Good day, and thank you for standing by. Welcome to the Q3 2025 Quanex Building Products Corporation Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Zuehlke, Senior Vice President, CFO and Treasurer. Please go ahead.

Thanks for joining the call this morning. On the call with me today is George Wilson, our Chairman, 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 Quanex 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. Although macro headwinds persisted this quarter, I'm pleased with the resilience of our business in the current environment. Following a significant amount of work by our team, new operating segments are in place, synergy realization remains compelling and the cash flow generation of the combined entity has been strong. We are confident we are on the right path. We remain focused on achieving our financial and operational objectives, and our team continues to prioritize driving both above-market growth and an improved margin profile over time. Our third quarter results were largely shaped by 3 key factors: first, the macroeconomic environment and the resulting demand and order patterns. Second, the resegmentation of our business units and a resulting goodwill impairment; and third, the integration of Tyman and the synergies we're beginning to realize from the combination. Let me start with comments on the macroeconomic environment in the markets we serve. In North America, for the third quarter of 2025, volumes increased compared to the prior quarter, but not at the rate normal seasonality would have suggested. U.S. customers took extended downtime around the July 4 holiday and volumes remained relatively soft for the remainder of the month. While tariffs continue to add uncertainty, there is also a sentiment that delays to both R&R and new construction projects are a result of consumers waiting for the Federal Reserve to cut interest rates. Altogether, this has led to increased pressure on discretionary spending, resulting in a headwind to consumer -- end consumer confidence. While volumes are expected to remain soft through the end of the year, we are confident that mid- and long-term indicators favor a strong recovery when rates drop and consumer confidence is restored. Looking at market conditions in Europe, consumer…

Thanks, George. On a consolidated basis, we reported net sales of $495.3 million during the third quarter of 2025, which represents an increase of approximately 77% compared to $280.3 million for the same period of 2024. The increase was mainly driven by the contribution from the Tyman acquisition that closed on August 1, 2024. Excluding the Tyman contribution, net sales would have increased by 1.4% for the third quarter of 2025, mainly due to increased pricing, which includes any tariff impact, offset by lower volumes. We reported a net loss of $276 million or $6.04 per diluted share during the 3 months ended July 31, 2025, compared to net income of $25.4 million or $0.77 per diluted share during the 3 months ended July 31, 2024. The decrease was primarily the result of a $302.3 million noncash goodwill impairment related to the resegmentation of our business at a point in time when consumer confidence is low and equity values for building products companies are challenged. As George mentioned, the noncash goodwill impairment is not related to any performance indicators or changes to the long-term profitability expectations of the business. The resegmentation constituted a triggering event under ASC 350, requiring a quantitative comparison of each reporting unit's carrying value to its estimated fair value. At the May 1, 2025, trigger date, our stock price was at $16.59 per share, which is less than the agreed valuation for the Tyman acquisition. Because market capitalization is a key input in determining fair value, the lower share price on the trigger date reduced our market-based valuation, despite management forecast reflecting higher long-term cash flows. As a result, the fair value derived from the market evidence fell below our internal forecast and the carrying value of goodwill, leading to the noncash impairment. On an adjusted…

[Operator Instructions]. Our first question will be coming from Steven Ramsey of Thompson Research Group.

Maybe to start out with the big picture on demand, understand that it remains subdued out there broadly. I heard that from many companies and from channel checks. But wanted to parse out if you feel like if in any segment, there is a change in the competitive landscape or just even in the near term as competitors react to this market, if that's also changing the volume picture.

Thanks for the question, Steven. The way I see it right now and the detail that we have coming flowing in, it is more macro related than competitive. I think we've been able to do a very good job on the competitive front across regions and across product lines. So really, the softness that we see is more specifically related to the softness in both R&R and new construction.

Okay. That's helpful. And then I wanted to hone in a little bit in Europe, the pockets of strength that you called out there. Maybe can you go into a little more detail on why that strength is there, why it's sustaining? How much of it is consumer demand for it versus internal moves you're making?

When we look at the strength, the product lines in Europe continue to perform very well and have taken some share. And that's really built on the operational foundation that we have in both of those product lines being extrusions in the framing systems as well as our spacer business. We continue to provide excellent service, quality products that are high level in terms of energy efficiency and thermal performance. So I think that constant delivery of quality products has helped us continue to perform. So that remains a strength. And that's exactly what we're trying to duplicate in the hardware product lines that we acquired through Tyman. So that has been a strength. In the U.S., I think we continue to see strength in our ability, and I would say, in the legacy Quanex lines of converting our demand into cash flow at a very good rate, and that remains a strength. We're making some progress, as we've talked about on previous calls, starting to transition the Tyman products from a make-to-stock to a make-to-order. That continues to be a really big opportunity for us. We're starting to show the beginnings of that transition, which has translated into positive cash flow, which is why we -- even despite the softness in the market, the cash flow generation continued to be really strong, and we were very happy with the performance there, which allowed us to pay down debt and buy back shares.

For sure. Okay. And then last one for me. Tyman Mexico, maybe to clarify, you called out a $5 million EBITDA headwind in the third quarter. Do you expect the fourth quarter to be a similar dollar amount headwind-wise or that to moderate a bit? And then to make sure I understand, do you think this EBITDA headwind is gone to start 2026? Or do you think it starts to balance out and then go positive later in that fiscal year?

Yes. So I think we do expect an impact in the fourth quarter. It may be similar to 3Q, depending on the progress that we show during the quarter. But we are expecting some progress towards the end of the fourth fiscal quarter and then into early 2026. It's hard to say when it will be completely resolved, but we are working quickly, and we realize this is a top priority.

Our focus right now, Steven, is really on doing everything we can to protect our customers and get our delivery levels back to where they need to be. It's -- our complete focus has been on our customers. So we're not sparing any expense and trying to be cute. We're fixing the solution. We're putting systems in place, and we're spending money on assets, as I mentioned, to bring both the equipment and the tooling up to what our standards are, which has always been a strength of Quanex, and we'll make it a strength of the time and products that we purchased as well.

Our next question will be coming from Reuben Garner of Benchmark.

I guess can you walk through what the balance of the, I guess, lower-than-expected results in the third quarter was? I think $5 million accounts for roughly half of it, if my math is right, top line was mostly in line with what you were looking for last quarter. Was it just a split between volume and price? Was there higher costs from tariffs or other pressures that led to the profitability pressure that you saw?

Yes. I mean outside of the market and the volume, which you just -- outside of the Mexico impact, it's really split between market and then procurement synergies specifically. As we looked hard at that and kind of updated our model for the lower volumes and the timing at which we expect to realize those synergies, some of those were just pushed to the right. So I think those 3 things, Mexico market and then procurement synergies.

So is -- was all of that pressure in the final month of the quarter and basically, the guide in the fourth quarter now implies that you have 3 consistent months of that kind of pressure? Like was it $5 million in 1 month and now that's going to be $5 million a quarter in the fourth quarter? Or talk to me about how to think about that. Okay.

No, it wasn't all in July, if that's what you're implying. It definitely started earlier in the quarter and kind of ramped up through the quarter. Now that we have a really good handle on what's going on, we do expect some progress towards the end of the fourth quarter.

Sorry, one more, if I could sneak one in. I was on mute. I guess what are your customers saying? There's been a bit of a resurgence in refinance activity of late as rates have come in. It sounds like you're not expecting volume to bounce back anytime soon. Was there any element of destocking that took place? I know a lot of your products are kind of made to order, but some of them, maybe the spacers can be stocked. Was there any destocking that's taking place that's kind of onetime in nature? What's the expectation, I guess, as you get into your next fiscal year from a demand perspective?

No. We didn't see any signs of anything in terms of destocking or anything specific because that usually indicates 1 or 2 specific customers. And it was pretty consistent in terms of the slowdown across all of the customers that we serve. So we don't anticipate any levels of destocking. What I would say is our expectation of things continuing to be soft into the fourth quarter, really falls a little bit into what we've always seen in terms of weather and the build season. Now even though you've got some refinancing activity that kind of is starting to ignite and maybe showing signs. And I know that there's some hope and optimism that there will be a rate cut in September by the Fed and maybe another even in this year. Effectively, in half of the U.S., the build season is coming to a conclusion. So that's not going to flow through until our 2026 fiscal year.

And I said last one, but I do want to sneak one more in. You're a little over a year into this deal now. I think you mentioned like potential for more synergies that you found. Any more color there, like what -- in terms of facility count, location, how you're running the business, like what these could look like from a numbers perspective? Or is it still too early to tell?

I think it's still too early to tell from a numbers perspective. Obviously, we put some of our expectations and thoughts on a waterfall chart that showed our pathway to growth at our Investor Day, back in February. Those goals and objectives are still absolutely valid, and that's exactly what we're driving to. I think we're excited as we build out our commercial teams and we start to look at what that looks like. So I do think that there's some opportunities that will present themselves from a commercial cross-selling, bundling of products, development of new systems that will absolutely pay benefits. I think now that we're operating in the new segments, each one of the groups will evaluate hard what their new consolidated footprint looks like. And it's our job as a manufacturing company to be as efficient and cost effective for our customers as we can be. So I think the groups are also looking at where are the best plants to manufacture products, how do we optimize the logistics of our shipments to both our customers and raw materials and then they start developing operational plans and develop synergies based on that. So I think my expectation is not changed at all from what we presented in terms of that waterfall chart back in February and probably more confidence now that we're actually operating in the new groups.

And our next question will be coming from Adam Thalhimer of Thompson, Davis.

Scott, I'm still trying to understand the top line for Q4. So that's -- so Q4 top line down about $20 million to $25 million sequentially. What's driving that? Was there some tariff-related prebuys in Q2 and Q3? Or is that all just -- that's how bad the demand environment is now?

No. I mean I think it's more reflective of just the current market and what we're seeing sitting here today.

Okay. And then maybe it's unfair to ask, but I mean, do you have any insight into Q1, Q2 of next year and where that -- where the demand might be?

We've just started our budgeting process. So I think it's a little too early for us to kind of go out with guidance. A lot is going to probably depend on what the Fed does here over the next course of 2 to 3 months and what sort of reaction in terms of consumer confidence and some stability on inflation and tariffs. So I think we're not quite ready. I think our expectation is next year will be better than what we're seeing here in the second half, but still a little too early to come out with any specific guidance.

Okay. And then cash flow was a good story in Q3. Congrats on that. Also good Q4 cash flow guidance. Just curious what you guys are going to prioritize with the Q4 cash flow.

Yes. I think as always, we're going to balance debt repayment and potentially some opportunistic stock repurchases through the quarter. But clearly, continuing to strengthen our balance sheet in this environment is a top priority, and you should expect that to continue.

Yes, I would reinforce that. I mean I think that there's always -- we've always believed our leverage was at a level that was absolutely manageable, but I think that there were some that were -- you approach 3x concerned about that. And so even in a soft environment, we're able to continue to drive cash flow into this business. We'll continue to strengthen the balance sheet, as Scott said. And a lot of it is situational. When the market opens back up, as a reminder, we are opportunistic buyers. We don't have any sort of 10b plan established for the company. So we have limited time to be in the market, but we'll evaluate where our share price is, and we'll continue to prioritize our shareholders in what we feel is the best return for them.

And our next question will be coming from Julio Romero at Sidoti & Company, LLC.

Going back to Tyman Mexico for a bit. If I recall, that manufacturing business in Mexico is largely labor-intensive and very manual in nature. And I know you mentioned it was a tooling and equipment issue. So I was hoping you could kind of talk to the issues a little bit there? And does the labor-intensive and manual process of that business kind of affect your ability to implement the remediation plan at all?

Actually, the Monterrey facility is a mix between manual assembly as well as a significant presence for injection molding and metal die casting. So there is a lot of injection molders and die casters and tooling in that facility. What we identified is really the systems underneath how do you methodically anticipate and plan for tooling repairs. I don't want to say it was nonexistent, but again, not up to the standards. And you get to a point where if you're not maintaining tools and equipment, but you continue to try to run and you block off cavities, then it creates quality problems and other issues, and it will eventually catch up to you. And I think what we identified midyear here as we get deeper and deeper into the integration and we start understanding the processes and kind of put Quanex procedures and policies into place is that we were underinvested and that the tooling condition and the equipment condition was not where we wanted to be, and it was not going to be healthy to support our customers. So we had to make some changes and fix some things before it was catastrophic.

Good color there. Very helpful. And how is the remainder of the Tyman integration aside from Mexico performing from an operational perspective?

Yes. As I said in my statements, we've been very pleased with the progress to date. We've got commercial teams developed. And I've said in other calls, I think our job throughout the integration was try to combine the best of both companies and make it into something new and stronger. And -- although we have a short-term issue in one plant, when you look at overall throughout the rest of the integration, I think Tyman was probably more aligned to be a commercial type of business. And so the marketing, the product management and the sales teams and the sales leadership from Tyman have a bigger play within the role of Quanex. And the Quanex strength of being a manufacturing company is being integrated into the Tyman facilities. And I think we're making some very, very good progress. And as we mentioned, I think when the market does recover, we will have the systems in place, and we'll continue to fix the issues in Monterrey, but we'll be ready to grow. So I'm very excited about the progress that we made, and I think it's going to -- there's a lot more to be done, but we're well on track and right where we thought we would be minus the impact of Monterrey, which we identified and our systems are what caught that. So we'll fix it and we'll move forward, and we'll be ready to go. But very pleased with the progress.

Understood. Understood there. And sorry if I missed it, but did you guys provide a new time line for the $30 million in synergies, kind of that first tranche of synergies? Is that still expected by the end of 1Q fiscal '26?

I think we said early 2026. I think that's still pretty accurate.

Okay. Got you. So there's no push out announced from the time line there?

No.

I mean some of it will be market dependent. I mean if the market were to go worse, that impacts the procurement synergies, but we're not anticipating a significant degradation from where we're at today. So...

Got you. And then one more, if I could. On the Custom Solutions business, there's been some announcements of industry consolidation from some larger OEMs, and it also wouldn't be the first time that you guys have seen industry consolidation. So can you maybe talk to any expected impact to Quanex from that and some historical context you could provide as to how you've worked through industry consolidation of customers in the past?

So what we're seeing in the Custom Solutions, it was announced. It's too early in the combination of those companies, which is more on the wood products side. I'm assuming that's what you're referring to. It's too early to tell. We've seen significant customer consolidation there. So I think we're not anticipating any major impact as a result of that. We have relationships with all of the OEs, and we anticipate that will continue on a go-forward basis. As they go through the integration or even the approval of that consolidation, we'll get more information, and we'll develop our plans from there. In other markets, I think mainly in the window and door segment, I think we'll continue to see some consolidation. The national players will continue to, I think, grow. And -- we sell something to almost everyone. So it's -- it may have some mix issues from the different product lines that we sell. But for us, the consolidation is expected. And I think the fact that we have exposure to almost every window company, I think we're well positioned to be able to capitalize on that as long as we're continuing to provide the basket of goods and servicing our customers the way we need to. And for us, again, the priority is fixing Monterrey and getting that solved.

Got it. I just wanted to say congratulations on completing the resegmentation. Nice job there.

And our next question will be coming from Ruben Garner of Benchmark.

Just a quick follow-up on the Mexico facility. What percentage of your business or how much revenue comes from that facility?

We don't -- we haven't given that level of disclosure. It is a cost center. So the revenue actually flows through other facilities. So they're doing some extrusion and then it's dispersed. We'll have to get back to you, but we haven't publicly disclosed what that amount is through the hardware business.

And I would now like to turn the conference back to George for closing remarks.

Thank you. As we head into the fourth quarter, we are encouraged by the completion of our resegmentation and the overall resilience of the business in the current environment. Our team is focused on advancing our integration and capturing the synergy opportunities available. We remain optimistic about our prospects for profitable growth and value creation moving forward. We look forward to providing you with another update when we report Q4 and our full year 2025 earnings in December. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.