Hello, and welcome to the Janus International third quarter 2021 earnings conference call. Currently, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Scott Sannes, Chief Financial Officer of Janus. Thank you. You may begin.
Thank you, operator, and thank you all for joining our third quarter 2021 earnings conference call. We hope that you have seen our earnings release issued this morning. Please note that we have also posted a presentation in support of this call, which can be found in the investors section of our website at janusintl.com. Before we begin, I would like to remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements. Please note that the company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business, prospects, and future results.
We assume no obligation to update publicly any forward-looking statements. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, management adjusted EBITDA, management adjusted EBITDA margins, adjusted net income, and adjusted EPS. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. I am joined today by our Chief Executive Officer, Ramey Jackson, who will provide an overview of our business and give an operations update. I will continue with a discussion of our financial results and outlook before we open up the call for your questions. At this point, I will turn the call over to Ramey.
Thank you, Scott. Before I begin, I think it would be a good idea to remind you all of who we are and what we do at Janus, given the recency of our public company status. Janus provides industry-leading products and access control technologies to the self-storage and commercial space. We offer a wide range of critical products and solutions with over 50% share of the fastest-growing self-storage market. In our R3 division, which is our replacement, remix, and renovation business, we sell products and services to help customers upgrade their assets within the aging storage industry. As approximately 60% of self-storage facilities are over 20 years old, the sales channel provides Janus with significant growth opportunities. We are a first mover in providing smart lock technology through our proprietary Nokē wireless solutions.
In addition, we provide a full line of complete self-storage building systems with our BETCO division, as well as a complete offering of rolling steel doors for the commercial, industrial, and warehousing space with our ASTA division. Even though we manufacture products, Janus is viewed in the industry as a solutions provider. This go-to-market strategy is what helps drive the margin profile of the business. Over the past five years, we've doubled our business through a balanced mix of organic and acquisitive growth and expect to continue to grow attractively in the future. We have a very strong position in the self-storage and leading position with our customers in all of our business segments.
The third quarter of 2021 was an exciting one for Janus and was our first full quarter as a public company. We built on our momentum with the closing of our strategic acquisition of DBCI, adding a premier provider of steel roll-up doors and building products for both the commercial and self-storage industries. The complementary combination of DBCI's core general contractor and distributor base and Janus' leading self-storage customer set will help grow our self-storage, commercial, and Nokē access control businesses. Together, we can now offer more comprehensive and value-added solutions to our combined customer set.
During the quarter, we also announced and closed on the acquisition of Access Control Technologies, or ACT, which is a premium provider of access control and low voltage installation and integration services for the self-storage and other industrial end markets. The acquisition will help accelerate the growth of the Nokē access control product line and allow both ACT and Janus to offer a more comprehensive suite of products and services to the self-storage owners and operators. ACT will continue to operate under its own brand and gives Janus an enhanced geographic footprint via hubs on both the East and West Coast of the U.S. We backed up our strong first half of the year by delivering outstanding growth for the quarter, even in the face of unprecedented inflationary pressures from raw materials, labor, and logistics, while continuing to invest in our strategic growth initiatives and closing on these two strategic acquisitions.
On a macro level, high occupancy rates continue to drive new capacity additions in the self-storage industry. Those investment decisions are bolstered by a larger, more investment driven and better capitalized group of owners for the self-storage facilities such as the REITs. This provides a significant tailwind for the business. Janus is a leading beneficiary of capacity additions, no matter which form they take, be it new construction or repurposing and refurbishing existing facilities, both of which have similar margin profiles. We continue to remain keenly focused on several key growth strategies, including Nokē, where we continue to invest in building out the infrastructure that supports the growth of our access control product lines. As I previously mentioned, we are excited about bolstering the Nokē ground game with the recent ACT acquisition.
We also continue to grow the install base quarter- over- quarter. R3, where we continue to focus on the aging self-storage facilities, the current trend of bringing additional self-storage capacity online through expansions and conversions, and our recently launched Facilitate division. Lastly, commercial, where we continue to focus on building out the rolling steel product line at our ASTA business unit and are excited about the additional opportunities that DBCI acquisition brings to the commercial side of the business. We delivered gross revenue of $187.8 million, an increase of 33.8% as compared to the same period last year, or 27.1% on an organic basis, excluding the impacts from M&A activity. This growth was fueled by the continued strength in both our R3 and commercial and other sales channels.
Janus also experienced strong recovery across our end markets from the COVID-19 impacted year ago quarter and benefited from the partial quarter contributions that came from DBCI and ACT acquisitions that closed during the quarter. The pandemic continues to present challenges in certain areas of our business, including raw material availability and inflation, labor availability and inflation, and logistical challenges. Despite these impacts, our teams are working together to execute efficiently and effectively to fulfill our commitments to our customers. The company has taken actions to offset these inflationary effects through both commercial and cost containment initiatives. We continue to face headwinds from sustained inflationary pressures, coupled with the churn of legacy price products via executed contracts and backlog.
Our adjusted EBITDA of $36.3 million came in 2.9% stronger than Q3 of 2020. The higher EBITDA was driven by higher revenues, partially offset by higher cost of sales and general and administrative expenses, as well as incremental new costs associated with being a public company. We are excited that we were able to build on the momentum we had coming out of our becoming a public company in June with two strategic acquisitions and another quarter of outstanding growth, even in the face of global inflationary pressures. As our end markets accelerate to meet increased demand for capacity, we look to leverage our strong market positions to capture additional share and create long-term value for our stakeholders. With that, I'll turn the call over to Scott for an overview of the financials and outlook for the full year.
Thanks, Ramey, and good morning, everyone. In the third quarter, revenues of $187.8 million were up 33.8% or 27.1% on an organic basis compared to the prior year quarter, driven primarily by solid execution and performance in our R3 and commercial and other sales channels. R3 was up 68.6%, commercial and other was up 104.1%, while new construction was down 11.5% versus the prior year quarter. A contributing factor to the exceptional growth rate in the commercial sales channel for the quarter was our lead times. Even with the industry's supply constraints, our lead times continue to be significantly better than many of our competitors, resulting in superior growth.
The consolidated revenue growth was bolstered by the COVID-19-related recovery across all end markets, along with partial quarter contributions from the DBCI and ACT acquisitions which occurred in the quarter. The mix in revenues with R3 and commercial showing strong growth compared with new construction reflects a trend we discussed on last quarter's call and that continues, where facility owners and operators are adding new capacity via conversions and expansions rather than greenfield construction. As a reminder, our margin profile is generally similar across new construction in R3, but the commercial margins are slightly dilutive, so the change in mix is impacting the overall margin profile of the business on a consolidated basis.
Adjusted EBITDA of $36.3 million was up 2.9% compared to the year-ago quarter. Higher revenue was the primary driver of EBITDA growth, partially offset by higher cost of sales and general and administrative expenses. We also experienced higher raw material, labor, and logistics costs. Janus continues to take actions to offset the inflationary effects through commercial and cost containment initiatives. We also experienced incremental costs related to being a public company, keeping our employees safe as a result of COVID-19, and strategic growth-related investments, including strategic investments in our Facilitate initiative and the continued build-out of our Nokē Smart Entry ground game and customer service department.
For the third quarter 2021, we produced adjusted net income of $19 million and adjusted diluted earnings per share of $0.11. Adjusted net income was impacted by the following items during the quarter, incremental SG&A costs pursuant to public company costs and continued investment in strategic growth initiatives, and incremental expense associated with warrant accounting in Q3 2021. A favorable contingent consideration adjustment in Q3 2020 that didn't exist in Q3 2021. An increased income tax expense as the company is now taxed as a C corporation. Adjusted diluted earnings per share were negatively impacted by a new capital structure in Q3 2021 versus Q3 2020, in which the outstanding share count was significantly higher in 2021. We also generated $14.9 million in cash from operating activities.
We experienced an increase in inventory in terms of price based on the continued inflationary pressures, coupled with an intentional buildup of inventory levels to manage supply constraints. In addition, accounts receivable increased based on revenue increases in terms of both volume and price. We also experienced higher capital expenditures in the quarter, principally as a result of purchasing a building in Houston, Texas, with the intent of executing a sale leaseback transaction in the near term. This temporary cash outflow is highly strategic in that it will allow us to consolidate two manufacturing facilities and two distribution centers located in the Houston, Texas area into one campus. This is an important step for the business in capturing some of the synergies identified as part of the DBCI acquisition.
At quarter end, our outstanding share balance was 138,384,360. We report results in two business segments, Janus North America and Janus International. Janus North America contributed 90.5% of revenue for the quarter. Janus International, which sells primarily in Europe and Australia, provided the balance of revenues. Janus North America revenues were up 35.2% year-over-year, driven primarily by increased volumes as a result of favorable industry dynamics in the R3 and commercial markets, coupled with improved market conditions as a result of the COVID-related recovery and partial quarter contributions from the DBCI and ACT acquisitions which occurred in the quarter. Janus International revenues were up 41.2% year-over-year, driven primarily by increased sales volumes experienced in the new construction sales channel, coupled with improved conditions as a result of the COVID-related recovery in those end markets.
Now moving to our sales channel results for the North American segment. We break revenues into three categories: new construction self-storage, R3 self-storage, and commercial and other. In North America, new construction self-storage was 30.4% of sales, down from 51.1% in the prior year quarter, and experienced an approximately 20% decrease in revenue. R3 self-storage was 31.9% of sales, up from 23.1% in the prior year quarter, experienced an approximately 86% increase in revenue. Commercial and other was 37.7% of sales, up from 25.8% in the prior year quarter, and delivered an approximately 98% increase in revenue in the quarter. This mix shift represents a trend we have been expecting, where new capacity in the self-storage industry continues to move towards conversions and expansions of existing facilities versus greenfield operations favoring our R3 business, where we derive similar margins as new construction.
The gains in commercial and other were driven by the continued e-commerce movement, share gains in the commercial steel roll-up door market, and ASTA's launch of the rolling steel product line in the fourth quarter last year, along with the contribution of DBCI in the quarter. Turning to guidance. I am pleased to provide the following full year 2021 outlook for revenue to be in the range of $718 million-$738 million. At the midpoint, this represents a 32.6% increase compared to full year 2020 results, driven primarily by a combination of organic growth and the addition of DBCI and ACT. Management adjusted EBITDA is expected to be in the range of $149 million-$155 million. At the midpoint, this represents a 5.9% increase versus the full year 2020 results.
Growth wise, we saw higher organic revenues, including recovery from COVID-19 impacted periods last year and the addition of DBCI and ACT in the third quarter, both of which began to contribute to results. We expect their contributions to improve over time as we integrate the business and realize the forecasted synergies. From a profitability perspective, we continue to battle inflationary factors related to the cost of raw materials, labor and logistics, which we are addressing through commercial and cost-saving initiatives that by their nature tend to lag the inflationary pressure. Steel prices represent the vast majority of these continued headwinds. The raw material supply constraints also worsened in Q3, but we have been successful in navigating these challenges as we indicated previously. Lastly, we continue to work through legacy price products via executed contracts in backlog. Thank you. I will now turn the call back to Ramey for closing remarks.
Great. Thank you again, Scott. We are once again proud of how Janus performed during the quarter since becoming a public company. Our business delivered another quarter of outstanding growth even as we were completing two strategic acquisitions that have begun to deliver positive results and while addressing cost pressures seen across the industry. I firmly believe in the power of this organization and our ability to deliver strong margin performance and earnings growth over the long term. I look forward to continuing our positive momentum through the end of 2021 and beyond. Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.
Hey, good morning, guys.
Hey, Jeff. Good morning.
Morning, Jeff.
If we look at the guide, it looks like margins are gonna be pressured a little more sequentially into Q4. I'm just wondering, as you look at kind of the cost and inflation and your pricing actions, where you think the trough is. Is it Q4 or do you think there's further pressure into the first half of 2021?
Yeah, good question, Jeff. I think the way that we've modeled this is we do see some continued pressure, if you will, in Q4. Again, largely due to the continued cost increases in terms of, you know, material, labor and logistics, coupled again with the churn rate of backlog and the legacy priced products, if you will, that have been contractually executed as that continues to burn through. As far as where that ends up in 2022, we're kind of in the midst of our budget process for 2022, and we'll be able to provide, you know, further guidance on that at our next earnings call.
Okay. Can you give us what price was in the quarter and what you think it'll be into four Q?
In terms of the split between kinda price and volume?
Yeah.
In Q3, you know, circa probably 60% was volume, 40% price. We would expect that to be slightly reduced in Q4 from Q3, so probably something around maybe, you know, 2/3, kind of 1/3. A little, again, a little bit reduction in price in Q4.
Okay.
Sorry, Jeff.
Go ahead.
That's largely again being driven by what I'll call a like an acceleration or some incremental legacy price product and backlog churning through in Q4 versus Q3.
Okay. Last one, just, on the guidance change in revenue, can you split that between, you know, the acquisitions coming in versus incremental price versus incremental volume?
Yeah. I guess just in terms of organic versus inorganic, it would be circa 75% inorganic, 25% organic. Then, you know, call it somewhere, split that organic then again, you know, 60/40 or something slightly, you know, below the 60/40 split.
Okay, thanks so much.
Thanks, Jeff.
Thanks, Jeff.
Thank you. Our next question is from Josh Pokrzywinski with Morgan Stanley. Please proceed with your question.
Hey, good morning, guys.
Morning, Josh.
Hey, good morning, Josh.
Just to follow up on Jeff's question on price. You know, I understand kind of the 4Q backlog dynamics and kind of respecting what he had out there in that book already. If we were to just sorta you know, wrap price around into 2022 based on what's already been announced and you know, has not yet been anniversaried, you know, how should we think about the carryover pricing? 'Cause things like 4Q may not be kind of the right you know, launch point given some of those legacy backlog issues.
Yeah. Again, good question. I think there will definitely be some additional legacy price
Contracts, you know, i.e., backlog that will churn through in 2022. You know, again, as far as 2022 guidance, we're still working through that in the midst of our budget process. There will be some, you know, overhang, if you will, that will bleed into first half of 2022.
Got it. On the kind of pricing philosophy, you know, is the endeavor here to try to do more with, you know, surcharges or indexing or something that, you know, sort of offers some protection for both sides on, you know, on what's happening? Or are you guys going more the list price route?
Yeah, going more of the list price route. I guess it's important to note when we refer to legacy pricing, those are strictly orders that were committed that are, you know, except the contracts were executed. Since then, you know, we've amended contracts that allow for escalation clauses. We put it into the contractual language that keeps us from raising prices based off of, you know, obviously, the inflationary environment today. Typically what happens, we'll just give market percentage increases as it relates to, you know, the cost moving forward.
Got it. That's helpful. Just last one, if I may. On conversion versus new construction, I think you mentioned that, you know, those are kind of similar margin wise. You know, is there an appreciable difference in, you know, kind of the revenue mix or, you know, or anything else, you know, that would change as, you know, new construction, you know, kind of throughput issues abate and that market's able to pick up a little bit more maybe versus conversion?
Yeah. As it relates to the conversion, specifically, our dollar content per square foot increases tremendously versus a, you know, new construction kind of greenfield, you know, project. Think about circa $8 per square foot with new construction and then circa $20 per square foot potentially on conversions.
Got it. That's helpful. I appreciate it. Thanks for the color. I'll get back in touch.
Thanks, Josh.
Thank you. Our next question is from Reuben Garner with The Benchmark Company. Please proceed with your question.
Thank you. Good morning, everybody.
Good morning, Reuben.
Good morning.
Maybe just to follow up on the new versus R3. It sounds like you're sort of expecting this dynamic that played out. Is the extent of the delta between the two something we should expect going forward? Maybe just to tie in Nokē, is that a product that is more successful, I guess, in the R3 space, or is it predominantly used in the greenfield cases?
Yeah. Look, I think when you look at, you know, the industry occupancy rates being very high, you know, north of 90%, what we're seeing is the market trying to bring on capacity as quickly as possible. I think that's indicative of our kind of mix as it relates to R3 and new construction. Our customers are choosing to add capacity through conversions and expansions. As it relates to new construction, that's really when you get into the supply chain constraints. We're kind of, you know, downstream, if you will. We're at the very end of a construction schedule, and all of the delays from a supply chain perspective kind of compound to us, which is why you're seeing new construction contracts flow a lot slower than they have historically.
It's more market driven. We expect, you know, the acceleration of the R3 and conversion and expansion, moving forward, while kind of waiting for the supply chain relief on new construction. As far as the Nokē opportunity, look, I think when you look at the opportunity, we kind of look at it as there's 22 million doors in the marketplace. That's really the opportunity as it relates to Nokē. We're seeing a kind of a probably a balance between new construction and R3 as it relates to new customers and installations. There's no question that the largest opportunity as it relates to access control, the technology is in the existing marketplace.
Great. That's helpful. You mentioned share gains. I mean, can you talk about you know your share position and you know how that in these sort of times you're gonna be able to pick up incremental business? Are you guys working through you know the inflationary environment with your customers more than your competitors? What are you doing exactly that you think will allow you to pick up share and take advantage of this you know this environment?
That's a great question. I think if you look at our position in the marketplace, we are a meaningful customer to our steel suppliers. I believe that puts us in a very competitive situation in terms of access to steel. Albeit higher than we would like. You know, we're able to take advantage of spot buys to accommodate our customers. Then when you look at the manufacturing lead times, we're certainly better than our competitors and peers, and that's allowing us to pick up, you know, market share, specifically around the construction side of the business.
That end market is very robust with commercial warehousing, but we're able, like I said, to deliver on shorter lead times than most of our competitors, which is allowing us to pick up, you know, new business and new customers.
Great. I'm gonna sneak one more in, if that's all right. Geographically, are you seeing anything meaningful in terms of growth rates? Are they faster in smaller markets? What are you seeing in the major metropolitan areas? Anything else that stands out to you?
Yeah. I think if you look at just kind of follow the trend of COVID in terms of where people moved, I think the suburbs, there's certain states, you know, Florida, Texas, you know, states that are obviously adding additional capacity quicker than others. I would really- you know, we're really focused obviously on all the top MSAs, but the suburbs have really picked up in terms of kind of new construction or capacity additions. Great question.
Great. Thanks, guys. Good luck, navigating through everything going forward.
Thanks, Reuben.
Thanks, Reuben.
Thank you. Our next question is from Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question.
Hey, guys. Just a couple follow-ups here. Just any update you can give us on the warrant redemption and, you know, I know we're a few days out from it closing and kinda how you're thinking about, you know, dilution or new share count as a result.
Go ahead, Scott.
Yeah. Good question, Jeff. I think the, you know, we gave warrant holders the option on either a cashless or a cash basis. What I can tell you is, I think you're correct. The cutoff, I believe, is Friday at five o'clock. The vast majority of the data points that I've seen, most current are the preponderance proceeding with the cashless exercise. From a, you know, a modeling of a dilution, I guess it's gonna be the, you know, the conversion rate was 0.3, so I think that would be, you know, we'd be at the lower end, if you will, of the dilution in terms of modeling.
Okay, perfect. Just as you talk about these contracts, you know, lingering contracts or contracts that are in place, just anything you're thinking about differently in terms of contract structure, given the learnings of kind of all this inflation we've seen?
Yeah, that's a great question. I hit on it a little bit, but more specifically, you know, the legacy contracts or the contracts that have been in existence since from the beginning did not allow escalation clauses. We've gone back and amended contracts that adds language that protects us in these types of environments. This, you know, this issue of kind of legacy being legally tied to contracts from a legacy perspective was dealt with a few months ago. It's an issue that's behind us now, and we shouldn't experience this again.
Great to hear. Thanks, guys.
Yep. Thanks.
Thanks.
Thank you. There are no further questions at this time. I would like to turn the floor back over to Ramey Jackson for any closing comments.
Yeah. Thank you everyone for joining us today. We appreciate your support of Janus International, and look forward to updating you on our progress. Have a great day.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.