JELD-WEN Holding, Inc.

Good day and thank you for standing by. Welcome to the Gerald Wendt Holding Incorporated Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. And to ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Simply press star zero. I would now like to hand the conference over to your speaker today, Chris Tichot, Director of Investor Relations. Thank you, and please go ahead.

Thank you. Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website, which we will be referencing during this call. I'm joined today by Gary Michel, our CEO, and John Laker, our CFO. Before we begin, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. Jelvin does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results or statements regarding the expected outcome of pending litigation. Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix for this presentation. I would now like to turn the call over to Gary.

Thanks, Chris. Good morning, everyone, and thank you for joining us this morning. At Shell, when we talk about our aspiration to be a great company, we define a great company as one that people want to buy from, people want to work for, investors want to invest in and that does the right thing for people, our communities and the world. We've been sharing with you our multifaceted growth strategy and how we're executing this discipline plan to accelerate growth, expand margin and deliver cash while allocating capital to optimize shareholder returns. What is really special about our progress and what is frankly unique to Gelwyn is our engaged team of associates and the values-based premier performance culture we're creating. The foundation of our strategy deployment is our business operating system, the Gelwyn Excellence Model or GEM. GEM is the systematic way that our people work within the company to deliver our strategy globally. This holistic approach is anchored in the very essence of a lean problem-solving culture, the practice of continuous improvement, development and respect for people, and the identification and elimination of waste to deliver growth. Please turn to page five. The second quarter exemplifies our accelerating progress as we yet again delivered strong, broad-based financial performance. Consolidated revenue grew 25.5%, and core revenue grew 19% in the quarter. Core revenue growth accelerated in each segment, driven by volume from share gains in key products and channels, continued price discipline, and favorable mix. Gross profit increased 33.5%, and we delivered 140 basis points of gross margin expansion from strong volume leverage priced at more than offset inflation and productivity. Our global sourcing capabilities and self-sufficiency in key manufacturing processes are competitive advantages that ensure consistent material availability and reliable delivery to our customers. This quarter is our 11th consecutive quarter of favorable price costs and our sixth consecutive quarter of gross margin expansion. And with volume growth in every segment, we extended our track record of core revenue growth as well. We expect actions currently underway to drive continued year-over-year growth and margin expansion. The strong financial performance in the quarter was broad-based across segments. In North America, core revenue grew 21% with a 60 basis point growth in core margin and 250 basis points of improvement year-to-date. We experienced strong demand from residential new construction and replace and remodel activity, and our operational excellence initiatives continued to result in industry-leading lead times that delivered share gains and margin expansions. Europe and Australasia posted exceptionally strong growth as well. In Europe, core revenue growth of 21% was driven by strong market demand for replace and remodel, as well as share gains in target markets and gem initiatives that are reducing cycle times. The European team's operational excellence is also quite strong, with eight consecutive quarters of margin expansions. Australasia core revenue grew nicely at 9% as residential new construction markets strengthened and our replace and remodel initiatives delivered results. This was Australasia's third consecutive quarter of core revenue growth, demonstrating that the housing recovery in that market is gaining momentum. Cash generation in the quarter was again strong, driven by growth, profitability, and continued strong cash conversion through efficient working capital management. We seek to compound returns on cash flow through our disciplined approach to capital deployment. At current levels, we believe our shares are undervalued and represent a great investment for us and an excellent use of our cash. Demonstrating this view, we repurchased approximately 1.2 million of our shares during the quarter and approximately 2 million shares year-to-date. At quarter end, we had approximately $113 million remaining under our current share repurchase authorization. Today, we're pleased to announce that our board of directors has increased the share repurchase authorization to $400 million. The upsides of our share repurchase program demonstrates confidence by the board and management in Gelwyn's multifaceted growth strategy and continued performance. Please turn to page six. There are a lot of things that we're doing day in and day out to better serve our customers and build momentum across Jelwin. The gem tools we deploy to solve problems drive our ability to meet customer demand through cycle time improvements, which leads to continued growth acceleration and margin expansion. As we shared during our investor day in May, there are numerous examples across the enterprise. We've identified and started the transformation process at nine of our model value streams. As we head into the second half of this year, we are in the execution phase as we complete the startup activities at these model transformation sites. Plans are in place to complete over 90 rapid improvement events or Kaizens as part of our gem value stream analysis or VSA process. and we expect to kick off the VSA process at five more sites during the second half of the year. RIEs represent real opportunities to improve throughput and effectivity, add capacity, and support accelerated growth. Let me share some representative results for already completed RIEs in our North America door prehang operations. In one of our door pre-hang sites, we have seen a 35% improvement in throughput and associated productivity as a result of operation rebalancing. Another site has seen a 15% improvement through cell creation and single piece flow discipline. And we have lined a site to a 30% improvement in overall pre-hang activities when these RIEs are complete. RIEs in our door finishing operations has led to quality improvements and cycle time reduction nearing 35% with more opportunity to come across all of Gelwind, demonstrating how we deliver productivity and meet accelerated market demand and grow share. In the North America windows business, our lead times remain among the best in the industry. Continued focus on operational excellence to reduce cycle time and expand capacity through the disciplined deployment of GEM allows us to meet customer needs and gain share in the current high-demand environment. In addition to these examples, we are also investing in capacity expansion to grow. Our VPI multifamily business recently commissioned new operations in Statesville, North Carolina. Statesville is producing VPI quality windows and serving customers today, and we expect it will effectively double our capacity as we better serve East Coast customers. And VPI continues to grow nationally. Associates across Europe demonstrated the commitment to GELDWIN's core values as they integrated World Safety Day into a week-long regional celebration of health, safety, and inclusion. Particularly focusing on two GELWIN core values, build businesses ethically and safely, and improve every day, all operations and functional associates participated in related activities and opportunities to make personal commitments to their own well-being. The very personal approach provided moving examples of how safety and inclusion make a difference in engagement and our premier performance culture. Please turn to page seven. In May, we published our inaugural environmental, social, and governance report that highlighted our legacy of sustainability, community involvement, and our values-driven culture. We outlined our ambition to lead more broadly on environmental, social, and governance matters across a variety of pillars that are important to our stakeholders. These ESG initiatives support the foundation of our universal strategy for growth that we outlined in our May Investor Day, our first as a public company. We highlighted the strength of our team and shared real-world examples of how Gelgwin Associates are driving positive change globally to deliver differentiated and superior customer experiences. We detailed 2025 revenue growth, margin expansion, and free cash flow conversion targets and demonstrated how our multifaceted growth platform can deliver differentiated performance through innovation, price discipline, operational excellence, and disciplined capital allocation. By all accounts, this was a significant quarter for Gelwind. Today, we announced that we have decided to begin the process of divesting the wood fiber building products business located in Tawanda, Pennsylvania. And therefore, we will not pursue an appeal of the decision by the Fourth Circuit Court of Appeals upholding the district court's original divestiture ruling. After a thorough review of our options, we have concluded that it is in the best interest of our customers, our associates, and our shareholders to begin the divestiture process and eliminate the ongoing uncertainty around this matter. A leader in wood fiber composite technology, the business at Tawanda has talented associates, a high-performance product portfolio, and attractive financial characteristics. The Tawanda facility is a unique, well-performing asset, and we believe that business will attract significant interest from buyers due to the current housing and renovation boom and strong M&A market conditions. Sheldon is well-prepared to support the continued growth of our customers post-divestiture, providing industry-leading products and services to our customers and delivering value for our shareholders. We will work with the court appointed special master to complete the sale and maximize the value of the divestiture assets. The special master has retained an investment bank to evaluate options and to ensure an orderly and fair process. Sheldon has the right to challenge the divestiture process and final order. And the fourth circuit made it clear that the district court may have to revisit its ruling. If a satisfactory buyer is not secured. Please turn to the next page. Looking ahead, we remain confident that supportive housing fundamentals in each of our segments will continue to drive demand for our products. In North America, we see a positive long-term outlook for residential new home construction due to favorable demographics, a dramatically underbuilt housing market, supportive interest rate environment, and what we believe is a more permanent shift in homebuyer attitude, which should provide a tailwind for residential new construction for the foreseeable future. In the short term, Homebuilder orders and starts have slowed as the industry absorbs demand and deals with capacity constraints. We view these developments as transient, short-term issues and continue to feel positive about long-term housing fundamentals. Replace and remodel activity in North America, particularly for larger ticket items, should also remain positive. given the tight correlation with many of the same factors, positively impacting new construction, supported interest rates, demographics, increased focus on the home, coupled with substantial home equity value creation and an increasingly aged housing stock. In Europe, we continue to anticipate solid demand due to positive fundamentals across all of our four markets. Replace and remodel activity is currently stronger than residential new construction in Europe as consumers focus on their homes and use disposable income for home improvements. Our northern and central European markets are currently showing the highest level of demand. Meanwhile, commercial construction has slowed slightly from uncertainty around demand for office space and hospitality. In Australia, which is recovering from a multi-year housing recession, record level of activity is now forecasted through 2022 in the single-family new construction market, driven by home builder incentive programs, low interest rates, and healthy economic growth. These same factors should continue to drive strong replace and remodel activity as well. An eventual reopening of borders to integration, will support recovery in the multifamily new construction market, a key driver of long-term housing demand. The housing fundamentals in each of our regions are very favorable, and we are executing on strategies to accelerate above-market growth in each segment. With a strong first half behind us and strong fundamentals and execution ahead, we are excited about the remainder of 2021. John will now provide additional detail on our financial performance. Thanks, Gary, and good morning, everyone. I will start on page 10. Our second quarter financial results demonstrate the benefits of our multifaceted growth platform and extend our consistent track record of execution with improvements in revenue, earnings, and cash flow. This strong performance is a direct result of investing in our strategic growth drivers over multiple quarters and the ongoing momentum of Jim. Second quarter net revenue increased 25.5% to $1.25 billion. The increase was driven primarily by a 19% increase in core revenue, as well as a favorable impact from foreign exchange, notably U.S. All three segments delivered core revenue growth with broad-based acceleration and volume mix and pricing showing improvements both year over year as well as sequentially. Gross profit margin expanded 140 basis points, benefiting from price realization that more than exceeded material and freight inflation, operating leverage on increased volume, structural cost reduction programs, and productivity savings from GEM initiatives. Our commercial teams in each region have done a fantastic job enabling this margin improvement by implementing multiple pricing actions to stay ahead of rapidly accelerating inflation in all of our global markets. Reflecting this strong operational performance, adjusted EBITDA increased 17.9% year-over-year, while adjusted EBITDA margin declined 80 basis points as the gross margin improvement was offset by higher SG&X. from the non-recurrence of our second quarter 2020 COVID-19 related cost savings measures, as well as the margin dilutive impact of foreign exchange. Core adjusted EBITDA margin, which excludes the impact of recent acquisitions and the impact of foreign exchange, declined only 40 basis points. Page 11 provides detail of our revenue drivers for the second quarter. I'll highlight strong volume mixed growth of 13%, driven by North America and Europe, as well as pricing realization of 6%. Both volume mix and pricing improved sequentially from the first quarter. Please move to page 12, where I'll take you through the segment performance in more detail. Net revenue in North America for the second quarter increased 21.7%, driven by pricing, volume growth, and improvements in mix. North America's 8% price realization rate was a sequential improvement from the first quarter as we implemented additional rounds of pricing to offset accelerating inflation. North America volume mix in the quarter improved 13% as our healthy service levels allowed us to meet strong demand in all channels. Mix benefited as well as special order activity picked up in the retail channel. North America core adjusted EBITDA margin expanded 60 basis points to 15.6%, driven by price realization and excessive inflation, and operating leverage on improved volume and mix, which more than offset the non-recurrence of COVID cost savings programs implemented in 2020. The margin improvement was nicely distributed across all major product lines. While there are many examples of stellar performance in our North America segment this quarter, I'm excited to highlight the momentum in our exterior door business, which sells steel and fiberglass doors through both retail and traditional wholesale channels. Exterior door revenue growth exceeded 30% compared to prior year, which we gained share with key accounts and target markets. Demand for these exterior products is strong, and we are making additional capacity investments in this area. which will enable continued growth in future periods. Europe's revenue increased 33.7% overall and 21% excluding the impact of foreign exchange. Both pricing and volume improved versus prior year, with UK, France, and Central Europe leading the revenue growth in the segment. For the eighth consecutive quarter, Europe delivered core margin improvement with an increase of 130 basis points year over year from strong productivity and operating leverage on healthy volume. Australasia revenue in the quarter increased 27.1% overall and 9% in local currency versus prior year. Volume benefited from accelerating housing demand and the government stimulus program. The Australia housing market continues to show strong demand and fundamentals are solid for future growth, with record levels of activity for single-family new construction expected to continue through 2022. Increasing COVID restrictions implemented by governments in several countries in the Australasia segment will likely temper the pace of revenue growth in the second half of 2021. As a result of these temporary restrictions, Our Malaysia facilities have been closed for two months. Our Indonesia facilities are operating below full capacity, and construction projects have been temporarily halted in several major end markets in Australia. Australasia segment core margins declined 90 basis points in the quarter as a result of higher inflation compared to the timing of full realization of price increases, as well as a non-recurrence of COVID-related benefits realized last year. Please turn to page 13. Operating cash performance improved $2.4 million compared to prior year as higher earnings were partially offset by an increase in cash taxes and cash interest, as well as the payout of previously accrued litigation settlements. Capital expenditures were largely flat with prior year. The balance sheet remains healthy as net leverage reduced further to 2.2 times, and liquidity was strong at over $1 billion, including a cash balance of $618 billion. We are focused on deploying our cash in a disciplined, returns-focused manner and compounding the returns on that cash over time. Finally, I'll highlight our very successful recent debt refinancing that closed on July 28th. We upsized our asset-based revolving credit facility from a facility size of $400 million to $500 million to take advantage of our growing assets and borrowing base to support liquidity. Additionally, we extended the revolver maturity from 2022 to 2026 and maintained very attractive pricing and terms. We also issued a new $550 million Covenant Light Term Loan B to replace a loan of the same amount and extended the maturity from 2024 to 2028. We retained very attractive pricing and terms on the new term loan as well. As a result of these transactions, we optimized our debt maturity schedule and now have no significant debt maturities until 2025. And importantly, we continue to have no maintenance financial covenants. This debt structure gives us the flexibility to execute on our strategy while maintaining flexibility for capital allocation that drives shareholder value. With that, I'll turn it back over to Gary, who'll provide closing comments. Gary? Thanks, John. With strong momentum in the first half of the year and favorable market conditions driving demand in every segment, we're increasing our guidance for full-year revenue growth. We now expect to deliver full-year revenue growth in the range of 12% to 14% increased from the previous outlook of 8% to 11% due to foreign exchange, recently completed pricing actions, and strong volume momentum. We expect that continued operational excellence, pricing discipline, and productivity will deliver EBITDA in the range of $510 million to $535 million, an increase from the prior range of $505 million to $535 million. This updated outlook implies a slight reduction in our EBITDA margin rate for the full year due to the impact of updated assumptions for FX, as well as higher revenue from additional pricing, which continues to offset inflation. As you can see, favorable market conditions in each of our segments, in many cases, the best demand conditions we have seen in quite some time, coupled with our consistent execution are demonstrating differentiated financial performance. I am so proud of our associates around the world who are committed to delivering for our customers, our shareholders, and each other every single day. This premier performance culture centered on our core values is what separates Jelwin and ensures our success. Thank you for joining us today. John and I will now be pleased to take your questions.