JELD-WEN Holding, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparison periods ended September 24, 2022. Unaudited results. JELD-WEN manufactures and distributes windows, doors, and related building products. Continuing operations comprise North America and Europe; the Australasia business is reported as discontinued operations following its sale on July 2, 2023.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue, continuing operations | $1,077.0 million | $1,140.0 million | $3,283.3 million | $3,364.8 million |
| Gross margin | $223.6 million; 20.8% | $206.4 million; 18.1% | $640.9 million; 19.5% | $584.7 million; 17.4% |
| Operating income (loss) | $48.1 million | $(17.3) million | $134.1 million | $35.7 million |
| Continuing-operations net income (loss) | $16.9 million | $(45.1) million | $47.9 million | $(13.7) million |
| Net income (loss), including discontinued operations | $43.8 million | $(33.2) million | $97.2 million | $12.1 million |
| Adjusted EBITDA from continuing operations | $105.7 million; 9.8% of revenue | $94.5 million; 8.3% | $293.9 million; 9.0% | $270.8 million; 8.0% |
Financial position, cash flow, and debt
- At September 30, 2023, cash and cash equivalents were $239.2 million; total liquidity, a company-defined non-GAAP measure, was $692.6 million, including $453.4 million available under the ABL Facility. No ABL borrowings were outstanding; $39.0 million of letters of credit were issued.
- Total debt was $1.241 billion, compared with $1.758 billion at December 31, 2022. On August 3, 2023, the company redeemed $250 million of 6.25% Senior Secured Notes and $200 million of 4.63% Senior Notes, recording a $6.5 million extinguishment loss. It reported compliance with debt covenants.
- For the nine-month period, operating cash flow was $273.0 million, versus cash used of $73.4 million a year earlier. Investing cash flow was $298.8 million, including $367.5 million of net proceeds related to the JW Australia sale; capital expenditures were $69.6 million. Financing activities used $550.8 million, principally reflecting net debt repayments.
- Working capital was affected by seasonality. The company reported $518.4 million of inventory, down from $594.5 million at year-end 2022.
Changes and management commentary
- Q3 revenue declined 5.5%; core revenue fell 7%, reflecting a 10% reduction in volume/mix, partly offset by 3% price realization and 1% favorable foreign exchange. For nine months, revenue declined 2.4%; core revenue fell 2%, with an 8% volume/mix decline partly offset by 6% price realization.
- Gross margin improved in both periods, primarily from favorable price/cost. Q3 continuing-operations Adjusted EBITDA rose 11.9% despite lower revenue; nine-month Adjusted EBITDA increased 8.5%.
- Q3 North America revenue declined 5.4% and segment Adjusted EBITDA fell 5.1%; Europe revenue declined 6.0%, while segment Adjusted EBITDA increased 35.2%. Management attributed lower volumes to weakened demand in North America and market softness in Europe, with productivity and pricing benefits supporting margins.
- JW Australia was sold for approximately AUD $688 million; the company reported approximately $446 million net cash proceeds and a $26.1 million after-tax gain. Transition-service obligations include an $8.6 million reserve at quarter-end.
Outlook, unusual items, and risks
- No specific revenue or earnings guidance is provided in the supplied filing text. Management stated that expected operating cash flow and available liquidity should be adequate for operations, planned capital expenditures, investments, and debt service for at least the next 12 months.
- Restructuring and asset-related charges were $12.7 million in Q3 and $28.8 million for nine months. The company announced closures of facilities in Tijuana and Vista, estimating total pre-tax restructuring and other closure costs of $15.9–$19.7 million. It also completed the Atlanta plant closure, with approximately $17.2 million of pre-tax expenses and other closure costs.
- Additional unusual items include $3.5 million of accelerated ERP amortization in 2023, with another $24.8 million expected through Q2 2024, and $9.1 million of accelerated depreciation in North America during the first half.
- Material uncertainties include the court-ordered divestiture of Towanda, Pennsylvania, arising from the Steves litigation; the divestiture process remains ongoing. The filing also describes ongoing environmental remediation matters, including a possible Everett, Washington cleanup range of $11.8–$33.4 million, and product, antitrust, self-insurance, tax, and indemnification exposures. The company says it has recorded provisions where appropriate but cautions that outcomes could differ from estimates.
- Key business risks include weaker housing and remodeling demand, competition, raw-material and labor costs, interest rates, foreign exchange, execution of restructuring and productivity initiatives, product warranty and liability claims, environmental compliance, and indebtedness. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether volume and market demand stabilize, and whether pricing and productivity can continue to offset lower volumes.
- Cash generation after the unusually significant working-capital improvement and the one-time proceeds from the Australia divestiture.
- Debt-service costs and refinancing or interest-rate exposure following the August debt redemptions; the $370 million interest-rate swaps were scheduled to mature in December 2023.
- Final costs and timing of facility closures, ERP-system replacement, and Towanda divestiture, including associated legal and environmental obligations.
- How much reported net income and cash generation depend on discontinued operations, divestiture gains, recoveries, and other nonrecurring items; compare GAAP results with management’s non-GAAP Adjusted EBITDA measure.