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

HOUSTON, Texas, UNITED STATES


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.