Good day, and thank you for standing by. Welcome to the Fourth Quarter and Full Year 2024 Quanex Building Products Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Scott Zuehlke, Senior Vice President, CFO, and Treasurer. Please go ahead.

Thanks for joining the call this morning. On the call with me today is George Wilson, our Chairman, President and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I'll now turn the call over to George for his prepared remarks.

Thanks, Scott, and good morning to everyone joining the call. I'll begin today's call with a brief strategic overview, followed by some commentary on the quarter and the broader macro environment. After that, I'll hand it back over to Scott, who will provide a more detailed financial discussion. As we close fiscal 2024 and reflect on the past year, I am incredibly proud of the progress we've made in executing our strategic plan. At the core of this plan has been the creation of a solid operational foundation that drives strong cash flow and will provide support for our organic and inorganic growth plans. Building this foundation takes time and significant effort and doesn't happen without the right culture. Looking back over the uncertain and challenging macroeconomic environment of the past few years, it is clear that our operational performance has remained consistent and resilient, positioning us well for the next phase of growth. With this strong foundation in place, our profitable growth strategy has been focused on expanding in existing market channels, enhancing our manufacturing capabilities, and opening new addressable markets. To achieve this growth, we have strategically employed both debt and equity financing, all while maintaining a healthy balance sheet. I'm pleased to report that our acquisitions of LMI and Tyman have met all of these objectives. Looking ahead, we are entering the next stage of our evolution. Our overarching goal of continual profitable growth remains unchanged with a heightened focus on strengthening the operational foundation of our newly scaled organization. As part of this evolution, we are restructuring our operating segments. Going forward, our structure will be centered around our core competencies in material sciences and manufacturing rather than the previous geographic and market-based segments. We believe this shift will create the best opportunities to leverage synergies, capitalize on our strengths, and fuel growth both in our current markets and in new adjacent areas. I'm excited to announce that going forward, we will operate the business in three new segments: hardware solutions, extruded solutions, and custom solutions. We created these segments with a global reach in mind and they are structured to foster the sharing of best practices and designed to maximize synergy opportunities, positioning us for future growth in both existing and new markets. We are enthusiastic about our new organizational structure and the immense potential it holds for our customers, shareholders, and all of my teammates at Quanex. To provide further insights into our evolution, we've scheduled an Investor and Analyst Day at the NYSE on February 6th, 2025. During this event, we will introduce the leaders of each segment and offer a deeper look at our company, product lines, and strategy. Turning to our fiscal fourth quarter, market conditions and order demand came in very near to our expectations. Volumes remained consistent with our anticipated return to a more traditional seasonality pattern. Despite Fed rate cuts and greater certainty around the U.S. presidential election, we are still operating in an environment with weakened consumer confidence amid high interest rates and inflationary concerns. Global geopolitical uncertainties and higher energy costs continue to impact markets worldwide. With that being said, we expect sluggish demand throughout the holiday and winter months but remain optimistic for a rebound in new build and R&R activity in the second half of our fiscal 2025 as consumer confidence improves. From an operational standpoint, the Quanex team continues to perform exceptionally well with a focus on the integration of Tyman and the pursuit of ongoing capacity and margin optimization projects. I'm pleased to report that the Tyman integration is ahead of schedule and the expected synergies are being realized as planned. We will provide more detailed updates on synergy progress as the year unfolds. On the margin and capacity optimization front, one project completed during the quarter was the sale of our Richmond, Kentucky Vinyl extrusion facility. As mentioned over the past few years, the vinyl window extrusion market in North America has faced challenges due to excess capacity. We successfully sold the Richmond, Kentucky facility during the fourth quarter for a gain of approximately $5 million, while simultaneously improving the cost structure of the remaining North American vinyl extrusion business. We also sold our North American vinyl fencing business as a part of this sale, which generated revenue of approximately $13 million in fiscal 2024 at a very low margin. In closing, I want to thank the team at Quanex for their continued hard work and performance, and I'd also like to welcome all of our new teammates from Tyman. We've executed well on our strategy and we're very excited for the next steps in creating value for all of our stakeholders. I will now turn the call back over to Scott, who will discuss our financial results in more detail.

Thanks, George. On a consolidated basis, we reported net sales of $493.2 million during the fourth quarter of 2024, which represents an increase of approximately 67% compared to $295.5 million for the same period of 2023. We reported net sales of $1.28 billion for the full year, which represents an increase of approximately 13% compared to $1.13 billion for 2023. The increases were primarily driven by the contribution from the Tyman acquisition that closed on August 1, 2024. Excluding the contribution from Tyman, net sales would have declined by 2.3% for the fourth quarter of 2024 and 5% for the full year, largely due to lower volume. We reported a net loss of $13.9 million or $0.30 per diluted share during the three months ended October 31, 2024, compared to a net income of $27.4 million or $0.83 per diluted share during the three months ended October 31, 2023. For the full year 2024, we reported net income of $33.1 million or $0.90 per diluted share compared to $82.5 million or $2.50 per diluted share for the full year 2023. On an adjusted basis, net income was $28.6 million or $0.61 per diluted share during the fourth quarter of 2024 compared to $31.2 million or $0.95 per diluted share during the fourth quarter of 2023. Adjusted net income was $80.4 million or $2.19 per diluted share for fiscal 2024 compared to $90.9 million or $2.75 per diluted share for fiscal 2023. The adjustments being made to EPS are primarily for transaction and advisory fees, amortization of the step-up for purchase price adjustments on inventory and AR related to the Tyman acquisition, expenses related to a plant closure, loss on damage to a manufacturing facility caused by weather, pension settlement expense, and foreign currency translation impacts. On an adjusted basis, EBITDA for the quarter increased by 59.6% to $81.1 million compared to $50.8 million during the same period of last year. For the full year 2024, adjusted EBITDA increased by 14.3% to $182.4 million, which is a new record for Quanex, compared to $159.6 million in 2023. This equates to adjusted EBITDA margin expansion of approximately 20 basis points year-over-year. The increase in adjusted earnings for the three months and 12 months ended October 31, 2024, was mostly attributable to the contribution from the Tyman acquisition. However, the increase in adjusted earnings was also due in part to lower cost of sales, including labor related to lower volumes and deflation in the price of raw materials. Now for results by operating segment. We generated net sales of $172 million in our North American Fenestration segment for the fourth quarter of 2024, a decrease of 4.7% compared to $180.5 million in the fourth quarter of 2023. We estimate that volumes in this segment declined by approximately 6% year-over-year with pricing up approximately 1% versus Q4 of 2023. For the full year, we reported net sales of $650 million in our North American Fenestration segment, a decrease of 2.6% compared to $667.5 million in 2023. The decrease was mainly due to softer market demand and lower pricing. We estimate the volumes in this segment declined by approximately 3% year-over-year in 2024 with pricing up slightly versus 2023. Adjusted EBITDA was $30.1 million in this segment for the fourth quarter or 1.5% higher than prior year, which equates to margin expansion of approximately 110 basis points year-over-year. Adjusted EBITDA was $93.9 million in this segment for the full year, or essentially flat versus 2023, but equates to margin expansion of approximately 50 basis points year-over-year. This group has done a good job of controlling costs despite lower volumes. Our European Fenestration segment generated revenue of $65.1 million in the fourth quarter, which represents an increase of 1.4% compared to $64.2 million in the fourth quarter of 2023. We estimate that volumes were essentially flat year-over-year in this segment for the quarter with pricing down approximately 1% and positive foreign exchange translation impact of about 3%. For the full year, we reported net sales of $230.7 million in our European Fenestration segment, a decrease of 7.9% compared to $250.8 million in 2023. For the full year, we estimate that volumes declined by approximately 7% year-over-year in this segment with pricing down by approximately 2% and positive foreign-exchange translation impact of about 1%. Adjusted EBITDA declined slightly to $16.5 million in this segment for the quarter versus $16.7 million during the same period last year. For the full year, adjusted EBITDA came in at $54.8 million in this segment, which represented a decline of 8.5%, but note that margin was essentially flat. We reported net sales of $52.8 million in our North American Cabinet Components segment during the quarter, which represented growth of 1.7% compared to prior year. We estimate that volumes declined by approximately 3% and price increased by approximately 5% in this segment for the quarter. For the full year, we reported net sales of $198.4 million, which represents a decline of 7.9% year-over-year. We estimate that volumes declined by approximately 6% with price declining approximately 2% for 2024 versus 2023. The price movements for both periods were largely related to index pricing tied to hardwood costs. Adjusted EBITDA was $3.3 million and $9.3 million in this segment for the quarter and full year, respectively. The time lag related to our hardwood index pricing mechanism in this segment negatively impacted profitability in 2024 after helping us on that front in 2023. The Tyman business reported net sales of $203.4 million for the fourth quarter of 2024. Since we didn't own this business in the fourth quarter of 2023, there is no comp in the earnings release. However, revenue was down approximately 11% for this segment in the fourth quarter of 2024 compared to the fourth quarter of 2023, mostly due to soft market demand in all segments, which is consistent with what we saw in the legacy Quanex business, but also due in part to the conscious decision to exit low margin business in China. Adjusted EBITDA came in at $34.5 million for the quarter, which yielded meaningful margin expansion compared to Q4 of 2023, driven by cost synergies related to the closing of Tyman's legacy home office in London, exiting low margin business in China, and more efficient operation in North America. Moving on to cash flow and the balance sheet. Cash provided by operating activities was $5.5 million for the fourth quarter of 2024, which compares to $44.5 million for the fourth quarter of 2023. Cash provided by operating activities for the full year 2024 was $88.8 million, which compares to $147.1 million for the full year 2023. We maintain focus on managing working capital throughout the year, but the fourth quarter was impacted by layering in the Tyman acquisition as the legacy Tyman business is very much a make-to-stock business, and the legacy Quanex business is very much make-to-order. We generated a free cash flow of $51.7 million for the full year in 2024, a decrease of about 53% compared to 2023. The main driver for the lower free cash flow in 2024 is the one-time cash costs related to the Tyman acquisition. If you adjust for these one-time cash costs, free cash flow would have been about $89 million for the full year of 2024 on a normalized basis. As a reminder, we borrowed $770 million, $500 million for Term Loan A, and $270 million on the revolver to acquire Tyman on August 1st, 2024. Since that time, we were able to repay $53.75 million in debt during the fourth quarter of 2024. As of October 31, 2024, the leverage ratio for our quarterly debt compliance was 2.3 times. The debt covenant leverage ratio calculation is defined in Amendment No. 1 to our Second Amended and Restated Credit Agreement, which was filed with the SEC on June 12, 2024. This debt covenant leverage ratio excludes real estate leases that are considered finance leases under U.S. GAAP and is calculated on a pro forma basis to include the last 12 months’ adjusted EBITDA from the Tyman acquisition. It also includes credit for $30 million of EBITDA for the synergy target related to the acquisition and cash-only from domestic subsidiaries. The debt covenant leverage ratio would be 2.1 times if calculated using the full cash and cash equivalent amount on the balance sheet as of October 31, 2024. The 2.1 leverage ratio is in line with the leverage ratio referenced in the presentation we published on our website when we announced the deal on April 22, 2024. As George mentioned, we will host an Investor and Analyst Day at the NYSE on Thursday, February 6th, 2025. At that time, we plan to unveil the new Quanex, which will include details specific to each operating segment along with initial guidance for fiscal 2025. In addition, we will disclose more about our profitable growth strategy going forward. Since guidance for 2025 and details related to the new operating segments won't be rolled out until early February, please use the following cadence for the first quarter of 2025 versus the first quarter of 2024. As a reminder, due to the typical seasonality of our business, our first quarter is usually the weakest quarter of the year, but we do expect a meaningful uptick in demand in the second half of 2025 as consumer confidence improves and pent-up demand starts to unwind. With that said, on a consolidated basis, we expect revenue to be up 50% to 52% in the first quarter of 2025 compared to the first quarter of 2024, driven by the contribution from the Tyman assets. However, consistent with recent market dynamics, we do expect volumes to be down in the first quarter of 2025 compared to the first quarter of 2024. On a consolidated basis, adjusted EBITDA margin is expected to be up about 25 basis points in the first quarter of 2025 compared to the first quarter of 2024. In addition, a tax rate of 23.5% is reasonable with interest expense of approximately $15 million in the first quarter of 2025.

We are now ready to take questions.

Hi, good morning. I wanted to think high-level a bit given the market remains pretty stagnant and seems pretty well-known out there. I guess, my first question would then be on portfolio adjustments. Now that you've got Tyman in and synergies are coming in at a nice clip, how are you assessing the portfolio broadly? And basically, are you considering any moves to divest anything that maybe is less core now that you have this bigger foundation?

Thanks for the question, Steven. The answer is, yes, we are evaluating the entire portfolio. I think the scale of the acquisition gives us an opportunity to do that. The approach that we'll take is we're going to obviously look at this from a customer perspective and see what pieces of the portfolio add value to our customers and can help them grow. Secondly, then we'll look at what that means to potential growth as well as the profitability. I think we will use it as an opportunity to potentially divest non-core assets that do not add value to our customer, that can drive margin improvement through just subtraction of the revenue. So nothing too specific at this point, but I think it is fair to say that will be a priority in some of our views as we go forward here in 2025.

Okay. That's helpful. I also wanted to discuss the EU segment. You've experienced two consecutive years with margins in the 23% to 24% range, which is very strong. Do you see this as the normalized level to operate from or build upon, or would you suggest that this is possibly a peak level considering the current dynamics that are supporting it?

It's a great question. I'm really proud of what our teams have accomplished in margin improvement and operational performance over the past years. As we reorganized these businesses into new segments, we aimed to achieve a couple of objectives. One was to better address our global approach, as previously separating them by geography limited opportunities for sharing best practices or internal synergies. While we did a good job under the old structure, it may have restricted those opportunities. By taking a more global perspective, particularly with our spacer business and new ventures from Tyman, we can set things up to share best practices worldwide. I believe there are still opportunities for margin improvement driven by internal projects, indicating that we have not exhausted our potential. This was part of the rationale behind our restructuring—focusing on what best serves our customers while also finding ways to enhance margins organically.

The only thing I'll add there, Steven, as markets improve around the world and volumes tick up, at some point, you're going to get operating efficiency gains that will help margin longer-term as well.

So I think you can see we're pretty excited about the potential that these new segments can drive, more to come, but we're pretty optimistic about that.

No, that's great perspective. Maybe something to quickly ask there, Scott, that you alluded to better volumes and the margin benefits from that. Can you maybe talk to the kind of historic incremental margins from legacy Quanex and given as you put these two businesses together, where could incremental margins get better as volume starts to improve?

That's a challenging question because it requires analyzing fixed costs versus variable costs for each product line to determine where operating leverage is more advantageous. As volume increases in a scenario with more fixed costs, the benefits will be realized more than they would in a situation with variable costs.

I think if you look at the way we've segmented in the extruded solutions segment, for example, the nature of extrusion process alone kind of lends itself is very much a volume-driven type of business. So I think you would see the most volume benefits in that type of segment and that type of product process as markets improved.

That's a great color. I'll leave it there. Thanks.

Thanks.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.

Hey, good morning, guys. Congrats on a record year.

Thank you.

I wanted to ask first about the Tyman synergies. How comfortable are you getting to the $30 million of synergies? And do you still think it takes two years to capture those?

Great question. So as we've embarked on this, I think you're always apprehensive about giving a number when you go into such a transformative type of deal. But as we progressed and now that we've launched the new segments, I think our comfort level around the stated $30 million is very strong and high. We have very strong confidence in achieving those levels. I think as the teams move through, the focus has started. We focused on the consolidation of the corporate offices, which we've talked about already and that's gone according to plan and maybe a little quicker than anticipated. Now that the divisions are starting to operate within the new segments, I think we're very pleased at the results that we're seeing these newly created teams generate and the amount of opportunities that they're creating helps to offset any potential downsides and unknowns that you don't know. And then finally, I think we become even more convinced that longer-term commercial types of growth synergies that are created from this combination will be there. So again, another long answer to your question, but I think we're extremely confident in meeting and hopefully beating the guidance that we've given.

Okay. George, you mentioned weak demand during the holiday season and winter. I'm interested to know if this is part of the ongoing trends we've noticed in fiscal year '24 or if you're expecting additional weakness.

I'll begin and then Scott can provide additional insights. First, I want to emphasize that the softness we've experienced in our fiscal Q1 is not unusual and happens every year. In certain markets, like the cabinet market we serve, customers are taking this time to adjust their inventory levels and are utilizing the holidays to reconcile volumes before the next build. This approach has had a slight incremental impact. Overall, it reflects a continuation of the trends we've been observing this year, emphasizing our typical seasonal patterns. This is in line with our expectations, and everything is unfolding as we predicted. Scott?

Yeah. I mean, I would agree with everything George just said and we are expecting volumes to be down year-over-year in 1Q '25 versus '24, but not by a significant amount. And we do expect markets to tick up starting in the spring selling season, once we feel like consumer confidence improves.

I'm not sure we've talked to one customer at this point that doesn't have that same, I think that there is a fairly strong optimism that the back half of the year will see it. Again, the market indicators and the need for housing as the Fed continues or it's anticipated that they'll continue to cut rates as inflation starts flattening a little bit and hopefully turning the other way. I think we will see consumer confidence grow and the market, both R&R and new-build, there is pent-up demand that's ready to be released. And I think we're hearing that optimism from almost every customer that we talk to.

Okay. Thanks, guys. See you in New York.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Reuben Garner from Benchmark. Your line is open.

Thanks. Good morning, guys, and congrats on the strong close to your fiscal year.

Good morning, Reuben. Thank you.

To start, tariffs has been a big question of late. I think last go around, you guys might have saw some benefit in your cabinets business from kind of reshoring opportunities. With the Tyman acquisition coming along, can you just talk about any exposure that they have to imports and whether or not maybe any competitors that they have would be at risk, I guess, from bringing products in overseas?

As we assess the Tyman organization, we have spent considerable time discussing both the risks associated with tariffs and the opportunities they present. The Tyman team has done an outstanding job of establishing a supply chain that can take advantage of these opportunities and facilitate local sourcing. We believe we are well-prepared should any retaliatory measures or tariff conflicts arise. The actions taken by the Tyman team give us confidence that we have a solid strategy to handle potential trade disputes and leverage any positive impacts from tariffs. Specifically in the North American cabinets sector, tariffs have generally benefited that market, and I expect this trend to continue. Consequently, any additional tariffs on wood products could create further opportunities for our business.

Got it. And then from just a big-picture pricing perspective for you guys. Scott, I know you gave some pieces about this quarter and this year and you had a couple of things working against you. Like when we think about the full year going forward and I know you're not ready to give guidance yet, but would you expect at this point that pricing would be like neutral to up even or is there more kind of headwinds on the way?

I mean, there is potential for pricing to be neutral to up. I mean, the way we usually model is we don't bake in a lot of expectation that pricing is going to go up or down. It's more driven by volume expectations. But it's really good, it's going to depend on what's going on with the macro and raw material by raw material.

We're being very cautious about providing any pricing guidance due to the impact of tariffs and the resulting inflationary pressures, including potential effects on labor wages. There are many factors at play, so we're taking a careful approach to our price guidance. Over the last few years, we've been able to secure price increases when possible, as demonstrated by our legacy Quanex numbers. We aim to be a fair supplier in the market, but ultimately, our pricing will be influenced by the input costs we observe.

Got it, congrats again. Thanks guys, have a Merry Christmas and Happy New Year.

Merry Christmas to you as well.

Thank you. One moment for our next question. Our next question will come from the line of Julio Romero from Sidoti & Company. Your line is open.

Thanks. Hey, good morning. I wanted to ask about the macro a little bit here. Some of your peers have called out affordability constraints. You talked about waning consumer confidence and kind of mortgage rates kind of persisting higher. Can you guys just talk about what you're seeing on that front and maybe help us think about why your viewpoint might be a little nuanced compared to some peers?

I believe we observe similar trends, and in discussions with our customers, it’s clear that the R&R market has faced significant challenges, particularly in specific segments like our cabinet business, which is more discretionary compared to windows or doors. However, I anticipate that as interest rates decrease, and if housing prices stabilize, it could stimulate R&R activities. Those purchasing new homes may also feel encouraged to take on discretionary projects like kitchen or bath remodels. To directly address your question, Julio, we acknowledge this sluggishness throughout 2024, which is reflected in our forecast. We expect volumes to remain slow in the coming months. Nonetheless, many macro indicators suggest that if affordability improves and interest rates fall, we could see a release of pent-up demand. We remain optimistic about this potential shift.

Got it. That's very helpful there. And then can you maybe just compare where consumer confidence is right now in North America versus Europe maybe compared to like three months ago?

I believe we've started to observe a bit more confidence returning in certain parts of Europe. Specifically, the UK, which was among the first to face difficulties, appears to be experiencing a slight turnaround. However, this recovery is complicated by ongoing geopolitical issues in Eastern Europe involving Russia and Ukraine. If that conflict were to resolve, it could lead to a more rapid improvement in the European markets. Nonetheless, I should mention that there are unpredictable elements at play in that region. The European markets seem to be further along in their potential recovery, but North America is different due to its size and the consumer mindset here, which tends to be more willing to take risks and spend. Therefore, any signs of improvement could lead to a quicker recovery in North America compared to Europe.

Very helpful there. And maybe turning to your re-segmentation. You've obviously been very thoughtful about the new segment structure. Can you maybe peel back the onion a little bit about the strategic rationale for the three new segments? And then secondly, in the prepared remarks, I believe you called out maximizing synergy ops and positioning for growth as two key items there. Are those two kinds of the North Star for the new segments and the new leaders?

As I elaborate on this, we aim to communicate that while we serve window and door markets as well as cabinet markets, these are not the only aspects of our business. We do not manufacture windows, doors, or finished cabinets. Our identity lies in being a manufacturing company with a wide range of core competencies. Our segmentation reflects this fact. We encourage our internal teams to view themselves beyond just a window and door company or a cabinet company, as this perspective could limit our ability to pursue new markets, systems, and opportunities. By segmenting in this manner, we inspire our development teams to think more broadly and we leverage our manufacturing strengths. Over the past several years, we have demonstrated our capabilities as effective operators, allowing us to capitalize on this strength. This approach accelerates our ability to explore inorganic growth opportunities. Our focus is on what will drive the fastest growth and how we can optimize our operations through the new segments. We are very optimistic about these new segments, each incorporating elements from both legacy Tyman and Quanex. Collaborating between both organizations fosters innovation and helps us move away from being constrained by past practices. We believe that integrating aspects from both organizations is crucial, and we are truly excited about the potential this brings.

Thanks for all the color, George. And if I could sneak one more in maybe for Scott here is, I appreciate the first quarter kind of outlook of interest expense of $15 million. Is that kind of a fair quarterly run rate to maybe assume for now for fiscal '25? And then are you kind of assuming any debt pay down at this point for fiscal '25?

We fully expect to reduce our debt throughout the year, which is a clear priority for us. We anticipate $15 million for the first quarter, decreasing slightly thereafter, and we'll provide more details at the Investor Day. I believe $15 million will be the peak for interest expense this year.

Excellent. Thanks very much, guys. I'll pass it on.

Thank you.

Thank you. And with that, I would now like to turn it back over to George Wilson for any closing remarks.

Thanks, everyone, for joining. We're extremely excited about the future of Quanex and look forward to providing more details about the combined company at our Investor and Analyst Day at the NYSE on February 6th, 2025. I'd like to wish you all a safe and happy holiday. Thank you.

Thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.