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Quanex Building Products Announces First Quarter 2020 Results and Reaffirms Full Year 2020 Guidance

Improved Profitability
Margin Expansion Realized in EU Fenestration & NA Cabinet Components Segments
Above Market Growth in EU Fenestration Segment Continues

HOUSTON, March 05, 2020 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NX) (“Quanex” or the “Company”) today announced its results for the three months ended January 31, 2020.

The Company reported the following selected financial results:

Three Months Ended January 31,

2020

2019

Net Sales

$196.6

$196.8

Gross Margin

$39.2

$38.3

Gross Margin %

19.9%

19.4%

Net Income (Loss)

$0.0

($3.6)

Diluted EPS

$0.00

($0.11)

Adjusted Net Income (Loss)

$1.2

($2.3)

Adjusted Diluted EPS

$0.04

($0.07)

Adjusted EBITDA

$15.7

$12.1

Adjusted EBITDA Margin %

8.0%

6.1%

Cash Used for Operating Activities

($3.7)

($20.2)

Free Cash Flow

($13.0)

($26.5)

(See Non-GAAP Terminology Definitions and Disclaimers section, Non-GAAP Financial Measure Disclosure table Selected Segment Data table and Free Cash Flow Reconciliation table for additional information)

George Wilson, President and Chief Executive Officer, stated, “We had a good start to fiscal 2020 and we are optimistic looking ahead into the spring selling season as leading indicators for residential housing remain favorable. As such, we are reaffirming our full year 2020 guidance of $865 million to $885 million in net sales and $102 million to $110 million in Adjusted EBITDA*.

“Demand for our fenestration components remained strong in Europe and volumes were in line with our expectations in North America. On a consolidated basis, we were able to realize Adjusted EBITDA margin expansion of approximately 190 basis points in the first quarter, led again by our European segment where those margins improved by 100 basis points. Despite lower volumes in our cabinet components segment, we realized Adjusted EBITDA margin expansion of approximately 70 basis points, mainly as a result of ongoing and continued operational efficiency gains. Due to the typical seasonality in our business, we were a net borrower during the first quarter, but our balance sheet remains strong. In fact, as expected, free cash flow for the quarter improved significantly compared to the same period of 2019 and we repurchased approximately $4.6 million in stock.” (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

*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.

First Quarter 2020 Results Summary

The slight decrease in net sales during the first quarter of 2020 was driven by volume loss in the North American Cabinet Components segment related to a strategy change specific to one customer and the shift in the market from semi-custom to stock cabinets. Volume losses in the North American Cabinet Components segment were somewhat offset by above market growth in the European Fenestration segment coupled with low single-digit growth in the North American Fenestration segment. (See Sales Analysis table for additional information)

The increase in earnings was driven by a concentrated focus on controlling costs, improved operating leverage, operational efficiency gains and lower medical expenses.

As of January 31, 2020, Quanex’s leverage ratio of Net Debt to LTM Adjusted EBITDA was 1.4x. (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

Share Repurchases

The Company’s Board of Directors authorized a $60 million share repurchase program in September of 2018. Repurchases under this program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. The program does not have an expiration date or a limit on the number of shares that may be repurchased. Quanex repurchased 269,862 shares of common stock for approximately $4.6 million at an average price of $17.19 per share during the three months ended January 31, 2020. As of January 31, 2020, approximately $13.8 million remained under the existing share repurchase authorization.

Recent Events

The Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share on Quanex’s common stock, payable March 31, 2020, to shareholders of record on March 17, 2020.

Conference Call and Webcast Information

The Company has scheduled a conference call for Friday, March 6, 2020, 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 2790569, and ask for the Quanex call a few minutes prior to the start time. A link to the live audio webcast will also be available on the Company’s website at http://www.quanex.com in the Investors section under Presentations & Events. A telephonic replay of the call will be available approximately two hours after the live broadcast ends and will be accessible through March 13, 2020. To access the replay dial (855) 859-2056 for domestic callers and (404) 537-3406 for international callers, in both cases referencing conference passcode 2790569.

About Quanex

Quanex Building Products Corporation is an industry-leading manufacturer of components sold to Original Equipment Manufacturers (OEMs) in the building products industry. Quanex designs and produces energy-efficient fenestration products in addition to kitchen and bath cabinet components. For more information contact Scott Zuehlke, Senior Vice President, Chief Financial Officer & Treasurer, at 713-877-5327 or scott.zuehlke@quanex.com.

Non-GAAP Terminology Definitions and Disclaimers

Adjusted Net Income (Loss) (defined as net income further adjusted to exclude purchase price accounting inventory step-ups, transaction costs, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges, asset impairment charges, other net adjustments related to foreign currency transaction gain/loss and effective tax rates reflecting impacts of adjustments on a with and without basis) and Adjusted EPS are non-GAAP financial measures that Quanex believes provide a consistent basis for comparison between periods and more accurately reflects operational performance, as they are not influenced by certain income or expense items not affecting ongoing operations. EBITDA (defined as net income or loss before interest, taxes, depreciation and amortization and other, net) and Adjusted EBITDA (defined as EBITDA further adjusted to exclude purchase price accounting inventory step-ups, transaction costs, certain severance charges, gain/loss on the sale of certain fixed assets, restructuring charges and asset impairment charges) are non-GAAP financial measures that the Company uses to measure operational performance and assist with financial decision-making. 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. The Company is not able to provide reconciliations of forward-looking Adjusted EBITDA to GAAP financial measures because certain items required for such reconciliations are outside of Quanex’s control and/or cannot be reasonably predicted, such as the provision for income taxes. Net Debt is calculated using the sum of current maturities of long-term debt and long-term debt, minus cash and cash equivalents. The leverage ratio of Net Debt to LTM Adjusted EBITDA is a financial measure that the Company believes is useful to investors and financial analysts in evaluating Quanex’s leverage. In addition, with certain limited adjustments, this leverage ratio is the basis for a key covenant in the Company’s credit agreement. Free Cash Flow is a non-GAAP measure calculated using cash provided by operating activities less capital expenditures. Free Cash Flow is measured before application of certain contractual commitments (including capital lease obligations), and accordingly is not a true measure of Quanex’s residual cash flow available for discretionary expenditures. The Company believes that the presented non-GAAP measures provide a consistent basis for comparison between periods, and will assist investors in understanding Quanex’s financial performance when comparing results to other investment opportunities. The presented non-GAAP measures may not be the same as those used by other companies. The Company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with U.S. GAAP.

Forward Looking Statements

Statements that use the words “estimated,” “expect,” “could,” “should,” “believe,” “will,” “might,” or similar words reflecting future expectations or beliefs are forward-looking statements. The forward-looking statements include, but are not limited to, the 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, 2019, 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 NET INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)

Three Months Ended January 31,

2020

2019

Net sales

$

196,597

$

196,808

Cost of sales

157,427

158,557

Selling, general and administrative

24,132

28,026

Restructuring charges

153

103

Depreciation and amortization

12,905

12,572

Operating income (loss)

1,980

(2,450

)

Interest expense

(1,582

)

(2,442

)

Other, net

36

256

Income (loss) before income taxes

434

(4,636

)

Income tax (expense) benefit

(424

)

987

Net income (loss)

$

10

$

(3,649

)

Earnings (loss) per common share, basic

$

0.00

$

(0.11

)

Earnings (loss) per common share, diluted

$

0.00

$

(0.11

)

Weighted average common shares outstanding:

Basic

32,861

33,098

Diluted

33,078

33,098

Cash dividends per share

$

0.08

$

0.08


QUANEX BUILDING PRODUCTS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

January 31, 2020

October 31, 2019

ASSETS

Current assets:

Cash and cash equivalents

$

23,114

$

30,868

Accounts receivable, net

64,036

82,946

Inventories, net

78,117

67,159

Prepaid and other current assets

7,931

9,353

Total current assets

173,198

190,326

Property, plant and equipment, net

192,148

193,600

Operating Lease Right-of-Use Assets

41,661

-

Goodwill

146,590

145,563

Intangible assets, net

104,338

107,297

Other assets

9,265

8,324

Total assets

$

667,200

$

645,110

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

49,092

$

63,604

Accrued liabilities

28,982

39,221

Income taxes payable

5,265

6,183

Current maturities of long-term debt

707

746

Current Operating Lease Liabilities

6,532

-

Total current liabilities

90,578

109,754

Long-term debt

166,711

156,414

Noncurrent Operating Lease Liabilities

35,505

-

Deferred pension and postretirement benefits

11,251

13,322

Deferred income taxes

19,741

19,363

Other liabilities

13,481

16,070

Total liabilities

337,267

314,923

Stockholders’ equity:

Common stock

373

374

Additional paid-in-capital

252,495

254,673

Retained earnings

182,989

185,703

Accumulated other comprehensive loss

(29,164

)

(33,817

)

Treasury stock at cost

(76,760

)

(76,746

)

Total stockholders’ equity

329,933

330,187

Total liabilities and stockholders' equity

$

667,200

$

645,110


QUANEX BUILDING PRODUCTS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(In thousands)

(Unaudited)

Three Months Ended January 31,

2020

2019

Operating activities:

Net income (loss)

$

10

$

(3,649

)

Adjustments to reconcile net income (loss) to cash used for operating activities:

Depreciation and amortization

12,905

12,572

Stock-based compensation

(239

)

224

Deferred income tax

(413

)

(1,877

)

Other, net

1,096

785

Changes in assets and liabilities:

Decrease in accounts receivable

18,641

12,679

Increase in inventory

(10,657

)

(11,601

)

Decrease in other current assets

1,200

15

Decrease in accounts payable

(12,063

)

(11,738

)

Decrease in accrued liabilities

(12,519

)

(18,850

)

(Decrease) increase in income taxes payable

(936

)

422

Increase in deferred pension and postretirement benefits

448

684

Decrease in other long-term liabilities

(405

)

(27

)

Other, net

(725

)

118

Cash used for operating activities

(3,657

)

(20,243

)

Investing activities:

Capital expenditures

(9,312

)

(6,271

)

Proceeds from disposition of capital assets

-

74

Cash used for investing activities

(9,312

)

(6,197

)

Financing activities:

Borrowings under credit facilities

34,500

43,000

Repayments of credit facility borrowings

(24,500

)

(23,000

)

Repayments of other long-term debt

(285

)

(454

)

Common stock dividends paid

(2,659

)

(2,675

)

Issuance of common stock

3,075

27

Payroll tax paid to settle shares forfeited upon vesting of stock

(454

)

(322

)

Purchase of treasury stock

(4,639

)

(2,016

)

Cash provided by financing activities

5,038

14,560

Effect of exchange rate changes on cash and cash equivalents

177

333

Decrease in cash and cash equivalents

(7,754

)

(11,547

)

Cash and cash equivalents at beginning of period

30,868

29,003

Cash and cash equivalents at end of period

$

23,114

$

17,456


QUANEX BUILDING PRODUCTS CORPORATION

FREE CASH FLOW 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,

2020

2019

Cash used for operating activities

(3,657)

(20,243)

Capital expenditures

(9,312)

(6,271)

Free Cash Flow

($12,969)

($26,514)


QUANEX BUILDING PRODUCTS CORPORATION

NON-GAAP FINANCIAL MEASURE DISCLOSURE

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Three Months Ended

Reconciliation of Adjusted Net Income (Loss) and Adjusted EPS

January 31, 2020

January 31, 2019

Net
Income

Diluted
EPS

Net
Loss

Diluted
EPS

Net income (loss) as reported

$

10

$

0.00

$

(3,649

)

$

(0.11

)

Reconciling items from below

1,216

0.04

1,334

0.04

Adjusted net income (loss) and adjusted EPS

$

1,226

$

0.04

$

(2,315

)

$

(0.07

)

Reconciliation of Adjusted EBITDA

Three Months Ended
January 31, 2020

Three Months Ended
January 31, 2019

Reconciliation

Reconciliation

Net income (loss) as reported

$

10

$

(3,649

)

Income tax expense (benefit)

424

(987

)

Other, net

(36

)

(256

)

Interest expense

1,582

2,442

Depreciation and amortization

12,905

12,572

EBITDA

14,885

10,122

Reconciling items from below

771

1,971

Adjusted EBITDA

$

15,656

$

12,093

Reconciling Items

Three Months Ended
January 31, 2020

Three Months Ended
January 31, 2019

Income
Statement

Reconciling
Items

Income
Statement

Reconciling
Items

Net sales

$

196,597

$

-

$

196,808

$

-

Cost of sales

157,427

-

158,557

-

Selling, general and administrative

24,132

(618

)

(1)

28,026

(1,868

)

(1)

Restructuring charges

153

(153

)

(2)

103

(103

)

(2)

EBITDA

14,885

771

10,122

1,971

Depreciation and amortization

12,905

(731

)

(3)

12,572

-

Operating income (loss)

1,980

1,502

(2,450

)

1,971

Interest expense

(1,582

)

-

(2,442

)

-

Other, net

36

60

(4)

256

21

(4)

Income (loss) before income taxes

434

1,562

(4,636

)

1,992

Income tax (expense) benefit

(424

)

(346

)

(5)

987

(658

)

(5)

Net income (loss)

$

10

$

1,216

$

(3,649

)

$

1,334

Diluted earnings (loss) per share

$

0.00

$

(0.11

)

(1) Transaction and advisory fees, $0.6 million related to executive severance charges in 2020, and $1.2 million of severance charges related to a reorganization in 2019.

(2) Restructuring charges relate to the closure of manufacturing plant facilities.

(3) Accelerated depreciation and amortization for equipment replacement in the North American Fenestration segment and in 2020, accelerated depreciation related to the closure of a North American Cabinet Components plant.

(4) Foreign currency transaction losses.

(5) Impact on a with and without basis, and in 2019, an adjustment of $0.2 million related to the Tax Cuts and Jobs Act.


QUANEX BUILDING PRODUCTS CORPORATION

SELECTED SEGMENT DATA

(In thousands)

(Unaudited)

This table provides gross margin, operating (loss) income, EBITDA, and Adjusted EBITDA by reportable segment. Non-operating expense and income tax expense are not allocated to the reportable segments.

NA Fenestration

EU Fenestration

NA Cabinet
Components

Unallocated
Corp & Other

Total

Three months ended January 31, 2020

Net sales

$

110,452

$

36,766

$

50,044

$

(665

)

$

196,597

Cost of sales

88,696

25,244

43,842

(355

)

157,427

Gross Margin

21,756

11,522

6,202

(310

)

39,170

Gross Margin %

19.7

%

31.3

%

12.4

%

19.9

%

Selling, general and administrative

13,055

5,950

4,853

274

24,132

Restructuring charges

91

-

62

-

153

Depreciation and amortization

6,979

2,408

3,402

116

12,905

Operating income (loss)

1,631

3,164

(2,115

)

(700

)

1,980

Depreciation and amortization

6,979

2,408

3,402

116

12,905

EBITDA

8,610

5,572

1,287

(584

)

14,885

Transaction and advisory fees

-

-

-

55

55

Executive severance charges

-

-

-

563

563

Restructuring charges

91

-

62

-

153

Adjusted EBITDA

$

8,701

$

5,572

$

1,349

$

34

$

15,656

Adjusted EBITDA Margin %

7.9

%

15.2

%

2.7

%

8.0

%

Three months ended January 31, 2019

Net sales

$

109,049

$

35,254

$

53,853

$

(1,348

)

$

196,808

Cost of sales

87,153

24,526

47,856

(978

)

158,557

Gross Margin

21,896

10,728

5,997

(370

)

38,251

Gross Margin %

20.1

%

30.4

%

11.1

%

19.4

%

Selling, general and administrative

13,077

5,711

4,925

4,313

28,026

Restructuring charges

103

-

-

-

103

Depreciation and amortization

6,873

2,236

3,339

124

12,572

Operating income (loss)

1,843

2,781

(2,267

)

(4,807

)

(2,450

)

Depreciation and amortization

6,873

2,236

3,339

124

12,572

EBITDA

8,716

5,017

1,072

(4,683

)

10,122

Transaction and advisory fees

-

-

-

717

717

Severance related to reorganization

-

-

-

1,151

1,151

Restructuring charges

103

-

-

-

103

Adjusted EBITDA

$

8,819

$

5,017

$

1,072

$

(2,815

)

$

12,093

Adjusted EBITDA Margin %

8.1

%

14.2

%

2.0

%

6.1

%


QUANEX BUILDING PRODUCTS CORPORATION

SALES ANALYSIS

(In thousands)

(Unaudited)

Three Months Ended

January 31, 2020

January 31, 2019

NA Fenestration:

United States - fenestration

$

96,847

$

93,884

International - fenestration

6,434

8,207

United States - non-fenestration

4,563

3,505

International - non-fenestration

2,608

3,453

$

110,452

$

109,049

EU Fenestration (1):

International - fenestration

$

30,964

$

30,724

International - non-fenestration

5,802

4,530

$

36,766

$

35,254

NA Cabinet Components:

United States - fenestration

$

3,147

$

3,352

United States - non-fenestration

46,450

49,962

International - non-fenestration

447

539

$

50,044

$

53,853

Unallocated Corporate & Other:

Eliminations

$

(665

)

$

(1,348

)

$

(665

)

$

(1,348

)

Net Sales

$

196,597

$

196,808

(1) Reflects increase of $0.2 million in revenue associated with foreign currency exchange rate impacts for the three months ended January 31, 2020.