JELD-WEN Holding, Inc. — Q1 2022 Form 10-Q
Business and period. JELD-WEN manufactures and distributes windows, doors, and other building products across North America, Europe, and Australasia. This unaudited report covers the three months ended March 26, 2022, compared with the three months ended March 27, 2021. The company notes that its business is seasonal, with activity generally higher in the second and third quarters.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $1,171.0 million | $1,092.4 million |
| Gross profit / margin | $203.3 million / 17.4% | $235.9 million / 21.6% |
| Operating income / margin | $10.3 million / 0.9% | $43.5 million / 4.0% |
| Net income (loss) | $(0.5) million; $(0.01) per share | $25.5 million; $0.25 per share |
| Adjusted EBITDA (non-GAAP) | $80.2 million / 6.9% of revenue | $97.9 million / 9.0% of revenue |
| Cash used in operating activities | $186.9 million | $64.9 million |
Revenue rose 7.2%; core revenue increased 10%, reflecting a 12% pricing benefit partly offset by 2% unfavorable volume/mix, while foreign exchange reduced reported revenue by 3%. Gross margin fell 4.2 percentage points, primarily from inflation in materials, freight, and labor, plus unfavorable volume/mix; pricing and productivity partly offset those pressures. SG&A was $193.0 million, broadly flat year over year. Interest expense was $18.4 million, little changed.
Adjusted EBITDA declined 18.0%. North America revenue increased 12.9%, but segment Adjusted EBITDA fell 15.9% to $67.1 million. Europe revenue increased 0.9%, while Adjusted EBITDA fell 49.0% to $14.7 million, reflecting inflation, higher utilities, negative productivity, and unfavorable mix. Australasia revenue declined 5.2% and Adjusted EBITDA fell 21.4% to $10.4 million, with foreign exchange and unfavorable volume/mix contributing. Adjusted EBITDA is a non-GAAP measure.
Cash, liquidity, and debt
Cash and cash equivalents were $265.6 million at March 26, 2022, down from $395.6 million at year-end; cash, cash equivalents, and restricted cash totaled $267.1 million. Total liquidity, as defined by the company, was $584.7 million: $265.6 million of unrestricted cash, $301.8 million of ABL availability, and $17.3 million available under the Australian facility. Management said current liquidity sources should cover operations, planned capital expenditures and investments, and debt service for at least the next 12 months.
Total debt was $1.833 billion, compared with $1.721 billion at December 31, 2021; long-term debt, net of issuance costs and discounts, was $1.783 billion. The company reported $120.0 million outstanding on its ABL Facility and $301.8 million of availability under that facility, and said it was in compliance with its credit agreements and note indentures. Net cash used in operating activities increased mainly because of higher working-capital investment and lower earnings. Investing activities used $9.3 million, including $15.4 million of property and equipment purchases. Financing activities provided $71.3 million, including $110.6 million of net borrowings, partly offset by $40.2 million of share repurchases.
Material changes, outlook, and risks
- Results shifted from $25.5 million of net income to a $0.5 million net loss as operating income and margins contracted despite higher revenue.
- Receivables and inventory increased from year-end to $708.5 million and $674.6 million, respectively, contributing to the operating cash outflow. The company attributes the seasonal working-capital build partly to preparation for peak construction and remodeling periods.
- The company provided no specific numerical full-year guidance in the supplied filing text. Management cited pricing, productivity, inflation, volume/mix, foreign exchange, and seasonality as important factors in results and liquidity.
- The Russia-Ukraine conflict is identified as a risk, including potential impacts on European input, freight, and utility costs, supply chains, demand, exchange rates, and borrowing costs. The company said it discontinued its limited Russia sales operations in Q1 and has no operations in Ukraine.
- The Towanda, Pennsylvania operation remains classified as held for sale following the Steves & Sons litigation. The divestiture process is ongoing, and the filing says there is no guarantee it will be completed. Other risks include litigation, environmental remediation, warranties and self-insured claims, raw-material and labor inflation, interest rates, and foreign exchange.
- Adjusted EBITDA includes $6.9 million of expenses related to facility fire damage and downtime, $5.0 million of legal and professional expenses, and $1.9 million of compensation and non-income taxes associated with legacy equity-award exercises. These are among the items management added back in its non-GAAP reconciliation.
Important facts for investors to verify
- Whether pricing can continue to offset materials, freight, labor, and utility inflation without further volume or mix deterioration.
- Whether working-capital needs and operating cash flow improve as the seasonal peak period progresses.
- Debt levels, variable-rate exposure, ABL availability, and compliance with facility covenants; the company had $370 million of interest-rate swaps maturing in December 2023.
- Progress, expected timing, and financial consequences of the Towanda divestiture and remaining Steves-related proceedings.
- Potential exposure from environmental matters, particularly the Everett site, where the company estimated a possible remediation range of $11.8 million to $33.4 million; final costs and allocation among responsible parties could differ materially.