Quanex Building Products Announces First Quarter 2024 Results and Provides Full Year 2024 Guidance

Quanex Building Products Corporation

Margin Expansion on a Consolidated Basis 
Repaid $5 Million in Bank Debt 
Balance Sheet and Liquidity Remain Strong 
Cautiously Optimistic on Second Half of 2024 
Positive Long-Term View on Residential Housing Market Remains Intact

HOUSTON, March 07, 2024 (GLOBE NEWSWIRE) --  Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2024.

The Company reported the following selected financial results:

			Three Months Ended January 31,
($ in millions, except per share data)			2024		2023
Net Sales			$239.2		$261.9
Gross Margin			$51.4		$51.8
Gross Margin %			21.5%		19.8%
Net Income			$6.2		$1.9
Diluted EPS			$0.19		$0.06
Adjusted Net Income			$5.8		$6.1
Adjusted Diluted EPS			$0.18		$0.18
Adjusted EBITDA			$19.3		$20.5
Adjusted EBITDA Margin %			8.1%		7.8%
Cash Provided by Operating Activities			$3.9		$3.1
Free Cash Flow			($5.7)		($4.4)

(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table, Selected Segment Data table and reconciliation tables for additional information)

George Wilson, President and Chief Executive Officer, stated, “We were able to realize margin expansion on a consolidated basis for the first quarter of 2024 despite market volume softness related to normal seasonality combined with ongoing macroeconomic challenges, and some pricing pressure. Our focus on generating cash and managing working capital enabled us to pay down our bank debt by $5 million during the quarter, which is encouraging considering we have historically been a net borrower during the first quarter of our fiscal year due to the seasonality of our business. Our balance sheet remains strong, and we continue to be positioned well to explore and evaluate both organic and inorganic growth opportunities.”

First Quarter 2024 Results Summary

Quanex reported net sales of $239.2 million during the three months ended January 31, 2024, which represents a decrease of 8.7% compared to $261.9 million for the same period of 2023. The decrease was largely attributable to softer market demand and lower pricing in North America. Quanex reported a 3.3% decline in net sales for the first quarter of 2024 in its North American Fenestration segment. In its North American Cabinet Components segment, Quanex reported a decline of 21.1% in net sales for the first quarter. Excluding foreign exchange impact, the Company realized a decrease in net sales of 8.4% for the first quarter in its European Fenestration segment. (See Sales Analysis table for additional information)

The increase in earnings for the three months ended January 31, 2024 was mostly attributable to a decline in raw material costs, a decrease in stock-based compensation expense and lower interest expense.

Balance Sheet Update

As of January 31, 2024, Quanex had total debt of $65.2 million ($13.5 million excluding real-estate leases that are considered “finance” leases under U.S. GAAP) and the Company’s leverage ratio of Net Debt to LTM Adjusted EBITDA was unchanged at 0.1x (Net Debt free excluding these real-estate leases). As of January 31, 2024, Quanex’s LTM Adjusted EBITDA was $158.4 million and LTM Net Income, the most directly comparable GAAP measure, was $86.8 million.   (See Non-GAAP Terminology Definitions and Disclaimers section, Net Debt Reconciliation table and Last Twelve Months Adjusted EBITDA Reconciliation table for additional information)

Outlook

Mr. Wilson commented, “As mentioned on our December call, we entered this year with a somewhat cautious outlook for the first half due to the ongoing macroeconomic challenges, but we remain optimistic that demand for our products will improve in the second half as consumer confidence is restored over time. Based on conversations with our customers, recent demand trends, and the latest macro data, we are now comfortable providing guidance for fiscal 2024. Overall, on a consolidated basis, we estimate we will generate net sales of approximately $1.1 billion, which we expect will yield approximately $145 million to $150 million in Adjusted EBITDA* in fiscal 2024. While the near-term outlook for our business remains somewhat cautious, our long-term view has not changed, and we believe the underlying fundamentals for the residential housing market remain positive.”

*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 also scheduled a conference call for Friday, March 8, 2024 at 11:00 a.m. ET (10:00 a.m. CT) to discuss the release. A link to the live audio webcast will be available on Quanex’s website at http://www.quanex.com in the Investors section under Presentations & Events.

Participants can pre-register for the conference call using the following link: https://register.vevent.com/register/BI8100cd976cdb4a18aa0a5bcef75a89d8

Registered participants will receive an email containing conference call details for dial-in options. To avoid delays, it is recommended that participants dial into the conference call ten minutes ahead of the scheduled start time. A replay will be available for a limited time on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events.

About Quanex

Quanex is a global manufacturer with core capabilities and broad applications across various end markets. The Company currently collaborates and partners with leading OEMs to provide innovative solutions in the window, door, vinyl fencing, solar, refrigeration, custom mixing and cabinetry markets.  Looking ahead, Quanex plans to leverage its material science expertise and process engineering to expand into adjacent markets.

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, 2022, 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.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
		Three Months Ended January 31,
			2024				2023
Net sales		$	239,155			$	261,916
Cost of sales			187,723				210,149
Selling, general and administrative			32,363				36,744
Depreciation and amortization			11,152				10,620
Operating income			7,917				4,403
Interest expense			(1,068	)			(2,259	)
Other, net			1,042				218
Income before income taxes			7,891				2,362
Income tax expense			(1,642	)			(453	)
Net income		$	6,249			$	1,909
Earnings per common share, basic		$	0.19			$	0.06
Earnings per common share, diluted		$	0.19			$	0.06
Weighted average common shares outstanding:
Basic			32,825				32,951
Diluted			33,043				33,137
Cash dividends per share		$	0.08			$	0.08

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
		January 31, 2024				October 31, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	44,422			$	58,474
Accounts receivable, net			80,063				97,311
Inventories			107,478				97,959
Income taxes receivable			7,642				8,298
Prepaid and other current assets			13,390				11,558
Total current assets			252,995				273,600
Property, plant and equipment, net			253,681				250,664
Operating lease right-of-use assets			46,370				46,620
Goodwill			185,439				182,956
Intangible assets, net			72,008				74,115
Other assets			2,927				3,188
Total assets		$	813,420			$	831,143
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	55,106			$	74,371
Accrued liabilities			46,478				50,319
Income taxes payable			-				384
Current maturities of long-term debt			2,500				2,365
Current operating lease liabilities			7,370				7,224
Total current liabilities			111,454				134,663
Long-term debt			61,594				66,435
Noncurrent operating lease liabilities			40,084				40,361
Deferred income taxes			30,737				29,133
Other liabilities			14,522				14,997
Total liabilities			258,391				285,589
Stockholders’ equity:
Common stock			371				372
Additional paid-in-capital			248,715				251,576
Retained earnings			412,922				409,318
Accumulated other comprehensive loss			(32,060	)			(38,141	)
Treasury stock at cost			(74,919	)			(77,571	)
Total stockholders’ equity			555,029				545,554
Total liabilities and stockholders' equity		$	813,420			$	831,143

QUANEX BUILDING PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
	Three Months Ended January 31,
		2024				2023
Operating activities:
Net income	$	6,249			$	1,909
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		11,152				10,620
Stock-based compensation		583				679
Deferred income tax		1,136				179
Other, net		1,790				1,509
Changes in assets and liabilities:
Decrease in accounts receivable		18,147				20,502
(Increase) decrease in inventory		(8,756	)			645
Increase in other current assets		(1,680	)			(1,431	)
Decrease in accounts payable		(19,044	)			(21,379	)
Decrease in accrued liabilities		(7,181	)			(12,686	)
Increase in income taxes payable		264				536
Increase in deferred pension benefits		-				7
Increase in other long-term liabilities		852				1,461
Other, net		342				584
Cash provided by operating activities		3,854				3,135
Investing activities:
Business acquisition		-				(92,000	)
Capital expenditures		(9,580	)			(7,582	)
Proceeds from disposition of capital assets		31				98
Cash used for investing activities		(9,549	)			(99,484	)
Financing activities:
Borrowings under credit facilities		-				102,000
Repayments of credit facility borrowings		(5,000	)			(15,000	)
Repayments of other long-term debt		(679	)			(579	)
Common stock dividends paid		(2,645	)			(2,661	)
Issuance of common stock		400				99
Payroll tax paid to settle shares forfeited upon vesting of stock		(1,193	)			(545	)
Cash (used for) provided by financing activities		(9,117	)			83,314
Effect of exchange rate changes on cash and cash equivalents		760				997
Decrease in cash and cash equivalents		(14,052	)			(12,038	)
Cash and cash equivalents at beginning of period		58,474				55,093
Cash and cash equivalents at end of period	$	44,422			$	43,055

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 operating activities less capital expenditures.
			Three Months Ended January 31,
				2024				2023
Cash provided by operating activities			$3,854				$3,135
Capital expenditures				(9,580)				(7,582)
Free Cash Flow			($5,726)				($4,447)
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,
				2024				2023
Revolving credit facility			$10,000				$100,000
Finance lease obligations(1)				55,211				55,122
Total debt(2)				65,211				155,122
Less: Cash and cash equivalents				44,422				43,055
Net Debt			$20,789				$112,067
(1) Includes $51.7 million and $53.2 million in real estate lease liabilities considered finance leases under U.S. GAAP as of January 31, 2024 and January 31, 2023, respectively.
(2) Excludes outstanding letters of credit.

QUANEX BUILDING PRODUCTS CORPORATION NON-GAAP FINANCIAL MEASURE DISCLOSURE LAST TWELVE MONTHS ADJUSTED EBITDA RECONCILIATION (In thousands, except per share data) (Unaudited)
Reconciliation of Last Twelve Months Adjusted EBITDA		Three Months Ended January 31, 2024				Three Months Ended October 31, 2023				Three Months Ended July 31, 2023				Three Months Ended April 30, 2023			Total
		Reconciliation				Reconciliation				Reconciliation				Reconciliation			Reconciliation
Net income as reported		$	6,249			$	27,382			$	31,698			$	21,512		$	86,841
Income tax expense			1,642				4,442				4,099				5,551			15,734
Other, net			(1,042	)			6,110				(402	)			29			4,695
Interest expense			1,068				1,565				2,068				2,244			6,945
Depreciation and amortization			11,152				11,194				10,596				10,456			43,398
EBITDA			19,069				50,693				48,059				39,792			157,613
Cost of sales(1)			-				(35	)			-				48			13
Selling, general and administrative(1),(2)			205				109				395				63			772
Adjusted EBITDA		$	19,274			$	50,767			$	48,454			$	39,903		$	158,398
(1) Loss on damage to manufacturing facilities caused by weather.
(2) Transaction and advisory fees.

QUANEX BUILDING PRODUCTS CORPORATION
NON-GAAP FINANCIAL MEASURE DISCLOSURE
(In thousands, except per share data)
(Unaudited)
Reconciliation of Adjusted Net Income and Adjusted EPS		Three Months Ended January 31, 2024									Three Months Ended January 31, 2023
		Net Income				Diluted EPS					Net Income				Diluted EPS
Net income as reported		$	6,249			$	0.19				$	1,909			$	0.06
Net income reconciling items from below			(435	)		$	(0.01	)				4,154			$	0.12
Adjusted net income and adjusted EPS		$	5,814			$	0.18				$	6,063			$	0.18
Reconciliation of Adjusted EBITDA		Three Months Ended January 31, 2024									Three Months Ended January 31, 2023
		Reconciliation									Reconciliation
Net income as reported		$	6,249								$	1,909
Income tax expense			1,642									453
Other, net			(1,042	)								(218	)
Interest expense			1,068									2,259
Depreciation and amortization			11,152									10,620
EBITDA			19,069									15,023
EBITDA reconciling items from below			205									5,448
Adjusted EBITDA		$	19,274								$	20,471
Reconciling Items		Three Months Ended January 31, 2024									Three Months Ended January 31, 2023
		Income Statement				Reconciling Items					Income Statement				Reconciling Items
Net sales		$	239,155			$	-				$	261,916			$	-
Cost of sales			187,723				-					210,149				-
Selling, general and administrative			32,363				(205	)	(1	)		36,744				(5,448	)	(1	)
EBITDA			19,069				205					15,023				5,448
Depreciation and amortization			11,152				-					10,620				-
Operating income			7,917				205					4,403				5,448
Interest expense			(1,068	)			-					(2,259	)			-
Other, net			1,042				(755	)	(2	)		218				(42	)	(2	)
Income before income taxes			7,891				(550	)				2,362				5,406
Income tax expense			(1,642	)			115		(3	)		(453	)			(1,252	)	(3	)
Net income		$	6,249			$	(435	)			$	1,909			$	4,154
Diluted earnings per share		$	0.19								$	0.06
(1) Transaction and advisory fees.
(2) Pension settlement refund and foreign currency transaction losses (gains).
(3) Tax impact of net income reconciling items.

	QUANEX BUILDING PRODUCTS CORPORATION
	SELECTED SEGMENT DATA
	(In thousands)
	(Unaudited)
	This table provides gross margin, operating income (loss), 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, 2024
	Net sales		$	147,995			$	49,437			$	43,137			$	(1,414	)		$	239,155
	Cost of sales			118,368				31,703				38,743				(1,091	)			187,723
	Gross Margin			29,627				17,734				4,394				(323	)			51,432
	Gross Margin %			20.0	%			35.9	%			10.2	%							21.5	%
	Selling, general and administrative(1)			15,910				7,745				5,126				3,582				32,363
	Depreciation and amortization			5,475				2,558				3,065				54				11,152
	Operating income (loss)			8,242				7,431				(3,797	)			(3,959	)			7,917
	Depreciation and amortization			5,475				2,558				3,065				54				11,152
	EBITDA			13,717				9,989				(732	)			(3,905	)			19,069
	Transaction and advisory fees			-				-				-				205				205
	Adjusted EBITDA		$	13,717			$	9,989			$	(732	)		$	(3,700	)		$	19,274
	Adjusted EBITDA Margin %			9.3	%			20.2	%			-1.7	%							8.1	%
	Three months ended January 31, 2023
	Net sales		$	152,980			$	54,952			$	54,674			$	(690	)		$	261,916
	Cost of sales			124,717				37,703				48,056				(327	)			210,149
	Gross Margin			28,263				17,249				6,618				(363	)			51,767
	Gross Margin %			18.5	%			31.4	%			12.1	%							19.8	%
	Selling, general and administrative(1)			13,295				7,505				4,873				11,071				36,744
	Depreciation and amortization			5,245				2,348				2,934				93				10,620
	Operating income (loss)			9,723				7,396				(1,189	)			(11,527	)			4,403
	Depreciation and amortization			5,245				2,348				2,934				93				10,620
	EBITDA			14,968				9,744				1,745				(11,434	)			15,023
	Transaction and advisory fees			-				-				-				5,448				5,448
	Adjusted EBITDA		$	14,968			$	9,744			$	1,745			$	(5,986	)		$	20,471
	Adjusted EBITDA Margin %			9.8	%			17.7	%			3.2	%							7.8	%
	(1) Includes stock-based compensation expense of $2.6 million and $4.8 million as of January 31, 2024 and January 31, 2023, respectively.

QUANEX BUILDING PRODUCTS CORPORATION
SALES ANALYSIS
(In thousands)
(Unaudited)
		Three Months Ended October 31,
			2024				2023
NA Fenestration:
	United States - fenestration	$	111,634			$	120,767
	International - fenestration		6,144				5,127
	United States - non-fenestration		25,791				23,066
	International - non-fenestration		4,426				4,020
		$	147,995			$	152,980
EU Fenestration:(1)
	International - fenestration	$	41,751			$	42,354
	International - non-fenestration		7,686				12,598
		$	49,437			$	54,952
NA Cabinet Components:
	United States - fenestration	$	3,675			$	3,908
	United States - non-fenestration		39,179				50,049
	International - non-fenestration		283				717
		$	43,137			$	54,674
Unallocated Corporate & Other:
	Eliminations	$	(1,414	)		$	(690	)
		$	(1,414	)		$	(690	)
Net Sales		$	239,155			$	261,916
(1) Reflects an increase of $1.0 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2024.