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

Hello, and welcome to the Janus International Group Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to your host, Ms. Sara Macioch, Senior Director, Investor Relations of Janus. Please go ahead.

Thank you, operator, and thank you all for joining our earnings conference call. I am joined today by our Chief Executive Officer, Ramey Jackson; and our Chief Financial Officer, Anselm Wong. We hope that you have seen our earnings release issued this morning. 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. Our remarks in the press release, presentation and on this call contain forward-looking statements regarding the company's business, strategy, operations and financial performance. Please review the forward-looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the most directly comparable GAAP financial measure can be found in our earnings press release and presentation. On today's call, Ramey will provide an overview of our business. Anselm 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.

Thanks, Sara, and good morning, everyone. Thank you all for joining our call today. Second quarter results reflected a continuation of the macroeconomic trends we have discussed throughout the year as the operating environment remained challenging across many of the markets we serve. While we remain focused on execution and serving our customers, these factors had a greater impact on demand than we anticipated. As a result, total revenue totaled $233.5 million and adjusted EBITDA was $40.2 million. Based on our year-to-date performance and current visibility, we are revising our full year guidance. Demand levels across our core business have not trended as we expected, and we believe it's appropriate to reflect that reality in our outlook. While we have updated our expectations to reflect current market conditions, our conviction and strategy remains unchanged. We remain focused on executing against the priorities that we believe will strengthen the business and create long-term value. Let me take a few minutes to discuss our progress on those initiatives. As a reminder, we refer to our strategic framework as growth, greater penetration of self-storage, ramping adoption of smart security solutions, outperforming in the commercial market and winning through strategic accretive acquisitions. Beginning with greater penetration of self-storage, market conditions remained challenging during the quarter, predominantly in North America new construction, where project activity and customer investment levels continue to be constrained, particularly among our smaller customers. We continue to expand and refine our product offering in order to adapt to our customers' changing needs, including our R3 business, international presence and design build capabilities, allowing us to deliver more comprehensive solutions. Integration of our Kiwi II Construction acquisition remains on track. Anselm will speak further to our expectations for the business this year shortly. Next, ramping our smart security solutions through our Noke Smart Entry platform. During the quarter, we reached a significant milestone of surpassing 500,000 installed Noke units. This achievement reflects years of investment and execution and marks an important inflection point for the platform. As we have discussed in prior periods, scale has always been a critical component of the Noke strategy. Reaching this stage marks an important step in that journey and supports our ongoing efforts to improve profitability and drive greater recurring revenue over time. Adoption of Noke continues to increase, reinforcing the meaningful value in the solutions that help our customers improve operational efficiencies, enhance security and streamline facility management. As we continue to advance our product road map, we have been encouraged by the initial interest in Noke Infinite, our on door dual technology smart locking system we announced earlier this year. We expect Noke Infinite will be available for factory install on both roll-up and swing doors beginning in the fourth quarter. The third priority of our growth strategy is increasing our share in the market for commercial doors. While commercial sheet door demand remains soft, we are seeing benefits from our expanded distribution footprint and architectural specification initiatives. Our efforts in the data center space also continue to progress. We are exploring new product capabilities and continuing to position ourselves as a strategic manufacturing partner for OEMs. Our final priority is winning through disciplined M&A. Strategic acquisitions remain an important component of our strategy, and we continue to evaluate opportunities that enhance our capabilities, expand our solutions offering and support long-term value creation. Combined with our scalable operating platform, this disciplined approach enables us to pursue growth while maintaining a relatively low capital intensity business model and strong cash flow generation. As we look ahead, we will continue to focus on what we can control, executing with discipline, supporting our customers while adapting to their changing needs, optimizing our operations and advancing our strategic priorities. While market conditions remain challenging, our revised guidance reflects our best assessment of the current demand levels and positions us to execute against expectations that we believe are achievable. With that, I'll now turn the call over to Anselm for a more detailed review of our financial results and to discuss our revised 2026 guidance. Anselm?

Thank you, Ramey, and good morning, everyone. Ramey spoke to our strategy and results at a high level, and I will focus my remarks on financial performance in the second quarter and our updated 2026 guidance. For the second quarter, consolidated revenue of $233.5 million increased 2.4% as compared to the prior year. Inorganic revenues for the quarter were $19.2 million, reflecting contributions from Kiwi II Construction. At the sales channel level, our self-storage business was up 15.4%, new construction increased 20.3%, while R3 was up 6.6% for the quarter. The increase in revenues for new construction was driven by contributions from Kiwi II Construction and strength in our international business, which offset continued softness in North America. On an organic basis, new construction revenues were flat compared to the prior year. The increase in R3 revenue was driven by increases in door replacements and redevelopment activity as well as increased conversion and expansion activity. In the second quarter, total revenues in our International segment increased to $31.1 million, up 9.5% compared to the prior year period, driven by growth in new construction and market share gains. For the quarter, revenue in our Commercial and Other segment decreased by 21.2%. The decline was primarily driven by continued softness in demand for commercial sheet doors. Second quarter adjusted EBITDA of $40.2 million was down 18% compared to the second quarter of 2025. This resulted in an adjusted EBITDA margin of 17.2%, a decrease of approximately 430 basis points from the prior year period. The decrease in margins year-over-year is primarily attributable to the impact of geographic segment and product mix. For the second quarter, we produced adjusted net income of $23.9 million compared to adjusted net income of $28.2 million in the prior year period. Adjusted EPS for the quarter was $0.17. We generated cash from operating activities of $24.4 million and free cash flow of $21.6 million in the quarter. On a trailing 12-month basis, this represents a free cash flow conversion of adjusted net income of 129%. Capital expenditures in the quarter were $2.8 million. We ended the quarter with $205.3 million in total liquidity, including $127 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $550 million, and net leverage was 2.7x within our target range of 2 to 3x. Our liquidity levels allow us flexibility in our capital deployment. During the quarter, we repurchased approximately 367,000 shares of our common stock for a total of $1.9 million. Year-to-date, we have repurchased approximately 3.2 million shares of our common stock for a total of $17.6 million. We had $63 million remaining on our share repurchase authorization at quarter end. Now moving to our 2026 guidance. As Ramey noted, we continue to face a challenging operating environment with demand trends remaining more muted than expected. In light of current market realities, we have adjusted our expectations for the year to reflect the environment we are seeing today and to align with what we believe is a prudent and achievable set of expectations. We have yet to see the macro environment stabilize as we anticipated entering the year, which has contributed to slower activity across portions of our core business, reflecting ongoing inflationary pressures and stagnant housing demand across North America. As a result, we now expect full year revenue in the range of $925 million to $945 million. Additionally, due to delays and extended project time lines on certain projects originally anticipated to be completed this year, we are adjusting our expectations for inorganic revenue from Kiwi II Construction to be approximately $80 million to $90 million. We now expect North America organic self-storage revenues to be down high single digits compared to 2025, driven mostly by continued softness in new construction. In our commercial sales channel, we now anticipate revenues to be roughly flat. On the international side, we expect high single-digit revenue growth. From a profitability standpoint, we continue to manage costs and remain focused on operational efficiency while optimizing our footprint to better align with current demand. While lower forecasted volumes, negative mix and inflationary pressures across the supply chain have put pressure on margins year-to-date, we anticipate the benefits from these actions will result in a sequentially stronger back half. As a result, 2026 adjusted EBITDA is now expected to be in the range of $150 million to $170 million. This reflects an adjusted EBITDA margin of 17.1% at the midpoint. We continue to anticipate being around the higher end of the free cash flow conversion of adjusted net income target range of 75% to 100%. Our updated guidance reflects current market conditions and our best assessment of demand trends for the remainder of the year. Importantly, we continue to generate strong cash flow, maintain a healthy balance sheet and invest in the strategic initiatives that we believe will drive long-term growth and shareholder value. Please refer to the presentation we have posted for additional details on the key planning assumptions for 2026. Thank you all for your time. I will now turn the call over to Ramey for his closing remarks. Ramey?

Thank you, Anselm. Janus continues to hold a strong position in an attractive industry, but it's clear that current market conditions remain challenging. Importantly, we continue to make meaningful progress against our strategic priorities. Surpassing 500,000 installed Noke units marks an important milestone for the platform and demonstrates continued adoption of the technology-enabled solutions across the self-storage industry. While new construction activity, particularly in North America, remains constrained, and we expect market conditions to remain challenging in the near term, we are encouraged to see improving sentiment from some of our larger customers. The long-term fundamentals of self-storage remain favorable. Industry occupancy levels remain healthy, household utilization continues to grow and ongoing consolidation among operators continues to support investment in facility upgrades, modernization and operational efficiency. Although we cannot control the macroeconomic environment, we can control how we respond. We remain focused on serving our customers, optimizing our operations, managing our costs with discipline and allocating capital responsibly. Supported by a strong balance sheet and healthy cash generation, we believe we are well positioned to emerge even stronger when market conditions improve. In closing, I want to thank our team, customers and 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] Our first question today comes from Phil Ng with Jefferies.

I appreciate all the color. If I look at your new construction business in 2Q, frankly, if you strip out Kiwi, organic sales were kind of flattish. I guess kind of kick things off, Anselm, the revised outlook, the guidance we're forecasting a weaker demand environment. It feels like it's more new construction, maybe some of the projects getting pushed out in Kiwi. But can you expand a little bit what you're seeing and how trends kind of progress each quarter going into July and August?

Yes. The markets, like we said, it's just similar to the first half we're expecting to the second half. And what we saw is just unfortunately, in our buildings business, we saw some project pushouts, and that's why we kind of revised that piece of it. But that seems to be the similar trend that we've seen across the board in terms of just that pushout delays that we're seeing on those projects. The good thing is that what we've reviewed is that there's not been cancellations. It's just been a timing pushout.

Okay. But the weakness in new construction, did it progressively get worse intra-quarter? I mean, Kiwi aside, it sounds like it's more timing related. But what about new construction on your...

No, it's about the same.

What do you say?

Yes. New construction is relatively the same like we said. I think the biggest thing you saw was commercial just not getting the upturn that we were expecting that we would get.

Okay. Which was my next question, right? Commercial has generally been pretty benign, and this was a big drawdown down 20%. Is this timing related? Is this -- like what's driving the big shortfall on the commercial side of things?

Yes, I'll take that one. Phil, it's Ramey. Look, I think the biggest -- yes, the biggest drag on our commercial revenue is specifically the commercial sheet doors, which predominantly are installed in pre-engineered metal buildings. And that end market has -- obviously has headwinds. And so that was really the biggest drag on the miss there. But when you think about the category, our rolling steel product is continuing to grow -- continuing to perform well. We mentioned our strategic strategies around architectural specifications. That was super important and has been ongoing for over a year, and that's starting to pay off. We're kind of -- obviously in the data center space, which is in growth mode. So we're excited about that. But to answer your question on the miss, it's really -- it's the commercial sheet door product specifically.

Okay. And sorry to sneak one more in. R3 has actually been a bright spot and it's been a bright spot for a few quarters. Ramey, perhaps on that front, I suspect all the M&A activity from some of your larger REIT customers have contributed to that. I'm just curious, how is the outlook looking for R3 in the back half? Is there going to be a smooth handoff from one large deal to that? Just give us a little more context on what you're seeing on the R3 side as we look out to the back half of this year.

Yes, there's a lot there. I think to your point around consolidation, look, that certainly plays an important role in the investment, but that's not 100% where we're seeing the uptick in R3. Think about mostly institutional customers, and they're just rightsizing and shoring up their facilities during this downtime. So we mentioned that conversions and expansions are -- is a growing piece of the business, and that's what we're seeing. So pretty happy with the progress there and the way that that's trending on the backlog and pipeline as it relates to R3. We just have to continue to refine our products to make sure that we're in the right spot for, obviously, this ever-changing market. But we're pretty pleased with the R3 initiative.

Our next question will come from Jeff Hammond with KeyBanc Capital Markets.

This is David Tarantino on for Jeff. Maybe just starting on the margins. Could you just give us a little bit more color on the lower margin outlook? Is this just simply on the lower volumes? And then maybe give us some color on kind of the key buckets that support the second half improvement versus the first half.