Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Janus International Group Inc (JBI, Financial) demonstrated resilience during a dynamic time in their end markets.
- The company bolstered its offerings in the commercial market through organic investment and M&A, including the acquisition of Terminal Maintenance and Construction (TMC).
- Despite a decrease in revenue, JBI maintained solid adjusted EBITDA margin performance and robust cash generation.
- The company opened a new distribution center in Mount Airy, North Carolina, which is expected to improve order fulfillment times.
- JBI's innovative Noke suite of remote access solutions saw sequential growth of 7.6%, with the introduction of Noke Ion expected to drive further adoption.
Negative Points
- Total self-storage revenue was down 6.2%, with strength in new construction offset by weakness in R3.
- The Commercial and Other Sales channel experienced a 12.5% decline compared to the previous year.
- The company faced a cautious environment due to concerns around higher interest rates, leading to temporary deferrals of projects.
- Revenue for the second quarter was 8.2% lower compared to the prior year, with declines in R3 and commercial segments.
- The company adjusted its full-year 2024 guidance downward, expecting revenue to be in the range of $1.005 billion to $1.035 billion, a decline from previous expectations.
Q & A Highlights
Q: The decline in self-storage revenue was surprising, particularly in R3. What are customers waiting for before moving forward on these projects?
A: (Ramey Jackson, CEO) Customers are pausing due to interest rates and broader macroeconomic concerns. New Construction is still growing, but R3 is seeing a continuation of the conversion and expansion trends from the pandemic. The backlog remains healthy, but projects are staying in the backlog longer due to uncertainty.
Q: Are we back to pre-pandemic levels in R3, or is more correction likely? How do backlogs compare to 6 or 12 months ago?
A: (Ramey Jackson, CEO) The backlog remains healthy, but projects are delayed longer due to macroeconomic uncertainty. The R3 sector is returning to normal levels, but the pandemic-driven conversions and expansions are still rolling off. We expect softness to persist until economic conditions improve.
Q: What is your visibility and outlook for fiscal 2025, especially given economic uncertainty and recent declines in capital spend from REITs?
A: (Anselm Wong, CFO) Higher interest rates are pushing out projects, particularly for mid-sized customers. Steel prices have dropped significantly, which could impact pricing. We expect the market to become more competitive, but we aim to manage margins through commercial actions and cost management.
Q: Can you discuss the strategic fit of the TMC acquisition and its financial impact?
A: (Ramey Jackson, CEO) TMC is a leader in terminal maintenance and refurbishment, similar to our R3 work. It offers strong margins and growth opportunities. We paid around $60 million, and it contributed about $4 million in revenue this quarter. We see potential for additional roll-ups in this fragmented market.
Q: How did orders and sales progress intra-quarter, and what is the outlook for pricing dynamics?
A: (Anselm Wong, CFO) The Houston factory shutdown due to a hurricane impacted July numbers. Pricing was about half of the revenue decline this quarter. We expect steel prices to remain low, which will impact pricing in 2025. We aim to manage margins through cost management and commercial actions.
Q: When do you expect the R3 sector to return to more normalized levels?
A: (Ramey Jackson, CEO) It's hard to predict exactly, but we expect normalization by 2025. The conversion segment is still present but has decreased significantly. We see long-term opportunities in aging facilities that need to compete with new supply.
Q: Can you discuss the Ion rollout and its potential impact on the Noke business?
A: (Ramey Jackson, CEO) Ion is an inside-the-door wired solution with a competitive price point. Beta testing is going well, and we have a growing book of business. We expect it to drive growth in the Noke business and enhance our industrial technology offerings.
Q: What are the expectations for EBITDA margins in the second half of the year?
A: (Anselm Wong, CFO) We expect margins to remain around 26%, similar to the first half. G&A investments will be lower in the second half, and we aim to manage price and volume impacts to maintain margins. Commercial sector trends are expected to remain negative in the short term.
Q: How long is the lag between interest rate changes and their impact on your business?
A: (Ramey Jackson, CEO) It's hard to determine the exact lag, but customers are delaying projects in anticipation of potential rate cuts. We expect some impact in the coming months as customers wait for more favorable financing conditions.
Q: What is the outlook for the R3 sector given recent consolidation in the space?
A: (Ramey Jackson, CEO) Consolidation offers long-term opportunities for R3 work, but the impact has been slower than expected. We see potential for growth in 2025 as operators invest in aging facilities to compete with new supply.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
