Janus International Group Inc (JBI) 2021 Q2 法說會逐字稿

Hello, and welcome to the Janus International Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, the conference is being recorded. I would now like to turn the call over to your host, Mr. Scott Sannes, Chief Financial Officer of Janus. Thank you. You may begin, Mr. Sannes.

Thank you, operator, and thank you all for joining our Second Quarter 2021 Earnings Conference Call. 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 describing our beliefs, goals, plans, strategies, 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 Exchange Commission, which identify 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. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted net income and adjusted EPS.

Please see our release and filings for reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. I am joined today by our Chief Executive Officer, Ramey Jackson, who will provide an overview of our business and give an operations update. I will continue with a discussion of our financial results and outlook before we open up the call for your questions. At this point, I will turn the call over to Ramey.

Thank you, Scott. Before I begin, I think it would be a good idea to remind you all of who we are and what we do at Janus, given this is our first public earnings call.

Janus provides industry-leading products and access control technologies to the self-storage and commercial space. We offer a wide range of critical products and solutions with over 50% share of the fast-growing self-storage market.

In our R3 division, which is our Replacement, Remix & Renovation business, we sell products and services to help customers to upgrade their assets within an aging storage industry. As approximately 60% of self-storage facilities are over 20 years old, this sales channel provides Janus with a significant growth opportunity.

We are a first mover in providing smart lock technology through our proprietary Noke wireless solution. In addition, we provide a full line of complete self-storage building systems with our Betco division as well as a complete offering of rolling steel doors for the commercial, industrial and warehousing space with our ASTA division.

Over the past 5 years, we've doubled our business and expect to replicate that growth rate in the future. We have a very strong position in self-storage and a leading position with our customers in all of our business segments.

The second quarter of 2021 was a transformative one for Janus. We completed our business combination with Juniper Industrial Holdings and became a public company in June. We backed up our strong start to the year by delivering solid financial results for the quarter, even in the face of unprecedented inflationary pressures from raw material, labor and logistics while continuing to invest in strategic growth initiatives.

High occupancy rates continue to drive new capacity additions in self-storage industry. This is a significant tailwind for the business and our outlook. Janus is a leading beneficiary of capacity additions, no matter which form they take, be it new construction or repurposing and refurbishing existing facilities.

Recently, we made a number of strategic leadership appointments. We promoted Christine DeBord in March to President of Noke and followed that up this quarter by naming Shane Self as Noke Director of Wireless Networks and Jennifer Shaver as Noke Director of Training and Development.

In July, we named David Alexander as the Head of the recently launched Facilitate Initiative, our newest service offering that complements our suite of self-storage solutions by offering facility maintenance services in solutions for self-storage facilities. As we seek to advance our growth prospects, one path of opportunity for us is the international markets.

In January, we acquired G&M Stor-More in Australia, which expanded our geographic presence and complemented our existing international product offering. We will continue to look for other strategic accretive opportunities to expand our industry-leading position in North America to other parts of the world.

We're also excited about the acquisition of DBCI, which we will further discuss shortly. I'm excited to now share a number of proof points with you today that demonstrate our focus and discipline to execute on our strategy and continue creating long-term value for our stakeholders.

We are pleased by our second quarter results and how they position us to accomplish our objectives for the full year. We delivered gross revenue of $174.2 million, an increase of 42.5% as compared to the same period last year. This growth was fueled by the continued strength in our commercial and other sales channel, and it also reflected a shift in mix from new construction to R3 via increased conversions and expansion, a trend we have been expecting.

Janus also experienced strong recovery across our end markets from the heavily COVID-impacted year ago quarter. The pandemic continues to present challenges in certain areas of our business, including raw material inflation, labor availability inflation and logistical challenges. Despite these impacts, our teams are working together to execute efficiently and safely. The company has taken actions to offset the inflationary effects through both commercial and cost containment initiatives.

And we expect to see the benefits of these actions filled in the second half of 2021.

Our adjusted EBITDA of $35.9 million came in 26% stronger than Q2 of 2020. The higher EBITDA was driven by higher revenues, partially offset by the inflationary pressure I just mentioned, coupled with the strategic investments being made to continue to achieve the strategic growth point of the business.

M&A continues to be a focus for the company's growth plans. Last month, we announced a strategic acquisition of DBCI, a manufacturer of steel roll-up doors and building products for both commercial and self-storage industries from cornerstone building brands. The transaction is expected to close in the third quarter and begin positively contributing to our results. The acquisition broadens our customer set to now include DBCI's core general contractor and distributor base and provides an opportunity to deliver more comprehensive, value-added solutions to them. We are very excited to add the DBCI business to Janus and look forward to leveraging its product portfolio and servicing its terrific customer base.

In summary, I'm very pleased with our results for the second quarter and how our actions have positioned us to create long-term value for all of our stakeholders. With that, I will turn the call over to Scott for an overview of the financials and outlook for the full year.

Thanks, Ramey, and good morning, everyone. In the second quarter, revenues of $174.2 million were up 42.5% compared to the prior year quarter, driven primarily by solid execution and performance in each of our sales channels. Commercial was up 69%, R3 was up 62%, and new construction was up 16% over the prior year quarter. This strong growth was also partially bolstered by the COVID-related recovery across all end markets.

Adjusted EBITDA of $35.9 million was up 26% compared to the year ago quarter. Higher revenue was the primary driver of EBITDA growth, partially offset by higher raw material, labor and logistics costs and investments in strategic growth initiatives.

Janus has taken actions to offset the inflationary effects through commercial and cost containment initiatives. The cost pressures, coupled with the investments, resulted in adjusted EBITDA margins of 20.6%, down from 23.3% in the prior year quarter. In addition to inflationary cost pressures, we also experienced incremental costs related to being a public company, keeping our employees safe as a result of COVID-19, higher head count associated with strategic investments in our Facilitate Initiative and the continued build-out of our Noke Smart Entry ground game and customer service departments.

For the second quarter 2021, we produced adjusted net income of $17.3 million and adjusted earnings per share of $0.22. We also generated $44.8 million in cash from operating activities. Free cash flow for the quarter was $71.8 million, representing a free cash flow conversion of 94.7%, which is defined as management's adjusted EBITDA less CapEx, which is computed consistently to both the adjusted EBITDA and free cash flow computations presented in the original investor presentation.

At quarter end, our outstanding share balance was 138,384,250. We report results in 2 business segments, Janus North America and Janus International. Janus North America contributed 90.5% of revenue for the quarter. Janus International, which sells primarily in Europe and Australia, provided the balance of revenues.

Janus North America revenues were up 38.1% year-over-year, driven primarily by increased volumes as a result of favorable industry dynamics in the commercial and R3 markets, coupled with improved market conditions as a result of the COVID-related recovery.

Janus International revenues were up 152.9% year-over-year, driven by increased sales volumes experienced in the new construction sales channel, coupled with improved conditions as a result of the COVID-related recovery in those end markets.

Now moving to our sales channel results for the North American segment. As you can see in our financial disclosures, we break revenues into 3 categories: new construction self-storage, R3 self-storage and commercial and other. New construction self-storage was 33.9% of sales, down from 46.9% in the prior year quarter, which represented flat year-over-year performance. R3 self-storage was 31.8% of sales, up from 25.6% in the prior year quarter, which represents an approximately 72% increase. Commercial and other was 34.4% of sales, up from 27.5% in the prior year quarter, representing an approximately 72% increase as well.

This mix shift represents a trend we have been expecting where new capacity in the self-storage industry continues to move towards conversions and expansions of existing facilities versus greenfield operations favoring our R3 business, where we derive similar margins. The gains in commercial and other were driven by the continued e-commerce movement and share gains in the commercial steel roll-up door market from ASTA's launch of the rolling steel product line in the fourth quarter last year.

Turning to guidance. I am pleased to provide the following full year 2021 outlook for revenue to be in the range of $672 million to $692 million. Management adjusted EBITDA is expected to be in the range of $156 million to $162 million. As a reminder, the adjusted EBITDA is in original forecast now including the incremental costs of being a public company. These amounts do not reflect the anticipated addition of DBCI in the third quarter. Finally, we expect improved operating cash flow generation in the second half of 2021.

Thank you. I will now turn the call back to Ramey for closing remarks.

Great. Thank you again, Scott. We are proud of how Janus performed during the quarter and since becoming a public company. Our business delivered another quarter of solid results even as we completed our merger and becoming a public company. I firmly believe in the power of this organization and our ability to deliver strong margin performance and continued earnings growth.

I look forward to continuing our positive momentum for the full year of 2021 and beyond. Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.

(Operator Instructions) Our first question is from Jeff Hammond of KeyBanc Capital Markets.

So just on the guidance. So one, just to be clear, it does not include anything from DBCI on either top line or EBITDA?

That's correct.

Okay. And then it looks like versus your December presentation, sales much higher, kind of EBITDA in line. And I was just wondering if you could walk through some of the moving pieces on the EBITDA line, whether it be mix, inflationary pressures, and I think you talked about new public company cost and how much of those are?

Yes, sure. So I think, like you said, the top item attributing to the kind of, I'll call it, lack of conversion on the top line revenue increase is the inflationary pressures from raw material, logistics and labor, as we previously discussed. I think, in addition to that, you've got the higher-than-anticipated public company costs.

I think one thing that was not originally anticipated as a private company, I think we are paying circa about $100,000 a year for D&O insurance and the cost as a public company is about 30x that for us.

So some of those costs, were obviously not -- we were not able to anticipate that when we put together the original investor presentation circa a year ago. In addition to that, you've got also some strategic investments as we kind of touched upon in our Facilitate Initiative as well as our kind of Noke Smart Entry building out the ground game and bolstering the customer service departments.

Okay. Helpful. And then just maybe speaking to the material inflation and labor, et cetera, just talk about what you're doing with respect to pricing.

Yes, I'll take that, Scott. Look, Jeff, in terms of inflationary pressures, look, we have been through times like this. We have a playbook as it relates to kind of commercial decision and our commercial actions and also kind of cost containment. Albeit this is unprecedented as it relates to the inflationary times. But we're certainly comfortable as it relates to those 2 items that we'll see the pickup in full momentum of those commercial decisions through the back half of the year, second half of the year.

Okay. And then just last one. The commercial growth is pretty eye-popping in the first half of the year. And I understand kind of the e-commerce dynamic. Can you just talk about sustainability of that growth rate? What you think the market is growing, grows in the second half and kind of what what's driving your share gains there?

Great question. Look, I think it relates to, like you mentioned, kind of e-commerce warehousing. In addition to that, when you look at ASTA, the investment we made in ASTA back in 2017, we focused on expanding the product, bringing the product up to industry standards or higher.

When you look at our distribution base, our dealers, we now have another product to sell them, and that's really starting to take off. And so I think it has a lot to do with market penetration as it relates to ASTA. Yes, I certainly think, given that we're in the early stages of that, I think there's tremendous runway.

Our next question is from Adam Friedman of Jefferies.

So I just wanted to ask about Noke. You've made a bunch of announcements recently that you're rolling it out with specific customers. Just wanted to ask like how those rollouts are going? There's sort of any change in your estimates with regards to your Noke revenue projections over the next few years?

Adam, yes. So as it relates to kind of any changes, no, we're comfortable with where we are. We're very pleased with the rollout. Some of the management changes that we made are more geared towards kind of the ground game, if you will, that Scott spoke of, building out the customer experience aspect of the solution.

And then as it relates to kind of consumer behavior and data, we're starting to get a lot of positive results from the experience, and we're just going to continue to focus on the educational aspect of the deployment and the solution and as it relates to the ROI and -- of our customers.

So no change in figures, and we're very pleased with where we are with the Noke solution today.

Great. And then just on the revenue guide, can you sort of parse out what percentage of the increase in top line is related to pricing versus volume? I mean, there's clearly been a step-up in pricing that you're obviously sort of taking with your customers. And to Jeff's point, obviously, there wasn't as much incremental EBITDA flow through. But can you -- is there any way you can parse out what sort of pricing contribution is coming through?

Scott?

Yes. So I would say that in the first half of the year, there's not a lot of impact from the pricing initiatives. But in the back half of the year, as Ramey mentioned, we expect to see more -- a much larger impact from pricing on the forecast. And I think we're anticipating that it's probably -- the back half of the year is probably about a 75%-25% split between price and volume. So 75% being kind of commercial initiatives and 25% being volume related.

Great. And then just lastly, is it fair to assume that these price increases that you're implementing will be kept next year? And just how should we think about incremental margins next year, assuming that the price increases that you're implementing flow through fully next year?

Yes. Great question, Adam. So I think the way that we would respond to that is it's going to depend. Historically, we've got a track record of, generally speaking, not giving price increases back. But as far as what that looks like going forward, to be determined based on what raw material pricing does in second half of '21 as well as first half of '22.

We have reached the end of the question-and-answer session. I will now turn the call back over to Ramey Jackson for closing remarks.

Thank you, everyone, for joining us today. We appreciate your support of Janus International and look forward to updating you on our progress. Have a good day.

This concludes today's conference. Thank you for your participation, and have a great day.