Janus International Group Inc (JBI) 2024 Q2 法說會逐字稿

Good morning and welcome to the Janus International second quarter 2024 earnings conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Sara Macioch, Senior Director of Investor Relations. Please go ahead.

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 and Anselm Wong. We hope that you have seen our earnings release issued this morning. 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, strategies, expectations, projections, forecasts, and assumptions are forward-looking statement.

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 and any forward-looking statement made by us during this call is based only on information currently available to us as 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 EBITDA 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.

On today's call, Ramey will provide an overview of our business. Anselm will continue with a discussion of our financial results and 2024 guidance before we may share some closing thoughts and we open up the call for your questions.

At this point, I will turn the call over to Ramey.

Thank you, Sara. Good morning, everyone, and thank you for joining us. As I go through my prepared remarks, I'd like you to focus on some key themes. First, Janus is demonstrating resilience during a dynamic time in our end markets. Second, looking beyond the current headwinds, we believe the long-term fundamentals in each of our sales channels remain intact.

And finally, our financial results, balance sheet strength and reliable cash generation reflect the durability of our business model and continued strong execution by our team. During the second quarter, we encountered more cautious environment in our end markets as a number of factors combine to impact demand from our customers. Concerns around higher for longer interest rate environment resulted in some temporary deferrals of projects until the outlook is clear.

Self-Storage is a long-term business and our customers are continuing to invest in the long-term future of their assets while keeping a watchful eye on broader market trends. We bolstered our offerings in the commercial market during the quarter through organic investment and M&A in an exciting adjacent category.

Working with our customers to better align our structure with their needs, during the quarter, we opened a distribution center in Mount Airy, North Carolina, allowing us to stock on-site and fill orders in a timelier fashion. We expect to see benefits from this beginning in the third quarter.

On the M&A front, in May, we acquired Terminal Maintenance and Construction or TMC, a premier provider of terminal maintenance services for LTL freight industry in the Southeastern United States. TMC will focus on commercial customers where they provide trucking terminal renovation, remodeling and maintenance services.

Over time, we expect to unlock further value by integrating their capabilities to support growth of our facilitate division, which provides complete facility maintenance services for Self-Storage. The integration of TMC is on track, and we are pleased with the contribution they made during the quarter.

On a broader note, adding capabilities in adjacent categories complements our core sales channels and increases our total addressable market. We believe that our strong track record of delivering on synergy targets and executing smart M&A transactions has positioned us to deliver growth and increases in profitability.

Now let me give you some high-level thoughts on our performance in the second quarter. As always, everything we do at Janus is a team effort, and I'd like to thank our employees for their continued hard work, dedication and professionalism they show every day.

We delivered financial results in the second quarter that reflected continued growth in our new construction sales channel that was more than offset by softness in both the R3 and Commercial and Other Sales Channels. Those results included continued solid adjusted EBITDA margin performance and a continuation of our robust cash generation despite a decrease in revenue.

Our ability to effectively manage our margin speaks to the inherent flexibility in our business model. Our balance sheet strength remains a differentiator with net leverage at the end of the second quarter of 1.7 times, down 0.3 times year-over-year and below our stated long term target range of 2 times to 3 times.

Turning to the performance of our sales channels, which Anselm will expand upon shortly for the second quarter of 2024. Total self storage revenue was down 6.2%, as strength in New Construction was more than offset by weakness in R3 compared to the prior year period. This is a continuation of a trend over the last several quarters that has favored investment in Self-Storage capacity via greenfield sites.

As we have discussed previously, there has been a return to normal levels of retail to storage conversion activity as compared to the high watermarks we saw during the pandemic, which was the primary driver of the decline in R3. This quarter, we also saw impacts from tighter lending standards and elevated interest rates, causing operators to delay R3 work until economic conditions improve.

Our Commercial and Other Sales channel was down 12.5% in the second quarter compared to the year ago period. Results reflect the general market softness and a continued decline in demand for carports and sheds, which had risen to represent a substantial portion of the sales channel during the pandemic.

Despite the year-over-year top line decline, we're excited about the addition of TMC in the quarter. Our opportunities across the broader commercial space and potential we see to improve margins over time. On a consolidated basis, overall, second quarter revenue impacts were driven roughly equally by price and volume.

Noke, our innovative suite of remote access solutions had another strong quarter during which we increased the number of installed units to 323,000 from 300,000 at the end of the first quarter, representing a sequential growth of 7.6%.

In April, we announced the addition of Noke Ion to our Noke Smart Entry Product lineup. Ion, an inside-the- door magnetic hardwired smart lighting system represents the next step in the expansion of capabilities of Noke to drive accelerating adoption across our customers' portfolios. Beta testing is underway and we are already seeing interest from customers.

We expect Ion to be available for sale at the end of the third quarter with installations and corresponding revenue impacts beginning in fourth quarter. We continue to innovate our offerings in partnership with customers to better serve their needs. One of these needs is combating theft, which is becoming an important issue for the industry in select markets.

In July, we announced the NS Series, which includes two new roll-up door solutions engineered to provide a heightened level of safety and security for Self-Storage facilities. The NS Series incorporates an enhanced design that includes anchored guides to the floor insurance stability and durability. A robust lower bar equipped with secure clips.

This smoothly glide within the guides combines with firmly anchored support angles on the floor to provide elevated strength and support. The NS series includes the NS Plus Door and the NS Retrokit. The NS Plus Door is ideal for both replacements as well as new construction. The NS Retrokit is not a door, but a package that can be installed on existing Janus doors.

Our combination of strong liquidity and continued robust cash generation put us in a position to be active in our capital allocation activities during the quarter, including an acquisition in an adjacent market, share repurchases and proactive management of our balance sheet.

In summary, despite some challenges, we remain encouraged by the fundamentals that we expect to drive long-term growth for our company. We are focused on things that we can control, safely and reliably delivering services and solutions for our customers. We look forward to working to expand our strong market position and 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 updates to our 2024 guidance. Anselm?

Thanks, Ramey, and good morning, everyone. As Ramey stated, we are executing against a more muted landscape, focusing on what is within our control to better position Janus to succeed through all market cycles.

Now let me dive deeper into the numbers. In the second quarter, consolidated revenue of $248.4 million was 8.2% lower as compared to the prior year quarter, with strength in new construction more than offset by declines in R3 in commercial and other.

Together, our Self-Storage business was down 6.2%. New construction continued its momentum with growth in the quarter of 7.3% as customers continue to add new greenfield capacity. R3 was off 23.5% for the quarter, driven by continued declines in retail storage conversion activity as well as slowdowns in redevelopment and renovation activity.

As the quarter progressed, we saw impacts from our customers delaying projects in both New Construction and R3 due to uncertainty around the sustained challenging interest rate environment. While we haven't seen a material increase in cancellations, we expect a slower activity is likely to persist into the second half of the year.

Touching on the price and volume split for the quarter, which, as Ramey mentioned, was roughly 50-50 this quarter. As we have told you before, our commercial actions are meant to reflect the premium solutions we offer while always being mindful of defending or expanding our market share. The price component of the impact on revenues reflected our proactive efforts to defend that market share.

Looking forward, we have the capabilities and intend to manage the margin impacts from future commercial actions as they are implemented. It's important to also note that input costs are down compared to the year ago level. Given a roughly six month lag we expect the benefits of these lower costs to be reflected in results starting in the early 2025, helping to offset the impact of commercial actions.

Our Commercial and Other Segments saw a 12.4% decline in the second quarter, driven by overall market softness and continued weakness in demand for carports and shed. Second quarter adjusted EBITDA of $64.5 million was down 12.8% compared to the year ago quarter. This resulted in an adjusted EBITDA margin of 26%, up 130 basis points from the prior year period.

The year-over-year decrease in adjusted EBITDA margin is primarily due to lower revenues as well as sales channel mix and increased operating expenses. For the second quarter, we produced adjusted net income of $30.1 million, an 18.9% year-over-year decline and adjusted diluted earnings per share of $0.21.

We generated cash from operations of $31 million continued to demonstrate the robust cash generation profile of the business. Capital expenditures for the quarter were $5.7 million, up from $3.5 million in the second quarter of 2023.

Our free cash flow profile reflects the resilience of our business. For the second quarter, we generated free cash flow of $25.3 million. On a trailing 12 month basis this represented a free cash flow conversion of adjusted net income of 116%.

We finished the quarter with $234.7 million of total liquidity, including $110.1 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $600 million and our net leverage was 1.7 times.

In April, Moody's upgraded our credit rating to Ba3 from B1 and revised our outlook to positive. During the quarter, we again executed against our $100 million share repurchase program and addressed our long-term debt. Year-to-date, we have repurchased 1.8 million shares for $25.4 million, prepaid $21.9 million of our first lien term loan and reprice our first lien term loan.

Now moving to our 2024 guidance, we expect the rest of 2024 to be challenged for both volume and price, consistent with what we saw in the second quarter with Self-Storage results likely to remain weighted more favorably towards New Construction activity versus R3.

In Commercial and Other, we expect to return to growth will now be pushed into 2025 compared to our previous expectation of latter half recovery. Based on our results for the first half of the year, increased macro uncertainty concerns around interest rates and our current visibility into our end markets. We are adjusting our full year 2024 guidance for revenues and adjusted EBITDA as follows.

We now expect revenue to be in the range of $1.005 billion to $1.035 billion compared to $1.092 billion to $1.125 billion previously. At the midpoint, this represents a decline of approximately 4.3% versus 2023. We anticipate adjusted EBITDA to be in the range of $255 million to $275 million compared to $286 million to $310 million previously. That is roughly a 7.2% decline at the midpoint relative to the prior year.

This equates to an adjusted EBITDA margin at the midpoint of 26% for 2024. The strength in our margin outlook despite the decline in revenues highlights the resilience of our business model and our ability to adapt to market volatility.

We have the flexibility to react quickly when fundamental shifts in our scale means we are well positioned to manage our largest cost inputs. So far in the third quarter, we are seeing a continuation of trends that began during second quarter with some softness in demand and project delays persisting. We also experienced weather outages at our Houston facility due to Hurricane Beryl.

While we are adjusting the outlook for 2024 down from our original guidance, our long-term framework remains in place. As a reminder, that long-term outlook does not contemplate any impact from commercial actions.

Thank you. I will now turn the call over to Ramey for his closing remarks. Ramey?

Thank you again, Anselm. The hard work we have done and the momentum we have built are allowing us to face current challenges while executing against our capital allocation goals on multiple fronts, including the TMC acquisition, debt repricing and share repurchases in the quarter. Our long-term objectives remain intact, and we are laser focused on delivering strong margins in another year of solid cash flow generation.

We intend to continue expanding our differentiated suite of offerings and capabilities, helping to cement our position as the industry leader in Self-Storage solutions. Our balance sheet and expertise put us in a position to seek out and deliver accretive shareholder value enhancing opportunities. I look forward to continuing to execute our plan as we work to 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.

(Operator Instructions)

Daniel Moore, CJS Securities.

Thank you. Good morning, Ramey. Good morning, Anselm.

Good morning.

Let me start start with the, obviously, the decline in self-storage revenue was a bit surprising, more specifically R3 in relation to your typical visibility. So just talk about what you're hearing from customers? You mentioned you're not seeing material cancellations, but more pushouts. What are they looking or waiting for specifically before moving forward on these projects?

Yeah. I think when we look at New Construction, we're still seeing growth there. There is over 7% kind of growth in Q2. What we're seeing is customers kind of hit pause around interest rates around the broader macro.

On the R3 side, it's a continuation of the conversions and expansions. I think when you look at, when you strip that out and look at true conventional kind of remix, refurbishment that's relatively flat. It's still active.

And then on the commercial side, it's again, a continuation of the carport and shed sector of that business that we anticipate a little bit of growth this year, and that's been pushed out to kind of early '25.

Got it. In R3, are we now back to more normal levels, sort of pre-pandemic or do you see more correction likely? And how do we think about kind of where backlogs are today overall versus maybe 6 or 12 months ago?

Yeah, the backlogs remain healthy. Projects are just in the backlog a little bit longer. And I think that's a testament to the uncertainty around the macro. And I still think there's softness in R3 because of the kind of the pandemic highs around the conversion.

So again, strip those out, and it's relatively back to normal, kind of normalization on the refurbishment, remixed. We still think there's great opportunity as it relates to some of the acquisitions that were made this past year. But again, just a pause in the market due to interest rates and the presidential election and things of that nature. That's what our customers are telling us.

Okay. And extending that out, a crystal ball kind of question, but maybe talk to your visibility in the outlook as we think about fiscal '25. Your expectations for growth in Self-Storage as well as Commercial and what gives you confidence given the kind of increasing economic uncertainty and some of the recent declines in capital spend that we've seen from the REITs?

Yeah. Thanks, Dan. I think what we're seeing at this point is, like to Ramey's point, the higher interest rates have really just pushed out a lot of projects. I think there are customers that we've always talked about the smaller guys get impacted, and now it's that mid-sized guy pushing out until we see some movement there.

And I think with all the market trends indicating that it could be a drop, they are just waiting to see, hey, look, I can say that half a point if I push it out a couple of months here. I think as we go into 2025, the market is becoming more competitive from just pricing on steel price.

So if you think about steel, we talked about it last quarter, steel was holding down from the high $1,100 pound down to, call it, the $800, $850s. If you look at that equal to price today, it's down to $650. So there's a bit of pressure in terms of pricing.

So we unless that really changes, we expect that to go into next year that while the good thing is that as you guys know how we buy steel in our profile there, five to six months lag time, our goal is to kind of match that with any commercial actions we take so that we maintain the margin. That's what you've seen us do. Even despite the volume drop here, we've been able to manage our costs and to get that margin in that range.

So it sounds like pricing could be a headwind for next year, but more in solid and you expect well, at least some offset in terms of volumes.

Yeah, I think as the market returns to what we say a bit normal from the industry side, we should see that start freeing up some of the project delays we see.

Okay. And just talk a little bit about TMC in terms of strategic fit with the business. How does that a platform for additional acquisitions? And looking at the cash flow statement, it looks like you paid about $60 million. Is that right? And just talk about kind of run rate revenue, EBITDA and what accretion could look like when we get out to fiscal '25? Thanks, again.

Yeah, thanks. Great question. Look, that was a bright spot M&A acquisition for us totally (technical difficulty) These guys are our leaders in the Southeast and kind of terminal maintenance refurbishment very similar to R3 work.

We feel like they have a playbook that we can replicate on the Facilitate side. Very fragmented market. There is certainly a lot of room for kind of additional roll-up that we're looking at right now. Strong leadership group, strong margins, a lot of lot of blue sky with that business.

And Anselm, if you want to talk about some of the financial metrics?

Yes, I think, Dan, if you look at the revenue, obviously it's a partial quarter for that, but, I think, is in line kind of what we thought. It is the price point you said is about what we paid in that $60 million range they saw. Excited about the margin.

I think the one thing that we were really scrutinizing about this acquisition was the strategic side about the acquisition was the strategic side of it to make sure that, hey, we could buy something that could help our Facilitate business grow. But at the same time, as we delve into the diligence, the margins, the growth opportunities were really strong and good there.

EBITDA margins is similar to what we've seen on the storage side. And so we're excited about adding this business helping to do a roll up strategy in the group set.

All right. I'll jump back (inaudible). Thank you again.

Thank you, Daniel.

Reuben Garner, The Benchmark Company.

Thank you. Good morning, everybody. I know you didn't have the R3 business in the last kind of downturn. But were you surprised at all to see how kind of abruptly that seemed to slow? And I guess, can you talk to us about how backlog works?

I understand there's delays, but backlog still looks solid, like how could those projects still be canceled in backlog? Are there any kind of penalties in place that they are, just kind of walk us through how that looks if things get worse than you kind of anticipate?

Yeah, great question. Look during in the last, I guess, the GFC, we did not have the R3 division. That's kind of where that was the genesis of it with one of our partners. I think, the really, the theme here is when you look at true R3, the remix, renovation, that's hanging in there. It's really the expansions and conversions that really have taken the hit that we're pandemic darlings. That's what you're seeing kind of burn off. We're still very optimistic.

We're hearing some good things from a planning perspective and some of the data we have internally on the drawing side for that R3 sector. But the conversions and expansions have to roll off from pandemic highs.

In terms of visibility, we're still very confident in the long term framework of the business. The backlog is healthy. It's slowed a little bit due to, like Anselm mentioned, some weather related items in the quarter and then also uncertainty around the interest rates. Are we going to get some interest rate cuts in the months to come? I think that's what our customers are waiting on.

But long term, Reuben, we're very confident, we're going to use our balance sheet to be creative around M&A and share buybacks and paying down debt. We'll be opportunistic there. We're just in a lull right now in terms of the R3 kind of projects and the velocity in which new construction typically cycles through the backlog.

And just to be clear, Ramey, are the delays, are these projects that New Construction and expansion projects that are just stopping mid job? Or are they jobs that were delayed, the start was delayed months ago and you're just now getting insight into it? Can you talk about that?

It's a little, it's more of the latter. There are certainly some projects that are midstream that have been put on hold, particularly I'll kind of point to the West Coast. There's a big portfolio on that side of the country that's in that situation.

But the lion's share of it is really just new starts hitting pause. Is there a risk of cancellations? There's always a risk. We're not seeing that today, which gives us confidence that these projects will move forward. So that's where we are.

Okay. I'm going to sneak one more in. Are there any particular customers? I know you're more exposed to the smaller players now than you have been in the past. Is it, the size of the customer geography, you mentioned the West Coast. Anything else that you'd call out?

No, I think Anselm mentioned it. It's the layer below the public reach, which we consider institutional. They're being impacted by financing, restriction guidelines, and, obviously, interest rates.

So we said last quarter and past two quarters, it was kind of the smaller mom and pop. It's kind of crept up into the more larger players that we consider institutional. I mean, I think when you look at the REITs, their status quo, they recently reported.

And if you look at the kind of occupancy rates and you're looking at like 94%, 92%, which is very healthy. So I think the market remains strong, Self-Storage is resilient. We just need to get past some of this uncertainty around interest rates.

Got it. (inaudible) That's really helpful. Thank you. Good luck, guys.

Thanks, Ruben.

Thanks, Ruben.

Philip Ng, Jefferies.

Hey guys. Sales were down about 8% in 2Q and I think implicitly your second half guide implies organic sales down similar level so that it doesn't seem crazy just given comps to get a little easier. So I'm just trying to get a gauge, how did orders and sales progress intra-quarter trends into July?

Have you started seeing that pricing dynamic you called out stabilize? Or there is still actually some risks to the downside here? And then you called out weather as well. So when we think about the sales cadence decline to the back half, will 3Q be harder hit versus fourth quarter?

Yeah. A lot of things there. So thanks, Phil. So I will try and get all of them. So our Houston factory was shut down for a week with the hurricane out there. So that would impact the July numbers that we saw. Outside of that trend, obviously, that will have a bigger impact in Q3. That's why the way we're looking at it is that, hey, that's a weather-related thing that we said does impact us, and that's going to impact the numbers there.

In terms of your other question about the pricing, what we're talking about, if you look at this quarter, pricing was about half of the decline that we've done. That was just being competitive in here and there. I think what we're referring to is just a longer term trend is that steel staying at this lower point.

And honestly, you think about the variance going from $1,100 a pound down to $650. That's a meaningful drop. So and the way we've always managed, and Ramey's done a great job of being competitive. We manage how much we give back, but we manage it with our cost so that we maintain our margins. So we're just giving kind of a early look and say, hey, we see this coming going into 2025. That's where most majority of the impact of that price found commercial adjustment will come in versus this year.

So could pricing step down even more than that, call it 4% run rate as steel prices flow through or that's kind of a good guide?

Yeah, (multiple speakers) for the balance of this year, it's probably going to hold in that range because again, we're building up the backlog that has that kind of range already in there. The further commercial action that we would take based on where the steel price is going or staying would be a 2025 impact.

Okay, that's helpful. R3 started to soften in the back half of last year. So, you called out conversion still perhaps not fully fleshed out. Ramey, give us a sense when do you expect that to be kind of flushed out to more normalized levels? And can you just give us some perspective like what percent of your business is more conversion versus remix?

Yeah. I'll let Anselm speak to the actual metrics. That's a tough question. There's still conversions in the backlog. We continue to quote conversions, just not at the levels that we have in the past year or two.

So that's a tough one to feel. It feels like probably '25 in terms of when that gets flushed out totally. But we'll just have to monitor that. Again, the opportunity around some of the acquisitions that have happened in the aging facilities, there's been a lot of new capacity put in the market, in markets with older facilities. So these operators are going to be forced to do something to compete with the new supply that's coming online.

Yes, I think, Phil, just that we don't disclose kind of the split, but the conversion piece was (inaudible), it's down to, its still ingrained, there's still a piece in there. I think there will always be a certain amount, so just high level. You're probably talking in an R3 bucket. There's probably less than a quarter of it is conversions now where it was meaningful before.

Okay. That's helpful. Great color.

Jeff Hammond, KeyBanc.

Hey, good morning, everyone. I guess lost in the some of the macro headwinds. Is this Ion rollout, which you guys seem pretty excited about. Just talk about what's new in that product and the feedback you're getting in beta testing and how you think that may be changes the growth trajectory for the Noke business?

Yeah, great question. Look, it's certainly a bright spot and understand why it's going to be an overlooked this quarter. But at the same time, we're super excited. We're getting customer feedback, during beta, a lot of buildup on the sidelines waiting for, and customers have been waiting for a price point that makes sense to them.

So essentially, what we've done is we've designed an inside-the-door wired solution that's stripped down from a lot of options. And if the customer wants to add options, they can certainly pay for it on the R&R side of it.

But we feel like we've hit a sweet spot on the go to market pricing. It's extremely stable. The beta that we're doing right now, we're learning a lot, getting a lot of good feedback and, like I said, have a growing book of business anticipating the release of that.

So we couldn't be more excited. The Noke One solution and some of the other kind of IoT things are still doing great. You saw the growth that we had last quarter. So we're excited about it, and that's certainly a growth engine for the business, and the long-term impact that it can have to make this industrial company, industrial technology company once we get the penetration rates that we know that we deserve.

Okay. And then, TMC, I don't know if I missed revenue, or can you give us what the revenue contribution was this quarter? I guess, was in there for.

Yes, it was about $4 million of revenue for the business. It's what we expect and is tracking there. So like Ramey said, we're excited about it because again, we didn't disclose the margin, but it's similar to the storage EBITDA margins.

Okay. And then last one back to, I think you said you're excited about some of the consolidation in the space and what it holds for R3 opportunity, but it sounds like some of that's been on hold. So what's the feedback you're getting around when they ultimately do some of that remix, remodel, re-brand?

Yeah, I won't go into particulars in terms of the customer, but our customers. But yes, it's active. It's been slower coming out of the gate. I have always referenced that opportunity, a multiyear opportunity for us. Again, doing a lot of work in the background on the design side of it and feel good about that pulling through to revenue.

Is it more of a pull through into '25? I mean, do you have visibility that it starts to build momentum in '25?

I think that's fair, Jeff. Yeah, '25 feels right.

Okay. Thanks so much.

Thank you.

John Lovallo, UBS.

Good morning, guys. Thanks for taking my question. The first one is that the outlook for second half EBITDA margins of about 26%, that would be flattish versus the first half. I mean sales will be up slightly half-over-half. But what are some of the other puts and takes within that? I mean, how are you thinking about price cost, channel mix and maybe G&A investment?

Yeah. I think what we've said in prior calls, the G&A side is the first half was more the year-over-year carryover costs. That's why it was a big step up from prior year. I think the second half will be slower in that point of view because, again, you were lapping the ads that we did the second half. So probably a little more in Q3 and in Q4 probably be flattish from a year-over-year perspective in that range.

There's a little investment that we've done in the Noke, as we've said, in terms of the back end, some of the salespeople adds. In terms of the other margin pieces we're seeing from a price point of view, we're pursuing this similar to what we just saw in Q2 from a price versus volume mix probably in that range could be a little bit on each side, but it's probably in that range is probably a good way to think about the second half.

And then the other thing is that, we didn't talk about much here, but Commercial, the way we've looked at is that we're just assuming and foresee the similar trend for the back half of the year than we saw in Q2. It doesn't, that overall market, while we are still like the long-term trend, at least the short term, looks like it's still staying in that negative year-over-year. We thought there'd be some recovery in the back half. It's just happening slower than we thought.

Okay. Makes sense. And then you mentioned a couple of times so higher rates have been a headwind to the business, particularly for the R3, which makes sense. We have seen some pullback here with the 10-year below [395 at this point versus, call it 450] as recently as July 1. I mean, how long of a lag is there in a pullback in rates before you think you'd start seeing some of that impacting your business?

Yes, it's hard to tell. I think what we know is the impact because when we talk to our customers, they're specifically mentioning the rate has put some decisions to say, hey, put some of this on hold and trying to be, if I put myself in their shoes, if you look at it makes sense, you get a potential rate drop in probably September. So if you have the opportunity to delay something before you pull in your construction loans, you probably would do it to get that benefit.

Got it. Thank you, guys.

Thanks, John.

This concludes our question and answer session. I would like to turn the conference back over to Ramey Jackson for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.