0

%

23.4

%

Selling, general and administrative

12,370

6,595

4,863

7,033

30,861

Restructuring charges

39

-

-

-

39

Depreciation and amortization

5,111

2,518

3,270

116

11,015

Operating income (loss)

11,203

8,187

(13

)

(7,542

)

11,835

Depreciation and amortization

5,111

2,518

3,270

116

11,015

EBITDA

16,314

10,705

3,257

(7,426

)

22,850

Loss on sale of plant

-

-

-

1,439

1,439

Restructuring charges

39

-

-

-

39

Adjusted EBITDA

$

16,353

$

10,705

$

3,257

$

(5,987

)

$

24,328

Adjusted EBITDA Margin %

12.8

%

21.8

%

6.0

%

10.6

%

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

Severance related to reorganization

-

-

-

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

%


QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)

Three Months Ended

January 31, 2021

January 31, 2020

NA Fenestration:

United States - fenestration

$

112,300

$

96,847

International - fenestration

7,778

6,434

United States - non-fenestration

5,398

4,563

International - non-fenestration

2,640

2,608

$

128,116

$

110,452

EU Fenestration (1):

International - fenestration

$

41,354

$

30,964

International - non-fenestration

7,737

5,802

$

49,091

$

36,766

NA Cabinet Components:

United States - fenestration

$

2,974

$

3,147

United States - non-fenestration

50,502

46,450

International - non-fenestration

518

447

$

53,994

$

50,044

Unallocated Corporate & Other:

Eliminations

$

(1,054

)

$

(665

)

$

(1,054

)

$

(665

)

Net Sales

$

230,147

$

196,597

(1) Reflects increase of $1.7 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2021.