Quanex Building Products Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 6, 2024

Key Takeaways

  • Q3 revenue decreased 6.4% and adjusted EBITDA fell 13.2% year-over-year, despite sequential volume growth and solid free cash flow.
  • Market demand remains soft as consumer confidence lags, with expected Fed interest-rate cuts more likely to boost the 2025 build season than the current year.
  • Quanex is funding organic growth through capacity expansions for specialty sealants, new UK vinyl extrusion products, and operational improvement projects in its spacer business.
  • The Timan acquisition closed on August 1, with a full-time integration management office targeting $30 million in cost synergies within two years and a new operating structure due in early 2025.
  • Fiscal 2024 guidance now anticipates consolidated net sales of $1.275 billion–$1.285 billion and adjusted EBITDA of $171 million–$176 million, with Q4 revenues up ~75% on a consolidated basis including Timan.
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Earnings Conference Call
Quanex Building Products Q3 2024
00:00 / 00:00

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Operator

Good day, and thank you for standing by, and welcome to the Q3 2024 Quanex Building Products Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone, star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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 Zuehlke, Senior Vice President, CFO, and Treasurer. Please go ahead.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Thanks for joining the call this morning. On the call with me today is George Wilson, our President, Chairman, 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.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Thanks, Scott, and good morning to everyone joining the call. Today, I'll be providing an overview of our quarterly performance, the state of our served markets, and our perspective on the macroeconomic environment. Additionally, I'll discuss our recent acquisition of Tyman, including our integration plans and expectations moving forward. Overall, we are satisfied with our operational performance as we exceeded consensus expectations across all metrics, despite a challenging demand environment. Volumes for the third quarter of this year exceeded those of the second quarter, reinforcing our prior comments about a return to a more traditional seasonality pattern for orders. Scott will provide a more detailed analysis, but on a consolidated basis, revenue decreased by 6.4% in the third quarter compared to the same period last year, and adjusted EBITDA fell by 13.2%.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Although softer than the prior year, these results align with our expectations and our previous comments on the cadence for the third quarter. In our served markets and across all geographic regions, consumer confidence remains somewhat low due to macro-related uncertainty. While we expect the Fed to cut interest rates before the end of the calendar year, these cuts are likely to be more beneficial for the 2025 build season rather than having a significant impact in the current year. Even with relatively soft orders resulting from this low consumer confidence, the Quanex team has continued to generate solid free cash flow and remains focused on operational improvements. This financial stability has enabled us to invest in future organic growth opportunities.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

These investments include an expansion of mixing capacity for our specialty sealants product lines, the introduction of new products in our U.K. vinyl extrusion business, and the funding of several operational improvement projects for our spacer business. All these initiatives are expected to bear fruit as we move into 2025 and beyond. Moving on to an update on our recent acquisition of Tyman. We were pleased to announce the successful closure of this transformational deal on August 1st. We look forward to creating a new and improved company that leverages the strengths of both organizations. Shareholder approval for the transaction was overwhelmingly positive on both sides, with a 99% for vote from the Quanex shareholders and an 86% for vote from Tyman shareholders. This strong support underscores the solid financial and strategic rationale behind this acquisition.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Once the deal was finalized, we hit the ground running by continuing to work closely with our integration consultants while also engaging with the legacy Tyman team. We set up a full-time integration management office that includes cross-functional leaders from both legacy companies, and we are working quickly to establish a new organizational structure that is scalable and will drive us successfully into the future. Our integration management teams are working collaboratively, both to capture identified synergies and to identify additional achievable synergies that we may not have previously understood. The progress made to date reinforces our confidence in achieving our stated goal of $30 million in cost synergies within two years. We plan to unveil our new organizational structure publicly in early calendar 2025, and moving forward, we plan to provide quarterly updates on our progress towards achieving these synergies.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Additionally, we are excited about the opportunities for new product development and system improvements. With our expanded capabilities in the window and door market, manufacturing everything except the glass, we will challenge our development and engineering teams to leverage this product breadth to create new innovative solutions that add value and reduce costs for our customers. In summary, we are pleased with the operational foundation we've established and believe the company is well positioned to navigate any market condition, regardless of the macroeconomic dynamics. The Tyman acquisition has enhanced our scale and product depth. Our combined team is actively engaged in the integration process, and I'm confident that we will leverage the strengths of both legacy companies to create something greater than either company standing alone. We are optimistic about the future and confident in our ability to achieve above-market growth while creating value for our shareholders.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I'll now turn the call over to Scott, who will discuss our financial results in more detail.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Thanks, George. On a consolidated basis, we reported net sales of $280.3 million during the third quarter of 2024, which represents a decrease of 6.4% compared to $299.6 million during the third quarter of 2023. The decrease was mostly attributable to softer market demand across all operating segments. Net income decreased to $25.4 million, or $0.77 per diluted share, for the three months ended July 31st, 2024, compared to $31.7 million, or $0.96 per diluted share, for the three months ended July 31st, 2023. After adjusting for one-time items, net income decreased to $24.2 million, or $0.73 per diluted share for the quarter, compared to $31.9 million, or $0.97 per diluted share for the same period of last year.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

On an adjusted basis, EBITDA for the quarter decreased to $42 million, compared to $48.5 million during the same period of last year. The decrease in adjusted earnings for the three months ended July 31st, 2024, was mostly due to decreased operating leverage because of lower volumes related to softer market demand, combined with higher material costs in both of our North American segments. Now for results by operating segment. We generated net sales of $170.3 million in our North American Fenestration segment for the third quarter of 2024, which represents a decrease of 3.9% compared to $177.1 million in the third quarter of 2023, primarily due to lower volume. We estimate the volumes in this segment decreased by approximately 5% year-over-year, offset by a slight increase in pricing.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Adjusted EBITDA decreased to $24.7 million in this segment, compared to $27.7 million for the same period of 2023. Our European Fenestration segment generated revenue of $59.6 million in the third quarter, which represents a decrease of approximately 11% compared to the third quarter of 2023, after adjusting for the foreign exchange impact. We estimate that volumes declined by approximately 8% year-over-year in this segment, with pricing down by approximately 2.5% and a negative foreign exchange translation impact of about 1%. Adjusted EBITDA decreased and came in at $15.3 million for the quarter, compared to $18.6 million in the third quarter of 2023.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

We generated net sales of $51.5 million in our North American Cabinet Components segment during the quarter, which was 7.1% lower than prior year. This decrease was driven by lower volumes and lower index pricing for hardwoods. We estimate that volumes declined by approximately 8% in this segment year-over-year, offset slightly by an increase in pricing. Adjusted EBITDA was $3.4 million for the third quarter in this segment, compared to $5.4 million in the third quarter of 2023. Moving on to cash flow and the balance sheet. Cash provided by operating activities was $46.4 million for the third quarter of 2024, compared to $64.1 million for the third quarter of 2023.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Free cash flow decreased for the quarter, mainly driven by lower net income because of softer demand, higher SG&A, that included $6 million in transaction and advisory fees related to the Tyman acquisition, and a higher income tax expense. Our leverage ratio of net debt to last 12 months adjusted EBITDA was -0.3x as of July 31st, 2024, or said another way, we were net debt-free. Of course, this was prior to closing on the Tyman acquisition on August 1st. As referenced in the earnings release, our completion of the Tyman acquisition means that our prior guidance for fiscal 2024 is no longer valid. Note that we still feel comfortable with our prior guidance for the legacy Quanex business, and our updated guidance is simply layering in the contribution from the legacy Tyman business for the fourth quarter.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

On a consolidated basis, we now estimate net sales of $1.275 billion-$1.285 billion, which should result in $171 million-$176 million in adjusted EBITDA for fiscal 2024. Please note that this revised guidance incorporates an expected cost impact of approximately $3 million related to performing a full physical inventory count at all legacy Tyman manufacturing plants prior to our fiscal year-end on October 31st. Performing physical inventory counts following acquisitions and annually thereafter is vital to ensuring the accuracy and integrity of financial records and regulatory compliance. These counts verify that inventory records match actual stock levels, support accurate financial reporting, meet regulatory requirements, enhance operational efficiency, and safeguard against fraud and errors.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

It's also worth noting that we plan to report the legacy Tyman results for the fourth quarter of 2024 as a separate operating segment. As George said, we're in the process of establishing a new operating and segment reporting structure, which will be implemented in fiscal 2025, and which we hope to unveil at an Investor Day in early calendar 2025. In addition, for modeling purposes, please use the following initial guidance for the full year of 2024, which incorporates the legacy Tyman business for Q4.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Depreciation and amortization of approximately $53 million-$55 million, SG&A of $168 million-$170 million, after adjusting for one-time transaction and advisory cost, interest expense of $18 million-$20 million, and a tax rate of 22%. From a cadence perspective, for the fourth quarter of this year versus the third quarter of this year, we expect revenue to be flat to up 2% for the legacy Quanex business and up approximately 75% on a consolidated basis, including the legacy Tyman business. By segment for the fourth quarter of this year compared to the third quarter of this year, we expect revenue to be flat to up 2% in our North American Fenestration segment, flat to down 2% in our European Fenestration segment, and flat in our North American Cabinet Components segment.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

We're forecasting revenue of $210 million-$215 million for the legacy Tyman business for the fourth quarter. Adjusted EBITDA margin is expected to be up approximately 25 basis points for the legacy Quanex business in the fourth quarter of 2024, again, compared to the third quarter of this year. On a consolidated basis, which includes the legacy Tyman business and the previously mentioned costs related to physical inventory counts, adjusted EBITDA margin is expected to be down 25-50 basis points for the fourth quarter compared to the third quarter. Operator, we will now take your questions.

Operator

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from Steven Ramsey from TRG. Your line is now open.

Steven Ramsey
Deputy Director of Research at TRG

Hi, good morning. Maybe wanted to start with the legacy company full year outlook being unchanged. Wanted to think about this in the context of many building product companies in our coverage and more broadly, who reduced their outlook for fiscal, for calendar 2024 for lower demand. You guys are keeping your legacy outlook. Can you talk about maybe why you were able to hold that outlook? And then looking within your different end markets and products, did you adjust anything up or down by market, by market or by product end results or your outlook? Thanks.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Yeah, great question, Steven. You know, in terms of our full year guidance, I think, you know, our projections for what we've given in the past two quarters, I think we've always been somewhat conservative in our approach and really had built in not a lot of movement from the Fed early in the year. I think we were probably a little more conservative than some of our peers and thus, did not have to change our outlook on a go-forward basis. You know, I think our operating teams and the sales teams have done a good job of going out and trying to get some spot one-time business or picking up some different things that helps offset some of those softness.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

And, you know, in addition, some introduction of some new products that are starting to roll out. I think it is a combination of things, but again, being relatively conservative in our full year outlook early in the year, combined with just the sales teams going out and pushing hard to get spot business, has enabled us to stay fairly flat.

Steven Ramsey
Deputy Director of Research at TRG

Okay, that's helpful. Maybe to get you to build more on the potential share gains you've gotten in winning business. Can you go into more detail on maybe where that has come from, and then maybe put this business that you've won, put it into context in the prior years and maybe if it's comparable or even superior to prior years in winning business at this point in a calendar year?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Yeah, I think the markets themselves, especially coming out of some pretty challenging supply chain, year, year and a half, there hasn't been an enormous amount of shifts in terms of market share with our competitors or in the market. I think we've seen the most market share gain probably over in our European Fenestration business, and that's really because some competitors had filed for administration, so there's fewer competitors. I think all of the people that still exist in that market have picked up some market share. That's been some nice wins for us on volume. You know, we've continued to utilize our thermal performance as a selling point to get new business for our spacer products.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

You know, as around the world, the thermal performance and thermal efficiency of windows continues to grow, I think we continue to find opportunities to build off of that sustainability platform, and have had some nice wins globally there. Outside of that, really, the markets have kind of been stable. I think what we see when we do pick up business is that it's usually short term. For example, our cabinet business there, you know, it's pretty trenched in, but we've been able to pick up some spot business with some smaller customers. Those are the types of wins we see. Not a lot of shift in long-term contractual wins on that side of our business, but some nice spot wins.

Steven Ramsey
Deputy Director of Research at TRG

Okay, that's helpful. One more from me. One of the positive aspects of the Tyman deal was the limited product overlap between the two companies. Another positive feature was Tyman's greater mix of highly engineered products that carried better pricing. Can you talk about if there is any overlap on products where Tyman's mix of highly engineered products is better than yours, and maybe where you see that evolving strategically over the next year as you put the companies together and go to market?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Yeah, another great question. You know, I think, again, we're one month into this, but what we anticipated through our due diligence and what we've seen in this first 30 days, 45 days, is exactly that. There's very little overlap in the products, and little channel conflict in what we do. For us, being able to effectively, as I mentioned in my script, doing everything but the glass, we're pretty excited about the opportunities, one, to sell a full basket of goods. You become more of a distributor type approach to all of our customers.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

On new product development, you know, I think you'll see a stronger focus for us to migrate even more into systems development, effectively doing everything but the glass, trying to find ways to create systems that integrate multiple components to create something new and different. It's too early to tell. Those types of engineered and development projects take time, but I will tell you, we're extremely excited about the potential opportunity of doing exactly that.

Steven Ramsey
Deputy Director of Research at TRG

Excellent. Thank you.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Thanks.

Operator

Thank you. One moment for our next question. Our next question comes from Julio Romero from Sidoti & Company. Your line is now open.

Julio Romero
Julio Romero
Analyst at Sidoti & Company

Thanks. Hey, good morning, guys. Wanted to stay on Tyman for a little bit. Good morning. You know, can you maybe just talk about how the reception has been from, you know, employees, customers, suppliers, et cetera, you know, given the first month of integration post-close?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Yeah, you know, we've been very busy trying to get out to visit the plants, meet as many people. A lot of work to do, especially when you're at a quarter end. It's been a balance. We have been extremely pleased with the level of talent of people that we see in the organization, the excitement. One of the things that we identified fairly early, you know, the cultures are very similar on things that are extremely important to us. How we serve our customers, the focus, most importantly, the focus on safety, our willingness and anxiousness to develop people, all of those things are extremely similar. You know, we're very excited.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I think, once the deal closed, the level of sharing of data and obviously starting to build together, I mentioned in my script that we have an integration management office that has, you know, folks from pre-acquisition, both sides of the table, and these folks are working as though they've been colleagues for 30 years, and it's been great to see. I'm excited to see what sort of energy and opportunities that they're gonna create. I think our customers have been very supportive.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

We spent time talking to many of them about learning, you know, in their eyes, what are the strengths and the weaknesses of each, and it's our job to build on the strengths of those companies and minimize, you know, what would be a perceived weakness. I think we overlay very, very well. I mean, I think Quanex has been a very strong manufacturing-based company, and, you know, I think the Tyman team was probably a little more commercial-driven and engineered types of solutions. I think when you overlay those two, it's gonna create something very, very special.

Julio Romero
Julio Romero
Analyst at Sidoti & Company

Absolutely. Really helpful color there. And then, Scott, you talked about give some physical inventory counts and the cost impact related to that. Do you also lose any days of operations to do that, and if so, how many days? And then secondly, you know, do you expect maybe to implement a new ERP, you know, some data tracking and maybe reduce that physical inventory count impact over time?

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah, absolutely. We're gonna get much more efficient on it the second time around. I mean, this was something that they weren't expecting to have to get done by October 31st. It's something that we feel is very necessary. There will be a financial impact. I quantified the cost side. There will be some downtime that will affect a little of the revenue side, which is also reflected in the guidance that we gave. It's a learning process on their end. It's something we're used to here at legacy Quanex, but we're partners now. We're gonna work with them to make sure that going forward, this is a more efficient process.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

From an ERP perspective, your question there, I think, once we finalize the new reporting structures, we'll obviously do an in-depth look at what ERPs exist within the legacy organizations and how they match up with the new reporting structure, and we'll do everything that we can to streamline. I think that's one of the things, in terms of trying to optimize margin, take out costs, while not impacting our customer. That's always been a focus for the Quanex team, and we'll make sure that that continues to exist on a go-forward basis.

Julio Romero
Julio Romero
Analyst at Sidoti & Company

Mm-hmm. Got it. How does the SKU count for Tyman compared to legacy Quanex? Is it meaningfully different or?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

You know, it's, it.

Julio Romero
Julio Romero
Analyst at Sidoti & Company

How would you describe that?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I would say that there tends to be more SKUs on the legacy Tyman business. It is a different type of business model. You know, Quanex has typically been make to order. I would say Tyman is more make to stock. You know, they've typically had higher levels of inventory. You know, they're engineered into specific window systems. For example, when a customer engineers in a product into a window system, even if the window system goes out of manufacturing build, kind of like an OE, when for an automotive, when a car year expires, you still have to have the ability to make that product through the aftermarket life.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

It, it's, it's very similar, with their organization in that regard. So a little more SKUs, a little more inventory. We'll work, we'll work to kind of drive that as much as we can to a make to order versus make to stock, but a little different of a business model.

Julio Romero
Julio Romero
Analyst at Sidoti & Company

Okay. I'll pass it along. Thanks very much, guys.

Operator

Thank you. One moment for our next question. Our next question comes from Reuben Garner from Benchmark. Your line is now open.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

Thanks. Good morning, everybody.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Morning, Reuben.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

Just to follow up on Julio's question about the Tyman deal and customer conversations. I think revenue potential synergies or cross-selling opportunities was something mentioned around the time of the initial announcement of the deal. Was just curious what your kind of feedback was from customers on that front. Are there any dissynergy risks, any customers that maybe don't want to get overly exposed to one supplier? Any other kind of thoughts there would be helpful.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I don't see any initial dissynergy. You know, it's too early into the process to identify, you know, the revenue opportunities. We obviously think that they're there, and I'm not only by selling a basket of goods, but also, you know, the future development of new systems utilizing the whole breadth of our portfolio. Again, I want to remind people, in our projections and pre-announcement, we had never baked in any sort of revenue upside. You know, we feel good about that. You know, I think any sort of protection from customers isn't necessarily based on the size of the supplier. It'll be product line by product line that, you know, everyone will look to evaluate the risk profile, and I feel very, very good about our position.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I think I actually think the scale that Quanex has become actually protects our customers from the smaller type of customer base that has more financial risk. I mean, we've become a pretty large OE supplier, and with that scale comes some security in terms of our financial wherewithal. You know, it's our job to make sure that they understand that we have a supply chain that is able to support every one of our product lines, and that they don't have risk in terms of a supply chain side of it. I feel pretty good at where we're at, and we'll continue to have these discussions and build the relationships with our customer on a go-forward basis. I'm really excited.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I think the combination will be able to, you know, you hear it a lot, but I do think that this can be a win-win for us and our customers as we learn and work with each one of these customers to develop engineered solutions on a go-forward basis, and that's where our focus is gonna be.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

Got it, and then switching gears, any signs, you know, it's been a few years since we've had really a ton of focus on affordability, but just wanted to hear what you're kind of seeing from a trade down standpoint, whether it's in windows or the cabinet side. Any, has that picked up at all, and can you just remind us how that kind of impacts you on both the spacers front and then in the cabinets business?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

You know, I think on the affordability front, you know, I really think it impacts our cabinet side of the business more than the window side of our business. I, if you're going to get to the point where you need to replace a window, it's either because it's broken or it's failed, or you're trying to reduce your energy cost. I mean, the one thing that we are still seeing across the globe is energy costs are not getting cheaper. You know, there's an opportunity to get a payback by upselling your window and becoming more thermally performing. The cabinet piece of our business, you know, we're very happy with what our team has done operationally, but at the end of the day, it is a little more of a discretionary spend.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

As consumer confidence still lags and they tend to be kind of a higher level purchase that may require some borrowing to redo cabinets, it's going to be impacted more, in our opinion, than the windows, and I think we're seeing that right now.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

Great. I'm gonna sneak one more in. I know it's a little early for an initial 2025 outlook, but just kind of big picture, your revenue guide for the fourth quarter implies some improvement on a year-over-year basis, maybe kind of starting to flatten out? Is it too early to expect that maybe we've turned a corner and growth can resume in 2025?

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah, I mean, good question. I'm sure a lot of people are thinking the same thing, and it is too early for us to get in any sort of early look at next year. I will say that we feel like there is prospect to return to growth next year. I think that the second half is more, we're more optimistic about the second half of next year than we are in the first half, just because near-term uncertainty. Yeah, I think there's an opportunity for growth.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

The timing of those, I think we saw today that the jobs report came out. It's nothing spectacular, and there's more points starting to lead that the Fed will probably cut rates. I think here, over the next 30-60 days, when we see how large of a cut that potentially could be and the impact that has on consumer confidence, it will give us a better feel, kind of December and into the beginning of the calendar year, of how strong we're gonna believe 2025 is. We think there's an opportunity for it to be a pretty decent year, but, you know, there's still a lot of noise between the interest rates and the election.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

Great, thanks.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Tougher model.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

I'll close.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Yeah. Thank you.

Reuben Garner
Reuben Garner
Building Products and Commercial Interiors Equity Research Analyst at Benchmark

Thanks. Appreciate it. Congrats, guys. Thanks.

Operator

Thank you. One moment for our next question. Our next question comes from Adam Thalhimer from Thompson Davis. Your line is now open.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Hey, good morning, guys. Congrats on the quarter.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Good morning.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

And closing Tyman in early.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Thanks.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Thanks.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Giving us a full quarter of Tyman. That's pretty cool.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah, you like that? We planned, planned it perfectly.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Nice and clean.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Kind of in line with Reuben's last question, I was wondering if you guys are seeing any green shoots in the EU?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

You know, I think, I think consumer confidence has started to show a little more of a bounce back in the U.K., and a little, not as much yet in Europe. U.K. has been a little more positive than what we've seen in continental Europe. I think that the Bank of England has been a little more ahead, but their economy has lagged a little longer than the U.S. has. I think that the U.K. market has suffered a little bit. I think that there is probably more optimism for us in the U.K. than we do see in continental Europe, on a short-term basis.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Got it. Okay. Scott, what is the, what was the net debt after the close?

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah, we haven't—since it's during our fourth quarter, we haven't disclosed that, but it's not, it's pretty much in line with what we thought it would be.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Okay. And then if I'm doing this correctly, the Q4 tax rate jumps up a little bit to, call it, 24%. Is that right?

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Roughly, yeah. Yeah, 22% for the whole year, so a little higher in Q4.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Is that, like, a good tax rate to use going forward?

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Pretty close. We'll get more clarity there as we look into next year, but the reason for the uptick a little bit is mainly related to the U.K. Patent Box, which is for a lower rate that we enjoy as legacy Quanex, which legacy Tyman did not enjoy. We're trying to do a little work there to help us.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Got it. And then, what share count are you using for Q4? Not that you gave EPS guidance, but?

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah, it's roughly $47 million.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Okay. And then do you have any sense for go-forward CapEx for the combined company, or thoughts on Q4?

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Probably a little too early for that. You know, we've come in and, and, I, I don't think it'll, if you were to go back and look at the standard run rates of both companies, it'll probably be pretty consistent. We're in the process of evaluating all of the current projects that we have in place. I don't think that there will be anything significantly out of line and, as of right now, you know, we don't have any plans for any, like, plant consolidation types of projects that would chew up CapEx, so I think it'll be a pretty standard year in terms of spending.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Outside of.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Okay.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah. Outside of the one project I think we've mentioned in the past, we're expanding in the Southeast. We're opening a new plant in Jackson, Georgia, to help follow some of our bigger customers, so that'll take a little bit of CapEx next year.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Yeah, that was already built into ours.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

Yeah.

Adam Thalhimer
Director of Research and Partner at Thompson Davis

Okay. Got it. Great. Thank you, guys.

Scott Zuehlke
Scott Zuehlke
SVP, CFO, and Treasurer at Quanex Building Products Corporation

All right. Appreciate it.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

Thank you.

Operator

Thank you. I'm showing no further questions. I would now like to turn the call back over to George Wilson for our closing remarks.

George Wilson
George Wilson
President, Chairman, and CEO at Quanex Building Products Corporation

I would like to thank everyone for joining today. Before we go, I do want to take this opportunity to again welcome all of our new teammates who have joined us as part of the Tyman transaction, and to thank the entire team for all of their hard work during the transaction, and now, as we move forward together with the integration. We're really excited about the future for Quanex and look forward to updating you all again on our progress. Thank you.

Operator

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

Executives
    • George Wilson
      George Wilson
      President, Chairman, and CEO
    • Scott Zuehlke
      Scott Zuehlke
      SVP, CFO, and Treasurer
Analysts
    • Reuben Garner
      Building Products and Commercial Interiors Equity Research Analyst at Benchmark
    • Julio Romero
      Analyst at Sidoti & Company
    • Steven Ramsey
      Deputy Director of Research at TRG
    • Adam Thalhimer
      Director of Research and Partner at Thompson Davis
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