Earnings Call Transcript - JBI Q3 2025

Operator, Operator

Hello, and welcome to the Janus International Group Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Sara Macioch, Senior Director, Investor Relations of Janus. Thank you. You may begin, Ms. Macioch.

Sara Macioch, Senior Director, Investor Relations

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 in 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 statement made describing our beliefs, plans, strategies, expectations, projections, and assumptions are forward-looking statements. The company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, including, but not limited to, tariffs, interest rates, and other macroeconomic factors, 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 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, adjusted EPS, and net leverage. 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 2025 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, CEO

Thank you, Sara, and good morning, everyone. We appreciate you all joining our call today. I'd like to highlight a few key themes as I begin my prepared remarks. First, our team continues to execute in an operating environment that remains challenging. Second, we have confidence in the long-term fundamentals of our end markets we serve, reinforced by the stability of our backlog and pipeline. And finally, we believe our flexible financial profile and solid cash generation underpin the resiliency of our business model and allow us to adapt to changing market conditions. For the third quarter of 2025, Janus delivered total revenue of $219.3 million, down 4.7% from the third quarter of 2024. Adjusted EBITDA was $43.6 million, up 1.2% compared to the prior year. Anselm will expand further upon drivers of these results shortly. Moving along to a discussion of our sales channels. Total self-storage saw a revenue increase of 3.7%, and on the New Construction side, this was driven by strength in our International segment, which more than offset continued softness in the North American market. The R3 sales channel benefited from strength in door replacement and renovation activity. Our Commercial and Other sales channel decreased 20.1%, primarily driven by declines in our TMC business due to project timing, as well as weakness in the LTL trucking industry stemming from broader economic impacts. TMC accounted for approximately 70% of the decline in revenue in the quarter. As we have noted before, the TMC business can be somewhat lumpy and will ebb and flow throughout the year. Additionally, we continue to experience overall market softness for commercial sheet doors. Despite the revenue decline, we are still seeing growth in other areas of our commercial business, including rolling steel and our multiyear effort to get specified for certain architectural requirements. We believe the more comprehensive suite of offerings we have developed is helping to build upon our position in the commercial market. Adoption of our Noke Smart Entry system continues to progress with 439,000 installed units at quarter end, representing an increase of 35.9% year-over-year. The latest addition in our line of Noke Smart Entry products, Noke Ion, has been well received by the industry. The smart locking solution is low voltage powered, can be customized, and enhanced features like LED lights and motion sensors, and is designed and optimized for all Janus self-storage and commercial door products for both New Construction and retrofits. We're pleased with the performance of this business and in particular, the acceleration of interest from large institutional customers. We continue to see opportunities for further expansion as operators explore avenues to effectively manage their costs, prevent theft, and enhance tenant satisfaction. In the third quarter, Janus continued to invest in innovation and expand our offerings to drive long-term growth across our portfolio. Through our BETCO brand, we announced a comprehensive expansion of our metal decking product line. This new range of custom metal decking systems provides design flexibility to meet the unique structural and architectural demands of self-storage development and redevelopment. We also launched a redesigned web portal for our Noke Smart Entry platform, marking another milestone in our ongoing commitment to delivering seamless enterprise-level experiences for self-storage owner-operators to run their facilities in a more effective and efficient manner. From a financial standpoint, our strong business model and cash flow generation should allow us to be opportunistic regarding our capital allocation priorities. During the quarter, we continued our share repurchase program and are consistently evaluating M&A opportunities, which remain our top capital allocation priority. Despite sustained high interest rates, we are encouraged by the fundamentals of our business and their capacity to drive long-term growth. The self-storage industry remains resilient and continued consolidation presents growth opportunities for our R3 business. With an aging installed base and in the face of liquidity constraints, we believe facility owners will be encouraged to focus their capital allocation on existing properties. With positive industry tailwinds, coupled with our significant scale and financial discipline, we believe we are well positioned to deliver long-term shareholder value. With that, I'll turn the call over to Anselm for a further review of our financial results and updates to our 2025 guidance. Anselm?

Anselm Wong, CFO

Thank you, Ramey, and good morning, everyone. As Ramey shared, our team has continued to focus on execution in a tempered operating environment. For the third quarter, consolidated revenue of $219.3 million declined 4.7% compared to the prior year quarter. In total, our self-storage business was up 3.7%. New Construction increased 5.5% and R3 was up 0.7% for the quarter. The growth in revenues for New Construction was driven by strength in our International segment, which more than offset continued weakness in North America. The increase in R3 revenue was driven by increases in door replacement and renovation activity. In the third quarter, our International segment saw total revenues increase to $28.3 million, up $7 million or 32.9% compared to the prior year, driven primarily by growth in New Construction. For the quarter, revenue in our Commercial and Other segment declined by 20.1%. Approximately 70% of the decline in revenue was attributable to our TMC business due to project timing as well as overall weakness in the LTL trucking industry resulting from tariff and economic impact. As Ramey noted, the TMC business can fluctuate throughout the year depending on the timing of jobs that are completed. While we continue to see softness in the commercial sheet door market, we are encouraged by the strength we see in both rolling steel and the carport and sheds business. On a consolidated basis, the impact of revenues for the quarter was roughly 60% price and 40% volume. Third quarter adjusted EBITDA of $43.6 million was up 1.2% compared to the third quarter of 2024. This resulted in an adjusted EBITDA margin of 19.9%, an increase of approximately 120 basis points from the prior year period. The increase in margins year-over-year is primarily attributable to the prior year being negatively impacted by adjustments to our provision for credit losses, which was partially offset by volume declines and the impact of geographic segment and sales channel mix. We continue to see the benefits from our previously announced cost reduction program. As a reminder, we expect to realize approximately $10 million to $12 million in annual pretax cost savings by the end of 2025. For the third quarter, we produced adjusted net income of $22.6 million, up 1.3% compared to the prior year period and adjusted EPS of $0.16. We generated cash from operating activities of $15 million and free cash flow of $8.3 million in the quarter. On a trailing 12-month basis, this represents a free cash flow conversion of adjusted net income of 171%, and capital expenditures in the quarter were $6.7 million. We ended the quarter with $256.2 million in total liquidity, including $178.9 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $554 million, and net leverage was 2.3x, within our target range of 2 to 3x. These liquidity levels provide us ample financial flexibility and allow us to execute on our capital allocation priority. During the quarter, we repurchased approximately 82,000 shares for $800,000 as part of our share repurchase program. With the additional $75 million share repurchase authorization approved by our Board of Directors earlier this year, the company had $80.5 million remaining on our share repurchase authorization at the end of the third quarter. Subsequent to quarter end, we are also pleased that S&P upgraded our credit rating from B+ to BB- with a stable outlook. This recognition reflects our resilient business model, balanced approach to capital allocation, and consistent cash flow generation and profitability. Now going to our 2025 guidance. Based on our year-to-date results, current visibility into our backlog and end markets and business trends and conditions as of today, we are updating our full year 2025 guidance for revenues and adjusted EBITDA. We expect revenues to be in the range of $870 million to $880 million and adjusted EBITDA to be in the range of $164 million to $170 million, reflecting an adjusted EBITDA margin of 19.1% at the midpoint. While we anticipate revenues in the fourth quarter to be largely in line with the third quarter and the midpoint of the guide remains intact, we now anticipate EBITDA margins to come down from our original guidance, primarily driven by geographic and product mix. We continue to anticipate the free cash flow conversion of adjusted net income will be above the target range of 75% to 100% for 2025. Please refer to the presentation we have posted for additional details on our key planning assumptions for 2025. Thank you all for your time. I will now turn the call over to Ramey for his closing remarks. Ramey?

Ramey Jackson, CEO

Thank you, Anselm. Our team has continued to focus on factors we can control in a dynamic environment. Supported by our balance sheet and cash flow foundation, we will continue to develop our innovative suite of solutions to further build upon our industry leadership position and invest for future growth. We believe we will be well positioned in our industry when an inflection point in the operating environment does occur. Looking ahead, we will continue to execute on our strategic plan as we look to drive long-term value creation for all of our stakeholders. In closing, I'd like to express my appreciation to our team, customers, and our shareholders for your support. Thank you again for participating on today's call. Operator, we would now like to open up the lines for Q&A, please.

Operator, Operator

We'll take our first question today from Dan Moore with CJS Securities.

Will Gildea, Analyst

This is Will on for Dan. Looking at the guidance, revenue remains unchanged, but EBITDA is lower by 10% at the midpoint. We're anticipating a margin in the 19% range compared to 21%. Could you provide more details and help us categorize the changes related to mix, higher input costs, tariffs, and other contributing factors?

Anselm Wong, CFO

Sure. The biggest thing was really product mix and in the kind of segment mix, where the sales came from. If you actually noticed when we print the Q, you'll see that international sales were up significantly. So there's a lower margin versus our North American business. So the majority is there; tariffs are really not material, and neither were input costs.

Will Gildea, Analyst

Very helpful. And then looking at your backlogs and quoting activity, particularly from your core REIT customers. What does it tell you regarding their plans and budgets for growth for both New Construction and R3 related spend as we look into 2026?

Anselm Wong, CFO

At least what we are seeing right now, at least for the current time, the backlog and pipeline looked pretty stable. I wouldn't say there's anything that's changed from last quarter, where we saw it was fairly stable.

Operator, Operator

We'll take our next question from Jeff Hammond with KeyBanc.

David Tarantino, Analyst

This is David Tarantino on for Jeff. Starting with commercial, could you give us some more color on the weakness in TMC, how much is timing versus the softness in the end markets? And then maybe around the unchanged midpoint in the overall sales guide, how should we think about the assumptions between the end markets and what gives you the confidence that this is more down to timing and should improve moving forward?

Anselm Wong, CFO

Yes. Regarding TMC, there are two key factors; many of their projects are large and can be affected by weather and customer decisions, making it difficult to predict which quarters specific projects will fall into. From our visibility, it appears that many projects have been pushed back. Additionally, the LTL market has shown some softness due to a decrease in transaction volumes linked to tariffs, resulting in less opportunity. However, most of our TMC business focuses on repairs and renovations, so repairs will still need to be addressed eventually. We expect some timing issues for certain projects that have been delayed.

Ramey Jackson, CEO

Yes. To conclude, we remain excited about the TMC business. It's a strong business in a good industry, and we are very optimistic about its growth potential.

David Tarantino, Analyst

Is it reasonable to assume that within the midpoint of the sales guidance, commercial may be slightly lower while self-storage is higher? Am I understanding that correctly?

Anselm Wong, CFO

If you examine the implied figures, you'll notice they are slightly lower for both categories to reach the implied Q4. However, I don't anticipate that the commercial sector will experience as significant a decline as it did in Q3.

David Tarantino, Analyst

Okay. Great. And then maybe in self-storage, can you dig into what's driving the strength in international and maybe how we should expect that moving forward? And then maybe can you just give us some color on what you're seeing on the ground in North America and how that's played out relative to your expectations?

Ramey Jackson, CEO

Yes, I can start. Look, I mean, there are certain pockets internationally that are undergoing extreme growth mode. We revised our go-to-market strategy moving forward, and it matters in terms of being in the countries that you serve. And so that's playing out, and we're excited about that. In addition to that, around the international business, our Noke adoption is becoming more standard. So we're seeing a lot of acceleration as with door and hallway sales being standard with our Noke offering. And then on the self-storage piece in North America, no change from the past few quarters. The institutional operators are accelerating development. They're using this opportunity to gain market share. And then the non-institutional are pretty much on the sidelines. But one positive thing that we are seeing with non-institutional is they have a lot of construction-ready sites. So they're at a good point that when the macro turns, they'll be able to accelerate development as well. And then on the R3 side, the same thing. Consolidation matters, M&A matters to us in terms of R3 revenue from a rebranding perspective, and then unit mix optimization, being able to right size the sites continues to drive R3.

Operator, Operator

We'll take our next question from John Lovallo with UBS.

Spencer Kaufman, Analyst

This is Spencer Kaufman on for John. The first one, I think if we were kind of back out or back into the impact from TMC, I think it would be like an $11 million impact in the quarter. I guess, one, is that roughly what it was? And then two, are you expecting to sort of recover that in the fourth quarter? Or does this kind of get pushed into 2026?

Anselm Wong, CFO

Yes, that's about the approximate value if you imply it. And it's going to be a push, as you expect because there are certain jobs we can only do in certain amounts in the quarter. So there's definitely a push into Q4 and then subsequently into 2026.

Spencer Kaufman, Analyst

Okay. Got it. And I think typically, sales in the first quarter are a little bit softer than the rest of the quarters, which usually leads to lower EBITDA margin sequentially. Is that how you guys are sort of thinking about 1Q at this point? Or are there any unusual items kind of similar to what happened in Q4 '24 to Q1 '25?

Anselm Wong, CFO

Yes. We haven't disclosed anything yet, obviously, on 2026. So I'd say at this point, it's just we'll probably refer to our next quarter earnings call to really discuss that.

Spencer Kaufman, Analyst

Okay. Fair enough. If I could just squeeze one more in. Just on the tariff side, recognizing it's pretty small for you guys. I think that you haven't really changed the outlook for sort of the annualized impact of $6 million to $8 million on an unmitigated basis. But if I look at the slide deck, I think you guys may have omitted in the footnote this part about securing the alternative sourcing for components and that you anticipate the productivity and commercial actions will offset a lot of that exposure. I guess is there anything to read into it to why that's not in the slide deck anymore?

Anselm Wong, CFO

No. We're still doing the same thing, like we said. We're mitigating and looking at alternative sources. We've already done some of the actions for that. So I don't think it's implying anything. We're still on track for that.

Operator, Operator

We'll take our next question from Phil Ng with Jefferies.

Philip Ng, Analyst

I appreciate all the color. I guess, first on your self-storage business in the U.S., appreciating TMCs lumpy in nature, but it sounds like a lot of the growth is coming from the international business. So when you guys had to unpack the North American self-storage business, is it kind of unfolding like what you expected, particularly in the back half of this year?

Anselm Wong, CFO

Yes. The acceleration of R3 is not occurring as quickly as we hoped. We cannot predict the timing accurately, and this was our best estimate for that aspect. However, overall, the New Construction segment is aligning with our expectations; it's just that the R3 part is growing more slowly than we anticipated.

Philip Ng, Analyst

And that's mostly in the institutional side of things or non-institutional side? Where it's been a little more...

Anselm Wong, CFO

Yes, institutional in large REITs.

Philip Ng, Analyst

Okay. That's helpful. In terms of the information you shared earlier about how many of your non-institutional customers have construction-ready sites, how quickly can they respond? What should we be watching for that might indicate a potential pickup? Should we focus on decreasing rates, increasing liquidity, or improving consumer confidence? Help us understand what indicators we should pay attention to from the outside. If those indicators do start to improve, how quickly could that affect your volumes?

Ramey Jackson, CEO

Yes, that's hard to predict. Great question, by the way. But all of the above, I mean in terms of the macro, liquidity matters, interest rates, I mean, the 10-year treasury keeps bouncing around. But I think more than anything is the confidence is what we're hearing for a stronger tomorrow in the macro. But what we've seen, we've mentioned several times on these calls that activity in the pipeline remains very strong. And so that gives us optimism that our customers will be ready to dive in as quickly as possible. That's something that hasn't happened in previous downturns. Usually when things slow down, everything slows down. But that has not been the case in terms of the amount of work that we're doing on the design side of it and the quoting in the pipeline. So we're really optimistic that once things do turn, that it will accelerate. And on the timing, it's hard to tell. What I do know is I would classify a lot of these sites as shovel-ready, so they have the property. It's just a matter of getting construction started.

Philip Ng, Analyst

So let's say if they decided to move today, just in terms of construction cycle when your products come in, is that 6 months out? Or are you pretty early in that construction cycle in terms of the process?

Ramey Jackson, CEO

Yes. It really depends on the mix. I mean, a large part of our go-to-market strategy has been end-to-end building solutions. So it's not only the door and hallways. And so with that being said, the projects that we're actually doing the buildings on will start a lot quicker. But three to six months is probably a good number for that.

Philip Ng, Analyst

Okay. And I'll sneak one more in Ramey. From a raw materials standpoint, how are you guys set up? Because I believe you purchased all of your steel domestically, so you don't really have that steel tariff peaks, but steel prices are certainly still higher. You had a lot of costs hedged out for good parts of this year. So when you look at 2026, I suspect your cost is going to go up. Have you started bidding work at these elevated prices? And are you able to pass it through?

Ramey Jackson, CEO

Yes. It's actually the opposite. I'll let Anselm speak to that.

Anselm Wong, CFO

Yes. If you look at the steel prices, I think there was that trend to go up. But then because there has not been the demand for it, it's actually held pretty low. So if you look at it right now, and obviously, you know how we buy steel is that we've already bought steel going into next year. It's been fairly stable, surprisingly, in terms of where the steel price has been. So I wouldn't expect a large change at this point for the early parts of next year.

Operator, Operator

We'll take our next question from Reuben Garner with Benchmark.

Reuben Garner, Analyst

So you've got the $10 million to $12 million in cost initiatives that you've had in place this year. How much of that has been realized so far? How much will carry into next year? And I guess, if we don't start to see some significant changes in demand, are there more things that you can do to reduce the cost structure? Or is this the kind of situation where you'd likely ride it out? And because you're optimistic about the long-term dynamics in the industry?

Anselm Wong, CFO

No. I think if you look at the casting, we are on track already. You saw what we posted. We're about 70% of the savings already. So we should be in that range we talked about, the $10 million to $12 million for the year. In terms of further costs, I think we're always looking. So Ramey and I are always pushing the business to look at opportunities. So I would say there's definitely more opportunity there. We're already working on a few just in preparation if the demand stays low. So there's definitely more opportunity.

Reuben Garner, Analyst

Okay. And then it looked like your inventory picked up as a percentage of revenue. I don't know if it's just a one-off. Was there anything unique there? Would we expect that to kind of go back down in the fourth quarter and beyond?

Anselm Wong, CFO

Yes, definitely. If we buy the steel, our volume has been a bit lower than we would have expected. So you would expect the inventory to go up slightly compared to the original forecasted volume. So I think it's just a slight blip; we had to have the inventory was not at the volume that we expected. But our expectation is we'll burn it off as we go through the rest of the year.

Reuben Garner, Analyst

Okay. And then last one for me. You mentioned Noke successes internationally. How do things stand domestically? I assume utilization rates have come in somewhat, maybe a better time to make those kinds of changes that would be necessary to move to the Noke system, at least now versus a couple of years ago? Any signs that an acceleration is around the way? I know you've been waiting or looking for a larger institutional player to kind of make the move on that? What are the chances that that's around the corner?

Ramey Jackson, CEO

Yes, that's a good question. We mentioned in our comments that the institutional activity has certainly picked up and I think it's really a testament to Ion. It's really proven itself in terms of design, performance, stability, and a price point that the market is looking for. And then you've heard us talk about security. It's really a problem for the industry. And resolved a lot of the security issues. One of our larger clients has reported a 90% reduction in theft with that product line. So we continue to be optimistic and looking forward to driving additional use cases throughout the sector, but couldn't be happier.

Reuben Garner, Analyst

So just a quick follow-up. I mean, is it likely at some point that there's like a step function higher, like where there's a large adoption?

Ramey Jackson, CEO

Yes.

Operator, Operator

And we'll take our next question as a follow-up from Jeff Hammond with KeyBanc.

David Tarantino, Analyst

This is David again. Just a quick follow-up on the pricing trends. It was largely stable sequentially. So could you just give us some more color on how we should expect this to evolve moving forward? And maybe into next year just based on the actions you've already implemented to date?

Anselm Wong, CFO

Yes. I think for related to this year, we expect something similar. But again, we haven't looked into make sure what the impact will be.

Operator, Operator

And there are no further questions on the line at this time. I'll turn the program back to Ramey Jackson for any additional or closing remarks.

Ramey Jackson, CEO

All right. Thank you all for joining us today. We appreciate your support of Janus and look forward to updating you on our progress. Have a great day.

Operator, Operator

This does conclude today's program. Thank you all for your participation, and you may now disconnect.