Hello and welcome to the Janus International Third Quarter 2021 Earnings Conference Call. Currently, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the call over to your host, Mr. Scott Sannes, Chief Financial Officer, Janus. Thank you, you may begin.

Thank you, operator, and thank you all for joining our third quarter 2021 earnings conference call. We hope that you have seen our earnings release issued this morning. Please note that 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 describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements. Please note that the company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, 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. In addition, we will be discussing or providing certain non-GAAP financial measures today including adjusted EBITDA, adjusted EBITDA margins, management adjusted EBITDA, management adjusted EBITDA margins, adjusted net income, and adjusted EPS. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. I am joined today by our Chief Executive Officer, Ramey Jackson, who will provide an overview of our business and give an operations update. I will continue with a discussion of our financial results and outlook before we open up the call for your questions. At this point, I will turn the call over to Ramey.

Thank you, Scott. Before I begin, I think it would be a good idea to remind you all of who we are and what we do at Janus given the recency of our public company status. Janus provides industry-leading products and access-control technologies to the self-storage and commercial space. We offer a wide range of critical products and solutions with over 50% share of the fastest-growing self-storage market. In our three division, which is our replacement, remix, and renovation business, we sell products and services to help customers upgrade their assets within an ageing storage industry. As approximately 60% of self-storage facilities are over 20 years old, the sales channel provides Janus with significant growth opportunities. We are a first mover in providing smart-lock technology through our proprietary Noke wireless solutions. In addition, we provide a full line of complete self-storage building systems with our BETCO division as well as a complete offering of rolling steel doors for the commercial, industrial, and warehousing space with our ASTA division. Even though we manufacture products, Janus is viewed in the industry as a solutions provider. This go-to-market strategy is what helps drive the margin profile of the business. Over the past five years, we've doubled our business through a balanced mix of organic and acquisitive growth and expect to continue to grow attractively in the future. We have a very strong position in the self-storage and leading position with our customers in all of our business segments. The third quarter of 2021 was an exciting one for Janus. It was our first full quarter as a public company. We built on our momentum with the closing of our strategic acquisition of DBCI, adding a premier provider of steel roll-up doors and building products for both the commercial and self-storage industries. The complementary…

Thanks, Ramey, and good morning everyone. In the third quarter, revenues of $187.8 million were up 33.8% or 27.1% on an organic basis compared to the prior-year quarter, driven primarily by solid execution and performance in our R3 and commercial and other sales channels. R3 was up 68.6%, commercial and other was up 104.1% while new construction was down 11.5% versus the prior-year quarter. A contributing factor to the exceptional growth rate in the commercial sales channel for the quarter was our lead times. Even with the industry supply constraints, our lead times continue to be significantly better than many of our competitors resulting in superior growth. The consolidated revenue growth was bolstered by the COVID-related recovery across all end-markets along with partial quarter contributions from the DBCI and ACT acquisitions, which occurred in the quarter. The mix in revenues with R3 and commercial showing strong growth compared with new construction reflects a trend we discussed on last quarter's call and that continues where facility owners and operators are adding new capacity via conversions and expansions rather than greenfield construction. As a reminder, our margin profile is generally similar across new construction in R3, but the commercial margins are slightly dilutive, so the change in mix is impacting the overall margin profile of the business on a consolidated basis. Adjusted EBITDA of $36.3 million was up 2.9% compared to the year-ago quarter. Higher revenue was the primary driver of EBITDA growth, partially offset by higher cost of sales and general and administrative expenses. We also experienced higher raw material, labor, and logistics costs. Janus continues to take actions to offset the inflationary effects through commercial and cost containment initiatives. We also experienced incremental costs related to being a public company, keeping our employees safe as a result of COVID-19, and…

Great, thank you again, Scott. We are once again proud of how Janus performed during the quarter since becoming a public company. Our business delivered another quarter of outstanding growth even as we were completing two strategic acquisitions that have begun to deliver positive results and while addressing cost pressures seen across the industry. I firmly believe in the power of this organization and our ability to deliver strong margin performance and earnings growth over the long term. I look forward to continuing our positive momentum through the end of 2021 and beyond. Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.

Our first question is from Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.

So if we look at the guide, it looks like margins are going to be pressured a little more sequentially in the 4Q. I'm just wondering as you look at kind of the cost, inflation, and your pricing actions, where you think the trough is? Is it 4Q or do you think there is further pressure into the first half of '21?

Yes, good question, Jeff. So I think the way that we've modeled this is we do see some continued pressure, if you will, in Q4, again largely due to the continued cost increases in terms of material, labor, and logistics coupled again with the churn rate of backlog and the legacy-priced products, if you will, that have been contractually executed as that continues to burn through. As far as where that ends up in '22, we're kind of in the midst of our budget process for '22 and we'll be able to provide further guidance on that at our next earnings call.

And then can you give us what price was in the quarter and what you think it will be in the 4Q?

In terms of the split between kind of price and volume?

Yes.

So in Q3, circa probably 60% was volume, 40% percent price, and we would expect that to be slightly reduced in Q4 from Q3, so probably something around maybe two-third or kind of one-third; again, a little bit reduction in price in Q4. And again - that's largely again being driven by what I'll call was an acceleration or some incremental legacy priced product and backlog churning through in Q4 versus Q3.

Okay. And then last one, just on the guidance change in revenue, can you split that between the acquisitions coming in versus incremental price versus incremental volume?

Yes. So I guess the - so just in terms of organic versus inorganic, it would be circa 75% inorganic, 25% organic, and then call it somewhere split that organic then again 60-40 or something slightly below the 60-40 split.

Our next question is from Josh Pokrzywinski with Morgan Stanley. Please proceed with your question.

Just a follow-up on Jeff's question on price. Yes, I understand kind of the 4Q backlog dynamics in kind of respecting what you had out there in that book already. If we would just sort of wrap price around in the '22 based on what's already been announced and has not yet been anniversaried, how should we think about the carryover pricing because it seems like 4Q may not be kind of the right launch point given some of those legacy backlog issues?

Yes. So again, good question. I think there will definitely be some additional legacy priced contracts i.e. backlog that will churn through in 2022. So, we're still - but again as far as 2022 guidance, we're still working through that in the midst of our budget process. But there will be some overhang, if you will, that will bleed into first half of '22.

And then on the kind of pricing philosophy, is the endeavor here to try to do more with surcharges or indexing or something that sort of offers some protection for both sides on what's happening or are you guys going more of the list price route?

Yes. Going more of the list price route, and I guess it's important to note when we refer to legacy pricing. Those are strictly orders that were committed, that are - the contracts were executed. Since then we've amended contracts that allow for escalation clauses that we put into the contractual language that keeps us from raising prices based of obviously the inflationary environment today. But typically, what happens we'll just get market percentage increases as it relates to the costs moving forward.

And just last one, if I may, on conversion versus new construction. I think you mentioned that those are kind of similar margin-wise. Is there an appreciable difference in kind of the revenue mix or anything else that would change as new construction? You've kind of throughput issues abate in that markets able to pick up a little bit more, maybe versus conversion?

Yes. So as it relates to the conversion specifically, our dollar content per square foot increases tremendously versus a new construction kind of greenfield projects. So, I think about circa $8 per square foot with new construction and then circa $20 per square foot potentially on conversions.

Our next question is from Reuben Garner with The Benchmark Company. Please proceed with your question.

Maybe just a follow-up on the new versus R3. It sounds like you are sort of expecting this dynamic that played out, is the extent of the delta between the two something we should expect going forward? And then maybe just the tie-in Noke, is that a product that is more successful, I guess, in the R3 space or is it predominantly used in the greenfield cases?

Yes, look, I think when you look at the industry occupancy rates being very high, north of 90%, what we're seeing is the market trying to bring on capacity as quickly as possible, and I think that's indicative of our kind of mix as it relates to R3 and new construction. Our customers are choosing to add capacity through conversions and expansions. Then as it relates to new construction, that's really when you get into the supply chain constraints. So we're kind of downstream, if you will. We are at the very end of a construction schedule. And so, all of the delays from a supply chain perspective kind of compound to us, which is why you're seeing new construction contracts blow a lot slower than they have historically. So, it's more market-driven. We expect the acceleration of the R3 and conversion and expansion moving forward while kind of waiting for that supply chain relief on new construction. And then as far as the Noke opportunity, I think when you look at the opportunity, we kind of look at it as there is 22 million doors in the marketplace, so that's really the opportunity as it relates to Noke. And we're seeing kind of probably a balance between new construction and R3 as it relates to new customers and installations, but there is no question that the largest opportunity as it relates to access control the technologies in the existing marketplace.

That's helpful. And then you mentioned share gains. Can you - I mean can you talk about your share position and how that - in these sort of times, you're going to be able to pick up incremental business? Are you guys working through the inflationary environment with your customers, more than your competitors? What are you doing exactly that you think will allow you to pick up share and take advantage of this environment?

That's a great question. I think if you look at our position in the marketplace, we are a meaningful customer to our steel suppliers. I believe that puts us in a very competitive situation in terms of access to steel, albeit higher than we would like. We're able to take advantage of spot buys to accommodate our customers. And then when you look at the manufacturing lead times, we're certainly better than our competitors and peers and that's allowing us to pick up market share, specifically around the construction side of the business. That end-market is very robust with commercial warehousing, but we're able - like I said, able to deliver on shorter lead times than most of our competitors, which is allowing us to pick up new business and new customers.

I am going to sneak one more in if that's all right. Geographically, are you seeing anything meaningful in terms of growth rates? Are they factoring smaller markets? Are you - what are you seeing in the major metropolitan areas? Anything else that stands out to you?

Yes. I think if you look at just kind of follow the trend of COVID in terms of where people moved, I think the suburbs; there are certain states, Florida, Texas; states that are obviously adding additional capacity quicker than others. But I would really - we're really focused obviously on all the top MSAs, but the suburbs that really picked up in terms of kind of new construction or capacity additions. But great question.

Our next question is from Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.

Just a couple of follow-ups here. Any update you can give us on the warrant redemption? I know we're a few days out from kind of closing and kind of how you're thinking about dilution or new share count as a result.

Scott?

Yes, so good question, Jeff. I think we gave warrant holders the option on either a cashless or a cash basis. What I can tell you is, I think you're correct, the cut-off I believe is Friday at 5 o'clock. The vast majority of the data points that I've seen most current are the preponderance of proceeding with the cashless exercise. So from a modeling of a dilution, I guess it's going to be - the conversion rate was 0.3. So, I think that would be at the lower end, if you will, of the dilution in terms of modeling.

And then, just as you talk about these contracts - lingering contracts or contracts that are in place, just anything you are thinking about differently in terms of contract structure given the learnings of kind of all this inflation we've seen?

Yes, it's a great question. I hit on it a little bit, but more specifically the legacy contracts are the contracts that have been existing from the beginning, did not allow escalation clauses. So, we've gone back and amended contracts that adds language, that protects us in these types of environments. So, this issue of kind of legacy being legally tied to contracts from a legacy perspective was dealt with a few months ago. It's an issue that's behind us now and we shouldn't experience this again.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Ramey Jackson for any closing comments.

Yes. Thank you everyone for joining us today. We appreciate your support of Janus International and look forward to updating you on our progress. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.