Janus International Group, Inc. (NYSE:JBI) Q4 2023 Earnings Call Transcript
Janus International Group, Inc. (NYSE:JBI) Q4 2023 Earnings Call Transcript February 28, 2024
Janus International Group, Inc. misses on earnings expectations. Reported EPS is $0.24 EPS, expectations were $0.25. JBI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello and welcome to the Janus International Group Fourth Quarter and Full Year 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. John Rohlwing, Vice President, Investor Relations, FP&A, and M&A of Janus. Thank you. You may begin.
John Rohlwing: Thank you, operator and thank you all for joining our earnings conference call. I'm joined today by our Chief Executive Officer, Ramey Jackson; and our Chief Financial Officer, Anselm Wong. We hope that you have seen our earnings release issued this morning. Please note that we have also posted a presentation in support of this call which can be found in the Investors section of our website at janusintl.com. Before we begin, I would like to remind you that today's call may include forward-looking statements. Any statements made describing our beliefs, goals, plans, strategy, expectations, projections, forecasts and assumptions are forward-looking statements. Please note that the company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control.
Please see our recent filings with the Securities and Exchanges Commission, which identified the principal risks and uncertainties that could affect our business, prospects, and future results. We assume no obligation to update publicly any forward-looking statements and forward-looking statements made by us during this call is based only on information currently available to us and speaks only as of the date when it is made. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted margin, adjusted net income, and adjusted EPS. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. Today, we announced that the Board has approved a stock repurchase program of $100 million.
We make no assurances that any repurchase is [indiscernible]. In today's call, Ramey will provide an overview of the business, Anselm will continue with a discussion of our financial results and introduce our 2024 guidance before Ramey shares some closing thoughts, and we open up the call for questions. At this point, I will turn the call over to Ramey.
Ramey Jackson: Thank you, John. I'd like to kick off my comments today with a recap of Janus' financial, operational, and strategic highlights and accomplishments. 2023 proved to be another year of outstanding momentum. Everything we achieve at Janus is a team effort, and I couldn't be prouder for our employees' dedication, hard work and professionalism. We delivered strong financial results, raising and exceeding financial guidance throughout the year and delivered full year adjusted EBITDA that was up 25.9% on a 4.6% increase in revenue. We converted over 140% of adjusted net income to free cash flow of $196 million. This drove year-end net leverage to a record low since going public at 1.6 times, down another 1.2 times during the year and below our stated long-term target range of 2 times to 3 times.
Our core business is self-storage, which consists of new construction and restore, rebuild, replace our R3 sales channel. Combined, self-storage makes up roughly two-thirds of our revenue and even a higher percentage of our EBITDA. As we have previously said, the margin profiles across the two components of self-storage are similar. Making us agnostic to how our customers seek to add much needed capacity. And while we will report specifics for each channel, along with our commercial and other segments, the discussion of total self-storage helps to smooth out the quarterly noise across the two segments given the lumpiness of a project timing. For full year 2023, on a combined basis, self-storage was up 13.2%, driven by new construction, which was up 22.1%, while the R3 sales channel increased 4.3%.
Industry fundamentals continue to drive investment in self-storage capacity, which over the last several quarters has focused on greenfield sites compared to 2022 when we saw more demand for our R3 projects. Commercial and other was off 10.2% for the full year. Results reflected challenging comps for the year ago period as well as decline in demand for certain product lines. We continue to innovate and broaden our reach to various end markets in order to access tremendous untapped potential on the commercial side. Despite the year-over-year top line decline, we are very excited about our opportunities there. Nokē, our innovative suite of remote access solutions had another strong quarter to top off a year of expansion and capabilities and customer adoption.
For the year, we increased the number of install of Nokē Smart Entry system units by 66.3% to 276,000. In support of this expansion in October, we announced the complete back-end migration of Nokē to Amazon Web Services, or AWS. Moving to AWS opens up our ability to further scale the business, leveraging their enterprise software, AI and security capabilities and positioning us to lead digital innovation in self-storage. We have both enhanced global reach and improved our user experience for both customers and their tenants. We also opened our Atlanta software center, which gives us expanded capabilities to scale the Nokē business for continued strong demand. In January, we announced that a customer intends to expand its installed base of Nokē smart locks across its 43 facilities.
This followed our September announcement that a major REIT intends to expand its installed base for our Nokē Screen Digital Access across more than 400 additional facilities, above and beyond their 700 facilities to-date. So, as you can see, we continue to be excited about Nokē and what it can mean for the future of Janus. On the operations front, we recently opened our first European manufacturing facility in Poland. This new facility is strategically located to serve our European market. The fourth quarter also saw a major milestone reach for Janus as Clearlake, our financial sponsor and partner when we became public, sold the last of its position and stepped down from their Board seats. This nearly doubled our public flow, dramatically improved our stock liquidity.
In adherence with our governance objectives, in January we announced the addition of three highly accomplished independent Directors. On the basis of our solid record of strong results, robust balance sheet, exceptional cash generation profile, expanded flow, and desire to create shareholder value through multiple pads, we are pleased today to announce the $100 million share repurchase plan authorized by the Board. The ability to repurchase shares only adds to our commitment of pursuing value enhancing initiatives through organic expansion and M&A, while maintaining a prudently leveraged balance sheet. In summary, we are excited that in 2023, we were able to build on our momentum with another year of record results and strong cash flow while further deleveraging the company.
We look forward to expanding our strong market position to capture additional share to create long-term value for all of our stakeholders in 2024 and beyond. With that, I'll turn the call over to Anselm for a further overview of our results along with our initial 2024 guidance. Anselm?
Anselm Wong: Thanks Ramey and good morning everyone. I am proud of our record results and our success during 2023 in growing our business. generating strong cash flow and deleveraging our balance sheet to position us for success. I will first focus my comments on our fourth quarter performance. In the fourth quarter, consolidated revenue of $263.7 million was off 5.7% as compared to the prior year quarter as strength in total self-storage is more than offset by a decline in our commercial and other sales channel. Together, our self-storage business was up 2.5% for the quarter. Within self-storage, New construction continued its strong year result with growth in the quarter of 14.3%, as customers continue to add new greenfield capacity.
The other portion of our self-storage business, R3, was off 9.1% for the quarter as a result of a decline in retail-to-storage conversion activity compared to prior year. Our commercial and others segment saw a 20.8% decline in the fourth quarter, driven by particularly strong comps last year and shift in demand for certain product lines that were at an all-time high. Fourth quarter adjusted EBITDA of $74.3 million was up 8.9% compared to the year ago quarter. This solid performance produced an adjusted EBITDA margin of 28.2%, up 380 basis points from the prior year level. This improvement in profitability is a result of favorable mix from our higher-margin self-storage businesses as compared to our commercial and other sales channel and a continued focus on operational improvements, which more than offset the revenue decline.
For the fourth quarter of 2023, we produced adjusted net income of $35.9 million, a 9.8% year-over-year improvement and adjusted diluted earnings per share of $0.24. Adjusted net income was impacted during the quarter by drivers already covered, including favorable mix and cost containment initiatives. Looking at the full year, we generated cash from operating activities of $215 million, including $68.5 million in the fourth quarter, continuing to demonstrate the robust cash generation profile of the business. Capital expenditures for the year were $19 million, up from $8.8 million in 2022. Growth capital projects this year included the Poland factory build-out, additions of new rule formers at BETCO, and enhancements to our lead to order process within Microsoft Dynamics.
We are proud of our free cash flow profile, which reflects the financial strength of our results. For the full year, we generated free cash of about $196 million. This represented a free cash flow conversion of adjusted net income of 142%. We finished the year with $296.7 million of total liquidity, including $171.7 million of cash and equivalents on the balance sheet. Our total outstanding debt at year end was $615 million and our net leverage was 1.6 times. The combination of strong liquidity, continued cash generation and balance sheet strength put us in a position to pursue M&A targets and enact our newly authorized $100 million share repurchase program. I'd also like to add that as part of our continued focus on best-in-class operations reporting and governance, as of the end of our fiscal 2023, we have remediated all remaining material weaknesses from the prior year.
Now, moving to our 2024 guidance, building off of the momentum we produced last year and supported by our current backlog and pipeline, full year 2024 revenue is expected to be in the range of $1.092 billion to $1.125 billion, representing organic growth of 4% at the midpoint versus 2023. We expect total self-storage to continue to grow and return to growth for commercial and other. Adjusted EBITDA is expected to be in the range of $286 million to $310 million. At the midpoint, this represents a 4.3% increase versus prior year and reflects an adjusted EBITDA margin at the midpoint of 26.9%. We expect to see a return to normal seasonality in 2024, where the second and third quarter comprised a large portion of revenues compared to the first and fourth quarter.
Thank you. I will now turn the call over to Ramey for his closing remarks. Ramey?
Ramey Jackson: Thank you again, Anselm. Building off this strong foundation, we are well positioned for another exciting year in 2024; one that is consistent with the longer-term vision for the company we laid out a year ago. Back then, we told you that over the course of the next three to five years, we expect annual revenues to grow organically at a 4% to 6% rate, adjusted EBITDA margins of 25% to 27% and net leverage to be in the range of 2 times to 3 times and free cash flow to be 75% to 100% of adjusted net income. As you can see from our results, 2023 met or beat all of those targets. Our long-term objectives remain intact. And based on the guidance Anselm laid out, we expect 2024 to feature another year of exceptional performance.
We are the industry leader in self-storage solutions with strong customer relationships, particularly among the best capitalized owners and operators. We have delivered strong organic and acquired top line growth throughout our time as a public company and have dramatically improved our EBITDA margins, cash flow conversion and net leverage. As M&A opportunities come to fruition, we have the expertise and dry powder on our balance sheet to execute accretive shareholder value-enhancing deals. And now we have the expanded capital allocation program to include the new $100 million share repurchase program. I look forward to continuing our positive momentum in 2024 and beyond as we drive long-term value creation for all of our stakeholders. Thank you again for joining us.
Operator, we can now open up the lines for Q&A, please.
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