Janus International Group, Inc. (NYSE:JBI) Q1 2024 Earnings Call Transcript May 9, 2024
Janus International Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello. And welcome to Janus International Group First Quarter 2024 Earnings Conference Call. Currently all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Ms. Sara Macioch, Senior Director Investor Relations of Janus. Thank you, Ms. Macioch. You may begin.
Sara Macioch: Thank you, Operator, and thank you all for joining our earnings conference call. I am joined today by our Chief Executive Officer, Ramey Jackson; and our Chief Financial Officer, Anselm Wong. 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 Investor 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 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 identified 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 and 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 Ramey shares some closing thoughts and we open up the call for your questions.
At this point, I will turn the call over to Ramey.
Ramey Jackson: Thank you, Sara. The first quarter was a busy one at Janus, as we built upon the momentum established in 2023 to deliver a solid start to the year, one that was in line with our expectations. 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 as they show every day. We delivered financial results consistent with our expectations in the first quarter, including adjusted EBITDA that was up 8.3% on a 1% increase in revenue. Our record of strong cash generation continued as we delivered free cash flow in the quarter of $24 million, with a trailing 12-month free cash conversion of adjusted net income rate over 120%.
This drove net leverage at the end of the first quarter to another record low since going public of 1.5 times, down 1.1 times year-over-year, and below our stated long-term target range of 2 times to 3 times. Our sustained strong cash flow generation put us in a position to be very active in our capital allocation activities and we have been. During the first quarter, we repurchased over 1 million shares, and subsequent to the quarter end, we made both a voluntary paydown of $21.9 million and repriced our first-lien term loan. We continue to explore M&A opportunities focusing on key areas of self-storage, commercial, technology and services. Our largest business is providing comprehensive solutions in self-storage, which consists of two sales channels, new construction and restore, rebuild, replace or R3.
Combined, self-storage makes up roughly two-thirds of our revenue and even higher percentage of our EBITDA, with similar margin profile across the two sales channels. And while we report specifics for each channel, along with our commercial and other segments, the discussion of total self-storage helps to smooth out the quarterly noise across the two segments, given the lumpiness of project timing. For the first quarter of 2024, on a combined basis, total self-storage was up 11%, driven by new construction. Industry fundamentals continue to favor investment in self-storage capacity, which over the last several quarters has focused on greenfield sites. Our commercial and other sales channel was down 19.2% in the first quarter compared to the year ago period.
The results reflected a continued decline in demand for certain product lines. We continue to innovate and broaden our reach to various end markets in order to access untapped potential on the commercial side. Despite the year-over-year topline decline, we are very excited about our opportunities there, as well as the potential we see to improve margins. Nokē, our innovative suite of remote access solutions, had another strong quarter, during which we increased the number of installed units to 300,000, from 276,000 at year-end 2023, representing a sequential growth of 8.7%. In early April, we announced the newest addition to our Nokē Smart Entry product lineup, the Nokē Ion, an inside-the-door magnetic hardwired smart locking system. This sleek yet powerful hardwired smart lock has a number of benefits.
It uses low-voltage power that’s inside the door and it’s compatible with a cloud-native software portal, and pairs with our customer-friendly mobile app for ease of access. Ion represents the next step in the expansion of capabilities of Nokē to drive accelerated adoption across our customer portfolios. In summary, we are excited about our start of 2024 as we look to build on our momentum. We look forward to working to expand our strong market position to capture additional share 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 further overview of our results, along with updates to our 2024 guidance. Anselm?
Anselm Wong: Thanks, Ramey, and good morning, everyone. As Ramey stated, we are off to a good start to the year, as our first quarter results included topline growth, margin expansion and strong cash generation, allowing us to make substantial progress on our balanced capital allocation program. Now, let me dive deeper into the numbers. In the first quarter, consolidated revenue of $254.5 million was 1% higher as compared to the prior year quarter, as strength in total self-storage more than offset a decline in our commercial and other sales channels. Together, our self-storage business was up 11% for the quarter. Within self-storage, new construction continued its momentum with growth in the quarter of 40.2% as customers continued to add new greenfield capacity.
R3 was off 17.3% for the quarter as a result of a decline in retail-to-storage conversion activity compared to the prior year. Total self-storage growth was entirely driven by North America, partly offset by a decline in international. Our commercial and other segments saw a 19.2% decline in the first quarter, driven by continued shifts in demand for certain product lines. First quarter adjusted EBITDA of $66.3 million was up 8.3% compared to the year ago quarter. This solid performance produced an adjusted EBITDA margin of 26.1%, up 180 basis points from the prior year period. This improvement in profitability is a result of a positive impact of geographic segment and sales channel mix and declines in material costs, partially offset by increased operating costs as the business scales for continued growth.
With regard to the margin benefit from geographic segment mix, over 90% of our revenue are sourced from North America, which has a higher margin profile than our international business. During the first quarter, international saw revenue is down 31.9%. The primary driver of the steep decline was our largest international market of entering a recession and the corresponding impact on project launch decisions. We are encouraged that projects are not being canceled, but rather put on hold as the underlying fundamentals that make self-storage attractive in that market persist. Due to the international business’s lower margin profile, this contributed to the favorable mix and the company’s overall adjusted EBITDA margin improvement. For the first quarter, we produced adjusted net income of $31.1 million, a 17.8% year-over-year improvement and adjusted diluted earnings per share of $0.21.
Adjusted net income was impacted during the quarter by drivers already covered, including the higher revenue and favorable geographic segment and sales channel mix. We generated cash from operating activities of $28.6 million, continuing to demonstrate the robust cash generation profile of the business. Capital expenditures for the quarter were $4.6 million, down from $6.1 million in the first quarter of 2023. Our free cash flow profile reflects the strength of our financial results and the resilience of our business. For the first quarter, we generated free cash flow of $24 million. On a trailing 12-month basis, this represented a free cash flow conversion of adjusted net income of 123%. We finished the quarter with $303 million of total liquidity, including $178.4 million of cash on the balance sheet.
Our total outstanding long-term debt at quarter end was $606.4 million and our net leverage was 1.5 times. This is an improvement of 1.1 times versus the year ago period and 0.1 times sequentially. On the strength of our balance sheet business model, improved governance and resolution of all material weaknesses, in March, we received a credit rating upgrade from S&P to B+ from B, with a positive outlook. And in April, Moody’s upgraded our credit rating to Ba3 from B1 and revised their outlook to positive. The combination of strong liquidity, continued cash generation and balance sheet strength puts us in a position to pursue M&A targets, execute against our $100 million repurchase program and address our long-term debt. During the first quarter, we repurchased 1.02 million shares for $15.3 million, including commissions and excise taxes, and subsequent to the quarter, we made both a voluntary prepayment of $21.9 million and repriced our first-lien term loan, which reduced our interest rate by 50 basis points, from SOFR+300+CSA to SOFR+250.
Now moving to our 2024 guidance. Based on first quarter results and the visibility we have into our end markets, we are reiterating our guidance for revenues and adjusted EBITDA. Specifically, we continue to expect revenue to be in the range of $1.092 billion to $1.125 billion, representing organic growth of 4% at the midpoint versus 2023. We expect adjusted EBITDA to be in the range of $286 million to $310 million. At the midpoint, this represents a 4.3% increase versus prior year and reflects an adjusted EBITDA margin at the midpoint of 26.9%. We expect total self-storage to continue to grow throughout the year. In commercial and other, we expect a return to growth in the back half of the year. In our international segment, we expect the back half of the year to be stronger than the front half, as market conditions normalize and we ramp up our operations at our new Poland facility.
We mentioned in our last call that we expect a return to normal seasonality in 2024, where the second quarter and third quarter comprise a larger portion of revenues compared to the first quarter and fourth quarter, and that remains the case. Thank you. I will now turn the call over to Ramey for his closing remarks. Ramey?
Ramey Jackson: Thank you again, Anselm. The hard work we have done and the momentum we have built are paying off, as we had a solid start to the year while also executing capital allocation on multiple fronts. Our long-term objectives remain intact and based on the reiterated guidance Anselm just laid out, we expect 2024 to feature another year of strong performance. We are the industry leader in self-storage solutions, with differentiated offerings, ever-improving capabilities to help our customers address the undersupply of self-storage capacity prevalent today. Those best-in-class offerings have allowed us to deliver strong, organic and acquired topline growth, improved EBITDA margins, and outstanding cash generation. We continue to have the expertise and dry powder on our balance sheet to pursue and execute accretive shareholder value-enhancing opportunities.
I look forward to continuing our positive momentum in 2024 and beyond, as we intend 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.
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