Quanex Building Products Corporation

Good day and thank you for standing by. Welcome to the Q3 2023 Quantix Building Products Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Scott Zilke, SVP, CFO, and Treasurer. Please go ahead.

Thanks for joining the call this morning. On the call with me today is George Wilson, our 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 Quantix 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. Let me first say how proud I am of our team this quarter, as our strong execution delivered a record quarter from an earnings and a margin perspective, and all of our operating segments realized margin expansion. I'm especially proud of these results because they came in a quarter when our top line results were somewhat challenged as compared to last year. Looking back, and as a reminder, 2022 was a year driven by record demand, elevated surcharge pricing across all operating segments, and increased material index pricing in North America. Year to date in 2023, our top line results have been impacted by softer market volume, and our pricing started to decline year over year during the third quarter, mostly in North America, as raw material costs have come down. However, as we stated in our previous two quarterly earnings calls, Our shipments cadence this year has indicated that we are returning to more normal seasonality versus what was experienced during the last two years. That shipment trend continued through our third quarter, and as a result, our volumes were up versus the first half of this year. In addition, we saw a return to more normal order pattern for our spacer products in Q3, which were impacted negatively by customer destocking initiatives throughout the first half of the year. Despite the lower revenue and in an environment of uncertain macroeconomic conditions, we continued to execute across the board and generated record net income and EBITDA for the quarter. This performance also translated into free cash flow generation that was meaningfully higher than the same quarter last year and enabled us to repay $25 million of debt. So overall, we are extremely pleased with our execution in the third quarter of this year. I will now provide some insight into our view of the macroeconomic conditions we are facing. From a global perspective, we believe that consumer demand may continue to be pressured for the next six to nine months due to higher interest rates, energy cost challenges in the winter months, and lingering effects from pull-forward demand for our products during the two years following COVID. More recently, economists seem to be indicating that the macro fundamentals for new construction may recover faster than the R&R markets. From an input cost perspective, we are seeing signs that inflation of major raw materials has eased, and we are even seeing some cost decreases for certain items. However, highly engineered components and chemical feedstock pricing remain relatively strong. Labor costs across the globe are also still high, and the available labor markets remain tight. We think this situation will continue despite some volume softness as most companies will only reduce labor as a last resort when trying to manage margins. Logistics costs are somewhat mixed as fuel and carrier expenses remain high on domestic freight. One area of relief has been a significant reduction in ocean freight expense and container fees. Finally, energy costs remain elevated, although not nearly as high as we might have anticipated a year ago. With all this being said, we expect a choppy start to fiscal 2024, but we anticipate an improving market in the back half of next year. Even with this backdrop, we are very confident in our ability to execute, and we are well-positioned to outperform as the market improves. Our focus remains on controlling what we can control. Near-term macro headwinds and index-related pricing pressures present challenges for revenue, but the Quantix team continues to perform. As we head into our final quarter of the year, we feel we are well positioned to execute on our strategy and continue to create value for our shareholders. I will now turn the call over to Scott, who will discuss in greater detail our financial results.