Hello and welcome to the Janus International Group Fourth Quarter and Full Year 2023 Earnings Conference Call. Currently, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] 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, Investor Relations, FP&A, and M&A of Janus. Thank you. You may begin.

Thank you, operator and thank you all for joining our earnings conference call. I'm joined today by our Chief Executive Officer, Ramey Jackson; and our Chief Financial Officer, Anselm Wong. 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 made describing our beliefs, goals, plans, strategy, 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 Exchanges Commission, which identified 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 and forward-looking statements made by us during this call is based only on information currently available to us and speaks only as of the date when it is made. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted margin, 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. Today, we announced that the Board has approved a stock repurchase program of $100 million. We make no assurances that any repurchase is [indiscernible]. In today's call, Ramey will provide an overview of the business, Anselm will continue with a discussion of our financial results and introduce our 2024 guidance before Ramey shares some closing thoughts, and we open up the call for questions. At this point, I will turn the call over to Ramey.

Thank you, John. I'd like to kick off my comments today with a recap of Janus' financial, operational, and strategic highlights and accomplishments. 2023 proved to be another year of outstanding momentum. Everything we achieve at Janus is a team effort, and I couldn't be prouder for our employees' dedication, hard work and professionalism. We delivered strong financial results, raising and exceeding financial guidance throughout the year and delivered full year adjusted EBITDA that was up 25.9% on a 4.6% increase in revenue. We converted over 140% of adjusted net income to free cash flow of $196 million. This drove year-end net leverage to a record low since going public at 1.6 times, down another 1.2 times during the year and below our stated long-term target range of 2 times to 3 times. Our core business is self-storage, which consists of new construction and restore, rebuild, replace our R3 sales channel. Combined, self-storage makes up roughly two-thirds of our revenue and even a higher percentage of our EBITDA. As we have previously said, the margin profiles across the two components of self-storage are similar. Making us agnostic to how our customers seek to add much needed capacity. And while we will report specifics for each channel, along with our commercial and other segments, the discussion of total self-storage helps to smooth out the quarterly noise across the two segments given the lumpiness of a project timing. For full year 2023, on a combined basis, self-storage was up 13.2%, driven by new construction, which was up 22.1%, while the R3 sales channel increased 4.3%. Industry fundamentals continue to drive investment in self-storage capacity, which over the last several quarters has focused on greenfield sites compared to 2022 when we saw more demand for our R3 projects. Commercial and other was off…

Thanks Ramey and good morning everyone. I am proud of our record results and our success during 2023 in growing our business. generating strong cash flow and deleveraging our balance sheet to position us for success. I will first focus my comments on our fourth quarter performance. In the fourth quarter, consolidated revenue of $263.7 million was off 5.7% as compared to the prior year quarter as strength in total self-storage is more than offset by a decline in our commercial and other sales channel. Together, our self-storage business was up 2.5% for the quarter. Within self-storage, New construction continued its strong year result with growth in the quarter of 14.3%, as customers continue to add new greenfield capacity. The other portion of our self-storage business, R3, was off 9.1% for the quarter as a result of a decline in retail-to-storage conversion activity compared to prior year. Our commercial and others segment saw a 20.8% decline in the fourth quarter, driven by particularly strong comps last year and shift in demand for certain product lines that were at an all-time high. Fourth quarter adjusted EBITDA of $74.3 million was up 8.9% compared to the year ago quarter. This solid performance produced an adjusted EBITDA margin of 28.2%, up 380 basis points from the prior year level. This improvement in profitability is a result of favorable mix from our higher-margin self-storage businesses as compared to our commercial and other sales channel and a continued focus on operational improvements, which more than offset the revenue decline. For the fourth quarter of 2023, we produced adjusted net income of $35.9 million, a 9.8% year-over-year improvement and adjusted diluted earnings per share of $0.24. Adjusted net income was impacted during the quarter by drivers already covered, including favorable mix and cost containment initiatives. Looking…

Thank you again, Anselm. Building off this strong foundation, we are well positioned for another exciting year in 2024; one that is consistent with the longer-term vision for the company we laid out a year ago. Back then, we told you that over the course of the next three to five years, we expect annual revenues to grow organically at a 4% to 6% rate, adjusted EBITDA margins of 25% to 27% and net leverage to be in the range of 2 times to 3 times and free cash flow to be 75% to 100% of adjusted net income. As you can see from our results, 2023 met or beat all of those targets. Our long-term objectives remain intact. And based on the guidance Anselm laid out, we expect 2024 to feature another year of exceptional performance. We are the industry leader in self-storage solutions with strong customer relationships, particularly among the best capitalized owners and operators. We have delivered strong organic and acquired top line growth throughout our time as a public company and have dramatically improved our EBITDA margins, cash flow conversion and net leverage. As M&A opportunities come to fruition, we have the expertise and dry powder on our balance sheet to execute accretive shareholder value-enhancing deals. And now we have the expanded capital allocation program to include the new $100 million share repurchase program. I look forward to continuing our positive momentum in 2024 and beyond as we drive long-term value creation for all of our stakeholders. Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Your first question comes from Daniel Moore with CJS Securities. Please go ahead.

Thank you. Good morning Ramey, good morning Anselm and thanks for all the color and congrats on a finish to a really, really strong year. Maybe start with what was a little softer in commercial, obviously stood out this quarter. You mentioned declines from certain products from all-time highs. Can you maybe elaborate on that a bit? And Anselm, I think you mentioned in your remarks that you expect to return to growth in 2024. Do you expect positive growth in commercial for the full year or simply kind of a return to growth at some point?

Yes, good morning Dan. Great question. So, look, we've been talking about the past couple of quarters about a segment within the commercial end market, which is the carports and shed business, which really accelerated during the pandemic when folks were staying at home. So, that's really the biggest driver of that miss in commercial. And then I'll let Anselm to answer--

Yes. Good morning Dan. And basically, kind of what we've talked about is if you look at our commercial business, we said Q4 would be the last quarter to kind of normalize that carport and shed segment of business. What we're seeing is normal sales in that category now. And that's why when we look at 2024 and we look at our commercial segment, we expect growth again back there. Part of the -- within that commercial business, we have a segment of rolling steel that we've been pushing throughout the year. And if you backed out the carports and sheds, you would have saw some decent growth there. So, we're bullish on that part of the commercial that will help us get the growth again.

That's helpful. And maybe just talk about cadence as we move to Q1, I expect a little bit of kind of year-over-year declines and then improved growth as we move through the year on a year-over-year basis. Are we really through the worst of the comps already?

Yes. So, if you look at what we saw, Dan, so what we're seeing is a bit of normalization of the quarter. So, that's why I mentioned it in the transcript earlier that the Q4 and Q1 is usually a normal lower quarters because of weather, because of seasonality, stuff like that. So, we're expecting to see some of that in Q1 where it's going to be the normal slower start and then back into when you're into your summer, falls, spring kind of better construction areas, you'll see that. I think the one reminder is always that we are -- this is a construction business. So, it does get impacted by weather. So, unforeseeably, the West Coast, there's been some flooding there that's impacted a number of our jobs here as well. So, I think what we'll see is just that normal slower first quarter, Q4 as well and then back to our big quarters of growth in the Q2 and Q3.

Very helpful. And then shifting to self-storage. Your backlog always provides really strong visibility for the next few quarters. Beyond that, just how would you describe the pipeline of new opportunities entering 2024 compared to maybe 12 or 18 months ago?

Yes. Look, we don't really give detail on the backlog. But what I can say directionally is it still remains strong in kind of both R3 and new construction. So, we're very optimistic there.

Excellent. Maybe one more, I'll jump out. And I know you've heard this question before. Clearly, you had a favorable mix in Q4 and then partly over the year, but your long-term margin target 25% to 27% already at the high end this year and above that this quarter. Again, there is mix in there, but do you see upside to those projections longer term, particularly as Nokē starts to accelerate and gain traction. Thanks again.

Yes. No, thanks for the question, Daniel. You're right. Longer term, yes, absolutely. I think we see some further improvement there as Nokē becomes a bigger part of the mix as well as our normal productivity in the business that we're constantly looking at improvement. So, I think what we're looking at is just, hey, there's a short-term benefit from the mix that we got in Q4, that will normalize in the 2024, but then longer term, I think there's definitely upside.

Great. I'll jump back with any follow-ups. Thank you.

Thanks Dan.

Next question, Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Hey good morning guys.

Good morning Jeff.

Yes. So, maybe just staying on self-storage, can you just talk about kind of how you're seeing the mix of new construction in R3 as you move into 2024. Clearly new, it seemed like you had some backlog catch up, and I know there's some big consolidation in R3. So, just wondering if there's a little more optimism on the growth rate in R3 or if it's pretty balanced?

Yes. Look, I think kind of start off by saying that conversions fall within that R3 bucket, the way that we manage it. So, we just consistently reported the convergence out of R3. So, we do see growth in R3 as the industry continues to consolidate and also age. So, we're optimistic there. One of the things we're seeing that we've mentioned in the past is convergence or the availability of kind of the brick-and-mortar, the retail brick-and-mortar is slower. But when you strip that out, you'll see growth in R3. And then on the new construction front, same thing. It remains strong. I think a lot of the kind of secondary and tertiary markets are ramping up. That's where folks move kind of post pandemic. So, we're seeing a lot of runway there.

Okay. And then just back on margins, you're kind of above the 27% for the last three quarters versus guide at 27%. So, just wondering what the upside and downside risks to that margin guide are outside of maybe some mix normalization?

Yes, I think the biggest thing is the mix organization. I think we're -- you saw all the quarters this past year has been fairly consistent and on the higher end of our guide. I think it's just more -- as we look at 2024, as the normalized sales, we'll see commercial come back to growth in obviously current commercial segment a little lower than our storage. So, that brings it back down there. But I think if everything stays consistent, we'll still be within that range that we've seen in the recent quarters.

Okay. And just on the commercial business, maybe just update us on how you're doing to kind of close that margin gap. I think that was kind of the target to eventually pull those up. Maybe just give us a sense of progress there?

Yes, I'll say it will still be a bit north of the business model, it is different. It's a distribution model versus the full solution model on storage side. But what we've been working on is actually consolidating the build of a lot of our commercial products as well as opening up our West Coast commercial operations so that we don't have to ship from, say, our North Carolina or Georgia area sites to get commercial out there. So, I think that will show some improvements in terms of margin as that gets ramped up. But just as a minor longer term, it still will be lower because it's not -- it's a distribution type of business versus a full solution business.

Okay, great. Thanks guys.

Thanks.

Next question, Brad Hewitt with Wolfe Research. Please go ahead.

Hey, good morning guys. Thanks for taking my question.

Hey Brad.

Wondering if you could provide any additional color on what drove the Q4 revenue shortfall versus the prior guidance? It looks like self-storage revenue was down about 3% sequentially. And we saw another step-down in commercial. You talked about the headwinds in carport and shed, but just curious if there were any other moving pieces in the quarter relative to the guidance?

Yes, commercial was the -- corporate and shizzle [ph], was a little worse than we thought it was going to be in terms of how much the normalization would be. I think you saw that piece of it when it printed. And in the -- on the storage side, I think what we saw is a little bit more delays in projects there. The backlog is still looking good, like Ramey said, but we saw some push outs. And again, it's a construction business. So, when you look at some of the weather impacts to the country, you saw the flooding in the California region that does impact our sites to be able to deliver. So, we did see some of that. But hopefully, we'll get through in Q1 when some of the weather related items get normalized, we'll go back to kind of normal business in terms of construction.

Okay, that's helpful. And then switching to capital allocation. Given that leverage is now down to 1.6 times, how do you think about balancing of share buybacks versus M&A. Is M&A the priority with buybacks kind of filling the gap in the absence of M&A? Or do you see capital allocation is more balanced going forward?

No, I think you hit it the way we see it. We see M&A is the first thing. We are definitely looking at targets as we always do. And I think the market, at least, expectation in terms of pricing is actually normalizing to get back to a realistic level. So, we're hopeful that we can execute on some of the ones that we're looking at. And I think you're exactly right, is that we're glad we get the approval for the share buyback. So, we have another lever, in the meantime, if something slows up in terms of the M&A side to execute on.

Thanks guys.

Next question, John Lovallo with UBS. Please go ahead.

Good morning guys. Thank you for taking my questions as well and I apologize if you covered this, but my line dropped, so I apologize if you did cover this. But -- in terms of the outlook, there's a 4% increase in revenue expected at the midpoint, it looks like EBITDA is expected to go up by a little over 4%, maybe 4.3% at the midpoint. What's driving sort of the lack of leverage on that to net revenue volume?

Yes, if you look at what we had talked about in 2023, as we became a public company and actually started adding the cost to what we needed, meaning in the back office, finance, HR, legal, et cetera, the functions to really support all the requirements, we only added most of those costs in the back half of the year. So, you'll get an impact of the full year of cost there that impacts the ability to get savings there. I think longer term, once we have all that in place, which the last area that we're focused on is IT, we should get normal fixed cost leverage improvement because, for example, I won't need to hire another Chief Accounting Officer, another treasurer, et cetera. So it's just a matter of timing of getting -- adding all those costs and resources that we needed to support the business.

Understood. And you guys have made some really nice progress on the commercial actions and productivity. Can you just help us kind of quantify the cost savings that are expected to come through in 2024 from the actions already taken? And then what is the sort of incremental opportunity as we move through 2024?

Yes, I think for 2024, I think we'll start seeing -- we haven't disclosed, but we'll start seeing some benefits from the new Poland factory that we put in place as well as some of the equipment buys that we had in some of our factories there, so I'm expecting without disclosing some decent benefits from that as well. I think longer term, what we're looking at is actually further improvements in consolidation like we always do. So, we're always looking at the footprint. We're looking at where we make things. So, one of the things that we had guided to that, that is coming is a new West Coast operations for us. The volume there and demand has improved there. And we're looking to actually add some more capacity out there as well. So, I think that will further help us improve and be a bit more efficient out there. So, we don't have to ship things into that area of the country.

Yes. And one more thing that I'll add is we'll be opportunistic on our steel volumes. As that kind of commodity fluctuates, we'll be keenly focused on being opportunistic there.

Understood. Thank you guys.

Thanks.

Thank you. We have a follow-up from Daniel Moore with CJS Securities. Please go ahead.

Thanks again. I guess, just pulling on the string of M&A since that's the priority. In terms of opportunity, what's kind of range of deal sizes are we looking at? And just remind us what a typical valuation range looks like?

As you know, we don't kind of disclose the size of the deals, but I think what I can tell you is that some of the deals we're looking at are probably on the smaller to midsize area that makes sense for us that will help us accelerate certain areas in our business. And again, we don't disclose kind of the metrics. But I think what you can expect is we're looking for accretive acquisitions within that 18-month range period there. Hopefully, it will be faster than that, but that's kind of what we're looking at.

Helpful. And then, Nokē, obviously continue to see good traction in terms of installs. Has the last two deals that you announced, have those sort of woken others up at all? And just talk about the cadence of dialogues, both with larger REITs and as well as independents last six months relative to maybe the prior six to 12?

No. Look, there's certainly a snowball effect to the market when we make those announcements and those partnerships. Very proud of kind of where we are, continue to innovate on the back end, investing in that vertical heavily right now, as you can see, still in conversations with the largest operators. When you kind of see the labor cost issues that they're having, it puts the solution at centerstage. So, yes, we're excited about the momentum and continue to innovate. So, happy where we are right now.

Helpful. And maybe one more for Ramey, just cash flow, obviously, exceptional this year. Just talk about your outlook for CapEx for 2024 and how you're thinking about working capital and what free cash flow potential can look like?

Sure, Dan. I think if you looked at what we did in 2023, we were very happy with what we did in terms of working capital and cash flow. I think CapEx outside of what I mentioned about the West Coast operation, that will probably have it a little higher than what we saw in 2023. But outside of that, there's not anything else that's sizable that would impact it. I think the other thing in terms of working capital, I think there's still some improvement that we can get there in terms of our receivables area that we're working on. But I think the amount of improvement that we got this year is a good trend that we'll continue to stay on and focus and continue to improve.

Got it. Very good. Look forward to seeing you down in Temple in a month or so. thanks again.

Sounds great.

I would like to turn the call over to Ramey Jackson for closing remarks.

Okay, great. 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 teleconference. You may disconnect your lines at this time and thank you for your participation.