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Edited Transcript of NX earnings conference call or presentation 12-Dec-19 4:00pm GMT

Q4 2019 Quanex Building Products Corp Earnings Call HOUSTON Dec 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Quanex Building Products Corp earnings conference call or presentation Thursday, December 12, 2019 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * George L. Wilson Quanex Building Products Corporation - VP & COO * Scott M. Zuehlke Quanex Building Products Corporation - Senior VP, CFO & Treasurer * William C. Griffiths Quanex Building Products Corporation - Chairman of the Board, President & CEO ================================================================================ Conference Call Participants ================================================================================ * Brian Biros Thompson Research Group, LLC - Equity Analyst * Daniel Joseph Moore CJS Securities, Inc. - Director of Research * Julio Alberto Romero Sidoti & Company, LLC - Equity Analyst * Kenneth Robinson Zener KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Full Year 2019 Quanex Building Products Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now hand the conference over to the Chief Financial Officer and Treasurer, Scott Zuehlke. -------------------------------------------------------------------------------- Scott M. Zuehlke, Quanex Building Products Corporation - Senior VP, CFO & Treasurer [2] -------------------------------------------------------------------------------- Thanks for joining the call this morning. On the call with me today are Bill Griffiths, our Chairman, President and Chief Executive Officer; and George Wilson, our Chief Operating Officer. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quanex undertakes no obligation to update or revise any forward-looking statements to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I will now discuss the financial results. Net sales decreased by 1.5% year-over-year to $240.4 million in the fourth quarter of 2019, mainly due to continued softness in our North American Cabinet Components segment. However, we generated net sales of $893.8 million for the year, which represents growth of approximately 50 basis points compared to fiscal 2018. The increase was driven by above-market growth in our North American and European Fenestration segment, which was mostly the result of price increases related to raw material inflation recovery. Excluding foreign exchange impact, we realized revenue growth of 1.4% in fiscal 2019 compared to fiscal 2018. We reported a net loss of $30.9 million or $0.94 per diluted share for the 3 months ended October 31, 2019, compared to net income of $6.7 million or $0.19 per diluted share during the 3 months ended October 31, 2018. For fiscal 2019, we reported a net loss of $46.7 million or $1.42 per diluted share compared to net income of $26.6 million or $0.76 per diluted share for fiscal 2018. The reported net losses were primarily attributable to a $44.6 million noncash goodwill impairment in the fourth quarter and a $30 million noncash goodwill impairment in the second quarter, both in the North American Cabinet Components segment, mainly due to lower volume expectations related to the ongoing shift in the market from semi-custom to stock cabinets and customer-specific strategy changes. On an adjusted basis, net income was $14 million or $0.42 per diluted share during the fourth quarter of '19, compared to $7.6 million or $0.22 per diluted share during the fourth quarter of 2018. Adjusted net income was $31.4 million or $0.95 per diluted share for fiscal 2019 compared to $22.7 million or $0.65 per diluted share for fiscal 2018. The adjustments being made to EPS are for restructuring charges, certain executive severance charges, noncash asset impairment charges, accelerated D&A, the impact of deferred loan cost for the credit facility, foreign currency transaction impacts, transaction and advisory fees, loss on the sale of a plant and adjustments related to the Tax Cut and Jobs Act. On an adjusted basis, EBITDA increased to $34.4 million in the fourth quarter of 2019, compared to $25 million in the fourth quarter of 2018. For the full year 2019, adjusted EBITDA was $102.7 million compared to $89.9 million in 2018. Increases in adjusted earnings were largely driven by lower incentive accruals, operational efficiency gains and the successful implementation of pricing initiatives in late 2018. I'll now move on to cash flow and the balance sheet. Cash provided by operating activities was $96.4 million in 2019 compared to $104.6 million in 2018. We generated free cash flow of $71.5 million in 2019 and $78.1 million in 2018. As a result of our strong free cash flow profile and consistent with our commitment to maintain a strong balance sheet while returning capital to shareholders, we repurchased approximately $9.6 million in stock and repaid $52.5 million of bank debt during fiscal 2019. We also exited fiscal '19 with a leverage ratio of 1.2x net debt to last 12 months adjusted EBITDA, which surpassed our goal. As for 2020 guidance, and as noted in the Outlook section of our earnings release, based on current trends in the latest macro data, we are taking a measured approach to our 2020 revenue forecast. We expect low single-digit sales growth in our North American and European Fenestration segments, offset by a continued decline in revenues in our North American Cabinet Components segment. On a consolidated basis, sales are expected to be approximately $865 million to $885 million in fiscal 2020. However, we expect to generate between $102 million and $110 million in adjusted EBITDA in fiscal 2020, which would yield margin expansion of approximately 60 basis points to the midpoint of guidance. We plan to stay focused on generating cash and maintaining a strong balance sheet while also continuing to opportunistically repurchase stock. For modeling purposes, it is appropriate to make the following assumptions for 2020: depreciation of approximately $32 million, amortization of approximately $15 million, SG&A of $100 million to $105 million, interest expense of $7 million to $8 million and a tax rate of 25%. From a capital expenditure standpoint, we expect to spend approximately $35 million in 2020, which is about $10 million more than in 2019, as we intend to invest in certain specific projects in an effort to grow organically. Our target is to generate free cash flow between $55 million and $60 million in fiscal 2020. I will now turn the call over to George for his prepared remarks. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [3] -------------------------------------------------------------------------------- Thanks, Scott. As I reflect on our performance in 2019, it is highlighted by free cash flow of over $70 million for the second consecutive year, allowing us to exit the year with a leverage ratio of 1.2x, which easily surpassed our goal of 1.5x. We also saw very strong performance in our Fenestration segment in Europe and North America. In Europe, adjusted EBITDA margins improved by approximately 340 basis points in the fourth quarter and approximately 300 basis points for the full year. Volume growth and price increases were the drivers for the improved performance in the fourth quarter and for the full year. Excluding foreign exchange impact, we realized above-market sales growth of 3.3% during the fourth quarter and 9.1% for the full year in this segment. In our North American Fenestration segment, adjusted EBITDA margins expanded by approximately 250 basis points in the fourth quarter and approximately 110 basis points for the full year. Volume growth, price increases, improved operational performance and SG&A savings were all reasons for the improvements. Sales in our North American Fenestration segment grew at 6% during the fourth quarter and 3.8% for the full year, which compares favorably to Ducker's latest window shipment estimate of negative 0.4% for the 3 months ended September 30, 2019, and negative 1.6% for the 12 months ended September 30, 2019. Our North American Cabinet Components segment continued to face headwinds in 2019, particularly in the semi-custom segment with revenue shrinking by 8.1%, resulting in a margin contraction of 120 basis points for the full year. Our focus in this segment going forward will be to continue to improve operational performance, rightsize our capacity footprint and optimize working capital. As we look to 2020, there is a great deal of uncertainty at the macro level. Brexit is yet to be resolved, we have an election year in the U.S. and there is continued uncertainty with trade wars and tariffs, which mostly relates to the cabinet industry in our case. As a result, we feel it prudent to take a conservative view on our 2020 outlook. We believe we can continue to outperform the market in our 2 Fenestration segments, albeit with slightly lower overall growth expectations. Unfortunately, we believe the semi-custom segment could continue to shrink even further in 2020, resulting in our consolidated revenues being down year-over-year. Notwithstanding that, we demonstrated in 2019 that we can execute on the things directly within our control. So we expect another year of margin expansion, with adjusted EBITDA in the $102 million to $110 million range. As for capital deployment in 2020, the additional $10 million in CapEx compared to 2019 is to fund growth initiatives, including a new screen facility, the upgrade of our U.S. vinyl extrusion technology and capacity expansion in Europe. As Scott mentioned, we will continue to focus on generating cash and maintaining a strong balance sheet while also opportunistically buying back more stock. And finally, I'd like to take a moment to thank Bill and the Board of Directors for giving me the opportunity to be the next CEO of Quanex. I'm humbled by this opportunity, yet very excited to be working with the executive team and all of the Quanex employees. We will remain focused on our internal initiatives of safety, operational excellence and cash flow generation while continuing to explore all options to create incremental shareholder value. I will now turn the call over to Bill for his closing comments. -------------------------------------------------------------------------------- William C. Griffiths, Quanex Building Products Corporation - Chairman of the Board, President & CEO [4] -------------------------------------------------------------------------------- Thank you, George. Let me close by expressing my thanks to our Board of Directors and our employees for their unending support over the past 6 years. It's been a good ride, and we've made significant progress in transforming Quanex into an industry-leading, pure-play building products manufacturer. While there will be no change in strategy, it is time to hand over the reins so that George and his team can take the execution of that strategy to the next level. I will remain active in assisting George and his team as we continue down the path of operational excellence to further enhance profitability and cash flow and to ultimately increase value for our shareholders. Thank you. Operator, we'll now take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question comes from Daniel Moore with CJS Securities. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [2] -------------------------------------------------------------------------------- Wanted to start quickly, just not take a lot of time. But Bill, congrats on the transition and leaving Quanex in great shape from not only competitive, but certainly a financial stability and liquidity perspective. And George, congrats on the promotion. Top line guide for 2020 if -- doing the simple math that implies double-digit declines in North American cabinets kind of an extension of what we've seen in the last quarter or 2. Are there lines in that, that you plan to exit? Are there larger customers that are -- you mentioned some strategy shifts among customers. Any more detail with regard to -- it's just the overall acceleration away from stock to semi-custom? Is that accelerating? Any more detail there and color there would be very helpful. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [3] -------------------------------------------------------------------------------- In terms of the cabinet sales, in addition to the continued shift from semi-custom to stock, which we've noted, the major change has been with one customer who we have been working with in terms of strategic projects for a long period of time that changed their strategic direction during the year. And it's deciding to exit one of their product lines. And so that is the big change year-over-year in what we're seeing and why it's expedited from that -- from what we had given guidance for in the past. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [4] -------------------------------------------------------------------------------- Helpful. And from a cadence perspective, I would presume that larger declines in the first half of the year versus the second, given that decision was made within the last several months. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [5] -------------------------------------------------------------------------------- I think it will be even is what we're seeing. -------------------------------------------------------------------------------- Scott M. Zuehlke, Quanex Building Products Corporation - Senior VP, CFO & Treasurer [6] -------------------------------------------------------------------------------- And to be clear, Dan. We are expecting those declines on a quarterly basis going forward. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [7] -------------------------------------------------------------------------------- Okay. I can dig in a little further after. On the margin side, looking for 60 basis points of improvement at the midpoint. Maybe can you just provide a little bit more detail around the -- between the segments. What your expectations look like and the drivers of that improvement? -------------------------------------------------------------------------------- Scott M. Zuehlke, Quanex Building Products Corporation - Senior VP, CFO & Treasurer [8] -------------------------------------------------------------------------------- Sure. I can add a little detail and color there. So in the North American Fenestration segment, you should expect -- we said low single digits, so 2% to 3% growth there. We continue to gain share in the screens business. We also gained some share back in the vinyl profile business. And in the spacer business, we expect some growth there as well. In Europe, we expect, again, low single-digit growth, so I'd say, 1% to 2% range. Hopefully, that's a conservative number, but a lot's going on in Europe, as you know. We're adding a line in Germany to our spacer facility there. We're also continuing to gain a little share in our vinyl profile business in the U.K. as really specifically one competitor continues to lose share and we are picking that business up for the most part. And then in cabinets, we just explained, it's really the shift, mid-double-digit shift down, the shift from semi-custom to stock. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [9] -------------------------------------------------------------------------------- That's great color on the top line. I'll ask one more or just kind of review, kind of looking for a little bit more detail as it relates to the margin expansion, the 60 bps of margin expansion. Maybe it goes hand-in-hand with that top line that you described, but if you could sort of rank order where you see the greatest opportunity for margin expansion among the segments and what the drivers would be? And I'll jump back to queue. -------------------------------------------------------------------------------- Scott M. Zuehlke, Quanex Building Products Corporation - Senior VP, CFO & Treasurer [10] -------------------------------------------------------------------------------- Sure. On the margin expansion side, it does kind of go along the same lines of revenue. We expect the most margin expansion in North America Fenestration. In Europe, there's opportunity for better margin expansion. The margins in that segment are already very healthy. So maintaining or improving those is the plan. And then in cabinets, even with the lower revenue, there is some opportunity to expand margin slightly. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [11] -------------------------------------------------------------------------------- We're still seeing the results of the operational excellence programs that we've been putting in across the board. So as we've said in past calls, there would be continued margin improvement in all segments of the business based on those activities, albeit at a slower rate. And we're seeing some of that now. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question comes from Steven Ramsey with Thompson Research. -------------------------------------------------------------------------------- Brian Biros, Thompson Research Group, LLC - Equity Analyst [13] -------------------------------------------------------------------------------- It's actually Brian Biros on for Steven. I wanted to start with the guidance for the Fenestration segments, low single-digit growth, you guys mentioned. Can you provide some color on how much of that is strictly price versus any other growth drivers and then maybe the cadence from quarter-to-quarter versus just the full year? -------------------------------------------------------------------------------- Scott M. Zuehlke, Quanex Building Products Corporation - Senior VP, CFO & Treasurer [14] -------------------------------------------------------------------------------- I mean, without going into too much detail, I think we can comfortably say that price will be less of a driver in 2020 than it was in 2019, and that volume growth will drive revenue higher in 2020. And that's across the board, except for cabinets. -------------------------------------------------------------------------------- Brian Biros, Thompson Research Group, LLC - Equity Analyst [15] -------------------------------------------------------------------------------- Got it. Is that kind of even across quarters? Or are you seeing maybe one quarter would jump out and be more substantial versus others? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [16] -------------------------------------------------------------------------------- I think that's consistent across all quarters. The ability at this time to get additional price, I think we're priced very competitively in the market. And we will see no major movements across any of the quarters. -------------------------------------------------------------------------------- Brian Biros, Thompson Research Group, LLC - Equity Analyst [17] -------------------------------------------------------------------------------- Got it. Helpful. And then last one from me, I guess, is just on the cabinet side. The guidance previously mentioned, probably down double digits for the year. Is there anything throughout the year that would have to change significantly? Or I guess, what would have to change significantly to surprise on the upside and kind of do better than the guidance? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [18] -------------------------------------------------------------------------------- I think the thing that we would look at is if there was any significant change in tariffs, that would drive the pricing of something higher, that would force them to look back. In addition to that, if we start seeing a consumer trend shift back to semi-custom from the stock, as people start to remodel and focus on that and upgrading their kitchens, we may see a shift back to higher-end cabinets, which would lend to the upside on our business. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our next question comes from Ken Zener with KeyBanc. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [20] -------------------------------------------------------------------------------- Hello? -------------------------------------------------------------------------------- Scott M. Zuehlke, Quanex Building Products Corporation - Senior VP, CFO & Treasurer [21] -------------------------------------------------------------------------------- Yes. Can you hear us? -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [22] -------------------------------------------------------------------------------- Okay. Apologize about that. Well, big quarter for everybody. Bill, congratulations. George, since we've met obviously, it's a [nice incentive] for you as well as for you, Scott. So I just want to take -- I think I understand how you're outlining 2020. I just want to go over some basics because you're doing so well in 2 of your 3 segments. And North America margins are up nicely, basically back to where they were in '16. Europe, wouldn't have thought in the middle of all this chaos, you'd be delivering the margins that you did there. So you're obviously executing well in those core businesses. And George, as it relates to what is sustained cabinet headwind, obviously, you've been involved with Bill. And Bill, you deployed capital into cabinets. You did some of the European stuff. But what is, George, your view on cabinets? It's unclear what's going to happen with the tariffs. But is there a possibility that you'll have a simpler business in time within categories that are more secular in nature in terms of growth? I know who knew cabinets was going to break away and we could make a case for knowing that ahead of time. But your margins are so strong in other businesses. And cabinets, does an OEM in cabinets really make sense to you? And how are you going to go about determining that with the Board? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [23] -------------------------------------------------------------------------------- So to answer your question, I think the first part of that would be, I think it's really too early to make a wholesale strategic change in that business as the shift from semi-custom down the stock happened so rapidly and wasn't predicted by anyone. So I think that we're evaluating it. We're obviously -- our eye is on it, but it's too early to change strategic direction. However, I do think, operationally, we still have a lot of runway, and we're making significant improvements on a continuous basis. And so I think we're going to let both sides play out. We're going to continue to focus on what we do well in the plants and making that even better. And then, we'll keep our eye on the rapidly changing market and work with the Board for a strategic direction. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [24] -------------------------------------------------------------------------------- Okay. And I do empathize with the challenges you face there. In terms of the fenestration, the extrusion, it really seems like the last -- I don't know if it's 2 quarters or last 2 to 6 quarters, you've been gaining share. Can you talk to some of the dynamics in that category, please? Because I know you guys had shut down a lot of the Kentucky lines. And it seems like you're actually gaining share from the point that you shut down lines. Is it -- can you go into a little bit of the dynamic that is affording that opportunity? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [25] -------------------------------------------------------------------------------- Sure. What we focused on in the vinyl space in North America, specifically, over the last few years is really controlling and improving what we do. So focusing on our cost structure, our ability to deliver on time and servicing customers. And as some of our customers have left us for price and price -- things where we walked away, we've continued to focus on and doing the things that we do well, the quality of the delivery. And as we've seen, as those customers figure out that their total cost is much more inclusive than just the purchase price per pound, that we're starting to see some ability of us coming back, and we're trying to capitalize that -- on that. So we'll continue to stay focused on working on operations, delivering the customer service that we feel like we're very good at and we'll improve on. And we'll continue to go after share in that way. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [26] -------------------------------------------------------------------------------- Always nice to hear that. Related to window M&A. So a large window company has recently been sold. I believe that company was a big proponent of the warm edge spacers that you guys produce as well as some of the -- they had invested in some of the machinery to enable that possibility. Can you talk about growth rates that we're seeing in that warm edge spacer? Are you still getting share gains? And/or how does the CapEx side look on the window side to enable greater market share gains in that category? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [27] -------------------------------------------------------------------------------- Sure. So in regards to the spacer business, we're still gaining share. We've been very open in past calls that the rate of that growth has been really dictated by the ability of machine and equipment makers to get that -- those high-speed lines out for the customer base. And there's very few globally that provide that equipment, so lead times on new equipment are 6 months to 1 year. So our -- the speed of growth is really dictated by the ability to get new equipment into the market. The demand for automated equipment is still there. Customers are looking for ways to automate and outsource and eliminate their labor because the availability of labor across the country is still limited. So I think we're just -- we still see growth rates. It's dictated by the equipment makers right now. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [28] -------------------------------------------------------------------------------- Excellent. And Bill, if I could try my perennial question for you, realizing George is now in the seat. Would you like to give a margin dispersion for the Fenestration business in North America? -------------------------------------------------------------------------------- William C. Griffiths, Quanex Building Products Corporation - Chairman of the Board, President & CEO [29] -------------------------------------------------------------------------------- Ken, you never disappoint. I shall miss talking to you. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [30] -------------------------------------------------------------------------------- Is that a non-answer though? -------------------------------------------------------------------------------- William C. Griffiths, Quanex Building Products Corporation - Chairman of the Board, President & CEO [31] -------------------------------------------------------------------------------- In my new role as Chairman, that's all I'm allowed to give at this point. -------------------------------------------------------------------------------- Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [32] -------------------------------------------------------------------------------- Excellent. George, would you like to expand upon the Chairman's reticence in terms of the... -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [33] -------------------------------------------------------------------------------- I think Bill has taught me well, and that's a level of detail that we're not prepared to disclose at this time. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- And our next question is from Julio Romero with Sidoti. -------------------------------------------------------------------------------- Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [35] -------------------------------------------------------------------------------- First off, Bill, congratulations on your success, transforming Quanex over the last few years. Certainly, a large-scale transformation. And congrats to George as well on your new role. -------------------------------------------------------------------------------- William C. Griffiths, Quanex Building Products Corporation - Chairman of the Board, President & CEO [36] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [37] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [38] -------------------------------------------------------------------------------- So George, I know you've had success at operational improvement. Can you just talk about how your background and experience at Quanex maybe shapes your vision and strategy over the next 3 or so years or so? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [39] -------------------------------------------------------------------------------- Sure. I think, for me, we're a manufacturing company that focuses on quality product, quality service, delivering energy-efficient products to all of the fenestration and cabinet markets. And we'll continue to stay focused on that. And that starts with an operational background and an operational level. So whatever businesses we're in are always going to be put in that regard. So my background in terms of operations, I think, lends itself very well because our strategy has always been in operational excellence and letting that drive our performance. -------------------------------------------------------------------------------- Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [40] -------------------------------------------------------------------------------- Got it. And on that point, you mentioned, operationally, you do have a lot of runway left in cabinets. But how about runway for the 2 Fenestration segments? Obviously, the margins there are already very strong, but how much headroom do you see in the Fenestration segments to improve margins over a 2- to 3-year time frame? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [41] -------------------------------------------------------------------------------- I think we -- as we've said in previous calls, we still believe that there is some runway left, not near the rate that we've captured in previous years. But in every facility and all of our product lines, we have projects and goals and objectives set that have a path to completion. And we believe that they will all contribute to margin expansion. I mean, that's what we're focused on. So there will be some, but just not at the rate that you've seen in the past in those segments. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- And our next question is from Daniel Moore with CJS Securities. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [43] -------------------------------------------------------------------------------- In the past, you've gone as far as to quantify the -- in rough terms, the dollars lost when you had a customer perhaps shift in other segments to another supplier. Is there sort of rough terms, a dollar amount, that we should be thinking about in annualized terms from the customer that you called out in the cabinets business? And one last follow-up. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [44] -------------------------------------------------------------------------------- Sure. Based on the run rates we're at today, we're expecting that, that would be between $10 million to $15 million range. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [45] -------------------------------------------------------------------------------- Got it. Very helpful. And Bill alluded to the answer being no, but I'll ask it anyway. In terms of just capital allocation, George, any tweaks or subtle shifts in emphasis or focus you may have as you take over the reins in 2020 and beyond? -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [46] -------------------------------------------------------------------------------- No. As we said in our commentary, our normal capital expense is very consistent, and we'll focus on operational improvements. And then the additional $10 million this year is really identifying 3 major areas in terms of the new screen facility; vinyl, some new assets in our North American vinyl platform; and then capacity expansion. And then outside of that, we'll opportunistically buy stock as the cash flow dictates it, and we'll continue to stay on that path. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- And this concludes our Q&A session. I would like to turn the call back to George Wilson for his final remarks. -------------------------------------------------------------------------------- George L. Wilson, Quanex Building Products Corporation - VP & COO [48] -------------------------------------------------------------------------------- I'd like to thank you all for joining, and we look forward to providing you an update on our next earnings call in March. Thank you. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.