Janus International Group, Inc. (JBI) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Janus International Group Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Sara Macioch, Senior Director, Investor Relations of Janus. Please go ahead, ma'am.

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 last night. 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, 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. Anthem will continue with a discussion of our financial results and 2026 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.

Thank you, Sara, and good morning, everyone. Thank you all for joining our call today. To begin, I'd like to express my appreciation for our team at Janus for their hard work and dedication. 2025 was a challenging year as our markets remain constrained due to macroeconomic concerns and sustained high interest rates. We focused on execution, operating safely and serving our customers as we work to stabilize the business, delivering $884.2 million in revenue and $168.2 million in adjusted EBITDA for the year. Despite an unfavorable backdrop, we realized several key wins in 2025 as we work to position the business for long-term success. On the self-storage side, Janus or Noke products were present in 5 out of 6 facilities, Earnings Facility of the Year awards from modern storage media. Our BETCO business announced a comprehensive expansion of its metal decking product line and received a certification from the Steel Deck Institute achieving an exceptional score and reinforcing our commitment to quality. We also unveiled a redesigned web portal for our Noke Smart Entry platform. And in Europe, we launched a new high-security swing door. On the commercial side, our ASTA business rolled out its high-performance product offering and achieved Miami-Dade certifications, further strengthening its portfolio. From a financial standpoint, our strong liquidity and cash generation allowed us flexibility to be opportunistic with regards to our capital allocation priorities in 2025. We completed a voluntary prepayment of $40 million on our first lien term loan in the first quarter of 2025 and repurchased 1.9 million shares for $16 million throughout the year under our share repurchase program, which had an $80.5 million of remaining authorization at year-end. We were also pleased to receive an upgrade of our credit rating from S&P in October. While we anticipate market conditions will continue to be constrained, principally in new construction in North America in 2026, we will continue to execute and focus on what we can control. As a diversified solutions provider with a global network of manufacturing and installation capabilities, we are committed to executing our strategy of further penetrating the Self-Storage market increasing our share in commercial market driving adoption of access control technology and pursuing strategic accretive acquisitions. I'll now expand on each of these priorities. First, in the self-storage market, we have shared our strategy of increasing our content and facilities. Our acquisition of KIT Construction announced in January exemplifies this approach by expanding and strengthening Janus' exterior solutions offering and design build capabilities. Kiwi II is a premier self-storage buildings provider is well respected within the industry for their high-quality service and engineering products. They have an established active base of institutional customers and a solid presence on the West Coast and in Florida. The Kiwi business is complementary to our design-build business BETCO, which has a stronger geographic presence on the East Coast and is primarily serves noninstitutional customers. Kiwi also aligns well with our Janus core business, which focuses on interior self storage solutions, including doors and hallways. And this integration will allow KIWI to offer a full end-to-end solution for Self-Storage. We're very pleased to welcome Kiwi to the Janus family, and our early integration efforts are progressing well. Another key driver of our self-storage market penetration is leveraging our differentiated R3 platform. We estimate that nearly 65% of the facilities in the United States are over 20 years old, supporting sustained renovation activity. Industry consolidation is further accelerating this trend as large operators invest to bring aging assets to modern standards. Janus is uniquely positioned to meet these needs as the category creator for self-storage restore, rebuild and replace services. Our International segment represents another important lever in advancing our self-storage penetration. Over the past several quarters, we have carefully refined our product offering and go-to-market strategy to better serve our customers, which has been a driver of our international revenue growth this past year. We are committed to continuing the momentum we saw in 2025 by focusing on increasing scale in our Noke product as well as pursuing targeted geographic expansion into new countries that will support strategic growth moving forward. The second priority of our growth strategy is increasing our share in the market for commercial doors. The commercial door market is vast and as a smaller player in the space, we see plenty of opportunity to drive growth over time. As demand for commercial construction continues to grow, we are working to refine our offering and leveraging our manufacturing expertise to provide a robust suite of commercial door solutions. We are seeing positive results from our expanded distribution footprint as well as our multiyear efforts to secure product specifications. We are pleased to share some of our rolling steel doors are now being specified in data centers, representing a meaningful step forward for Janus in a fast-growing segment. Next, on the access control front, adoption of our Noke Smart Entry System continues to progress. Our industry-leading smart security system improves efficiencies for operators by streamlining labor needs, reducing theft and increasing unit level security. Noke also offers operators high-value customer insights such as usage trends and other unit level data. At the same time, the smart locking solution enhances the customer experience, allowing for a seamless access solution and features such as remote monitoring and digital key sharing that provide a competitive advantage for operators. As of year-end, we had 458,000 installed units, representing an increase of 25.5% year-over-year. As I shared on our last earnings call, we have seen an increase in interest from large institutional customers for our Noke products. We are encouraged by this momentum as we continue to enhance our offering and move towards scale and improve margin performance in our Noke business this year. And finally, we will continue to pursue strategic acquisitions to build on our track record of identifying executing and integrating acquisitions to support our growth. As we've stated, M&A is part of our DNA. We will continue to seek value-added opportunities that have a strategic fit within our organization in order to expand our product and solutions offerings. Consistent with the priorities I just outlined, we are initiating our 2026 guidance range. We expect revenue in the range of $940 million to $980 million, which represents an 8.6% increase at the midpoint from 2025. Adjusted EBITDA is expected to be in the range of $165 million to $185 million, a 4% increase at the midpoint from 2025. As I conclude, I'd like to emphasize that our strategic priorities remain intact. Despite the near-term challenges, household utilization for Self-Storage continues to grow. With the sustained high occupancy rates in the industry, we believe demand will only increase when the housing market improves. While the market headwinds we are facing, particularly in new construction may persist, we are committed to focusing on what we can control in the near term. We are the industry leader in Self-Storage solutions with significant scale, financial discipline and attractive adjacencies for expansion. As we look ahead, we believe we will be well positioned in the markets we serve when macro conditions improve. With that, I'll turn the call over to Anselm for a further review of our quarterly financial results along with more details on our initial 2026 guidance. Anselm?

Thank you, Ramey, and good morning, everyone. Ramey spoke to our full year results at a high level, and I will focus my remarks on our financial performance in the fourth quarter, followed by a discussion of our initial 2026 guidance. For the fourth quarter, consolidated revenue of $226.3 million declined 1.9% as compared to the prior year quarter. In total, our Self-Storage business was down 0.4%. New construction decreased 8.1% and [ R3 ] was up 12.7% for the quarter. The decline in revenues for new construction was driven by weaker demand for development in North America from our noninstitutional customers, partially offset by strength in our international segment. The increase in R3 revenue was driven by increases in door replacement and renovation activity. In the fourth quarter, our International segment saw total revenues increased to $26 million up $6.5 million or 33.3% compared to the prior year, driven by growth in new construction and market share gains as well as positive foreign exchange rates. For the quarter, revenue in our Commercial and Other segment decreased by 5%. The decline was primarily driven by softness in demand for commercial sheet doors, partially offset by strength in rolling steel and TMC. On a consolidated basis, the impact to revenues for the quarter was roughly 90% price and 10% volume. Fourth quarter adjusted EBITDA of $37.2 million was up 7.5% compared to the fourth quarter of 2024. This resulted in an adjusted EBITDA margin of 16.4%, an increase of approximately 140 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 and an additional warranty reserve, which was partially offset by volume declines and the impact of geographic segment and sales channel mix. We are seeing benefits from our previously announced cost reduction program, achieving the targeted $10 million in annual pretax cost savings in 2025, and we continue to regularly evaluate opportunities to improve our efficiencies. To this end, in early 2026, we successfully completed an expansion of our facility in Surprise, Arizona. With the additional capacity now available at our Arizona facility, we were able to optimize our manufacturing space by combining 2 of our facilities in Houston. This streamlining of our operational footprint will not affect our product offerings, quality standards or customer service levels. For the fourth quarter, we produced adjusted net income of $15.6 million, down 15.2% compared to the prior year period and an adjusted EPS of $0.11. We generated cash from operating activities of $24.8 million and free cash flow of $19.2 million in the quarter. On a trailing 12-month basis, this represents a free cash flow conversion of adjusted net income of 137%. Capital expenditures in the quarter were $5.6 million. We ended the quarter with $260.5 million in total liquidity, including $194.4 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at year-end was $551 million and net leverage was 2.1x. Following the acquisition of Kiwi II Construction, as stated in the press release, our net leverage is expected to remain within our target range of 2 to 3x. These liquidity levels provide us optionality with regard to capital deployment, and we had $80.5 million remaining on our share repurchase authorization at year-end. In February, we were also pleased to announce a repricing of our first lien term loan, reducing our interest rate by 50 basis points from SOFR plus 250 to SOFR plus 200, significantly lowering our cost of capital and enhancing our financial flexibility. Now moving to our 2026 guidance. As Ramey mentioned, full year revenue is expected to be in the range of $940 million to $980 million. This includes approximately $90 million to $100 million in inorganic revenue from the Kiwi II construction acquisition. Our guidance does not include any embedded assumptions of an improvement in market conditions. We expect North American organic Self-Storage revenues to be down mid-single digits compared to 2025, driven mostly by continued softness in new construction. In our commercial sales channel, we anticipate a return to growth in 2026 driven by our ASTA business. On the international side, we expect high single-digit revenue growth. 2026 adjusted EBITDA is expected to be in the range of $165 million to $185 million. This reflects an adjusted EBITDA margin of 18.2% at the midpoint. Consolidated EBITDA margin will continue to be impacted by both geographic segment and sales channel mix. We expect that Kiwi II's EBITDA will be a drag on overall margins for 2026 and synergies from the acquisition are expected to be back-end loaded for the year. Cash flow remains robust. And for 2026, we anticipate being around the higher end of the free cash flow conversion of adjusted income target range of 75% to 100%. Please refer to the presentation we have posted for details on the key planning assumptions for 2026. Thank you for your time. I will now turn the call over to Ramey for his closing remarks. Ramey?

Thank you, Anselm. Janus has a solid position in a great industry. We are the partner of choice for our customers through the full life cycle of their projects from design and build-out to maintenance and facility upgrades. While we face a dynamic operating environment, we continue to focus on the factors we can control. Consistent with our growth strategy, we are optimistic about our recent acquisition of Kiwi II Construction and we are confident in our plan to achieve our 2026 guidance of total revenue in the range of $940 million to $980 million and adjusted EBITDA in the range of $165 million to $185 million, reflecting growth of 8.6% and 4% at the midpoint, respectively. As I mentioned, household utilization for Self-Storage continues to grow. This, coupled with sustained high occupancy rates in the industry is a positive signal for increased future demand with a recovery in the housing market. Our strong balance sheet and cash flow foundation position us to further build upon our industry leadership position, expand into adjacent markets with attractive fundamentals and support our future growth. Taken together, I remain confident in our strategy and in our ability to deliver long-term value for our stakeholders. In closing, I'd like to thank our team, customers, shareholders for your support. We appreciate your participation on today's call. Operator, we would now like to open up the lines for Q&A, please.

[Operator Instructions] We'll go first this morning to Dan Moore with CJS Securities.

This is Will on for Dan. You've always described the core self-storage business as having 2 to 3 quarters of visibility. How does your visibility today compare to historic averages?

Yes. So I think we still have similar visibility from what we see in that 2 to 3 quarters based on the backlog that we have. So it's been similar in terms of visibility.

Yes. But I think we reflect that in our guide in terms of new construction. We're going to continue to see pressure there, but certainly optimistic around R3 and some of the things that the initiatives that we're focused on like Noke, the R3 efforts and just remaining super competitive and having that dominant strength that strength in new construction and commitment to our customers. But it's all reflected in the guide.

And just a follow-up, what are the 1 or 2 key metrics your REIT customers are looking for that would give them confidence to start to invest and build out new capacity once again?

Look, it's 100% interest rate driven. We've been very consistent in terms of the driver, the #1 driver of self-storage is mobility around housing. That's on the sidelines today. And when you look at how operators are performing, there's certainly some noise around pricing, but it's a very stable operating environment, lacking the largest driver, which is mobility around housing. So once people start moving around, you're going to see a different operating environment.

We'll go next now to Jeff Hammond of KeyBanc Capital Markets.

This is David Tarantino on for Jeff. Maybe starting with margins. Could you give us a bit more color on the degree of headwind from the higher international mix in 4Q? And what you have assumed in the guide on the margin line from an organic perspective? And then maybe any thoughts on how long you expect these mix headwinds to last would be helpful.

Yes. Thanks for the question. I think if you saw what we printed for the quarter, you saw international continue to grow pretty strongly as it did for the full year. And if you look at their EBITDA margins, obviously, it's improved year-over-year, but it's still significantly down versus our North America. If you look at going into next year, like Ramey said in his remarks is that we're still seeing softness in our new construction in our Janus core Americas business, which is a meaningfully higher margin rate. So we can't predict when that turn is going to be. But I think as long as we're going to see some of that pressure on the new construction piece in the Americas, we'll probably have some margin and mix headwinds from that.

And just to follow up quickly there. Is it fair to assume that the guide assumes that these mix headwinds persist through...

Correct. Yes, definitely.

Okay. Great. And then on commercial, it seems like it weakened if you adjust for the TMC catch-up and you called out some commercial sheet door decline. So could you give us some color on the softness here? And I just want to clarify on the guide. Is it high single digits just for ASTA? Or what are we thinking for the whole business?

Yes. For commercial, the way we're saying is that if you include everything together, it's in the high single-digit range, but not if you actually back out the TMC piece. So I think it's just looking at Kiwi and there looking at the other pieces to balance it over. But I think if you look at it, the overall -- if you look at the guide, we're probably mid-single digit for commercial for the full year.

Just additional color. A lot of the softness in commercial is coming from commercial sheet. We're actually seeing growth in our ASTA business, which we highlighted and have been consistent in terms of the messaging around architectural specifications effort. And we've certainly secured some work around the data center space, which is an exciting space to be in, and we've worked really hard to get spec. So we're excited about that and expect growth in the rolling steel business.

We'll go next now to Reuben Garner of The Benchmark Company.

So I think that you're roughly implying low single-digit organic revenue declines if we strip out an assumption for Kiwi. One, is that accurate? And two, can you break down the components of that price and volume? And then you mentioned commercial, but what about -- what are your assumptions for new versus R3 on the Self-Storage side as we sit today?

Yes. So that's about right, Reuben, is that we're looking at organic decline in the core business. The biggest piece, as we described, was really in that new construction America piece. That piece is going to continue to be a drag in terms of what we're seeing in the environment today. So that's what brings down the revenue year-over-year for the organic piece.

And in terms of price versus volume?

Yes. Price right now, if you look at what we described is that we had more price in the second half of 2025, that will roll into the first half of this year. So I think if you think about a price, similar type of price range impact in the first half, barring anything that happens with steel in the back half.

Okay. And then can you -- you've talked about the margin profile a little bit of Kiwi, but can you break out what gross margin looks like for that business? And then on the synergy front, what kind of synergies -- or can you go into detail on the synergies? And I assume that there's some top line potential synergies at some point as well. So just can you just refresh us on the opportunities there?

Yes. We haven't disclosed any of the details on the synergies, Reuben. But I think if you think about at least EBITDA margins, we've kind of at least given a range where it would be in that low teens range to start with because of integration costs and getting that business integrated into Janus. But I think longer term, we said that it has potential to get into the high teens as a business.

Just add to that, Reuben. As a stand-alone, I think you're asking the question as a stand-alone, but part of the acquisition strategy was Kiwi had never gone to market with the full solution, meaning door and hallway. So now they can offer their customers end-to-end both buildings and interiors. And as you know, the Janus core business is higher margin. So we expect to see some pickup in the Janus core sales by going to market with Kiwi. So we'll experience some higher-margin stuff at core with the acquisition.

We go next now to Phil Ng of Jefferies.

I guess -- I mean, the outlook, you're not assuming much of an improvement here, which seems more than reasonable. But Ramey, you talked about what's going to drive volumes perhaps reaccelerating its housing turnover, right, housing mobility. So we could look at that from an existing home sales and certainly rates coming down, all good guys. So just kind of help us unpack what's the lag if we look at that turnover inflecting, how does that impact your business where it's R3 on new construction? And then the other piece you guys have teased out in the past on rates was really more for your noninstitutional customers, maybe credit has been more challenged and less mortgage rates, it's more, I guess, shorter-term rates and maybe their ability to kind of be able to pursue more projects. Any color on that front if the credit markets have loosened up a little bit?

Look, that's a great question. I don't know that I can answer a lot of that. But what I can say from a confidence perspective, when things start to turn and things feel better, you'll see increased activity and investment. As we sit today, the mom and pops are essentially on the sideline. And that's a big -- that's 70% of the market. And so any momentum we can get with that segment will certainly have increment value. So when you think about R3, obviously, acquisitions matter. And I think we're hearing from the REITs that this should be a good year for acquisitions, which should bode well for R3. I can't predict the interest rate and what's going to get people moving around, have no early idea. You guys probably know that better than me. But we're just focused on being in the right position to when this thing turns around to take advantage of it and just sticking to our corporate strategy and making sure that we're lean and we're focused on being able to optimize everything and take advantage of what the market has to offer.

That's great color, Ramey. And then your outlook on R3 sounds a little more upbeat. I may have missed it if you quantify what you're assuming for RI. Is that just mostly M&A that you're talking about big REIT guys doing more renovation work that's driving that? Or you're seeing other avenues that gives you enthusiasm on that inflection in R3. Certainly, you've had some headwinds with the retail side of things that seems to have kind of bottomed out. But just give us a little more perspective on what's driving the inflection in R3.

Yes, you hit it. It has a lot to do with acquisition. Obviously, some of the big names we all know, we kind of track that activity, and that's been a big driver. What we're finding with our Noke product line is folks that are interested in adopting Noke, they're taking advantage of that opportunity to disrupt the unit, disrupt the tenants and doing full door replacement. So that's kind of a newer use case that's driving the R3 kind of renovation door replacement. And keep in mind, the fact of the matter is, is 60% of the installed base is over 25 years old. So there's still a meaningful replacement cycle that exists, and we just have to continue to put ourselves in a position to take advantage of that.

Okay. And Ramey, since you brought up Noke, good milestone this past year, up quite a bit. I believe we're not far away from that breakeven threshold of 500,000 units where I believe it swings to a much bigger kicker to your profitability. What are you assuming this year, I guess, in terms of Noke contribution? And any big wins you want to call out in terms of some of these bigger REITs that have perhaps adopted or committed to more Noke units for this year?

Yes. I'll let Anselm talk about kind of the metrics. But look, we remain super optimistic with Noke. Noke is addressing a few industry issues right now. A lot of the customers are experiencing kind of increased operating costs. Our Noke customers are actually watching those operating costs go down. There's an issue in the industry around theft and security. Our Noke customers are addressing that and eliminating that element. So it's really resonating and building out additional use cases. I'm not going to mention names at this point in terms of the larger folks who are working with the solution, but it continues to increase. We are in a much better place in terms of enterprise-grade software. The team has done a phenomenal job on uptime stability. We plan on rolling out additional products this year. And so we're excited. And you hit the nail on the head. We're going to hit 500,000 units this year, and that scale. So anything past that, we're going to start to generate -- it's going to help improve the bottom line. So even more optimistic today than I was in the past.

We'll go next now to John Lovallo of UBS.

This is Matt Johnson actually on for John. I guess first off, so I guess sales in the quarter were a bit stronger than we were expecting. I think they're above the top end of the outlook as well, while EBITDA was closer to the midpoint. So margin was a bit lower than we were expecting. I guess I think you mentioned it a little bit in the prepared remarks, but were there any mix impacts to call out, particularly on the gross margin side? And then kind of how should we think about the trajectory of gross margin as we move into '26?

Yes. As we said earlier, I think it's just the trend of the mix of the North American business being down a bit more than the other BUs that we have. And as you know, the margin rate is a lot different. You saw international, like I said earlier, continue to be strong in the quarter and obviously, their margin rate is lower than the Americas. So that's really that trend that we saw, and that's what we had indicated that's going into '26 in our guide.

That makes sense. And then I guess if I could also just follow up there. I guess within the context of the '26 outlook, how should we think about sales and EBITDA in the first quarter? And how impactful was adverse weather in January?

Yes. I think if you look at the trend, obviously, the trend we've talked about continues into Q1 where new construction in the Americas is a bit softer. Obviously, there's a little weather impact that we've seen as well. So I would expect a slower start for the year.

And gentlemen, it appears we have no further questions today. Mr. Jackson, I'd like to turn the things back to you, sir, for any closing comments.

Okay. 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.

Thank you, Mr. Jackson. Thank you, Mr. Wong. Again, ladies and gentlemen, that will conclude the Janus International Group fourth quarter and full year 2025 earnings call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.