JELD-WEN Holding, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. JELD-WEN manufactures and distributes windows, doors, and other building products across North America, Europe, and Australasia. This unaudited filing covers the three and nine months ended September 25, 2021, compared with periods ended September 26, 2020.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,146.6 million | $1,112.9 million | $3,484.8 million | $3,084.4 million |
| Gross margin | $228.1 million; 19.9% | $244.9 million; 22.0% | $755.9 million; 21.7% | $657.9 million; 21.3% |
| Operating income | $53.7 million; 4.7% | $61.6 million; 5.5% | $199.3 million; 5.7% | $126.9 million; 4.1% |
| Net income | $40.5 million | $25.5 million | $126.7 million | $48.3 million |
| Diluted EPS | $0.41 | $0.25 | $1.26 | $0.48 |
| Adjusted EBITDA (non-GAAP) | $98.9 million | $130.8 million | $345.0 million | $331.0 million |
Q3 revenue rose 3.0%, with core revenue up 2% and foreign exchange adding 1%; 7% pricing gains were partly offset by 5% unfavorable volume/mix. Nine-month revenue increased 13.0%, driven by 9% core growth and 4% foreign exchange. Q3 gross margin and Adjusted EBITDA declined as inflation in materials, freight, and labor and unfavorable volume/mix outweighed pricing. Nine-month gross margin improved modestly, but Adjusted EBITDA margin fell to 9.9% from 10.7%.
Cash flow and liquidity: For the nine months, operating cash flow was $135.3 million, versus $210.6 million; investing cash outflow was $68.5 million, versus $57.1 million. Financing cash outflow was $346.2 million, primarily reflecting $278.0 million of share repurchases and $72.2 million of net debt repayments. Cash and cash equivalents were $443.9 million at September 25, down from $735.8 million at year-end 2020. Total liquidity was $832.8 million, including $372.2 million of ABL availability and $16.7 million under the Australian facility.
Debt: Balance-sheet current and long-term debt totaled approximately $1.716 billion; reported total debt before unamortized issuance costs and discounts was $1.731 billion. The company reported compliance with its debt agreements. In July, it extended its $550 million term loan maturity to July 2028 and extended and expanded the ABL facility to $500 million, with maturity in July 2026; no ABL borrowings were outstanding at quarter-end.
Material changes, outlook, and risks
- Q3 operating income fell year over year despite higher revenue. By segment, Q3 Adjusted EBITDA declined in North America to $76.9 million from $92.4 million, Europe to $23.8 million from $40.0 million, and Australasia to $17.6 million from $18.5 million.
- Q3 tax benefit was $2.9 million, compared with tax expense of $16.0 million a year earlier; the 2021 quarter included discrete tax benefits. The company also removed its indefinite-reinvestment assertion for a majority of foreign undistributed earnings, recording related deferred tax effects.
- Management cited continued residential and remodeling demand, but also intermittent pandemic-related facility closures or reduced capacity, supply-chain inflation, freight and labor cost pressure, and labor availability challenges. No quantified earnings or revenue guidance is provided in the filing. Management believes cash, operating cash flow, and available credit should meet anticipated needs for at least 12 months.
- Significant legal matter: After quarter-end, on October 7, 2021, the company agreed to pay Steves & Sons $66.4 million by November 3 to settle specified claims, including the past antitrust damages award; the amount was included in accrued current liabilities. The separate divestiture process for Towanda, Pennsylvania operations remained ongoing, with its ultimate impact not yet estimable.
- Other matters include a securities class-action settlement of $39.5 million expected to be funded by D&O insurers, subject to final court approval, and environmental remediation uncertainty at the former Everett, Washington site. The company says final remediation requirements and cost allocation could differ materially from its provisions.
Investor verification priorities
- Track whether pricing continues to offset material, freight, and labor inflation, and whether volume/mix recovers—particularly given Q3 margin and Adjusted EBITDA declines.
- Verify cash generation and working-capital trends; receivables and inventories increased, and operating cash flow declined year over year.
- Confirm the cash and earnings effects of the $66.4 million Steves settlement, the Towanda divestiture, and any remaining litigation or settlement approvals.
- Monitor liquidity and debt service after share repurchases, the term-loan and ABL amendments, and the scheduled settlement payment.
- Assess potential changes to tax estimates, environmental remediation costs, and pandemic-related operating disruptions.