Quanex Building Products (NX) - 2025 Q3 - Quarterly Results

Executive Summary & Key Highlights This section provides an overview of Quanex's Q3 2025 performance, strategic updates, and key financial highlights Third Quarter 2025 Performance Overview Quanex Building Products announced Q3 2025 results, highlighting new segment reporting, significant debt repayment, reaffirmed cost synergy targets, and updated full-year guidance Financial Highlights (3 Months Ended July 31, 2025 vs 2024) | Metric | 2025 ($M) | 2024 ($M) | Change (%) | | :----------------------- | :-------- | :-------- | :--------- | | Net Sales | 495.3 | 280.3 | 76.7% | | Gross Margin | 138.0 | 70.9 | 94.6% | | Gross Margin % | 27.9% | 25.3% | +2.6 pp | | Net (loss) income | (276.0) | 25.4 | N/A | | Diluted EPS | (6.04) | 0.77 | N/A | | Adjusted Net Income | 31.6 | 26.9 | 17.5% | | Adjusted Diluted EPS | 0.69 | 0.81 | -14.9% | | Adjusted EBITDA | 70.3 | 42.0 | 67.4% | | Adjusted EBITDA Margin % | 14.2% | 15.0% | -0.8 pp | | Cash Provided by Operating Activities | 60.7 | 46.4 | 30.8% | | Free Cash Flow | 46.2 | 40.1 | 15.2% | - Net sales increased by 76.7% to $495.3 million in Q3 2025, primarily due to the Tyman acquisition; excluding Tyman, net sales increased by 1.4% due to increased pricing and tariff passthroughs, offset by lower volumes[3] - The reported net loss of $276.0 million was mainly due to a $302.3 million non-cash goodwill impairment related to business re-segmentation, not performance indicators or long-term expectations[1][3] - Adjusted earnings increased due to the Tyman acquisition and related cost synergies[4] Strategic & Operational Updates Quanex successfully completed its business re-segmentation and is progressing with the Tyman integration, reaffirming an increased cost synergy target of $45 million and strengthening its balance sheet by repaying over $51 million in debt - Completed business re-segmentation and operating in new segments, with substantial progress on Tyman integration[1] - Reaffirmed a path to realizing approximately $45 million in cost synergies over time, exceeding the initial projection of $30 million[1] - Repaid over $51 million in bank debt during Q3 2025, strengthening the balance sheet and improving liquidity[1] - Faced challenges from macroeconomic uncertainty, low consumer confidence, and temporary operational issues in the legacy Tyman window and door hardware business in Mexico[1][3] - Near-term priorities include focusing on Tyman integration, capturing synergies, generating cash flow to pay down debt, and opportunistic stock repurchases[2] Consolidated Financial Results This section details Quanex's consolidated financial performance for the three and nine months ended July 31, 2025, highlighting sales growth, net loss due to impairment, and adjusted profitability Three Months Ended July 31, 2025 For the three months ended July 31, 2025, Quanex reported a significant increase in net sales, primarily driven by the Tyman acquisition, but recorded a substantial net loss due to a non-cash goodwill impairment charge Income Statement (3 Months Ended July 31, 2025 vs 2024) | Metric (in thousands) | 2025 | 2024 | YoY Change (%) | | :-------------------------------- | :------- | :------- | :------------- | | Net sales | $495,273 | $280,345 | 76.7% | | Cost of sales | 357,305 | 209,441 | 70.6% | | Gross Margin | 137,968 | 70,904 | 94.6% | | Operating (loss) income | (270,835) | 23,442 | N/A | | Net (loss) income | (276,007) | 25,350 | N/A | | Diluted EPS | (6.04) | 0.77 | N/A | | Adjusted Net Income | 31,571 | 26,947 | 17.2% | | Adjusted Diluted EPS | 0.69 | 0.81 | -14.9% | | Adjusted EBITDA | 70,295 | 42,035 | 67.2% | - A non-cash goodwill impairment charge of $302.284 million was recorded in Q3 2025, significantly impacting net income[18] - Sales growth for the third quarter of 2025, inclusive of Tyman acquisition contributions, was 201.0% for Hardware Solutions, 29.6% for Extruded Solutions, and 40.7% for Custom Solutions[3] Nine Months Ended July 31, 2025 For the nine months ended July 31, 2025, Quanex reported a substantial increase in net sales, largely due to the Tyman acquisition, but a net loss driven by the non-cash goodwill impairment, while adjusted profitability metrics demonstrated growth Income Statement (9 Months Ended July 31, 2025 vs 2024) | Metric (in thousands) | 2025 | 2024 | YoY Change (%) | | :-------------------------------- | :--------- | :------- | :------------- | | Net sales | $1,347,795 | $785,701 | 71.6% | | Cost of sales | 986,129 | 597,127 | 65.1% | | Gross Margin | 361,666 | 188,574 | 91.8% | | Operating (loss) income | (236,892) | 51,996 | N/A | | Net (loss) income | (270,377) | 46,976 | N/A | | Diluted EPS | (5.83) | 1.42 | N/A | | Adjusted Net Income | 68,379 | 60,733 | 12.6% | | Adjusted Diluted EPS | 1.47 | 1.84 | -20.2% | | Adjusted EBITDA | 171,972 | 101,333 | 69.7% | - The $302.284 million non-cash goodwill impairment charge also impacted the nine-month net loss[18] Financial Position & Liquidity This section analyzes Quanex's balance sheet, debt levels, cash flow generation, and share repurchase activities, highlighting changes in assets, liabilities, and liquidity Balance Sheet As of July 31, 2025, Quanex's total assets decreased compared to October 31, 2024, primarily due to a significant reduction in goodwill following the impairment charge, alongside a decrease in total liabilities and stockholders' equity Balance Sheet Snapshot (in thousands) | Metric | July 31, 2025 | October 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :--------------- | :--------- | :--------- | | Total assets | $1,972,677 | $2,319,788 | ($347,111) | -15.0% | | Total liabilities | $1,255,286 | $1,309,042 | ($53,756) | -4.1% | | Total stockholders' equity | $717,391 | $1,010,746 | ($293,355) | -29.0% | | Cash and cash equivalents | $66,272 | $97,744 | ($31,472) | -32.2% | | Goodwill | $271,459 | $574,711 | ($303,252) | -52.8% | Debt and Leverage Quanex successfully reduced its total debt by $51.25 million in Q3 2025, bringing the total debt to $733.7 million, and improved its leverage ratio to 2.6x, well within covenant limits - Total debt was $733.7 million as of July 31, 2025[5][26] - Repaid $51.25 million of debt in Q3 2025[1] - Net Debt to LTM Adjusted EBITDA leverage ratio decreased to 2.6x as of July 31, 2025[5] - The Debt Covenant Leverage Ratio was 2.4x as of July 31, 2025, which is below the 3.75x limit through Q4 2025 and 3.25x starting Q1 2026[5] - Net Debt was $667.4 million as of July 31, 2025[26] Cash Flow and Free Cash Flow Quanex demonstrated strong cash generation from operating activities in Q3 2025, contributing to positive Free Cash Flow, though nine-month cash flow from operations and Free Cash Flow decreased year-over-year Cash Flow from Operations (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Three Months Ended July 31 | $60,656 | $46,388 | $14,268 | 30.8% | | Nine Months Ended July 31 | $76,643 | $83,333 | ($6,690) | -8.0% | Free Cash Flow (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Three Months Ended July 31 | $46,204 | $40,136 | $6,068 | 15.1% | | Nine Months Ended July 31 | $35,647 | $59,898 | ($24,251) | -40.5% | - Liquidity improved to $337.7 million as of July 31, 2025, consisting of cash on hand and availability under its Senior Secured Revolving Credit Facility[6] Share Repurchases Quanex continued its share repurchase program, buying back 100,000 shares for approximately $2.1 million in Q3 2025, with approximately $33.6 million remaining authorized - Repurchased 100,000 shares of common stock for approximately $2.1 million at an average price of $20.54 per share during the three months ended July 31, 2025[7] - Approximately $33.6 million remained under the existing $75 million share repurchase authorization as of July 31, 2025[7] Business Outlook & Strategic Priorities This section outlines Quanex's updated fiscal year 2025 guidance and management's strategic focus on integration, synergy capture, debt reduction, and capitalizing on future market demand Fiscal Year 2025 Guidance Quanex updated its fiscal 2025 guidance, projecting net sales of approximately $1.82 billion and Adjusted EBITDA of approximately $235 million, reflecting year-to-date results, demand trends, and revised synergy realization timelines - Updated Fiscal 2025 Guidance: Net Sales: Approximately $1.82 billion; Adjusted EBITDA: Approximately $235 million[8] - Guidance update based on year-to-date results, recent demand trends, updated cost synergy realization tracking, customer conversations, and a realistic timeline to address operational issues in Mexico[8] Management Commentary CEO George Wilson expressed confidence in Quanex's ability to achieve long-term objectives, emphasizing Tyman integration, synergy capture, debt reduction, and opportunistic stock repurchases as near-term priorities - CEO George Wilson expressed confidence in the company's ability to execute on long-term operational and financial objectives due to a strong team and unmatched product breadth[9] - Near-term priorities remain unchanged: focus on Tyman integration, capturing synergies, generating cash flow to pay down debt, and opportunistically repurchasing stock[2] - Quanex is well positioned due to its solid, flexible financial foundation and advantaged strategic positioning, ready to capitalize on pent-up demand as macroeconomic uncertainty subsides[2] Non-GAAP Financial Measures This section defines Quanex's non-GAAP financial measures, such as Adjusted Net Income, EBITDA, Net Debt, and Free Cash Flow, and provides detailed reconciliations to their GAAP equivalents Definitions and Disclaimers Quanex provides definitions for several non-GAAP financial measures, including Adjusted Net Income, Adjusted EPS, EBITDA, Adjusted EBITDA, LTM Adjusted EBITDA, Net Debt, and Free Cash Flow, used to assess operational performance and assist financial decision-making - Adjusted Net Income and Adjusted EPS are non-GAAP measures that exclude amortization of purchase price adjustments on inventory, asset impairment charges, transaction/advisory fees, reorganization costs, restructuring charges, intangible asset amortization, pension settlement refund, and other net adjustments, used to reflect operational performance by excluding items not affecting ongoing operations[12] - EBITDA, Adjusted EBITDA, and LTM Adjusted EBITDA are non-GAAP measures used to measure operational performance and assist with financial decision-making, with Adjusted EBITDA further excluding purchase price accounting inventory step-ups, transaction costs, severance, gain/loss on asset sales, restructuring charges, and asset impairment charges[12][13] - Net Debt is defined as total debt (outstanding balance on the revolving credit facility plus financial lease obligations) less cash and cash equivalents, useful for evaluating Quanex's leverage and as a basis for a key covenant in the Company's credit agreement[13] - Free Cash Flow is a non-GAAP measure calculated as cash provided by operating activities less capital expenditures, used to measure operational and cash management performance[14] - Quanex does not intend for non-GAAP information to be considered in isolation or as a substitute for other measures prepared in accordance with U.S. GAAP[15] Reconciliations This section provides detailed reconciliations of GAAP net income to Adjusted Net Income, EBITDA, and Adjusted EBITDA, as well as reconciliations for Free Cash Flow and Net Debt, illustrating the adjustments made to derive these non-GAAP metrics - Detailed reconciliation of Last Twelve Months Adjusted EBITDA, showing a total of $251.8 million for the period ended July 31, 2025[29] - Reconciliation of Adjusted Net Income and Adjusted EPS for the three and nine months ended July 31, 2025 and 2024, detailing reconciling items from net (loss) income[32][33] Free Cash Flow Reconciliation (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cash provided by operating activities | $60,656 | $46,388 | $76,643 | $83,333 | | Capital expenditures | (14,452) | (6,252) | (40,996) | (23,435) | | Free Cash Flow | $46,204 | $40,136 | $35,647 | $59,898 | Net Debt Reconciliation (in thousands) | Metric | As of July 31, 2025 | As of July 31, 2024 | | :-------------------------- | :------------------ | :------------------ | | Term loan facility | $475,000 | $0 | | Revolving credit facility | 197,500 | - | | Finance lease obligations | 61,194 | 55,007 | | Total debt | 733,694 | 55,007 | | Less: Cash and cash equivalents | 66,272 | 93,966 | | Net Debt | $667,422 | ($38,959) | Condensed Consolidated Financial Statements (GAAP) This section presents Quanex's GAAP financial statements, including statements of income, balance sheets, and cash flow statements, for the reported periods, offering a comprehensive view of the company's financial health Statements of Income The Condensed Consolidated Statements of Income present the company's revenues, costs, and profitability for the three and nine months ended July 31, 2025, and 2024, with a notable non-cash asset impairment charge in 2025 Condensed Consolidated Statements of Income (in thousands) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net sales | $495,273 | $280,345 | $1,347,795 | $785,701 | | Cost of sales | 357,305 | 209,441 | 986,129 | 597,127 | | Gross Margin | 137,968 | 70,904 | 361,666 | 188,574 | | Selling, general and administrative | 71,270 | 36,509 | 208,253 | 103,579 | | Restructuring charges | 1,367 | - | 10,207 | - | | Depreciation and amortization | 33,882 | 10,953 | 77,814 | 32,999 | | Asset impairment charges | 302,284 | - | 302,284 | - | | Operating (loss) income | (270,835) | 23,442 | (236,892) | 51,996 | | Interest expense | (14,218) | (878) | (42,344) | (2,896) | | Net (loss) income | (276,007) | 25,350 | (270,377) | 46,976 | | Diluted EPS | (6.04) | 0.77 | (5.83) | 1.42 | | Cash dividends per share | 0.08 | 0.08 | 0.24 | 0.24 | Balance Sheets The Condensed Consolidated Balance Sheets provide a snapshot of Quanex's financial position as of July 31, 2025, and October 31, 2024, detailing assets, liabilities, and stockholders' equity, showing a significant decrease in goodwill and total assets Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 | October 31, 2024 | | :-------------------------- | :------------ | :--------------- | | Total current assets | $583,324 | $611,268 | | Property, plant and equipment, net | 405,510 | 402,466 | | Goodwill | 271,459 | 574,711 | | Intangible assets, net | 558,768 | 597,909 | | Total assets | $1,972,677 | $2,319,788 | | Total current liabilities | $264,693 | $272,867 | | Long-term debt | 695,605 | 737,198 | | Total liabilities | $1,255,286 | $1,309,042 | | Total stockholders' equity | $717,391 | $1,010,746 | Statements of Cash Flow The Condensed Consolidated Statements of Cash Flow detail the cash inflows and outflows from operating, investing, and financing activities for the nine months ended July 31, 2025, and 2024, showing a decrease in cash from operating activities and increased outflows for investing and financing Condensed Consolidated Statements of Cash Flow (in thousands) | Activity | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Cash provided by operating activities | $76,643 | $83,333 | | Cash used for investing activities | ($40,635) | ($23,320) | | Cash used for financing activities | ($87,379) | ($25,456) | | Effect of exchange rate changes on cash | $16,302 | $935 | | (Decrease) increase in cash, cash equivalents and restricted cash | ($35,069) | $35,492 | | Cash, cash equivalents and restricted cash at end of period | $67,926 | $93,966 | - Key Cash Flow Changes (9 Months Ended July 31, 2025 vs 2024): Operating activities: Decreased by $6,690 thousand; Investing activities: Increased cash outflow by $17,315 thousand, primarily due to higher capital expenditures; Financing activities: Increased cash outflow by $61,923 thousand, driven by higher repayments of credit facility borrowings and treasury stock purchases[23] Segment Performance & Sales Analysis This section presents Quanex's financial performance by its newly defined segments—Hardware Solutions, Extruded Solutions, and Custom Solutions—and provides a detailed sales analysis by product category Segment Financial Data Quanex's new segment reporting categorizes the business into Hardware Solutions, Extruded Solutions, and Custom Solutions, all showing significant net sales growth in Q3 2025, largely due to the Tyman acquisition Segment Net Sales (3 Months Ended July 31, 2025 vs 2024, in thousands) | Segment | 2025 | 2024 | YoY Change (%) | | :------------------ | :------- | :------- | :------------- | | Hardware Solutions | $227,116 | $75,460 | 201.0% | | Extruded Solutions | $174,427 | $134,552 | 29.6% | | Custom Solutions | $102,264 | $72,667 | 40.7% | Segment Adjusted EBITDA (3 Months Ended July 31, 2025 vs 2024, in thousands) | Segment | 2025 | 2024 | YoY Change (%) | | :------------------ | :------- | :------- | :------------- | | Hardware Solutions | $24,743 | $9,462 | 161.5% | | Extruded Solutions | $37,090 | $27,746 | 33.7% | | Custom Solutions | $12,851 | $6,135 | 109.5% | | Unallocated Corp & Other | ($4,389) | ($1,308) | N/A | Adjusted EBITDA Margin % (3 Months Ended July 31, 2025 vs 2024) | Segment | 2025 | 2024 | Change (pp) | | :------------------ | :----- | :----- | :---------- | | Hardware Solutions | 10.9% | 12.5% | -1.6 pp | | Extruded Solutions | 21.3% | 20.6% | +0.7 pp | | Custom Solutions | 12.6% | 8.4% | +4.2 pp | - Asset impairment charges for the three months ended July 31, 2025, were $163,198 thousand for Hardware Solutions, $54,934 thousand for Extruded Solutions, and $84,152 thousand for Custom Solutions[37] Sales Analysis by Product Category The sales analysis provides a detailed breakdown of net sales within each segment by specific product categories for the three and nine months ended July 31, 2025, and 2024, highlighting new product lines from the Tyman acquisition Hardware Solutions Sales (3 Months Ended July 31, 2025 vs 2024, in thousands) | Product Category | 2025 | 2024 | | :----------------------- | :------- | :------- | | Window and door hardware | $150,307 | $- | | Screens | $76,809 | $75,460 | Extruded Solutions Sales (3 Months Ended July 31, 2025 vs 2024, in thousands) | Product Category | 2025 | 2024 | | :----------------------- | :------- | :------- | | Window profiles | $68,165 | $67,802 | | Seals and gaskets | $29,865 | $16,513 | | Spacers | $54,743 | $37,868 | | Solar | $5,250 | $5,198 | | Flashing Tape | $3,038 | $4,905 | | Window and door hardware | $10,044 | $- | | Other | $3,322 | $2,266 | Custom Solutions Sales (3 Months Ended July 31, 2025 vs 2024, in thousands) | Product Category | 2025 | 2024 | | :----------------------- | :------- | :------- | | Wood solutions | $53,409 | $51,448 | | Access solutions | $27,370 | $- | | Mixing solutions | $21,485 | $21,219 | - Revenue associated with foreign currency exchange rate impacts increased by $2.6 million and $2.9 million for the three and nine months ended July 31, 2025, respectively[45] Other Information This section provides details on Quanex's conference call, company overview, and a standard disclaimer regarding forward-looking statements Conference Call and Webcast Quanex scheduled a conference call and webcast for September 5, 2025, to discuss the Q3 2025 results, with details provided for registration and access - A conference call and live audio webcast are scheduled for Friday, September 5, 2025, at 11:00 a.m. ET (10:00 a.m. CT) to discuss the Q3 2025 results[10] - A link to the live audio webcast and pre-registration is available on Quanex's website in the Investors section under Presentations & Events[10] About Quanex Quanex is a global manufacturer specializing in innovative solutions for various end markets, including window, door, solar, refrigeration, and cabinetry, with plans to expand into adjacent markets - Quanex is a global manufacturer providing innovative solutions in the window, door, solar, refrigeration, custom mixing, building access, and cabinetry markets[11] - The company plans to leverage its material science expertise and process engineering to expand into adjacent markets[11] Forward-Looking Statements The report includes a standard disclaimer regarding forward-looking statements, cautioning that actual results may differ materially from expectations due to various factors, and Quanex undertakes no obligation to update these statements - Statements reflecting future expectations or beliefs are forward-looking statements[16] - Actual results or events may differ materially from this release due to factors discussed in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q[16] - Quanex undertakes no obligation to update or revise any forward-looking statements to reflect new information or events[16]