Quanex Building Products Announces Second Quarter 2022 Results and Increases Full Year 2022 Guidance

HOUSTON, Texas, UNITED STATES


Record Revenue and Earnings in 2Q22 
Strong Revenue Growth Continues Across All Operating Segments 
Balance Sheet & Liquidity Remain Strong

HOUSTON, June 02, 2022 (GLOBE NEWSWIRE) --  Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended April 30, 2022.  

The Company reported the following selected financial results:

QUANEX BUILDING PRODUCTS CORPORATION        
Q2 2022 Earnings Release         
   Three Months Ended April 30, Six Months Ended April 30,
($ in millions, except per share data)  2022 2021 2022 2021
Net Sales  $322.9 $270.4 $589.9 $500.5
Gross Margin  $73.2 $61.9 $128.4 $115.6
Gross Margin %  22.7% 22.9% 21.8% 23.1%
Net Income  $26.5 $14.6 $37.8 $22.4
Diluted EPS  $0.80 $0.43 $1.13 $0.67
          
Adjusted Net Income  $26.5 $14.6 $37.8 $23.6
Adjusted Diluted EPS  $0.80 $0.43 $1.14 $0.70
Adjusted EBITDA  $45.2 $32.2 $69.6 $56.6
Adjusted EBITDA Margin %  14.0% 11.9% 11.8% 11.3%
          
Cash Provided by (Used for) Operating Activities  $19.8 $32.4 ($1.9) $29.0
Free Cash Flow  $13.4 $27.8 ($15.7) $19.2

(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, commented, “We reported a record quarter despite ongoing challenges related to inflation and the supply chain. Demand for our products was better than expected during the second quarter, and we started to see the benefit of our pass-through pricing strategy, which drove revenue growth and improved profitability. Inflationary pressures are ongoing, but we still expect further margin expansion in the second half of our fiscal year.     

“Managing working capital continues to be a challenge in this inflationary environment as the value of our inventory continues to increase, but overall, our balance sheet and liquidity remain strong. We will be focused on generating cash, paying down debt and opportunistically repurchasing our stock in the second half of this year.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Second Quarter 2022 Results Summary   

The Company reported net sales of $322.9 million during the three months ended April 30, 2022, which represents growth of 19.4% compared to $270.4 million for the same period of 2021. The increase was largely attributable to higher prices related to the pass through of raw material cost inflation. More specifically, Quanex realized net sales growth of 21.7% in its North American Fenestration segment, 14.7% in its North American Cabinet Components segment and 13.0% in its European Fenestration segment, excluding the foreign exchange impact. (See Sales Analysis table for additional information)

The increase in earnings for the three months ended April 30, 2022 was mostly due to increased pricing related to the pass through of raw material cost inflation, higher volumes, and a decrease in SG&A expense, mainly due to lower stock-based compensation.

Balance Sheet & Liquidity Update

As of April 30, 2022, Quanex had total debt of $77.0 million and its leverage ratio of Net Debt to LTM Adjusted EBITDA improved to 0.3x.   (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

The Company’s liquidity increased to $296.5 million as of April 30, 2022, consisting of $38.9 million in cash on hand plus availability under its Senior Secured Revolving Credit Facility due 2023, less letters of credit outstanding.

Share Repurchases

Quanex’s Board authorized a $75 million share repurchase program in December of 2021. 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 Company repurchased 75,000 shares of common stock for approximately $1.6 million at an average price of $20.92 per share during the three months ended April 30, 2022. As of April 30, 2022, approximately $73.4 million remained under the existing share repurchase authorization.

Outlook        

Mr. Wilson stated, “We are increasing guidance for fiscal 2022 based on our strong second quarter results combined with the successful implementation of our pass-through pricing strategy and ongoing conversations with our customers. We are very cognizant of the current macro related uncertainties, but we continue to believe that the underlying fundamentals for residential housing are positive and demand for our products remains healthy. For the second half of our fiscal year, we now expect low double-digit revenue growth in our North American Fenestration segment and mid-single digit revenue growth in our North American Cabinet Components and European Fenestration segments. Overall, on a consolidated basis and assuming the current inflation and supply chain challenges do not worsen materially, we estimate this will equate to net sales of $1.18 billion to $1.2 billion, which we expect will generate approximately $150 million to $155 million in Adjusted EBITDA* in fiscal 2022.”

*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 scheduled a conference call for Friday, June 3, 2022, 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 7942145, 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 June 10, 2022. To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 7942145.  

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 (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, 2021, 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
(In thousands, except per share data)
(Unaudited)

  Three Months Ended April 30, Six Months Ended April 30, 
   2022   2021   2022   2021  
          
Net sales $322,893  $270,357  $589,933  $500,504  
Cost of sales  249,651   208,460   461,485   384,857  
Selling, general and administrative  28,129   29,672   58,952   60,533  
Restructuring charges  -   -   -   39  
Depreciation and amortization  10,563   10,845   20,820   21,860  
Operating income  34,550   21,380   48,676   33,215  
Interest expense  (602)  (640)  (1,125)  (1,391) 
Other, net  453   265   507   457  
Income before income taxes  34,401   21,005   48,058   32,281  
Income tax expense  (7,879)  (6,454)  (10,297)  (9,878) 
Net income $26,522  $14,551  $37,761  $22,403  
          
Earnings per common share, basic $0.80  $0.44  $1.14  $0.68  
Earnings per common share, diluted $0.80  $0.43  $1.13  $0.67  
          
Weighted average common shares outstanding:         
Basic  33,157   33,355   33,140   33,110  
Diluted  33,291   33,637   33,292   33,444  
          
Cash dividends per share $0.08  $0.08  $0.16  $0.16  
          


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

  April 30, 2022 October 31, 2021 
ASSETS     
Current assets:     
Cash and cash equivalents $38,900  $40,061  
Accounts receivable, net  118,195   108,309  
Inventories, net  130,383   92,529  
Prepaid and other current assets  11,442   8,148  
Total current assets  298,920   249,047  
Property, plant and equipment, net  170,307   178,630  
Operating lease right-of-use assets  48,582   52,708  
Goodwill  143,268   149,205  
Intangible assets, net  73,581   82,410  
Other assets  5,832   5,323  
Total assets $740,490  $717,323  
      
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current liabilities:     
Accounts payable $88,956  $86,765  
Accrued liabilities  40,740   56,156  
Income taxes payable  7,851   6,038  
Current maturities of long-term debt  812   846  
Current operating lease liabilities  8,229   8,196  
Total current liabilities  146,588   158,001  
Long-term debt  75,714   52,094  
Noncurrent operating lease liabilities  41,369   45,367  
Deferred pension and postretirement benefits  4,578   4,737  
Deferred income taxes  21,522   21,965  
Other liabilities  14,545   15,377  
Total liabilities  304,316   297,541  
Stockholders’ equity:     
Common stock  373   373  
Additional paid-in-capital  250,756   254,162  
Retained earnings  292,221   259,718  
Accumulated other comprehensive loss  (36,197)  (21,770) 
Treasury stock at cost  (70,979)  (72,701) 
Total stockholders’ equity  436,174   419,782  
Total liabilities and stockholders' equity $740,490  $717,323  
      


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

 Six Months Ended April 30, 
  2022   2021  
Operating activities:    
Net income$37,761  $22,403  
Adjustments to reconcile net income to cash (used for) provided by operating activities:    
Depreciation and amortization 20,820   21,860  
Stock-based compensation 1,124   970  
Deferred income tax 583   2,339  
Other, net 1,534   5,049  
Changes in assets and liabilities:    
Increase in accounts receivable (13,008)  (6,726) 
Increase in inventory (39,771)  (18,265) 
Increase in other current assets (3,541)  (2,013) 
Increase in accounts payable 7,381   5,584  
(Decrease) increase in accrued liabilities (15,984)  994  
Increase (decrease) in income taxes payable 1,679   (4,071) 
Decrease in deferred pension and postretirement benefits (159)  (104) 
Increase in other long-term liabilities 443   642  
Other, net (743)  298  
Cash (used for) provided by operating activities (1,881)  28,960  
Investing activities:    
Capital expenditures (13,785)  (9,799) 
Proceeds from disposition of capital assets 36   1,665  
Cash used for investing activities (13,749)  (8,134) 
Financing activities:    
Borrowings under credit facilities 70,500   -  
Repayments of credit facility borrowings (45,500)  (30,000) 
Repayments of other long-term debt (432)  (605) 
Common stock dividends paid (5,258)  (5,330) 
Issuance of common stock 173   16,123  
Payroll tax paid to settle shares forfeited upon vesting of stock (1,412)  (492) 
Purchase of treasury stock (1,569)  (3,968) 
Cash provided by (used for) financing activities 16,502   (24,272) 
Effect of exchange rate changes on cash and cash equivalents (2,033)  1,083  
Decrease in cash and cash equivalents (1,161)  (2,363) 
Cash and cash equivalents at beginning of period 40,061   51,621  
Cash and cash equivalents at end of period$38,900  $49,258  
     


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 (used for) operating activities less capital expenditures. 
           
   Three Months Ended April 30, Six Months Ended April 30, 
   2022 2021 2022 2021 
Cash provided by (used for) operating activities  19,770 32,355 ($1,881) $28,960 
Capital expenditures  (6,415) (4,553) (13,785) (9,799) 
Free Cash Flow  $13,355 $27,802 ($15,666) $19,161 
           
           
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 April 30,   
   2022 2021     
Revolving credit facility  $63,000 $73,000     
Finance lease obligations  13,971 15,689     
Total debt(1)  76,971 88,689     
Less: Cash and cash equivalents  38,900 49,258     
Net Debt  $38,071 $39,431     
           
(1) Excludes outstanding letters of credit.          


QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands, except per share data)
(Unaudited)

                   
  Three Months Ended Three Months Ended Six Months Ended Six Months Ended  
Reconciliation of Adjusted Net Income and Adjusted EPS April 30, 2022 April 30, 2021 April 30, 2022 April 30, 2021  
  Net
Income
 Diluted
EPS
 Net
Income
 Diluted
EPS
 Net
Income
 Diluted
EPS
 Net
Income
 Diluted
EPS
  
Net income as reported $ 26,522 $ 0.80 $ 14,551 $ 0.43 $ 37,761 $ 1.13 $ 22,403 $ 0.67  
Net Income reconciling items from below 1 $ - 3 $ - 34 $ 0.01 1,174 $ 0.03  
Adjusted net income and adjusted EPS $ 26,523 $ 0.80 $ 14,554 $ 0.43 $ 37,795 $ 1.14 $ 23,577 $ 0.70  
                   
Reconciliation of Adjusted EBITDA Three Months Ended April 30, 2022 Three Months Ended April 30, 2021 Six Months Ended April 30, 2022 Six Months Ended April 30, 2021  
  Reconciliation   Reconciliation   Reconciliation   Reconciliation    
Net income as reported $ 26,522   $ 14,551   $ 37,761   $ 22,403    
Income tax expense 7,879   6,454   10,297   9,878    
Other, net (453)   (265)   (507)   (457)    
Interest expense 602   640   1,125   1,391    
Depreciation and amortization 10,563   10,845   20,820   21,860    
EBITDA 45,113   32,225   69,496   55,075    
EBITDA reconciling items from below 131   -   131   1,478    
Adjusted EBITDA $ 45,244   $ 32,225   $ 69,627   $ 56,553    
                   
Reconciling Items Three Months Ended April 30, 2022 Three Months Ended April 30, 2021 Six Months Ended April 30, 2022 Six Months Ended April 30, 2021  
  Income
Statement
 Reconciling
Items
 Income
Statement
 Reconciling
Items
 Income
Statement
 Reconciling
Items
 Income
Statement
 Reconciling
Items
  
Net sales $ 322,893 $ - $ 270,357 $ - $ 589,933 $ - $ 500,504 $ -  
Cost of sales 249,651 - 208,460 - 461,485 - 384,857 -  
Selling, general and administrative 28,129 (131)(1)29,672 - 58,952 (131)(1)60,533 (1,439)(1) 
Restructuring charges - - - - - - 39 (39)(2) 
EBITDA 45,113 131 32,225 - 69,496 131 55,075 1,478  
Depreciation and amortization 10,563 - 10,845 - 20,820 - 21,860 -  
Operating income 34,550 131 21,380 - 48,676 131 33,215 1,478  
Interest expense (602) - (640) - (1,125) - (1,391) -  
Other, net 453 (123)(3)265 4(3)507 (82)(3)457 82(3) 
Income before income taxes 34,401 8 21,005 4 48,058 49 32,281 1,560  
Income tax expense (7,879) (7)(4)(6,454) (1)(4)(10,297) (15)(4)(9,878) (386)(4) 
Net income $ 26,522 $ 1 $ 14,551 $ 3 $ 37,761 $ 34 $ 22,403 $ 1,174  
                   
Diluted earnings per share $ 0.80   $ 0.43   $ 1.13   $ 0.67    
                   
(1) Transaction and advisory fees and $1.4 million related to the loss on a sale of a plant in the six months ended April 20, 2021. 
(2) Restructuring charges related to the closure of manufacturing plant facilities. 
(3) Foreign currency transaction (gains) losses.                  
(4) Impact on a with and without basis.          


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 April 30, 2022          
Net sales $177,908  $73,427  $72,878  $(1,320) $322,893 
Cost of sales  137,571   49,708   63,175   (803)  249,651 
Gross Margin  40,337   23,719   9,703   (517)  73,242 
Gross Margin %  22.7%  32.3%  13.3%    22.7%
Selling, general and administrative  14,078   8,601   5,218   232   28,129 
Depreciation and amortization  4,038   2,522   3,917   86   10,563 
Operating income (loss)  22,221   12,596   568   (835)  34,550 
Depreciation and amortization  4,038   2,522   3,917   86   10,563 
EBITDA  26,259   15,118   4,485   (749)  45,113 
Transaction and advisory fees  -   -   -   131   131 
Adjusted EBITDA $26,259  $15,118  $4,485  $(618) $45,244 
Adjusted EBITDA Margin %  14.8%  20.6%  6.2%    14.0%
           
Three months ended April 30, 2021          
Net sales $146,143  $61,657  $63,562  $(1,005) $270,357 
Cost of sales  112,368   41,361   55,162   (431)  208,460 
Gross Margin  33,775   20,296   8,400   (574)  61,897 
Gross Margin %  23.1%  32.9%  13.2%    22.9%
Selling, general and administrative  13,146   7,439   5,379   3,708   29,672 
Depreciation and amortization  4,846   2,607   3,305   87   10,845 
Operating income (loss)  15,783   10,250   (284)  (4,369)  21,380 
Depreciation and amortization  4,846   2,607   3,305   87   10,845 
EBITDA  20,629   12,857   3,021   (4,282)  32,225 
Adjusted EBITDA $20,629  $12,857  $3,021  $(4,282) $32,225 
Adjusted EBITDA Margin %  14.1%  20.9%  4.8%    11.9%
           
Six months ended April 30, 2022          
Net sales $324,539  $132,341  $135,231  $(2,178) $589,933 
Cost of sales  253,535   90,935   118,248   (1,233)  461,485 
Gross Margin  71,004   41,406   16,983   (945)  128,448 
Gross Margin %  21.9%  31.3%  12.6%    21.8%
Selling, general and administrative  28,455   15,904   10,488   4,105   58,952 
Depreciation and amortization  8,177   5,091   7,380   172   20,820 
Operating income (loss)  34,372   20,411   (885)  (5,222)  48,676 
Depreciation and amortization  8,177   5,091   7,380   172   20,820 
EBITDA  42,549   25,502   6,495   (5,050)  69,496 
Transaction and advisory fees  -   -   -   131   131 
Adjusted EBITDA $42,549  $25,502  $6,495  $(4,919) $69,627 
Adjusted EBITDA Margin %  13.1%  19.3%  4.8%    11.8%
           
Six months ended April 30, 2021          
Net sales $274,259  $110,748  $117,556  $(2,059) $500,504 
Cost of sales  211,761   73,152   101,036   (1,092)  384,857 
Gross Margin  62,498   37,596   16,520   (967)  115,647 
Gross Margin %  22.8%  33.9%  14.1%    23.1%
Selling, general and administrative  25,516   14,034   10,242   10,741   60,533 
Restructuring charges  39   -   -   -   39 
Depreciation and amortization  9,957   5,125   6,575   203   21,860 
Operating income (loss)  26,986   18,437   (297)  (11,911)  33,215 
Depreciation and amortization  9,957   5,125   6,575   203   21,860 
EBITDA  36,943   23,562   6,278   (11,708)  55,075 
Loss on sale of plant  -   -   -   1,439   1,439 
Restructuring charges  39   -   -   -   39 
Adjusted EBITDA $36,982  $23,562  $6,278  $(10,269) $56,553 
Adjusted EBITDA Margin %  13.5%  21.3%  5.3%    11.3%
           


QUANEX BUILDING PRODUCTS CORPORATION 
SALES ANALYSIS
 
(In thousands) 
(Unaudited) 
          
  Three Months Ended April 30, Six Months Ended 
   2022   2021   2022   2021  
          
NA Fenestration:        
 United States - fenestration$156,843  $128,218  $285,210  $240,518  
 International - fenestration 11,094   8,397   20,230   16,175  
 United States - non-fenestration 7,077   6,293   13,793   11,690  
 International - non-fenestration 2,894   3,235   5,306   5,876  
  $177,908  $146,143  $324,539  $274,259  
EU Fenestration(1):        
 International - fenestration$54,863  $50,835  $99,484  $92,189  
 International - non-fenestration 18,564   10,822   32,857   18,559  
  $73,427  $61,657  $132,341  $110,748  
NA Cabinet Components:        
 United States - fenestration$4,666  $3,497  $8,431  $6,471  
 United States - non-fenestration 67,383   60,388   125,150   110,890  
 International - non-fenestration 829   (323)  1,650   195  
  $72,878  $63,562  $135,231  $117,556  
Unallocated Corporate & Other:        
 Eliminations$(1,320) $(1,005) $(2,178) $(2,059) 
  $(1,320) $(1,005) $(2,178) $(2,059) 
          
Net Sales$322,893  $270,357  $589,933  $500,504  
          
(1) Reflects increase of $3.3 million and $3.7 million in revenue associated with foreign currency exchange rate impacts for the three and six months ended April 30, 2022, respectively.