Ramey Jackson - Chief Executive Officer Scott Sannes - Chief Financial Officer John Rohlwing - Vice President of Investor Relations & FP&A

Hello! And welcome to the Janus International, First Quarter 2022 Earnings Conference Call. Currently all participants are in a listen-only mode. A question-and-Answer session will follow the formal presentation. . As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. John Rohlwing, Vice President of Investor Relations & FP&A. Thank you. You may being Mr. Rohlwing.

Thank you, operator, and thank you all for joining our first quarter 2022 earnings conference call. We hope that you’ve 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 ww.Janusintl.com. As a reminder, today’s conference call may include forward-looking statements regarding the company’s future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company’s actually results may different materially from those anticipated. Factors that could cause actually results to different from anticipated results are contained in the company’s latest earning release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted net income and adjusted EPS. Please see our earnings release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. I’m joined today by our Chief Executive Office, Ramey Jackson who will provide an overview of our business and give an operations update. And our Chief Financial Officer, Scott Sannes, who will continue with the 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, John, and good morning everyone. 2022 marks our 20th year in business at Janus and I'm proud to say we're off to a very strong start. Over the 20 years we've experienced a lot at Janus. We've grown to approximately 1,600 employees over 10,000 active customers and have operations around the world. In the past five years alone, we've doubled our business through a balanced mix of organic and inorganic growth and are well positioned to continue to grow attractively in the future. We have a strong position in self-storage and a leading position with our customers in all of our business segments, which we expanded with last year's DBCI and ACT acquisitions. We had a momentous 2021 that saw us become a public company, complete our largest acquisition to-date, make significant progress in our DBCI synergy plan and meet inflationary pressures on multiple fronts head on. We continue to focus on the relentless execution of our plan to draw both top and bottom line growth and create long term value for our shareholders. At Janus we’re far more than a steel roll-up door company. We are at heart a value added solutions provider for our customers across the self-storage commercial and industrial building industries. Filling that role for self-storage in adjacent industries helps draw the strong margin profile for the business and contributes to a high level of stickiness we have with our customers. It's an exciting time as the self-storage industry experienced unprecedented growth in 2021 and we continue to see investor demand in capital inflows into the industry. Each of the self-storage REITs that has reported earnings so far, highlighted how industry fundamentals remain strong and they are positioning themselves for the coming busy season. Collectively, they expect favorable performance trends seen in 2021 to…

Thanks, Ramey, and good morning everyone. In the first quarter revenue of $229.5 million was up 50.2% compared to the prior year quarter and 35.7% on an organic basis, driven primarily by solid execution in all three of our sales channels. R3 was up 56.6%, commercial and other was up 51.1%, while new construction was up 44.3% versus the prior year quarter. R3 growth continues to be bolstered by new capacity additions in the form of conversions and expansions, an ongoing factor contributing to the exceptional growth rate in the commercial sales channel for the quarter is our lead times. Even with the industry's ongoing supply constraints, our lead times continue to be better than many of our competitors, resulting in superior execution for our customers. As Ramey previously mentioned, we continue to see growth in the new construction sales channel as we worked through the pent-up demand caused by permitting and other construction delays during 2021. The consolidated revenue growth reflected improved demand across all of our end markets, along with contributions from the DBCI and ACT acquisitions which occurred in the third quarter of 2021. We reported results in two business segments, Janus North America and Janus International. Janus North America contributed 92.2% of revenue for the quarter, Janus International which sells primarily in Europe and Australia provided the balance of revenues. Adjusted EBITDA of $44.7 million was up 37% 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. As Ramey mentioned previously, we continue to experience higher raw material, labor and logistics costs as compared to the prior year period. Janus continues to take actions to offset the inflationary effects through commercial and productivity initiatives. In addition, we experienced…

Great! Thank you again Scott. Returning to the 20 year anniversary, we've worked hard to stay ahead of the ever changing self-storage commercial and industrial building solution industries needs through constant innovation, attention to quality and unmatched service. We are appreciative of and owe thanks to our employees customers and vendors who have helped us in our success. We're excited about what the next 20 years will bring and where we can take this company. We're proud of how Janice came out of the gate in 2022. Our business delivered another quarter of outstanding growth and solid adjusted EBITDA margin contribution, even as we were addressing cost pressures seen across the industry. I expect our results to be the foundation for a powerful 2022 as we look to deliver strong margin performance and earnings growth over the long term. Thank you again for joining us. Operator, we can now open the lines up for Q&A please.

Thank you. Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.

Hey! Good morning, guys!

Good morning Jeff!

So just on the margins, it sounds like 2Q is going to be similar to 1Q, which to kind of get to your full year guidance suggests you know 24% EBITDA margin in the back half and I'm just trying to you know kind of bridge. You know is it sequentially better 3Q and then even better in 4Q or you know kind of how do we get from you know this kind of mid-19’s to the 24 you need in the back half?

Yeah, good question Jeff. So you know your assumption is correct. Q2 margin profile is similar to Q1 and then obviously to get to the mid-point of guidance of the 21-8, we do believe that the Q3 will be obviously sequentially better than Q1 and Q2, with Q4 being slightly or sequentially better than Q3. How we get there? You know legacy priced contracts as we've talked about should really flush out through the first half of the year, and then just continued productivity measures, full impact of commercial actions, etc. should all help benefit, as well as continued DBCI synergies should all help get that sequential margin improvement in the second half of the year.

Okay, helpful. And then I think seasonally 1Q tends to be one of your lower quarters, maybe 4Q, 1Q. Just trying to understand kind of how you think the business builds seasonally into 2Q and maybe within that if you can just talk about price in the quarter and price expectation for the year.

Yeah. Sure, I'll take the second question first. So in terms of kind of price volume metrics for the first quarter, it was about two-thirds price, one-third volume in terms of the organic growth, and then for guidance for the year, it's basically the reciprocal of that, so it's going to be about two-thirds volume, one-third price is how we've guided. And then in terms of the seasonality question, as we've kind of previously mentioned, you know revenue for Q1 came in about $230 million. There was a relatively significant, I'll call it pull-through of the pent up new construction demand that occurred in Q1. You know we estimate that to be somewhere between probably $10 million to $15 million. So as far as the cadence of what the revenue looks like the rest of the year, if you kind of pull that out of Q1, you're at like 215, 220 and then we built in, you know from our guidance we built in some continual increases in terms of revenue run rate for the – you know for the back half of the year or the remaining nine months of the year I should say.

So 2Q is kind of flattish with 1Q?

I think that – I think it should be – again, I think generally speaking yes. I think we have a slight increase I believe in Q2 over Q1, but relatively speaking similar profile with then continued ramp up as you get to the second half of the year.

Okay, thanks so much.

Sure. Thanks Jeff.

Our next question comes from the line of Reuben Garner with The Benchmark Company. Please proceed with your question.

Thank you. Good morning everybody and congrats on the strong results.

Thanks Reuben.

Thanks Reuben.

So I think historically folks look at the self-storage industry as being highly correlated with housing turnover and there's some concern that the rise in mortgage rates may reduce that metric. Can you just talk about your thoughts on that correlation and what might be different this time and then maybe any conversations you've had with the actual storage operators about what they are kind of seeing here recently.

Yeah. Good morning Ruben! This is Ramey. Look, I think our view is different. I think you've heard us say many times that self-storage is an event based business, so good economic, bad economic times, self-storage thrives. And I think if you look at some of the REITs and what they are forecasting for the year, I think it's fundamentally robust. I think when you look at just kind of the end market from a capacity perspective, you know the industry sold out, and so I see that as major tailwinds for the business going forward. So again, I’ll kind of conclude that we do not view kind of housing as a driver, as a main driver for self-storage whatsoever. I’ll pause there.

Okay. No, that's helpful. And then on the margin side, wondering how you guys think about kind of getting back to or getting to your longer term margin goals with your input costs elevated like they are. Do you think there will be more pricing actions to come to help you get there or is it going to be volume driven? I guess if you could just give us an update on the long term margin thoughts and maybe the components to get there.

I’ll kind of start. Yeah look, I think once we continue to accelerate the integration with the acquisitions, I think you'll see a margin pick up there. The volumes are tremendous. Our backlog and pipeline are at an all-time high and then the commercial actions that we took last year are taking effect and as I mentioned on the call earlier that we’ll continue to address those kind of inflationary pressures with cost containment productivity and then commercial actions on the price side as well. So our view is that we’ll certainly get back to those levels and we're working really hard to get there.

If I can just clarify, so post the inflation we've seen and post the acquisitions that you've made, are you guys kind of maintaining that you still think you can get to, I think it was 26%, 27% EBITDA margins over the mid-term. Is that the right target or bogey to look at?

Yeah, I think the – you know depending on what your definition of mid-term is, I think the way that we would respond is the second half of the year we think will get you know the margin profile as Jeff mentioned earlier. Kind of the 24% -- you know 24%, 25%. So kind of you know mid 25% margin profile. But then obviously over time our goal is to continue to enhance the margin profile into ‘23 and beyond.

Great! Thanks guys.

Thanks Reuben.

Our next question comes from the line of a John Lovallo with UBS. Please proceed with your question.

Good morning guys and thank you for taking my questions as well. The first one, you know kind of dovetailing off of what Reuben asked I think. You know if things do slow from an economic standpoint, I mean should we expect R3 to hold up better than the new construction component of your business and you know how would you think about higher interest rates on both R3 and new construction?

Look, I think that's a great question. But I think when you look at over the past few years with the kind of uptake within kind of institutional investment, I think you know the dynamics are different, right. I think the cost of capital still remains low at that level with the institutional investors. These facilities as you're aware generate a lot of cash, and I think there's a tremendous need for the R3 service to continue. So I’ll look at it as more of a balance. I think that there's pent-up demand on the new construction side and there's a meaningful amount of kind of R3 opportunities to you know as it relates to consolidation and just aging of facility. So I’ll look at kind of the fundamentals to remain strong as it relates to interest rates.

Okay, that's helpful. And then in terms of the international business, you know has there been or do you anticipate any impact from the Russia-Ukraine or the shutdowns in China.

Yeah, I think you know that certainly the war has its impacts more around availability of steel, but you know as you probably know, there's a tremendous kind of pent up demand from a new construction perspective as a result of the pandemic. Obviously those countries behaved a little differently than we did here in the states, so there's a longer lag. So we look at that as kind of meaningful tailwinds if you will from a new construction perspective, but we're certainly keeping an eye on you know still availability and all those things associated with the impact of the war.

Great! Thank you.

Thanks John.

Our next question comes from the line of Josh Pokrzywinski with Morgan Stanley. Please proceed with your question.

Hi! Good morning guys!

Good morning, Josh!

Easy to prep when you did the pregnant pause before the name pronunciation, I can take myself off mute then. So, well just sticking in on the R3 side, wondering what you guys are seeing on the conversion front, you know how that is kind of progressing and any kind of visibility you have there?

Yeah, great question. Nothing's changed there Josh. You know conversions continue to be a leading way of adding capacity. I think when you look at the kind of e-commerce effective retail, kind of big box retail availability that’s still meaningful, and it's quicker to get to market from a construction or a capacity perspective, and then I mentioned on our backlog you know being at an all-time high, you know from a percentage standpoint that conversion component remains you know equal for the past few quarters so to speak. So still very bullish on the conversions.

Got it! That's helpful. And then that sequential margin dynamic from 4Q, I guess on the adjusted side it looks like margins are flat and actually see gross profit margins down a little bit. Any color on the gross margin kind of 4Q to 1Q progression and then anything we should keep in the mind over the balance of the year?

Yes, so in terms of gross margins, I believe both had sequential margin improvement, Q4’s gross margins versus Q1’s gross margins. They were – it looks like they were just under 100 basis point improvement in gross margins, so I think generally we're pleased with the progress being made on the margins despite all of the inflationary pressures, and as we've talked. You know we feel that the margin profile for Q2 will be relatively consistent with Q1, largely due to the preponderance of the remaining legacy price contracts should be flowing through in Q2, and then you know that's kind of the jump off point if you will to head to the second half and start experiencing some significant or meaningful sequential margin improvement in the back half of the year.

Alright, thanks a lot.

Thanks Josh!

Thanks Josh!

There are no further questions in the queue. I’d like to hand the call back to management for closing remarks.

Yeah, thank you. Yeah, 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 good day!

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day!