Quanex Building Products Announces Third Quarter 2022 Results and Reaffirms Full Year 2022 Guidance

Robust Revenue Growth of ~16% Year-Over-Year
Margin Expansion Realized in NAF and NACC
Significant Increase in Earnings
Repaid $25 Million in Bank Debt
Balance Sheet & Liquidity Remain Strong

HOUSTON, Sept. 01, 2022 (GLOBE NEWSWIRE) -- Quanex Building Products Corporation (NYSE:NX) (“Quanex” or the “Company”) today announced its results for the three months ended July 31, 2022.

The Company reported the following selected financial results:

(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 are proud of the results we posted for the third quarter, especially considering the ongoing inflationary challenges and macro-related uncertainties. Demand for our products held up nicely for most of the third quarter and results reflected the benefit from our pass-through pricing strategy; however, we did start to experience some softness in demand in Europe towards the end of July.

“Free Cash Flow increased significantly during the third quarter of this year compared to the same period last year. The improvement in Free Cash Flow was driven by a meaningful increase in net income. We were able to repay $25 million of bank debt and repurchase $5 million of our common stock during the quarter. Overall, our balance sheet and liquidity remain strong. We will continue to focus on generating cash, maintaining a healthy balance sheet, opportunistically repurchasing our stock and evaluating growth opportunities.” (See Non-GAAP Terminology Definitions and Disclaimers section and the reconciliation of Free Cash Flow to cash provided by operating activities for additional information)

Third Quarter 2022 Results Summary

Quanex reported net sales of $324.0 million during the three months ended July 31, 2022, which represents growth of 15.8% compared to $279.9 million for the same period of 2021. The increase was mostly attributable to higher prices related to the pass through of raw material cost inflation. More specifically, the Company realized net sales growth of 25.0% in its North American Fenestration segment, 17.0% in its North American Cabinet Components segment and 8.7% in its European Fenestration segment, excluding the foreign exchange impact. (See Sales Analysis table for additional information)

The increase in earnings for the three months ended July 31, 2022 was largely due to increased pricing and surcharges related to the pass through of raw material cost inflation and higher volumes in the North American Fenestration segment.

Balance Sheet & Liquidity Update

As of July 31, 2022, Quanex had total debt of $38.0 million and its leverage ratio of Net Debt to LTM Adjusted EBITDA improved to 0.1x.   (See Non-GAAP Terminology Definitions and Disclaimers section for additional information)

The Company’s liquidity increased to $332.0 million as of July 31, 2022, consisting of $50.0 million in cash on hand plus availability under its new Amended and Restated Senior Secured Revolving Credit Facility due 2027, less letters of credit outstanding.

Share Repurchases

Quanex’s Board authorized a $75 million share repurchase program in December of 2021. Repurchases under this program will be made in open market transactions or privately negotiated transactions, subject to market conditions, applicable legal requirements, and other relevant factors. The Company repurchased 216,000 shares of common stock for approximately $5.0 million at an average price of $23.29 per share during the three months ended July 31, 2022. As of July 31, 2022, approximately $68.4 million remained under the existing share repurchase authorization.

Outlook

Mr. Wilson commented, “We are reaffirming guidance for fiscal 2022, which is based on our strong results year-to-date coupled with ongoing conversations with our customers. Overall, demand for our products is still relatively healthy, but in addition to the softness in Europe we are starting to see signs of softness in North America, mainly in our cabinet components business. For the fourth quarter of this year, we now expect ~15% revenue growth in our North American Fenestration segment and low-single digit revenue growth in our North American Cabinet Components segment. Due to continued softness in Europe and the foreign exchange impact, we expect revenue to decline by ~15% in our European Fenestration segment in the fourth quarter. As a reminder, on a consolidated basis, we guided to net sales of $1.18 billion to $1.2 billion, which we expect will generate approximately $150 million to $155 million in Adjusted EBITDA* in fiscal 2022.

Longer-term, the underlying fundamentals remain positive for the residential housing industry in North America and in the markets we serve in Europe. Our balance sheet is strong and we are well-positioned to weather any storm, and we are also prepared to execute on our plan and create further value for shareholders over time.”

*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, September 2, 2022 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/BIe64ac12abde44f549078e7b4a916e837

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

Non-GAAP Terminology Definitions and Disclaimers

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

Forward Looking Statements

Statements that use the words “estimated,” “expect,” “could,” “should,” “believe,” “will,” “might,” or similar words reflecting future expectations or beliefs are forward-looking statements. The forward-looking statements include, but are not limited to, the following: impacts from public health issues (including pandemics, such as the recent COVID-19 pandemic) on the economy and the demand for Quanex’s products, the Company’s future operating results, future financial condition, future uses of cash and other expenditures, expenses and tax rates, expectations relating to Quanex’s industry, and the Company’s future growth, including any guidance discussed in this press release. The statements and guidance set forth in this release are based on current expectations. Actual results or events may differ materially from this release. For a complete discussion of factors that may affect Quanex’s future performance, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021, and the Company’s Quarterly Reports on Form 10-Q under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”. Any forward-looking statements in this press release are made as of the date hereof, and Quanex undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.