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Hello, and welcome to the Janus International Third Quarter 2021 Earnings Conference Call. [Operator Instructions] 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've 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 & 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 Noke 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 5 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 Noke access control businesses. Together, we can now offer a 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 Noke 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 2 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 Noke, 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 Noke ground game with the recent ACT acquisition.
We also continue to grow the installed 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. And 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 the 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-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 in cost-containment initiatives, but 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 in 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 2 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 14.1%, 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-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 the 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 Noke 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; incremental expense associated with warrant accounting in Q3 2021, a favorable contingent consideration adjustment in Q3 2020 that didn't exist in Q3 2021, and 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 2 manufacturing facilities and 2 distribution centers located in the Houston, Texas area into 1 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 2 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 3 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 drive 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 as is the 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'm pleased to provide the following full year 2021 outlook for revenue to be in the range of $718 million to $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 to $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-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-priced 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 2 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.
[Operator Instructions] Our first question is from Jeff Hammond with KeyBanc Capital Markets.
Okay. So if we look at the guide, it looks like margins are going to be pressured a little more sequentially into 4Q. And I'm just wondering as you look at kind of the cost inflation and your pricing actions, where you think the trough is, is it 4Q? Or do you think there's further pressure into the first half of '21?
Yes. Good question, Jeff. So 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 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 '22, we're kind of in the midst of our budget process for '22, and we'll be able to provide further guidance on that at our next earnings call.
Okay. And then can you give us what price was in the quarter and what you think it will be into 4Q?
In terms of the split between kind of price and volume?
Yes.
Yes. So in Q3, circa probably 60% was volume, 40% price, and we would expect that to be slightly reduced in Q4 from Q3. So probably something around maybe 2/3, kind of 1/3, a little -- again, a little bit reduction in price in Q4.
Okay. And then -- go ahead.
That's largely, again, being driven by the, what I'll call, an acceleration or some incremental legacy-priced product and backlog churning through in Q4 versus Q3.
Okay. And then last one, just on the guidance change in revenue, can you split that between the acquisitions coming in versus incremental price versus incremental volume?
Yes. So I guess the -- so just in terms of organic versus inorganic, it would be circa 75% inorganic, 25% organic. And then, call it, somewhere split that organic, then again 60-40 or something slightly below the 60-40 split.
Our next question is from Josh Pokrzywinski with Morgan Stanley.
Just to follow-up on Jeff's question on price. I understand kind of the 4Q backlog dynamics and kind of respecting what you had out there in that book already. If we were to just sort of wrap price around into '22 based on what's already been announced and has not yet been anniversaried, how should we think about the carryover pricing? Because it seems like 4Q may not be kind of the right launch point given some of those legacy backlog issues.
Yes. So again, good question. I think there will definitely be some additional legacy-priced contracts, i.e., backlog that will churn through in 2022. So we're still -- but again, as far as '22 guidance, we're still working through that in the midst of our budget process. But there will be some overhang, if you will, that will bleed into first half of '22.
Got it. And then on the kind of pricing philosophy, is the endeavor here to try to do more with surcharges or indexing or something that sort of offers some protection for both sides on what's happening? Or are you guys going more to the list price route?
Yes, going more of the list price route. And I guess it's important to note when we refer to legacy pricing, those are strictly orders that were committed that are -- the contracts are executed. Since then, we've amended contracts that allow for escalation clauses. So we put it into the contractual language that keeps us from raising prices based off of, obviously, the inflationary environment today. But typically, what happens, we'll just give market percentage increases as it relates to the cost moving forward.
Got it. That's helpful. And then just last one, if I may. On conversion versus new construction, I think you mentioned that those are kind of similar margin-wise. Is there an appreciable difference in kind of the revenue mix or anything else that would change as new construction kind of throughput issues abate and that market is able to pick up a little bit more maybe versus conversion?
Yes. So as it relates to the conversion specifically, our dollar content per square foot increases tremendously versus new construction kind of greenfield projects. So think about circa $8 per square foot with new construction and then circa $20 per square foot potentially on conversions.
Our next question is from Reuben Garner with The Benchmark Company.
Maybe just a 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 2 something we should expect going forward? And then maybe just to tie in Noke, is that product that is more successful, I guess, in the R3 space? Or is it predominantly used in the greenfield cases?
Yes. Look, I think when you look at the industry occupancy rates being very high, north of 90%, what we're seeing is the market trying to bring on capacity as quickly as possible. And 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 with -- through conversions and expansions. Then as it relates to new construction, that's really when you get into the supply chain constraints. So we're kind of downstream, if you will. We're at the very end of a construction schedule. And so 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.
So it's more market driven. We expect the acceleration of the R3 and conversion and expansion moving forward, while kind of waiting for the supply chain relief on new construction. And then as far as the Noke 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. So that's really the opportunity as it relates to Noke. And we're seeing a -- kind of a probably a balance between new construction and R3 as it relates to new customers and installations. But there's no question that the largest opportunity as it relates to Access Control Technology is in the existing marketplace.
Great. That's helpful. And then you mentioned share gains. Can you -- I mean, can you talk about your share position and how that, in these sort of times, you're going to be able to pick up incremental business? Are you guys working through 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 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. We're able to take advantage of spot buys to accommodate our customers. And 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 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, able to deliver on shorter lead times than most of our competitors, which is allowing us to pick up new business and new customers.
Great. I'm going to 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? Are you -- what are you seeing in the major metropolitan areas? Anything else that stands out to you?
Yes. 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 are certain states, Florida, Texas, states that are obviously adding additional capacity quicker than others. But I would really -- 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. But great question.
Our next question is from Jeff Hammond with KeyBanc Capital Markets.
Just a couple of follow-ups here. Just any update you can give us on the warrant redemption. And I know we're a few days out from a kind of closing, and kind of how you're thinking about dilution or new share count as a result.
Scott?
Yes. So good question, Jeff. I think we gave warrant holders the option on either a [ cash list ] or a cash basis. What I can tell you is, I think you're correct, the cutoff I believe is Friday at 5:00. The vast majority of the data points that I've seen most current are -- the preponderance are proceeding with the [ cash list ] exercise. So from a modeling of a dilution, I guess, it's going to be -- the conversion rate was 0.3. So I think that would be -- we'd be at the lower end, if you will, of the dilution in terms of modeling.
Okay. Perfect. And then just as you talk about these contracts -- 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?
Yes, that's a great question. I hit on it a little bit, but more specifically, the legacy contracts or the contracts that have been existent from the beginning did not allow escalation clauses. So we've gone back and amended contracts that adds language that protects us in these types of environments. So 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.
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.
Yes. 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.