Quanex Building Products Corporation

Good day, and thank you for standing by. And welcome to the Q4 and fiscal 2023 QuadNEX Building Projects Corporation Earning Conference Call. At this time, our participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Vilke, 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. 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 on the call. In what turned out to be another year of operating in a macro environment with strong headwinds for the industries we serve, I am very pleased to announce that the performance of the Quantix team in our fiscal 2023 resulted in a record year for both adjusted earnings and cash flow. Our team has stayed true to our mantra of controlling what we can control. In addition, we remain committed to our long-term growth with a purpose strategy and have positioned the company well to continue to create value for our shareholders. I would like to take this moment to thank the entire Quantix team for their spectacular performance and hard work this past year while continuing to make a difference with their caring and charitable endeavors in the communities where we are located. As I mentioned, 2023 was a year full of macro challenges that created headwinds for our top line. The devastating war in Ukraine continued to negatively impact consumer confidence in Europe and added unknown risks to energy costs for the winter months. In addition, we now have the war in Gaza, which again has the potential to disrupt markets, energy costs, and global freight channels. In the United States, 2023 saw a return to the more normal seasonality pattern that existed pre-COVID. We also saw a housing market that slowed as a result of higher interest rates and elevated pricing, and a repair and replacement market that softened throughout the year as COVID backlogs dissipated and more normal market drivers returned. Finally, our top line was impacted by the raw material index pricing mechanisms that exist in North America, for many of our key raw materials, such as resin, steel, aluminum, wood, and oil. As the prices for these raw materials dropped rapidly during the year, revenue dropped accordingly. Notwithstanding these revenue challenges, our team remained focused on controlling what it could control, such as non-raw material customer pricing, service and delivery performance, sourcing decisions, and continuous improvement initiatives. From a fixed cost perspective, we continuously challenged the status quo of our operating structure, worked with our employees on medical cost programs, and developed preventative programs to reduce expenses. When combined, these focus areas contributed to what was another record year for adjusted earnings and cash generation. Another accomplishment that I want to highlight from the year is our successful acquisition and integration of the LMI custom mixing assets. As a reminder, we bought the LMI assets in November of 2022 as the first move under our refresh growth strategy. While this was a relatively small acquisition, it was a familiar operation that represented low execution and integration risk. Looking at it now 12 months later, I think it is fair to say that it achieved all of the objectives that we had hoped it would. First, it fits squarely within our material science and process engineering expertise. Second, it expanded our product portfolio into a new and attractive category with products that serve different and growing end markets. And finally, the acquisition was both immediately accretive to adjusted EPS and improved our consolidated margin profile. In short, the LMI acquisition has accomplished everything that we set out to do, and I would like to thank Jim Nixon and the entire Quantix custom mixing team, as well as the Cambridge, Ohio, North American fenestration team for their efforts in making this acquisition and integration a resounding success. As for cash flow, Our management of working capital and ability to capitalize on reduced materials pricing contributed significantly to our year-over-year improvement in free cash flow, and it enabled us to repay $40 million of debt in Q4 alone. It is important to note that we borrowed $92 million to acquire the LMI assets on November 1, 2022, and repaid $90 million of debt throughout the fiscal 2023 year. Looking ahead to fiscal 2024, we expect to continue seeing a seasonal cadence that was normal before 2020. From a demand perspective and based on conversations and forecasts we have received from our customers, we expect the volumes will be pressured in the first half of the year. We have already seen customers in both the fenestration and cabinet markets announce longer than normal holiday shutdown periods. We believe demand for our products will begin to see an uptick in the second half of 2024 as consumer confidence starts to improve with the prospect of interest rates decreasing on the horizon. This should spur activity in the residential housing sector as we are still very underbuilt in both North America and Europe. Looking forward at our growth initiatives, we will remain steadfast in following the parameters of our growth with a purpose, or said in a different way, profitable growth strategy. This includes investment in both organic and inorganic growth projects. From an organic growth perspective, we continue to invest in our compound development, spacer development, and new PVC technologies. Continued growth in these areas will come through new product innovation and further expansion into flashing tapes, refrigeration spacer systems, and solar panel sealants. We will also continue to explore opportunities for inorganic growth through acquisition. With that said, we will remain diligent in our review and make sure any potential acquisition target either fills out an existing market channel or takes us into an adjacent market with better growth and profit potential. In either case, we would expect margin accretion either on a standalone basis or through derived synergies in combination with our business. Our strong balance sheet gives us flexibility and optionality, and we look forward to continuing to deliver results through both organic and inorganic opportunities. I would like to now turn the call back over to Scott, who will discuss our financial results in greater detail.