Quanex Building Products (NX) - 2024 Q4 - Annual Report

Company Operations and Facilities - As of October 31, 2024, the company operated 35 manufacturing facilities across 18 states in the U.S., seven in the U.K., three in Mexico, two in Italy, one in Germany, and one in Canada[17]. - As of October 31, 2024, the company had 7,068 employees globally, with employee turnover rates monitored monthly[41]. - The company operates at approximately 51% of machine capacity across its facilities in fiscal 2024, with variability due to product line, seasonality, labor shortages, and supply chain interruptions[108]. - The company has 13 additional facilities in North America for fenestration products, 2 in the U.K. for spacers, 10 for cabinet components, and 12 for fenestration and commercial access products[107]. Acquisitions and Strategic Growth - The company completed the acquisition of Tyman plc on August 1, 2024, enhancing its global reach and cross-selling opportunities[16]. - The company completed the acquisition of Tyman plc on August 1, 2024, for approximately $504.1 million, consisting of newly issued shares and cash[132]. - The company acquired LMI's polymer mixing and rubber compound production business for$91.3 million in cash on November 1, 2022[133]. - The company continues to evaluate business acquisitions to expand its fenestration and cabinet component footprint and enhance product offerings[129]. - The company is exploring potential acquisitions to enhance its product portfolio and market presence, with a focus on companies generating revenues of at least $EE million[209]. Financial Performance - Net sales for the fiscal year ended October 31, 2024, were$1,277,862,000, an increase of $147,279,000 or 13$1,130,583,000 in 2023[146]. - Operating income decreased by $55,875,000 or 50$54,826,000 for the fiscal year ended October 31, 2024[146]. - Net income for the fiscal year ended October 31, 2024, was $33,059,000, a decrease of$49,442,000 or 60% compared to $82,501,000 in 2023[146]. - The NA Fenestration segment reported net sales of$650,058,000, a decrease of $17,424,000 or 3$667,482,000 in 2023[147]. - The EU Fenestration segment experienced a net sales decline of $20,062,000 or 8$230,712,000 for the fiscal year ended October 31, 2024[151]. - The NA Cabinet Components segment reported net sales of $198,424,000, a decrease of$17,021,000 or 8% compared to $215,445,000 in 2023[154]. - Cash flows provided by operating activities decreased by$58,200 thousand to $88,812 thousand for the year ended October 31, 2024[167]. - Cash used for investing activities increased by$292,155 thousand to $420,594 thousand, primarily due to the acquisition of Tyman[168]. - Cash provided by financing activities was$385,156 thousand for the year ended October 31, 2024, compared to cash used in the previous year[169]. Market Trends and Projections - Window shipments in the residential remodeling and replacement market are expected to decrease by approximately 5.9% for the calendar year 2024, with a projected increase of 4.0% in 2025[20]. - New construction activity decreased by 2.5% and residential remodeling and replacement increased by 1.1% for the trailing twelve months ended September 30, 2024[20]. - The company reported a decrease in new construction activity by 5% in 2023 compared to 2022, with a forecasted increase of 6% in 2024[21]. - The overall decrease in window shipments for the trailing twelve months ended September 30, 2024, was 0.7%, with new construction activities decreasing by 2.5%[137]. - The U.K. vinyl business, Liniar, is positioned to benefit from the rising demand for affordable housing amid a growing immigrant population[138]. Operational Challenges and Risks - The company has identified a material weakness in internal control over financial reporting, which could lead to misstatements in financial statements if not remediated[65]. - The company faces significant pricing pressures from OEMs and large suppliers, which could negatively impact operating margins[69]. - Revenue may decline if customers vertically integrate, diversify suppliers, or shift manufacturing capacity to other regions[70]. - A few large customers significantly influence certain product lines, and losing any of them could adversely affect revenue and financial condition[71]. - Geopolitical tensions, particularly the conflicts in Ukraine and Gaza, could disrupt supply chains and negatively impact operating results and profitability[67]. - Climate change and extreme weather events could disrupt supply chains and decrease customer demand, negatively impacting revenues[91]. - The company purchases significant amounts of raw materials from outside sources, making it vulnerable to market fluctuations and supply chain disruptions[49]. - The company is subject to extensive laws and regulations regarding environmental compliance, which may increase operational costs in the future[51]. - Cybersecurity threats pose risks to the company's financial condition and operations, necessitating robust IT security practices[101]. Financial Management and Stability - The company has a revolving credit facility with operational restrictions and financial covenants that may limit capital access[74]. - The company plans to use excess cash to retire debt or meet working capital needs, indicating a focus on financial stability[164]. - The company has a $475 million Revolving Credit Facility and a$500 million Term A Facility, maturing on August 1, 2029[172]. - The weighted average interest rate of borrowings increased to 7.20% for the twelve-month period ended October 31, 2024, compared to 6.01% for the previous year[163]. - The company had $97,700 thousand in cash and cash equivalents and$245,500 thousand available under a revolving credit facility as of October 31, 2024[162]. Sustainability and Environmental Impact - The company is focused on sustainability by seeking ways to reduce its environmental impact and carbon footprint[24]. - The company has not incurred any material expenses related to environmental compliance in the past three fiscal years and does not expect significant costs in fiscal 2025[40]. - The company has a Vice President of Environmental, Health and Safety and maintains a committee to drive safety improvements as part of its operational strategy[38]. - The company has begun implementing additional programs for other raw materials to facilitate more accurate pricing and reduce exposure to changing material costs[206]. Miscellaneous Financial Information - Goodwill totaled $574.7 million at October 31, 2024, with potential impairment charges if future operating results differ significantly from estimates[52]. - The company recognized a loss of$0.3 million related to forward foreign exchange contracts during the year ended October 31, 2024[201]. - Total gross deferred tax assets as of October 31, 2024, were $60.3 million, with a valuation allowance of$4.4 million[188]. - Inventory reserves were approximately 1% of gross inventory for the year ended October 31, 2024, compared to 3% for the year ended October 31, 2023[189]. - A hypothetical 1.0% increase or decrease in interest rates could result in approximately $7.2 million of additional pre-tax charges or credits to operating results[199].