JELD-WEN Holding, Inc.: Form 10-Q for the period ended Sep 28, 2024
Filed with the SEC on Nov 6, 2024 and accepted by EDGAR at Nov 6, 2024, 16:54 ET.
Management's discussion and analysis
As filed, 45,852 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
This MD&A contains forward-looking statements that involve risks and uncertainties. Please see the “Forward-Looking Statements” section above for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our unaudited financial statements and related notes thereto and the other disclosures contained elsewhere in this Form 10-Q, and our audited financial statements and related notes and MD&A included in our Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under Item 1A – Risk Factors in our Form 10-K and Form 10-Q, and included elsewhere in this Form 10-Q.
This MD&A is a supplement to our unaudited financial statements and notes thereto included elsewhere in this Form 10-Q and is provided to enhance your understanding of our results of operations and financial condition. Our discussion of results of operations is presented in millions throughout the MD&A and due to rounding may not sum or calculate precisely to the totals and percentages provided in the tables. Our MD&A is organized as follows:
- Overview. This section provides a general description of our Company and reportable segments.
- Consolidated Results of Operations and Operating Results by Business Segment. This section provides our analysis and outlook for the significant line items on our consolidated statements of operations, as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis.
- Liquidity and Capital Resources. This section contains an overview of our financing arrangements and provides an analysis of trends and uncertainties affecting liquidity, cash requirements for our business, and sources and uses of our cash.
- Critical Accounting Policies and Estimates. This section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations, and whose application requires significant judgments or a complex estimation process.
Company Overview
We are a leading global designer, manufacturer, and distributor of high-performance interior and exterior doors, windows, and related building products, serving the new construction and R&R sectors.
Our continuing operations include manufacturing and distribution facilities in 14 countries, located in North America and Europe. For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities, our ability to innovate, and our quality control as well as providing supply chain, transportation, and working capital savings.
Business Segments
Our business is organized in geographic regions to ensure integration across operations serving common end markets and customers. We have two reportable segments in our continuing operations: North America and Europe. Financial information related to our business segments can be found in Note 12 - Segment Information of our financial statements included elsewhere in this Form 10-Q.
Results of Operations
The tables in this section summarize key components of our results of operations for the periods indicated, both in U.S. dollars and as a percentage of our net revenues. Certain percentages presented in this section have been rounded to the nearest whole number. Accordingly, totals may not equal the sum of the line items in the tables below.
We present several financial metrics in “Core” terms, such as Core Revenue, which excludes the impact of foreign exchange, acquisitions and divestitures completed in the last twelve months. We believe Core Revenue assists management, investors, and analysts in understanding the organic performance of the operations.
Comparison of the Three Months Ended September 28, 2024 to the Three Months Ended September 30, 2023
(amounts in thousands)
| Three Months Ended September 28, 2024 | % of Net Revenues | September 30, 2023 | % of Net Revenues | |
|---|---|---|---|---|
| Net revenues | $934,716 | 100.0% | $1,076,980 | 100.0% |
| Cost of sales | 754,845 | 80.8% | 853,384 | 79.2% |
| Gross margin | 179,871 | 19.2% | 223,596 | 20.8% |
| Selling, general and administrative | 143,294 | 15.3% | 162,820 | 15.1% |
| Goodwill impairment | 63,445 | 6.8% | — | —% |
| Restructuring and asset-related charges | 25,540 | 2.7% | 12,698 | 1.2% |
| Operating income | (52,408) | (5.6)% | 48,078 | 4.5% |
| Interest expense, net | 16,319 | 1.7% | 16,737 | 1.6% |
| Loss on extinguishment and refinancing of debt | 459 | —% | 6,487 | 0.6% |
| Other income, net | (3,475) | (0.4)% | (9,453) | (0.9)% |
| (Loss) income from continuing operations before taxes | (65,711) | (7.0)% | 34,307 | 3.2% |
| Income tax expense | 7,251 | 0.8% | 17,399 | 1.6% |
| (Loss) income from continuing operations, net of tax | (72,962) | (7.8)% | 16,908 | 1.6% |
| (Loss) gain on sale of discontinued operations, net of tax | (1,440) | (0.2)% | 26,076 | 2.4% |
| Income from discontinued operations, net of tax | — | —% | 801 | 0.1% |
| Net (loss) income | $(74,402) | (8.0)% | $43,785 | 4.1% |
Consolidated Results
Net Revenues – Net revenues decreased $142.3 million, or 13.2%, to $934.7 million in the three months ended September 28, 2024 from $1,077.0 million in the three months ended September 30, 2023. The decrease in net revenues was primarily driven by a decrease in Core Revenues of 13%. Core Revenues decreased due to a 13% decline in volume/mix.
Gross Margin – Gross margin decreased $43.7 million, or 19.6%, to $179.9 million in the three months ended September 28, 2024 from $223.6 million in the three months ended September 30, 2023. Gross margin as a percentage of net revenues was 19.2% in the three months ended September 28, 2024 and 20.8% in the three months ended September 30, 2023. The decrease in gross margin percentage was due to a decremental impact of volume/mix, partially offset by an increase in productivity.
SG&A Expense – SG&A expense decreased $19.5 million, or 12.0%, to $143.3 million in the three months ended September 28, 2024 from $162.8 million in the three months ended September 30, 2023. SG&A expense as a percentage of net revenues increased to 15.3% in the three months ended September 28, 2024 from 15.1% in the three months ended September 30, 2023. The decrease in SG&A expense was primarily due to decreased performance-based variable compensation expense, decreased amortization expense due primarily to accelerated amortization recorded in the prior year of an ERP system that we are no longer utilizing upon completion of our related obligations under the JW Australia Transition Services Agreement during the first quarter of 2024, and lower insurance expense due to favorable claims experience, partially offset by increased professional fees, including non-recurring transformation journey expenses.
Goodwill Impairment – Goodwill impairment charges of $63.4 million in the three months ended September 28, 2024 relate to goodwill impairment charges associated with our Europe reporting unit. For more information, refer to Note 6 – Goodwill of our consolidated financial statements included in this Form 10-Q.
Restructuring and Asset-Related Charges – Restructuring and asset-related charges increased $12.8 million, or 101.1% to $25.5 million in the three months ended September 28, 2024 from $12.7 million in the three months ended September 30, 2023. The increase in restructuring was primarily due to an increase in charges incurred to transform the operating structure of our Europe segment and to close certain manufacturing facilities in our North America segment. For more information, refer to Note 16 - Restructuring and Asset-Related Charges of our consolidated financial statements included in this Form 10-Q.
Interest Expense, Net – Interest expense, net, decreased $0.4 million, or 2.5%, to $16.3 million in the three months ended September 28, 2024 from $16.7 million in the three months ended September 30, 2023. The decrease was primarily due to lower borrowing on our variable rate Term Loan Facility resulting from a partial principal paydown in the current quarter and an increase in interest income due to higher cash equivalents balances, partially offset by a decrease in interest income from interest rate derivatives.
Loss on Extinguishment and Refinancing of Debt – The $0.5 million loss on extinguishment and refinancing of debt in the three months ended September 28, 2024 is related to the redemption of the remaining $200.0 million of our 4.63% Senior Notes. The loss on extinguishment and refinancing of debt of $6.5 million in the three months ended September 30, 2023 is related to the redemption of our Senior Secured Notes and partial redemption of $200.0 million of our 4.63% Senior Notes. Refer to Note 10 - Long-Term Debt of our consolidated financial statements included in this Form 10-Q.
Other Income, Net – Other income, net decreased $6.0 million, or 63.2%, to $3.5 million in the three months ended September 28, 2024 from $9.5 million of other income, net in the three months ended September 30, 2023. Other income, net in the three months ended September 28, 2024 primarily consisted of cash received on investment in real estate of $3.2 million. Other income, net in the three months ended September 30, 2023 primarily consisted of recovery of the JW Australia transition services costs incurred of $4.0 million and income from short-term investments and forward contracts related to the JW Australia divestiture of $3.1 million.
Income Taxes – Income tax expense was $7.3 million in the three months ended September 28, 2024 compared to $17.4 million in the three months ended September 30, 2023. The effective tax rate in the three months ended September 28, 2024 was (11.0)%. The effective tax rate for the three months ended September 28, 2024 was primarily driven by $2.4 million of tax expense due to changes in UTPs from ongoing audits and $2.6 million attributable to an increase in the valuation allowance recorded against our U.S. tax attributes due to changes in estimated forecasted earnings. The effective tax rate in the three months ended September 30, 2023 was 50.7%. The effective tax rate for the three months ended September 30, 2023 was primarily driven by $7.0 million of income tax expense from the net impact of discrete items, resulting from increases in valuation allowances and increases in UTP reserves. Refer to Note 11 - Income Taxes of our consolidated financial statements included in this Form 10-Q.
Gain on Sale of Discontinued Operations – The $1.4 million loss and $26.1 million gain on sale of discontinued operations in the three months ended September 28, 2024 and three months ended September 30, 2023, respectively, is related to the July 2, 2023 sale of JW Australia. Refer to Note 2 - Discontinued Operations of our unaudited consolidated financial statements included in this Form 10-Q. The $1.4 million loss incurred in the three months ended September 28, 2024 is related to settlement of an outstanding tax liability related to JW Australia.
Comparison of the Nine Months Ended September 28, 2024 to the Nine Months Ended September 30, 2023
(amounts in thousands)
| Nine Months Ended September 28, 2024 | % of Net Revenues | September 30, 2023 | % of Net Revenues | |
|---|---|---|---|---|
| Net revenues | $2,879,858 | 100.0% | $3,283,269 | 100.0% |
| Cost of sales | 2,337,362 | 81.2% | 2,642,331 | 80.5% |
| Gross margin | 542,496 | 18.8% | 640,938 | 19.5% |
| Selling, general and administrative | 494,548 | 17.2% | 478,060 | 14.6% |
| Goodwill impairment | 63,445 | 2.2% | — | —% |
| Restructuring and asset-related charges | 60,046 | 2.1% | 28,776 | 0.9% |
| Operating (loss) income | (75,543) | (2.6)% | 134,102 | 4.1% |
| Interest expense, net | 48,575 | 1.7% | 59,083 | 1.8% |
| Loss on extinguishment and refinancing of debt | 1,908 | 0.1% | 6,487 | 0.2% |
| Other income, net | (20,226) | (0.7)% | (10,981) | (0.3)% |
| (Loss) income from continuing operations before taxes | (105,800) | (3.7)% | 79,513 | 2.4% |
| Income tax expense | 13,383 | 0.5% | 31,638 | 1.0% |
| (Loss) income from continuing operations, net of tax | (119,183) | (4.1)% | 47,875 | 1.5% |
| (Loss) gain on sale of discontinued operations, net of tax | (1,440) | (0.1)% | 26,076 | 0.8% |
| Income from discontinued operations, net of tax | — | —% | 23,249 | 0.7% |
| Net (loss) income | $(120,623) | (4.2)% | $97,200 | 3.0% |
Consolidated Results
Net Revenues – Net revenues decreased $403.4 million, or 12.3%, to $2,879.9 million in the nine months ended September 28, 2024 from $3,283.3 million in the nine months ended September 30, 2023. The decrease in net revenues was primarily driven by a decrease in Core Revenues of 12%. Core Revenues decreased due to a 12% decline in volume/mix.
Gross Margin – Gross margin decreased $98.4 million, or 15.4%, to $542.5 million in the nine months ended September 28, 2024 from $640.9 million in the nine months ended September 30, 2023. Gross margin as a percentage of net revenues was 18.8% in the nine months ended September 28, 2024 and 19.5% in the nine months ended September 30, 2023. The decrease in gross margin percentage was due to a decremental impact of volume/mix, partially offset by an increase in productivity.
SG&A Expense – SG&A expense increased $16.5 million, or 3.4%, to $494.5 million in the nine months ended September 28, 2024 from $478.1 million in the nine months ended September 30, 2023. SG&A expense as a percentage of net revenues increased to 17.2% in nine months ended September 28, 2024 from 14.6% in the nine months ended September 30, 2023. The increase in SG&A expense was primarily due to increased professional fees, including non-recurring transformation journey expenses, increased labor cost driven by an increase in inflation, and accelerated amortization of an ERP system that we are no longer utilizing upon completion of our related obligations under the JW Australia Transition Services Agreement during the first quarter of 2024, partially offset by decreased performance-based variable compensation expense and lower insurance expense due to favorable claims experience.
Goodwill Impairment – Goodwill impairment charges of $63.4 million in the nine months ended September 28, 2024 relate to goodwill impairment charges associated with our Europe reporting unit. For more information, refer to Note 6 – Goodwill of our consolidated financial statements included in this Form 10-Q.
Restructuring and Asset-Related Charges – Restructuring and asset-related charges increased $31.3 million, or 108.7% to $60.0 million in the nine months ended September 28, 2024 from $28.8 million in the nine months ended September 30, 2023. The increase in restructuring charges was primarily due to an increase in charges incurred to close certain manufacturing facilities in our North America segment and to transform the operating structure of our Europe segment. For more information, refer to Note 16 - Restructuring and Asset-Related Charges of our consolidated financial statements included in this Form 10-Q.
Interest Expense, Net – Interest expense, net, decreased $10.5 million, or 17.8%, to $48.6 million in the nine months ended September 28, 2024 from $59.1 million in the nine months ended September 30, 2023. The decrease was primarily due to lower long-term debt balances resulting from the redemption of our Senior Secured Notes and partial redemption of our 4.63% Senior Notes in the third quarter of 2023, and an increase in interest income due to higher cash equivalents balances, partially offset by a decrease in interest income from interest rate derivatives.
Loss on Extinguishment and Refinancing of Debt – The $1.9 million loss on extinguishment and refinancing of debt is related to the amendment of our Term Loan Facility as well as the redemption of the remaining $200.0 million of our 4.63% Senior Notes during the nine months ended September 28, 2024. The loss on extinguishment and refinancing of debt of $6.5 million in the nine months ended September 30, 2023 is related to the redemption of our Senior Secured Notes and partial redemption of our 4.63% Senior Notes. Refer to Note 10 - Long-Term Debt of our consolidated financial statements included in this Form 10-Q.
Other Income, Net – Other income, net increased $9.2 million, or 84.2%, to $20.2 million in the nine months ended September 28, 2024 from $11.0 million in the nine months ended September 30, 2023. Other income, net in the nine months ended September 28, 2024 primarily consisted of recovery of the JW Australia transition services costs incurred of $6.6 million, cash received on investment in real estate of $5.7 million, income from the refund of deposits of China antidumping and countervailing duties of $3.2 million, insurance reimbursements of $1.7 million, recovery of cost from receipts on impaired notes of $1.4 million, and foreign currency gains of $1.1 million, partially offset by pension expense of $1.5 million. Other income, net in the nine months ended September 30, 2023 primarily consisted of recovery of the JW Australia transition services costs incurred of $4.0 million and income from short-term investments and forward contracts related to the JW Australia divestiture of $3.1 million, the recovery of cost from interest received on impaired notes of $3.0 million, foreign currency gains of $2.3 million and reimbursements from insurance of $1.2 million, partially offset by pension expense of $5.0 million.
Income Taxes – Income tax expense was $13.4 million in the nine months ended September 28, 2024 compared to $31.6 million in the nine months ended September 30, 2023. The effective tax rate in the nine months ended September 28, 2024 was (12.6)%. The effective tax rate for the nine months ended September 28, 2024 was primarily driven by $12.1 million of tax expense due to changes in UTPs from ongoing audits and $4.3 million attributable to an increase in the valuation allowance recorded against our U.S. tax attributes due to changes in estimated forecasted earnings. The effective tax rate in the nine months ended September 30, 2023 was 39.8%. The effective tax rate in the nine months ended September 30, 2023 was primarily driven by $5.7 million of tax expense attributable to an increase in the valuation allowance on U.S. tax attributes, a net $2.0 million of tax expense due to changes in UTPs and $1.6 million of tax expense attributable to share-based compensation. Refer to Note 11 - Income Taxes of our consolidated financial statements included in this Form 10-Q.
Gain on Sale of Discontinued Operations – The $1.4 million loss and $26.1 million gain on sale of discontinued operations in the nine months ended September 28, 2024 and nine months ended September 30, 2023, respectively, is related to the July 2, 2023 sale of JW Australia. Refer to Note 2 - Discontinued Operations of our unaudited consolidated financial statements included in this Form 10-Q. The $1.4 million loss incurred in the nine months ended September 28, 2024 is related to settlement of an outstanding tax liability for a JW Australia.
Segment Results
We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280-10 - Segment Reporting. We define Adjusted EBITDA from continuing operations as income (loss) from continuing operations, net of tax, adjusted for the following items: income tax expense (benefit); depreciation and amortization; interest expense (income), net; and certain special items consisting of non-recurring net legal and professional expenses and settlements; goodwill impairment; restructuring and asset-related charges; M&A related costs; net (gain) loss on sale of business, property, and equipment; loss on extinguishment and refinancing of debt; share-based compensation expense; non-cash foreign exchange transaction/translation (gain) loss; and other special items. We use Adjusted EBITDA from continuing operations because we believe this measure assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. This non-GAAP financial measure should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.
We have two reportable segments, organized and managed principally in geographic regions: North America and Europe. We report all other business activities in Corporate and unallocated costs.
Reconciliations of net income to Adjusted EBITDA from continuing operations for our segments’ operations are as follows:
(amounts in thousands)
| Three Months Ended September 28, 2024 North America | Europe | Corporate and Unallocated Costs | Total Consolidated | |
|---|---|---|---|---|
| Income (loss) from continuing operations, net of tax | $35,781 | $(66,662) | $(42,081) | $(72,962) |
| Income tax expense (benefit) | 6,455 | 2,626 | (1,830) | 7,251 |
| Depreciation and amortization | 18,142 | 7,884 | 1,848 | 27,874 |
| Interest expense (income), net | 819 | (14) | 15,514 | 16,319 |
| Special items:(1) | ||||
| Net legal and professional expenses and settlements | 619 | 995 | 10,662 | 12,276 |
| Goodwill impairment | — | 63,445 | — | 63,445 |
| Restructuring and asset-related charges | 17,124 | 7,786 | 630 | 25,540 |
| M&A related costs | — | — | 3,045 | 3,045 |
| Net (gain) loss on sale of business, property, and equipment | (5,288) | 33 | (166) | (5,421) |
| Loss on extinguishment and refinancing of debt | — | — | 459 | 459 |
| Share-based compensation expense | 349 | 346 | 1,764 | 2,459 |
| Non-cash foreign exchange transaction/translation loss (gain) | 53 | (475) | 59 | (363) |
| Other special items | 734 | 291 | 696 | 1,721 |
| Adjusted EBITDA from continuing operations | $74,788 | $16,255 | $(9,400) | $81,643 |
(1) For a discussion of the Special items listed above, refer to Note 12 - Segment Information of our consolidated financial statements included in this Form 10-Q.
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(amounts in thousands)
| Three Months Ended September 30, 2023 North America | Europe | Corporate and Unallocated Costs | Total Consolidated | |
|---|---|---|---|---|
| Income (loss) from continuing operations, net of tax | $40,469 | $10,672 | $(34,233) | $16,908 |
| Income tax expense (benefit) | 27,412 | 5,974 | (15,987) | 17,399 |
| Depreciation and amortization(1) | 17,128 | 7,482 | 6,341 | 30,951 |
| Interest expense, net | 604 | 147 | 15,986 | 16,737 |
| Special items:(2) | ||||
| Net legal and professional expenses and settlements | 802 | 1,264 | 5,335 | 7,401 |
| Restructuring and asset-related charges | 11,890 | 838 | (30) | 12,698 |
| M&A related costs | 84 | — | 1,118 | 1,202 |
| Net loss (gain) on sale property and equipment | 748 | (4,791) | 3 | (4,040) |
| Loss on extinguishment and refinancing of debt | — | — | 6,487 | 6,487 |
| Share-based compensation expense | 914 | 455 | 2,013 | 3,382 |
| Non-cash foreign exchange transaction/translation loss (gain) | 131 | 2,343 | (2,203) | 271 |
| Other special items | (220) | 67 | (3,502) | (3,655) |
| Adjusted EBITDA from continuing operations | $99,962 | $24,451 | $(18,672) | $105,741 |
(1) Corporate and unallocated depreciation and amortization expense includes software accelerated amortization of $3.5 million for an ERP that we are no longer utilizing after we completed our related obligations under the JW Australia Transition Services Agreement during the first quarter of 2024.
(2) For a discussion of the Special items listed above, refer to Note 12 - Segment Information of our financial statements included in this Form 10-Q.
To conform with current period presentation, certain amounts in prior period information have been reclassified.
(amounts in thousands)
| Nine Months Ended September 28, 2024 North America | Europe | Corporate and Unallocated Costs | Total Consolidated | |
|---|---|---|---|---|
| Income (loss) from continuing operations, net of tax | $82,783 | $(71,665) | $(130,301) | $(119,183) |
| Income tax expense (benefit) | 26,800 | 15,784 | (29,201) | 13,383 |
| Depreciation and amortization(1) | 55,033 | 22,940 | 19,579 | 97,552 |
| Interest expense, net | 2,137 | 917 | 45,521 | 48,575 |
| Special items:(2) | ||||
| Net legal and professional expenses and settlements | 2,336 | 2,367 | 45,109 | 49,812 |
| Goodwill impairment | — | 63,445 | — | 63,445 |
| Restructuring and asset-related charges | 40,249 | 18,411 | 1,386 | 60,046 |
| M&A related costs | — | — | 9,223 | 9,223 |
| Net gain on sale of business, property, and equipment | (7,839) | (153) | (184) | (8,176) |
| Loss on extinguishment and refinancing of debt | — | — | 1,908 | 1,908 |
| Share-based compensation expense | 2,610 | 994 | 8,988 | 12,592 |
| Non-cash foreign exchange transaction/translation loss (gain) | 315 | (3,771) | 355 | (3,101) |
| Other special items | 7,199 | 1,911 | 4 | 9,114 |
| Adjusted EBITDA from continuing operations | $211,623 | $51,180 | $(27,613) | $235,190 |
(1) Corporate and unallocated depreciation and amortization expense includes software accelerated amortization of $14.1 million for an ERP that we are no longer utilizing after we completed our related obligations under the JW Australia Transition Services Agreement during the first quarter of 2024.
(2) For a discussion of the Special items listed above, refer to Note 12 - Segment Information of our consolidated financial statements included in this Form 10-Q.
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(amounts in thousands)
| Nine Months Ended September 30, 2023 North America | Europe | Corporate and Unallocated Costs | Total Consolidated | |
|---|---|---|---|---|
| Income (loss) from continuing operations, net of tax | $126,987 | $28,627 | $(107,739) | $47,875 |
| Income tax expense (benefit) | 63,072 | 10,469 | (41,903) | 31,638 |
| Depreciation and amortization(1) | 62,625 | 22,414 | 12,469 | 97,508 |
| Interest expense, net | 4,188 | 692 | 54,203 | 59,083 |
| Special items:(2) | ||||
| Net legal and professional expenses and settlements | 804 | 3,720 | 9,085 | 13,609 |
| Restructuring and asset-related charges | 25,360 | 2,620 | 796 | 28,776 |
| M&A related costs | 651 | — | 4,520 | 5,171 |
| Net loss (gain) on sale of property and equipment | 1,132 | (5,088) | 3 | (3,953) |
| Loss on extinguishment and refinancing of debt | — | — | 6,487 | 6,487 |
| Share-based compensation expense | 3,366 | 1,438 | 7,451 | 12,255 |
| Non-cash foreign exchange transaction/translation (gain) loss | (168) | 1,192 | (1,921) | (897) |
| Other special items | (39) | (134) | (3,450) | (3,623) |
| Adjusted EBITDA from continuing operations | $287,978 | $65,950 | $(59,999) | $293,929 |
(1) Corporate and unallocated depreciation and amortization expense includes software accelerated amortization of 3.5 million for an ERP that we are no longer utilizing after we completed our related obligations under the JW Australia Transition Services Agreement during the first quarter of 2024. North America depreciation and amortization expense includes accelerated depreciation of $9.1 million from reviews of equipment capacity optimization.
(2) For a discussion of the Special items listed above, refer to Note 12 - Segment Information of our financial statements included in this Form 10-Q.
To conform with current period presentation, certain amounts in prior period information have been reclassified.
Comparison of the Three Months Ended September 28, 2024 to the Three Months Ended September 30, 2023
(amounts in thousands)
| Net revenues from external customers | Three Months Ended September 28, 2024 | September 30, 2023 | % Variance |
|---|---|---|---|
| North America | $677,945 | $790,285 | (14.2)% |
| Europe | 256,771 | 286,695 | (10.4)% |
| Total Consolidated | $934,716 | $1,076,980 | (13.2)% |
| Percentage of total consolidated net revenues | |||
| North America | 72.5% | 73.4% | |
| Europe | 27.5% | 26.6% | |
| Total Consolidated | 100.0% | 100.0% | |
| Adjusted EBITDA from continuing operations (1) | |||
| North America | $74,788 | $99,962 | (25.2)% |
| Europe | 16,255 | 24,451 | (33.5)% |
| Corporate and unallocated costs | (9,400) | (18,672) | (49.7)% |
| Total Consolidated | $81,643 | $105,741 | (22.8)% |
| Adjusted EBITDA from continuing operations as a percentage of segment net revenues | |||
| North America | 11.0% | 12.6% | |
| Europe | 6.3% | 8.5% | |
| Total Consolidated | 8.7% | 9.8% |
(1) Adjusted EBITDA from continuing operations is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA from continuing operations, see Note 12 - Segment Information of our financial statements included in this Form 10-Q.
North America
Net revenues in North America decreased $112.3 million, or 14.2%, to $677.9 million in the three months ended September 28, 2024 from $790.3 million in the three months ended September 30, 2023. The decrease was primarily due to a decrease in Core Revenues of 14%. Core Revenues decreased due to a 14% unfavorable volume/mix driven by weaker market demand and a shift in demand to lower priced product lines.
Adjusted EBITDA from continuing operations in North America decreased $25.2 million, or 25.2%, to $74.8 million in the three months ended September 28, 2024 from $100.0 million in the three months ended September 30, 2023. The decrease was primarily due to unfavorable volume/mix and price/cost, partially offset by improved productivity.
Europe
Net revenues in Europe decreased $29.9 million, or 10.4%, to $256.8 million in the three months ended September 28, 2024 from $286.7 million in the three months ended September 30, 2023. The decrease was primarily due to a decrease in Core Revenues of 12%, offset by favorable foreign exchange impact of 1%. Core Revenues decreased due to unfavorable volume/mix of 12% primarily due to market softness across the region.
Adjusted EBITDA from continuing operations in Europe decreased $8.2 million, or 33.5%, to $16.3 million in the three months ended September 28, 2024 from $24.5 million in the three months ended September 30, 2023. The decrease was primarily due to unfavorable volume/mix and price/cost, partially offset by improved productivity.
Corporate and unallocated costs
Corporate and unallocated costs decreased by $9.3 million, or 49.7%, to $9.4 million in the three months ended September 28, 2024, from $18.7 million in the three months ended September 30, 2023. The decrease in cost was primarily due to decrease in performance-based variable compensation expense, cash received on investment in real estate, reduction in non-transformational professional fees and corporate function expense savings, and lower insurance expense due to favorable claims experience during the three months ended September 28, 2024.
Comparison of the Nine Months Ended September 28, 2024 to the Nine Months Ended September 30, 2023
(amounts in thousands)
| Net revenues from external customers | Nine Months Ended September 28, 2024 | September 30, 2023 | % Variance |
|---|---|---|---|
| North America | $2,068,538 | $2,375,430 | (12.9)% |
| Europe | 811,320 | 907,839 | (10.6)% |
| Total Consolidated | $2,879,858 | $3,283,269 | (12.3)% |
| Percentage of total consolidated net revenues | |||
| North America | 71.8% | 72.3% | |
| Europe | 28.2% | 27.7% | |
| Total Consolidated | 100.0% | 100.0% | |
| Adjusted EBITDA from continuing operations (1) | |||
| North America | $211,623 | $287,978 | (26.5)% |
| Europe | 51,180 | 65,950 | (22.4)% |
| Corporate and unallocated costs | (27,613) | (59,999) | (54.0)% |
| Total Consolidated | $235,190 | $293,929 | (20.0)% |
| Adjusted EBITDA from continuing operations as a percentage of segment net revenues | |||
| North America | 10.2% | 12.1% | |
| Europe | 6.3% | 7.3% | |
| Total Consolidated | 8.2% | 9.0% |
(1) Adjusted EBITDA from continuing operations is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA from continuing operations, see Note 12 - Segment Information of our financial statements included in this Form 10-Q.
North America
Net revenues in North America decreased $306.9 million, or 12.9%, to $2,068.5 million in the nine months ended September 28, 2024 from $2,375.4 million in the nine months ended September 30, 2023. The decrease was primarily due to a decrease in Core Revenues of 13%. Core Revenues decreased due to an 13% unfavorable volume/mix driven by weaker market demand and a shift in demand to lower priced products.
Adjusted EBITDA from continuing operations in North America decreased $76.4 million, or 26.5%, to $211.6 million, in the nine months ended September 28, 2024 from $288.0 million in the nine months ended September 30, 2023. The decrease was primarily due to unfavorable volume mix and price/cost, partially offset by improved productivity.
Europe
Net revenues in Europe decreased $96.5 million, or 10.6%, to $811.3 million in the nine months ended September 28, 2024 from $907.8 million in the nine months ended September 30, 2023. The decrease was primarily due to a decrease in Core Revenues of 11%. Core Revenues decreased due to unfavorable volume/mix of 12% primarily due to market softness across the region, partially offset by a 1% benefit from price realization.
Adjusted EBITDA from continuing operations in Europe decreased $14.8 million, or 22.4%, to $51.2 million in the nine months ended September 28, 2024 from $66.0 million in the nine months ended September 30, 2023. The decrease was primarily due to unfavorable volume/mix, partially offset by favorable productivity.
Corporate and unallocated costs
Corporate and unallocated costs decreased by $32.4 million, or 54.0%, to $27.6 million in the nine months ended September 28, 2024, from $60.0 million in the nine months ended September 30, 2023. The decrease in cost was primarily due to a decrease in performance-based variable compensation expense, cash received on investment in real estate, lower insurance expense due to favorable claims experience, reduction in non-transformational professional fees and corporate function expense savings during the nine months ended September 28, 2024.
Liquidity and Capital Resources
Overview
We have historically funded our operations through a combination of cash from operations, draws on our revolving credit facilities, and the issuance of non-revolving debt such as our Term Loan Facility and our Senior Notes. We place a strong emphasis on cash flow generation, which includes an operating discipline focused on working capital management. Working capital fluctuates throughout the year and is impacted by inflation, the seasonality of our sales, customer payment patterns, supply availability, and the translation of the balance sheets of our foreign operations into the U.S. dollar. Typically, working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with, and in preparation for, the peak season for home construction and remodeling in our North America and Europe segments, and decreases starting in the fourth quarter as inventory levels and accounts receivable decline. Inventories fluctuate for raw materials that have long delivery lead times, as we work through prior shipments and take delivery of new orders.
As of September 28, 2024, we had total liquidity (a non-GAAP measure) of $636.7 million, consisting of $208.5 million in unrestricted cash, $428.2 million available for borrowing under the ABL Facility, compared to total liquidity of $750.6 million as of December 31, 2023. The decrease in total liquidity was primarily due to lower cash balances at September 28, 2024 compared to December 31, 2023.
As of September 28, 2024, our cash balances, including $0.8 million of restricted cash, consisted of $63.1 million in the U.S. and $146.3 million in non-U.S. subsidiaries.
Based on our current and forecasted level of operations and seasonality of our business, we believe that cash provided by operations and other sources of liquidity, including cash, cash equivalents, and availability under our revolving credit facilities, will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments, and debt service requirements for at least the next twelve months.
We may, from time to time, refinance, reprice, extend, retire, or otherwise modify our outstanding debt to lower our interest payments, reduce our debt, or otherwise improve our financial position. These actions may include repricing amendments, extensions, and/or opportunistic refinancing of debt. The amount of debt that may be refinanced, repriced, extended, retired, or otherwise modified, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.
We may, from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Based on hypothetical variable rate debt that would have resulted from drawing each revolving credit facility up to the full commitment amount, a 100 basis point decrease in interest rates would have reduced our interest expense by $8.3 million in the three months ended September 28, 2024. A 100 basis point increase in interest rates would have increased our interest expense by $8.3 million in the same period. In certain instances, the impact of a hypothetical decrease would have been partially mitigated by interest rate floors that apply to certain of our debt agreements.
Borrowings and Refinancings
In June 2023, we amended the Term Loan Facility to replace LIBOR with a Term SOFR based rate as the successor benchmark rate and made certain other technical amendments and related conforming changes. All other material terms and conditions were unchanged.
In August 2023, we redeemed all $250.0 million of our 6.25% Senior Secured Notes and $200.0 million of our 4.63% Senior Notes. The Company recognized a pre-tax loss of $6.5 million on the redemption in year ended December 31, 2023, consisting of $3.9 million in call premium and $2.6 million in accelerated amortization of debt issuance costs.
In January 2024, we amended the Term Loan Facility to lower the applicable margin for replacement term loans, remove certain provisions no longer relevant to the parties, and make certain other technical amendments and related conforming changes. Pursuant to the amendment, replacement term loans bear interest at SOFR plus a margin of 1.75% to 2.00% depending on JWI’s corporate credit ratings, compared to a margin of 2.00% to 2.25% under the previous amendment. All other material terms and conditions of the Term Loan Agreement were unchanged.
In August 2024, we issued $350.0 million of Senior Notes, bearing interest at 7.00%, the proceeds of which were utilized to repay $150.0 million of the outstanding balance of our Term Loan Facility.
In September 2024, we redeemed the remaining $200.0 million of our 4.63% Senior Notes. The Company recognized a pre-tax loss of $0.5 million on the redemption resulting from accelerated amortization of debt issuance costs.
As of September 28, 2024, we were in compliance with the terms of all of our Credit Facilities and the indentures governing the Senior Notes.
Our results have been and will continue to be impacted by substantial changes in our net interest expense throughout the periods presented and into the future. See Note 10 - Long-Term Debt of our consolidated financial statements for additional details.
Cash Flows (1)
The following table summarizes the changes to our cash flows for the periods presented:
(amounts in thousands)
| Cash provided by (used in): | Nine Months Ended September 28, 2024 | September 30, 2023 |
|---|---|---|
| Operating activities | $78,025 | $272,983 |
| Investing activities | (106,396) | 298,843 |
| Financing activities | (50,283) | (550,753) |
| Effect of changes in exchange rates on cash and cash equivalents | (1,179) | (2,035) |
| Net change in cash and cash equivalents | $(79,833) | $19,038 |
(1) Cash flow information for the nine months ended September 30, 2023 is inclusive of cash flows from JW Australia as discontinued operations through the divestiture date of July 2, 2023.
Cash Flow from Operations
Net cash provided by operating activities decreased $195.0 million to $78.0 million in the nine months ended September 28, 2024, compared to $273.0 million in the nine months ended September 30, 2023. The decreased operating cash flow was primarily due to unfavorable change in earnings of $217.8 million and an unfavorable impact from accrued expenses of $48.6 million, due primarily to higher payments of annual variable compensation for 2023 performance, partially offset by a $8.5 million improvement in net cash provided by our working capital accounts. The impact of accounts receivable, net of $70.7 million was favorable in the nine months ended September 28, 2024, compared to the nine months ended September 30, 2023, which was primarily due to decreased sales and slightly improved collections. The $14.0 million favorable impact from accounts payable is primarily due to improved payment terms with suppliers. The $76.2 million unfavorable impact of inventory is primarily due to the prior year benefit from intentional, one-time reductions not being repeated in the current year, as the current year began with a more normalized inventory level as compared to the prior year. Further, the unfavorable impact of inventory was also driven by investments in inventory levels to aid in delivering improved service levels and lead times to our customers.
Cash Flow from Investing Activities
Net cash used in investing activities was $106.4 million in the nine months ended September 28, 2024 compared to cash provided by investing activities of $298.8 million in the nine months ended September 30, 2023, primarily driven by $367.5 million proceeds (payments) related to the sale of JW Australia during the nine months ended September 30, 2023 and an increase in capital expenditures of $37.7 million.
Cash Flow from Financing Activities
Net cash used in financing activities decreased $500.5 million to $50.3 million in the nine months ended September 28, 2024 compared to $550.8 million in the nine months ended September 30, 2023, primarily due to a decrease in net debt payments and payments of debt extinguishment costs of $25.6 million in the nine months ended September 28, 2024 compared to net debt payments and payments of debt extinguishment costs of $549.3 million in the nine months ended September 30, 2023. This decrease is partially offset by the repurchases of common stock of $24.3 million in the nine months ended September 28, 2024.
Critical Accounting Policies and Estimates
Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which may differ from these estimates.
Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements presented in our Form 10-K. Our critical accounting policies and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K. Our significant and critical accounting policies have not changed significantly since our Form 10-K was filed.
Holding Company Status
We are a holding company that conducts all of our operations through subsidiaries, and we rely on dividends or advances from our subsidiaries to fund the holding company. The majority of our operating income is derived from JWI, our main operating subsidiary. The ability of our subsidiaries to pay dividends to us is subject to applicable local law and may be limited due to the terms of other contractual arrangements, including our Credit Facilities and Senior Notes.
The amount of our consolidated net assets that were available to be distributed under our Credit Facilities as of September 28, 2024 was $924.1 million.
Market risk
As filed, 511 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
We are exposed to various types of market risks, including the effects of adverse fluctuations in foreign currency exchange rates, changes in interest rates, and movements in commodity prices for products we use in our manufacturing. To reduce our exposure to these risks, we maintain risk management controls and policies to monitor these risks and take appropriate actions to attempt to mitigate such forms of market risk. Our market risks have not changed significantly from those disclosed in the Form 10-K.
Controls and procedures
As filed, 1,565 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, including this Report, are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, including the Company’s CEO and CFO, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report and, based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 28, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s most recently completed quarter ended September 28, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Risk factors
As filed, 192 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K included in Part I Item 1A - Risk Factors for the year ended December 31, 2023.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-09-28. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-06-30 to 2024-09-28 | $934.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-01-01 to 2024-09-28 | $2.88bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months2024-06-30 to 2024-09-28 | $754.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months2024-01-01 to 2024-09-28 | $2.34bn | us-gaap:CostOfRevenue |
| Gross profit | 3 months2024-06-30 to 2024-09-28 | $179.9m | us-gaap:GrossProfit |
| Gross profit | 9 months2024-01-01 to 2024-09-28 | $542.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months2024-06-30 to 2024-09-28 | $143.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months2024-01-01 to 2024-09-28 | $494.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2024-06-30 to 2024-09-28 | −$52.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-01-01 to 2024-09-28 | −$75.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2024-06-30 to 2024-09-28 | $16.3m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months2024-01-01 to 2024-09-28 | $48.6m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months2024-06-30 to 2024-09-28 | $7.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-01-01 to 2024-09-28 | $13.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-06-30 to 2024-09-28 | −$74.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months2024-01-01 to 2024-09-28 | −$120.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-06-30 to 2024-09-28 | −$0.88 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-01-01 to 2024-09-28 | −$1.42 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-06-30 to 2024-09-28 | −$0.88 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-01-01 to 2024-09-28 | −$1.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-06-30 to 2024-09-28 | 84,554,174 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-01-01 to 2024-09-28 | 85,115,070 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-01-01 to 2024-09-28 | $78.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-01-01 to 2024-09-28 | $109.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months2024-01-01 to 2024-09-28 | $24.3m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | At period end2024-09-28 | $208.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-09-28 | $1.41bn | us-gaap:AssetsCurrent |
| Total assets | At period end2024-09-28 | $2.83bn | us-gaap:Assets |
| Current liabilities | At period end2024-09-28 | $693.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2024-09-28 | $2.11bn | us-gaap:Liabilities |
| Long-term debt | At period end2024-09-28 | $0 | us-gaap:LongTermDebt |
| Shareholders' equity | At period end2024-09-28 | $720.3m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001674335-24-000177. Last ingested by Listed: Nov 6, 2026, 18:48 ET. Listed shows no prices and gives no investment advice.