Janus International Group, Inc.
Notes to Unaudited Consolidated Financial Statements
12. Related Party Transactions
Prior to the Business Combination, Jupiter Intermediate Holdco, LLC, on behalf of the Janus Core,
has entered into a Management and Monitoring Services Agreement
(MMSA)(“MMSA”) with the Class A Preferred Unit holders group.
Janus Core paid management fees to the Class A Preferred Unit holders group for the three and six months ended June 26, 2021 and June 27, 2020 of approximately $
1,124,000and $
1,763,000and $
3,739,000and $
3,692,000, respectively. Approximately $
869,000of the Class A Preferred Unit holders group management fees were accrued and unpaid as of December
26,
2020and
0fees were accrued and unpaid as of June
26,
2021. As a result of the Business Combination the MMSA was terminated effective June
7,
,
2021.
As 2021. Janus Core paid management fees of June 27, 2020, there were related party sales of approximately $1,000 from$2,615 to the Company to its Mexican Joint Venture and 0 related party sales as of June 26, 2021. ForClass A Preferred Unit holders group for the three months ended June 26, 2021March 27, 2021. There were no Class A Preferred Unit holders group management fees accrued and June 27, 2020 there were 0 related party sales to the Mexican Joint Venture.unpaid as of April 2, 2022 and January 1, 2022, respectively.
Janus Core leases
a manufacturing facility in Butler, Indiana, from Janus Butler, LLC, an entity wholly owned by a
former member of the board of directors of
the Group.
Effective October 20, 2021 the member resigned from the board of directors of Janus Core. Rent payments paid to Janus Butler, LLC for the three
and six months ended
June 26,April 2, 2022 and March 27, 2021 were approximately $37 and $49, respectively. The original lease extended through October 31, 2021 and
June 27, 2020, were approximately $37,000 and $36,000 and $86,000 and $73,000, respectively. Theon November 1, 2021 the lease
extends through Julywas extended to October 31,
2021,2026, with monthly payments of approximately
$12,000$13 with an annual escalation of 1.5%.
Janus Core
iswas previously a party to a lease agreement with 134 Janus International, LLC,
which is an entity majority owned by a
former member of the board of directors of
Group.the Company. In December 2021, the leased premises in Temple, Georgia were sold by the former director to a third party buyer, resulting in an assignment of the lease to said third-party buyer and an extension of the lease to November 30, 2031. Rent payments paid to 134 Janus International, LLC in the three
and six months ended
June 26,April 2, 2022 and March 27, 2021
and June 27, 2020, were approximately
$114,000 and
$112,000$0 and
$229,000 and $223,000,$114, respectively.
The lease extends through September 30, 2021, with monthly payments of approximately $38,000 per month with an annual escalation of 2.5%.
The Group leasesis a distribution center in Fayetteville, Georgia from French Real Estate Investments, LLC, an entity partially owned by a shareholder of the Group. Rent payments paidparty to French Real Estate Investments, LLC for the three and six months ended June 26, 2021 and June 27, 2020, were approximately $26,000 and $26,000 and $53,000 and $53,000, respectively. The lease extends through July 31, 2022, with monthly payments of approximately $9,000 per month. The Group additionally acquired a lease agreement with ASTA Investment, LLC, for a manufacturing facility in Cartersville, Georgia an entity partially owned by a shareholderstockholder of the Company. The original lease term began on April 1, 2018 and extended through March 31, 2028 and was amended in June 2020March 2021 to extend the term until March 1, 2030, with monthly lease payments of $66,000$66 per month with an annual escalation of 2.0%. Rent payments to ASTA Investment, LLC for the three and six months ended June 26,April 2, 2022 and March 27, 2021 and June 27, 2020, were approximately $199,000$203 and $197,000 and $397,000 and $346,000,$198, respectively.
The Company accounts for a contract with a customer when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights and payment terms can be identified, the contract has commercial substance, and it is probable that
the Company will collect substantially all of the consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised good or service to a customer.
Contract assets are the rights to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditional on something other than the passage of time. Contract assets primarily result from contracts that include installation which are billed via payment requests that are submitted in the month following the period during which revenue was recognized. Contract liabilities are recorded for any services billed to customers and not yet recognizable if the contract period has commenced or for the amount collected from customers in advance of the contract period commencing. Contract assets are disclosed as costs and estimated earnings in excess of billings on uncompleted contracts, and contract liabilities are disclosed as billings in excess of costs and estimated earnings on uncompleted contracts in the consolidated balance sheet. Contract balances for the six months ended June 26, 2021as of April 2, 2022 were as follows:
| | | | | |
| April 2, 2022 |
Contract assets, beginning of the period | $ | 23,121 | |
Contract assets, end of the period | $ | 30,286 | |
Contract liabilities, beginning of the period | $ | 23,207 | |
Contract liabilities, end of the period | $ | 28,053 | |
| | | | |
| | | |
Contract assets, beginning of the period | | $ | 11,398,934 | |
| | | | |
Contract assets, end of the period | | $ | 16,614,552 | |
| | | | |
Contract liabilities, beginning of the period | | $ | 21,525,319 | |
| | | | |
Contract liabilities, end of the period | | $ | 21,612,809 | |
| | | | |
Janus International Group, Inc.
Notes to Unaudited Consolidated Financial Statements
During the three
and six months ended
June 26, 2021,April 2, 2022, the Company recognized revenue of approximately
$2,816,000 and $16,932,000, respectively,$12,455 related
to contract liabilities at
December 26, 2020. This reduction was offset byJanuary 1, 2022. There were new billings of approximately
$17,019,000$17,301 for product and services for which there were unsatisfied performance obligations to customers and revenue had
not yet been recognized as of
June 26, 2021.April 2, 2022.Disaggregation of Revenue
The principal categories we use to disaggregate revenues are by timing and sales channel of revenue recognition. The following disaggregation of revenues depict the Company’s reportable segment revenues by timing and sales channel of revenue recognition for the three and six months ended June 26, 2021April 2, 2022 and JuneMarch 27, 2020:2021:
Revenue by Timing of Revenue Recognition
| | | | | | | | | Three Months Ended |
Reportable Segments by Sales Channel Revenue Recognition | | | | | | | | | | | | | |
Reportable Segments by Timing of Revenue Recognition | | Reportable Segments by Timing of Revenue Recognition | April 2, 2022 | | March 27, 2021 |
| | | | | | | | | Janus North America | | | |
Goods transferred at a point in time | | $ | 139,188,949 | | | $ | 95,751,111 | | | $ | 260,082,109 | | | $ | 200,276,584 | | Goods transferred at a point in time | $ | 200,157 | | | $ | 120,893 | |
Services transferred over time | | | 25,056,299 | | | | 23,167,477 | | | | 50,697,555 | | | | 47,073,167 | | Services transferred over time | 25,099 | | | 25,641 | |
| | | | | | | | | | | | | |
| | | 164,245,248 | | | | 118,918,588 | | | | 310,779,664 | | | | 247,349,751 | | |
| | | | | | | | | | | | |
| $ | 225,256 | | | $ | 146,534 | |
| | | | | | | | | Janus International | | | |
Goods transferred at a point in time | | | 9,775,323 | | | | 3,618,698 | | | | 16,848,388 | | | | 10,110,767 | | Goods transferred at a point in time | 10,798 | | | 7,073 | |
Services transferred over time | | | 8,569,784 | | | | 3,636,331 | | | | 14,056,570 | | | | 9,433,526 | | Services transferred over time | 7,116 | | | 5,487 | |
| | | | | | | | | | | | | | $ | 17,914 | | | $ | 12,560 | |
| | | 18,345,107 | | | | 7,255,029 | | | | 30,904,958 | | | | 19,544,293 | | |
| | | | | | | | | | | | | |
| | | (8,407,966 | ) | | | (3,943,994 | ) | | | (14,677,965 | ) | | | (6,850,626 | ) | Eliminations | (13,650) | | | (6,270) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Total Revenue | $ | 229,520 | | | $ | 152,824 | |
| | | | | | | | | | | | | |
Revenue by SaleSales Channel Revenue Recognition
| | | | | | | | | | | | |
| Three Months Ended | |
Reportable Segments by Sales Channel Revenue Recognition | April 2, 2022 | | March 27, 2021 | |
Janus North America | | | | |
Self Storage-New Construction | $ | 75,709 | | | $ | 48,701 | | |
Self Storage-R3 | 61,572 | | | 39,331 | | |
Commercial and Others | 87,975 | | | 58,502 | | |
| $ | 225,256 | | | $ | 146,534 | | |
Janus International | | | | |
Self Storage-New Construction | $ | 11,897 | | | $ | 8,901 | | |
Self Storage-R3 | 6,017 | | | 3,659 | | |
| | | | |
| $ | 17,914 | | | $ | 12,560 | | |
Eliminations | (13,650) | | | (6,270) | | |
Total Revenue | $ | 229,520 | | | $ | 152,824 | | |
14. Leases
On January, 2 2022, the Group adopted ASU 2016-02, Leases, using the optional transition method. Under this method, the Group has recognized the cumulative effect adjustment to the opening balance of retained earnings. The Group has elected to adopt the package of practical expedients which apply to leases that commenced before the adoption date. By electing the package of practical expedients, the Group did not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, and the initial direct costs for any existing leases. At lease commencement, a right-of-use (“ROU”) asset and lease liability is recorded based on the present value of the future lease payments over the lease term. The Group has elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. The Group leases facilities, vehicles, and other equipment under long-term operating and financing leases with varying terms.
In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar service, which are considered non-lease components for accounting purposes. For our real estate leases, we apply a practical expedient to include these non-lease components in calculating the ROU asset and lease liability. Furthermore, for all other types of leases the practical expedient was also elected whereby lease and non-lease components have been combined. The Group uses the non-cancellable lease term unless it is reasonably certain that a renewal or termination option will be exercised. When available, the Group will use the rate implicit in the lease to discount lease payments to present value, however as most leases do not provide an implicit rate, the Group will estimate the incremental borrowing rate to discount the lease payments. The Group estimates the incremental borrowing rate based on the rates of interest that the Group would have to pay to borrow an amount equal to the lease payments on a collateralized basis, over a similar term, and in a similar economic environment. The ROU asset also includes any lease prepayments and initial direct costs, offset by lease incentives. The Group does not consider renewal periods or early terminations to be reasonably certain and are thus not included in the lease term for real estate or equipment assets.
The components of ROU assets and lease liabilities were as follows:
| | | | | | | | |
(in thousands) | Balance Sheet Classification | April 2, 2022 |
Assets: | | |
Operating lease assets | Right-of-use assets, net | $ | 40,902 | |
Finance lease assets | Right-of-use assets, net | $ | 616 | |
Total leased assets | | $ | 41,518 | |
| | |
Liabilities: | | |
Current: | | |
Operating | Other accrued expenses | $ | 4,762 | |
Financing | Current maturities of long-term debt | $ | 147 | |
Noncurrent: | | |
Operating | Other long-term liabilities | $ | 38,241 | |
Financing | Long-term debt | $ | 470 | |
Total lease liabilities | | $ | 43,620 | |
The components of lease expense were as follows:
| | | | | |
| Three Months Ended |
(in thousands) | April 2, 2022 |
Operating lease cost | $ | 1,986 | |
Short-term lease cost | $ | 60 | |
Financial lease cost: | |
Amortization of right-of-use assets | $ | 17 | |
Interest on lease liabilities | $ | 3 | |
Total lease cost | $ | 2,066 | |
Other information related to leases was as follows:
| | | | | |
| Three Months Ended |
| April 2, 2022 |
| |
Weighted Average Remaining Lease Term | |
| |
Operating Leases | 10.0 years |
Finance Leases | 3.8 years |
| |
Weighted Average Discount Rate | |
| |
Operating Leases | 6.5 | % |
Finance Leases | 5.0 | % |
As of April 2, 2022, future minimum lease payments under noncancellable operating leases with initial or remaining lease terms in excess of one year were as follows:
| | | | | |
(in thousands) | |
| |
2022 | $ | 5,577 | |
2023 | $ | 6,957 | |
2024 | $ | 6,068 | |
2025 | $ | 5,680 | |
2026 | $ | 5,265 | |
Later years | $ | 30,961 | |
Total future lease payments | $ | 60,508 | |
Less imputed interest | $ | (17,505) | |
Present value of future lease payments | $ | 43,003 | |
As of April 2, 2022, minimum repayments of long-term debt under financing leases were as follows:
| | | | | |
(in thousands) | |
| |
2022 | $ | 130 | |
2023 | $ | 174 | |
2024 | $ | 174 | |
2025 | $ | 174 | |
2026 | $ | 25 | |
Later years | $ | — | |
Total future lease payments | $ | 677 | |
Less imputed interest | $ | (60) | |
Present value of future lease payments | $ | 617 | |
| | | | | | | | | | | | | | | | |
| | | | | | |
Reportable Segments by Sales Channel Revenue Recognition | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Self Storage-New Construction | | $ | 55,600,871 | | | $ | 55,763,077 | | | $ | 104,301,403 | | | $ | 117,223,246 | |
| | | 52,182,213 | | | | 30,411,543 | | | | 91,513,670 | | | | 67,981,662 | |
| | | 56,462,164 | | | | 32,743,968 | | | | 114,964,591 | | | | 62,144,843 | |
| | | | | | | | | | | | | | | | |
| | | 164,245,248 | | | | 118,918,588 | | | | 310,779,664 | | | | 247,349,751 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Self Storage-New Construction | | $ | 9,775,323 | | | $ | 3,618,698 | | | | 23,778,978 | | | | 11,771,203 | |
| | | 8,569,784 | | | | 3,636,331 | | | | 7,125,980 | | | | 7,773,090 | |
| | | | | | | | | | | | | | | | |
| | | 18,345,107 | | | | 7,255,029 | | | | 30,904,958 | | | | 19,544,293 | |
| | | | | | | | | | | | | | | | |
| | | (8,407,966 | ) | | | (3,943,994 | ) | | | (14,677,965 | ) | | | (6,850,626 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Prior to June 7, 2021, the Company was a limited liability company taxed as a partnership for U.S. federal income tax purposes. The Company was generally not directly subject to income taxes under the provisions of the Internal Revenue Code and most applicable state laws. Therefore, taxable income or loss was reported to the members for inclusion in their respective tax returns.
After June 7, 2021, the Group is taxed as a Corporation for U.S. income tax purposes and similar sections of the state income tax
laws .laws. The Group’s effective tax rate is based on
pre-tax
earnings, enacted U.S. statutory tax rates,
non-deductible
expenses, and certain tax rate differences between U.S. and foreign jurisdictions. The foreign subsidiaries file income tax returns in the United Kingdom, France, Australia, and Singapore as necessary. For tax reporting purposes, the taxable income or loss with respect to the 45% ownership in the joint venture operating in Mexico will be reflected in the income tax returns filed under that country’s jurisdiction. The Group’s provision for income taxes consists of provisions for federal, state, and foreign income taxes.
Janus International Group, Inc.
Notes to Unaudited Consolidated Financial Statements
The provision for income taxes for the three and six months ended June 26,April 2, 2022 and March 27, 2021 and June 27, 2020 includes amounts related to entities within the group taxed as corporations in the United States, United Kingdom, France, Australia, and Singapore. The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate on year to date ordinary income and records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs. Additionally, the income tax effects of significant unusual or infrequently occurring items are recognized entirely within the interim period in which the event occurs.
During the three months ended
June 26,April 2, 2022 and March 27, 2021,
and June 27, 2020, the Company recorded a total income tax provision
(benefit) of approximately
$2,875,000$6,607 and
$400,000$(155) on
pre-tax
income of approximately
$4,016,000$26,311 and
$11,417,000$14,564 resulting in an effective tax rate of
71.6%25.1% and
3.5(1.1)%, respectively. During the six months ended June 26, 2021 and June 27, 2020, the Company recorded a total income tax provision of approximately
$2,738,000 and $770,000 onpre-tax
income of approximately $18,580,000 and $21,740,000 resulting in an effective tax rate of 14.7% and 3.5%, respectively The effective tax rates for these periods were primarily impacted by the change in tax status of the Group, statutory rate differentials, changes in estimated tax rates, and permanent differences.
15.16. Net Income Per Share
Prior to the Business
Combinatio
n,Combination, and prior to effecting the reverse recapitalization, the Company’s
pre-merger
LLC membership structure included two classes of units: Class A preferred units and Class B common units. The Class A preferred units were entitled to receive distributions prior and in preference on Class A preferred unit unpaid cumulative dividends (“Unpaid Preferred Yield”) followed by Class A preferred unit capital contributions that have not been paid back to the holders (the “Unreturned Capital”). Vested Class B common units participate in the remaining distribution on a
pro-rata
basis with Class A preferred units if they have met the respective Participation Threshold and, if applicable, the Target Value defined in the respective Unit Grant Agreement. The Class A preferred and Class B common units fully vested at the Business Combination date.
Pursuant to the Restated and Amended Certificate of Incorporation and as a result of the reverse recapitalization, the Company has retrospectively adjusted the weighted average shares outstanding prior to June 7, 2021 to give effect to the exchange ratio used to determine the number of shares of common stock into which they were converted. Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.
Dilutive potential common shares include stock purchase warrants and contingently issuable shares attributable to the contingency consideration andearn-out
consideration.The following table sets forth the computation of basic and diluted EPS attributable to common stockholders for the three and six months ended June 26,April 2, 2022 and March 27, 2021 and June 27, 2020:(in thousands except share data):
| | | | | | | | | | | |
| |
| Three Months Ended |
| April 2, 2022 | | March 27, 2021 |
Numerator: | | | |
Net income attributable to common stockholders | $ | 19,704 | | | $ | 14,719 | |
Denominator: | | | |
Weighted average number of shares: | | | |
Basic | 146,561,717 | | | 66,145,633 | |
Adjustment for Restricted Stock Units | 271,172 | | | $ | — | |
Diluted | 146,832,889 | | | 66,145,633 | |
Basic net income per share attributable to common stockholders | $ | 0.13 | | | $ | 0.22 | |
Diluted net income per share attributable to common stockholders | $ | 0.13 | | | $ | 0.22 | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income attributable to common stockholders | | $ | 1,123,207 | | | $ | 11,017,468 | | | $ | 15,842,028 | | | $ | 20,969,499 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Weighted average number of shares: | | | | | | | | | | | | | | | | |
| | | 81,009,261 | | | | 65,819,588 | | | | 73,577,447 | | | | 66,876,683 | |
Adjustment for Warrants—Treasury stock method | | | 615,235 | | | | 0 | | | | 302,404 | | | | 0 | |
| | | | | | | | | | | | | | | | |
| | | 81,624,496 | | | | 65,819,588 | | | | 73,879,851 | | | | 66,876,683 | |
| | | | | | | | | | | | | | | | |
Basic net income per share attributable to common stockholders | | $ | 0.01 | | | $ | 0.17 | | | $ | 0.22 | | | $ | 0.31 | |
Diluted net income per share attributable to common stockholders | | $ | 0.01 | | | $ | 0.17 | | | $ | 0.21 | | | $ | 0.31 | |
| | | | | | | | | | | | | | | | |
Janus International Group, Inc.
Notes to Unaudited Consolidated Financial Statements
16.17. Segments Information
The Company operates its business and reports its results through 2 reportable segments: Janus North America and Janus International, in accordance with ASC Topic 280, Segment Reporting. The Janus International segment is comprised of JIEJIEH with its production and sales located largely in Europe.Europe and Australia. The Janus North America segment is comprised of all the other entities including Janus Core, BETCO, NOKE, ASTA, DBCI, ACT, Janus Door and Steel Door Depot.
Summarized financial information for the Company’s segments is shown in the following tables:
| | | | | | | | | | | |
| Three Months Ended |
| April 2, | | March 27, |
| 2022 | | 2021 |
Revenue | | | |
Janus North America | $ | 225,256 | | | $ | 146,534 | |
Janus International | 17,914 | | | 12,560 | |
Intersegment | (13,650) | | | (6,270) | |
Consolidated Revenue | $ | 229,520 | | | $ | 152,824 | |
Income From Operations | | | |
Janus North America | $ | 34,855 | | | $ | 23,915 | |
Janus International | 249 | | | 307 | |
Eliminations | 11 | | | 27 | |
Total Segment Operating Income | $ | 35,115 | | | $ | 24,249 | |
Depreciation of Property and Equipment Expense | | | |
Janus North America | $ | 1,673 | | | $ | 1,367 | |
Janus International | 184 | | | 106 | |
Consolidated Depreciation of Property and Equipment Expense | $ | 1,857 | | | $ | 1,473 | |
Amortization of Intangible Assets | | | |
Janus North America | $ | 6,886 | | | $ | 6,414 | |
Janus International | 339 | | | 418 | |
Consolidated Amortization Expense | $ | 7,225 | | | $ | 6,832 | |
Capital Expenditures | | | |
Janus North America | $ | 2,553 | | | $ | 1,419 | |
Janus International | 327 | | | 944 | |
Consolidated Capital Expenditures | $ | 2,880 | | | $ | 2,363 | |
Identifiable Assets | | | |
Janus North America | $ | 1,134,286 | | | $ | 843,686 | |
Janus International | $ | 64,422 | | | $ | 55,060 | |
Consolidated Assets | $ | 1,198,708 | | | $ | 898,746 | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 164,245,248 | | | $ | 118,918,588 | | | $ | 310,779,664 | | | $ | 247,349,751 | |
| | | 18,345,107 | | | | 7,255,029 | | | | 30,904,958 | | | | 19,544,293 | |
| | | (8,407,966 | ) | | | (3,943,994 | ) | | | (14,677,965 | ) | | | (6,850,626 | ) |
| | | | | | | | | | | | | | | | |
| | $ | 174,182,389 | | | $ | 122,229,623 | | | $ | 327,006,657 | | | $ | 260,043,418 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 12,587,297 | | | $ | 20,206,505 | | | $ | 36,502,605 | | | $ | 39,646,405 | |
| | | 1,755,572 | | | | (88,387 | ) | | | 2,062,243 | | | | 617,920 | |
| | | (2,149 | ) | | | 12,862 | | | | 24,735 | | | | 54,731 | |
| | | | | | | | | | | | | | | | |
Total Segment Operating Income | | $ | 14,340,720 | | | $ | 20,130,980 | | | $ | 38,589,583 | | | $ | 40,319,056 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 1,400,320 | | | $ | 1,332,135 | | | $ | 2,766,910 | | | $ | 2,631,321 | |
| | | 106,017 | | | | 70,644 | | | | 212,426 | | | | 201,380 | |
| | | | | | | | | | | | | | | | |
Consolidated Depreciation Expense | | $ | 1,506,337 | | | $ | 1,402,779 | | | $ | 2,979,336 | | | $ | 2,832,701 | |
| | | | | | | | | | | | | | | | |
Amortization of Intangible Assets | | | | | | | | | | | | | | | | |
| | $ | 6,402,457 | | | $ | 4,948,830 | | | $ | 12,816,108 | | | $ | 12,829,147 | |
| | | 388,355 | | | | 271,269 | | | | 806,849 | | | | 566,620 | |
| | | | | | | | | | | | | | | | |
Consolidated Amortization Expense | | $ | 6,790,812 | | | $ | 5,220,099 | | | $ | 13,622,957 | | | $ | 13,395,767 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | |
| | $ | 874,872,427 | | | $ | 820,259,539 | |
| | | 55,805,561 | | | | 53,219,206 | |
| | | | | | | | |
| | $ | 930,677,988 | | | $ | 873,478,745 | |
| | | | | | | | |
17.18. Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following:
The Company is subjectFrom time to time, we are involved in various lawsuits, claims, and lawsuitslegal proceedings that arise primarily in the ordinary course of business. These matters involve, among other things, disputes with vendors or customers, personnel and employment matters, and personal injury. We assess these matters on a case-by-case basis as they arise and establish reserves as required. As of the date of this Quarterly Report on Form 10-Q, there were no material pending legal proceedings in which we or any of our subsidiaries are a party or to which any of our property is subject. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations, and cash flows of the Company.
Janus International Group, Inc.
Notes to Unaudited Consolidated Financial Statements
Under the Company’s workers’ compensation insurance program, coverage is obtained for catastrophic exposures under which the Company retains a portion of certain expected losses. The Company has stop loss workers’ compensation insurance for claims in excess of $200,000$200 as of June 26, 2021April 2, 2022 and December 26, 2020,January 1, 2022, respectively. Provision for losses expected under this program is recorded based upon the Company’s estimates of the aggregate liability for claims incurred and totaled approximately $389,000$467 and $391,000$383 as of June 26, 2021,April 2, 2022, and December 26, 2020,January 1, 2022, respectively. The amount of actual losses incurred could differ materially from the estimates reflected in these consolidated financial statements.
Under the Company’s health insurance program, coverage is obtained for catastrophic exposures under which the Company retains a portion of certain expected losses. The Company has stop loss insurance for claims in excess of $250,000$250 and $250,000$250 as of June 26, 2021April 2, 2022 and December 26, 2020,January 1, 2022, respectively. Provision for losses expected under this program is recorded based upon the Company’s estimates of the aggregate liability for claims incurred and totaled approximately $680,000$1,710 and $916,000$1,539 as of June 26, 2021April 2, 2022 and December 26, 2020,January 1, 2022, respectively. The amount of actual losses incurred could differ materially from the estimates reflected in these consolidated financial statements.
Janus International Group, Inc.
Notes to Unaudited Consolidated Financial Statements
For the interim consolidated financial statements as of June 26, 2021,April 2, 2022, the Company has evaluated subsequent events through the issuance date of the financial statements issuance date.statements.
On July 27, 2021, the Company announced that it has signed a definitive agreement to acquire DBCI, a manufacturer of steel roll-up doors and building products for both the commercial and self-storage industries and a part of Cornerstone Building Brands (NYSE: CNR). The acquisition broadens Janus’s customer set by gaining direct access to DBCI’s core general contractor and distributor base and provides an opportunity to deliver more comprehensive, value-added solutions for DBCI’s customers from Janus.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
JANUS’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which Janus’s management believes is relevant to an assessment and understanding of consolidated results of operations and financial condition. You should read the following discussion and analysis of Janus’s financial condition and results of operations in conjunction with the
unaudited consolidated financial statements and notes thereto contained in this Quarterly
reportReport on Form
10-Q. 10-Q (this “Form 10-Q”).
Certain information contained in this discussion and analysis or set forth elsewhere in this
Quarterly report on Form
10-Q,
including information with respect to plans and strategy for Janus’s business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors,” Janus’s actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Factors that could cause or contribute to such differences include, but are not limited to, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this
Quarterly report on Form
10-Q.
We assume no obligation to update any of these forward-looking statements.
Unless otherwise indicated or the context otherwise requires, references in this Janus’s Management’s Discussion and Analysis of Financial Condition and Results of Operations section to “Midco,”“Midco” “Janus,” “we,” “us,” “our,” and other similar terms refer to Midco and its subsidiaries prior to the Business Combination and to Janus International Group Inc. (Parent) and its consolidated subsidiaries after giving effect to the Business Combination.
Percentage amounts included in this
Quarterly report on Form10-Q
have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this
Form 10-Q may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this
Quarterly report on Form
10-Q.
Certain other amounts that appear in this
Quarterly report on Form
10-Q
may not sum due to rounding.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is a supplement to the accompanying unaudited consolidated financial statements and provides additional information on our business, recent developments, financial condition, liquidity and capital resources, cash flows and results of operations. MD&A is organized as follows:
•Business Overview: This section provides a general description of our business, and a discussion of management’s general outlook regarding market demand, our competitive position and product innovation, as well as recent developments we believe are important to understanding our results of operations and financial condition or in understanding anticipated future trends.
•Basis of Presentation: This section provides a discussion of the basis on which our unaudited consolidated financial statements were prepared.
•Results of Operations: This section provides an analysis of our unaudited results of operations for the three months ended April 2, 2022 and six months periods ended June 26,March 27, 2021, and June 27, 2020.
respectively.•Liquidity and Capital Resources: This section provides a discussion of our financial condition and an analysis of our unaudited cash flows for the three months ended April 2, 2022 and six months periods ended June 26,March 27, 2021, and June 27, 2020.respectively. This section also provides a discussion of our contractual obligations, other purchase commitments and customer credit risk that existed at June 26, 2021,April 2, 2022, as well as a discussion of our ability to fund our future commitments and ongoing operating activities through internal and external sources of capital.
•Critical Accounting Policies and Estimates: This section identifies and summarizes those accounting policies that significantly impact our reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.
Janus is a leading global manufacturer and supplier of
turn-key
self-storage, commercial and industrial building solutions including: roll up and swing doors, hallway systems, relocatable storage units, and facility and door automation technologies with manufacturing operations in Georgia, Texas, Arizona, Indiana, North Carolina, United Kingdom, Australia, and Singapore. The
Company focuses on two primary markets, providing building solutions to the self-storage industry and the broader commercial industrial market. The self-storage industry is comprised of institutional and
non-institutional
facilities. Institutional facilities typically include multi-story, climate controlled facilities located in prime locations owned and/or managed by large
Real Estate Investment Trusts (“REITs”)REITs or returns-driven operators of scale and are primarily located in the top 50
U.S. metropolitan statical areasMetropolitan Statistical Areas (“MSAs”), whereas the vast majority of
non-institutional
facilities are single-story,
non-climate
controlled facilities located outside of city centers owned and/or managed by smaller private operators that are mostly located outside of the top 50 U.S. MSAs. Janus is highly integrated with customers at every phase of a project, including facility planning/design, construction, access control and restore, rebuild, replace
(R3) of damaged or
products.
Our business is operated through two geographic regions that comprise our two reportable segments: Janus North America and Janus International. The Janus International segment is comprised of Janus International Europe Holdings Ltd. (UK),JIEH, whose production and sales are largely in Europe and Australia. The
Janus North America segment is comprised of all the other entities including Janus Core, BETCO, NOKE, ASTA, DBCI, ACT, Janus Door, and Steel Door Depot.com.
Depot.Furthermore, our business is comprised of three primary sales channels: New Construction-Self-storage,
R3-Self-storage
(R3), and Commercial and Other. The Commercial and Other category is primarily comprised of
roll-up
sheet and rolling steel door sales into the commercial marketplace.
New construction consists of engineering and project management work pertaining to the design, building, and logistics of a greenfield new self-storage facility tailored to customer specifications while being compliant with ADA regulations. Any Nokē Smart Entry System revenue associated with a new construction project also rolls up into this sales channel.
The concept of Janus R3 (Restore, Rebuild, Replace) is to replace storage unit doors, optimizing unit mix and idle land, and adding a more robust security solution to enable customers to (1) charge higher rental rates and (2) compete with modern self-storage facilities and large operators. In addition, the R3 sales channel also includes new self-storage capacity being brought online through conversions and expansions. R3 transforms facilities through door replacement, facility upgrades, Nokē Smart Entry Systems, and relocatablemoveable additional storage MASS (Moveable Additional Storage Structure)structures (“MASS”).
Commercial light duty steel
roll-up
doors are designed for applications that require less frequent and less demanding operations. Janus offers heavy duty commercial grade steel doors (minimized dead-load, or constant weight of the curtain itself) perfect for warehouses, commercial buildings, and terminals, designed with a higher gauge and deeper guides, which combats the heavy scale of use with superior strength and durability. Janus also offers rolling steel doors known for minimal maintenance and easy installation with, but not limited to, the following options, commercial slat doors, heavy duty service doors, fire doors, fire rated counter shutters, insulated service doors, counter shutters and grilles.
Janus’s financials reflect the result of the execution of our operational and corporate strategy to penetrate the fast-growing self-storage, commercial and industrialself storage markets, expand its market share, as well as capitalizingcapitalize on the aging self-storage facilities, while continuing to diversify our products and solutions. We believe Janus is a bespoke provider of not only products, but solutions that generate a favorable financial outcome for our clients.
During the last two years,2021, we have acquired Steel Storage Asia and Australia, PTI Australasia Pty Ltd., and G&M, Stor-More Pty Ltd.DBCI, and ACT to expand geographically.market share. Our M&A activity has collectively enhanced our growth trajectory, technology and global footprint, while providing us access to highly attractive adjacent categories.
Total revenue was $174.2 million and $327.0$229.5 million for the three and six months period ended June 26, 2021,April 2, 2022, representing an increase of 42.5% and 25.8%50.2% from $122.2 million and $260.0$152.8 million for the three and six months period ended JuneMarch 27, 2020.
2021.Revenues increased in the
secondfirst quarter of
20212022 as compared to the
secondfirst quarter of
2020,2021, largely due to
continued strong performance within all three sales channels and $22.1 million of inorganic growth as a result of the
COVID-19
pandemic impacting prior year revenue DBCI and ACT acquisitions coupled with the impact from the commercial actions taken in
the second quarter of 2020.2021. The same trends were generally present in both the Janus North America segment as well as the Janus International segment,
indicativewith the exception of
a worldwide continued recovery from the
COVID-19 fact that the International segment does not sell into the Commercial sales channel.
pandemic.Adjusted EBITDA was $35.9 million and $68.5$44.7 million for the three and six months period ended June 26, 2021,April 2, 2022, representing a 26.0% and 20.4%37.0% increase from $28.5 million and $56.9$32.6 million for the three and six months period ended JuneMarch 27, 2020.
2021.
Adjusted EBITDA as a %percentage of revenue was 20.6% and 21.0%19.5% for the three and six months period ended June 26, 2021,April 2, 2022, representing a decrease of 2.7% and 0.9%1.8% from 23.3% and 21.9%21.3% for the three and six months period ended JuneMarch 27, 2020.2021. The reduction in Adjusted EBITDA margins is a direct result of the inflationary increases in raw material, labor and logistics costs impacting the business in advance of price increases taking full effect. In addition to the inflationary cost pressures, Janus also experienced incremental costs as a public company and incremental headcount costs associated with continued strategic investments in both our Facilitate division coupled with our continued build out of our NokeNokē Smart entry ground game and customer service department.
Information regarding use of Adjusted EBITDA, a
non-GAAP
measure, and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure, is included in
“Non-GAAP
“Non-GAAP Financial Measures.”
On February 5, 2021, Janus completed a repricing of its First Lien and First Lien B2 Term Loans in order to take advantage of currently available lower interest rates.
The
repricing allowed the Company to combine the two First Lien Term Loans into one Term Loan. (“Liquidity and Capital Resources” section).
On June 7, 2021, Juniper Industrial Holdings, Inc. (“Juniper”) consummated a business combination with Midco pursuant to the Business Combination Agreement. Pursuant to ASC 805, for financial accounting and reporting purposes, Midco was deemed the accounting acquirer and Juniper was treated as the accounting acquiree, and the Business Combination was accounted for as a reverse recapitalization. At the closing date of the business combination, each outstanding unit of Midco’s Class A Preferred and Class B Common converted into our common stock at the then-effective conversion rate. Immediately upon the completion of the Business Combination, Juniper and Midco became wholly-owned subsidiaries of Janus International Group, Inc. The shares of common stock of the Company isare currently traded on the NYSE under the symbolssymbol “JBI” and “JBI WS”, respectively..
As a result of the Business Combination, equityholders of Midco received aggregate consideration with a value equal to $1.2 billion which consisted of (i) $541.7 million in cash and (ii) $702.7 million in shares of our Common Stock,common stock, or 70,270,400 shares based on an assumed stock price of $10.00 per share. In connection with the closing of the Business Combination, the Sponsor received 2,000,000 shares of our Common Stock (pro rata among the Sponsor shares and shares held by certain affiliates) (the “Earnout Shares”)Earnout Shares contingent upon achieving certain market share price milestonemilestones as outlined in the Business Combination Agreement. The vesting of the Earnout Shares occurred as of the close of the trading on June 21, 2021.
Part of the proceeds from the merger were used to pay anon-liquidating
cash distribution to Janus Midco unitholders’ in the amount of $541.7 million and partial payment toof our Note Payable in the amount of $61.6 million.(See “Liquidity and Capital Resources” section).
Business Segment Information
Our business is operated through two geographic regions that comprise our two reportable segments: Janus North America and Janus International.
Janus North America is comprised of sixeight operating segments including Janus Core, Janus Door, Steel Door Depot, ASTA, NOKE, BETCO, DBCI, and BETCO.ACT. Janus North America produces and provides various fabricated components such as commercial and self-storage doors, walls, hallway systems and building components used primarily by owners or builders of self-storage and commercial and industrial facilities and also offers installation services along with the products. Janus North America represented 90.5%92.2% and 92.5%91.8% of Janus’s revenue for the periodthree months ended June 26,April 2, 2022 and March 27, 2021, and period ended June 27, 2020, respectively.
Janus International is comprised solely of one operating segment, Janus International Europe Holdings Ltd (UK).JIEH. The Janus International segment produces and provides similar products and services as Janus North America but largely in Europe as well as Australia. Janus International does not sell into the commercial end markets. Janus International represented 9.5%7.8% and 7.5%8.2% of Janus’s revenue for the periodthree months ended June 26,April 2, 2022 and March 27, 2021, and the period ended June 27, 2020, respectively.
Our highly accretive M&A strategy focuses on (i) portfolio diversification into attractive and logical adjacencies, (ii) geographic expansion, and (iii) technological innovation.
Inorganic growth, through acquisitions, serves to increase Janus’s strategic growth. Since 2020,2021, Janus has completed three acquisitions which attributedcontributed a combined $9.5$58.7 million inorganic revenue increase from December 29, 201926, 2020 through June 26, 2021.April 2, 2022. Refer to Item 1A. Risk Factors within this Form 10-Q and in our Annual Report on Form 10-K for the “Risk Factors” section forfiscal year ended January 1, 2022, which contain further information on the risks associated with integration of these acquisitions. Janus acquired the following fourthree companies to fuel the inorganic growth of its manufacturing capabilities, product offerings, and technology solutions provided to customers.
On January 18, 2021, the Company, through its wholly owned subsidiary Steel Storage Australia Pty Ltd. acquired 100% of the net assets of G & M Stor-More Pty Ltd. for approximately $1.74 million. G & M Stor-More Pty Ltd. has over 23 years’ experience in self-storage building, design, construction and consultation. As a result of the acquisition, the Company will have an opportunity to increase its customer base of the self-storage industry and expand its product offerings in the Australian market.
On March 31, 2020, Janus’s wholly-ownedAugust 18, 2021, the Group, through its wholly owned subsidiary Steel Storage Australia Pty Ltd. purchasedJanus Core acquired 100% of the equity interests of DBCI, a company incorporated in Delaware, for approximately $169.2 million. DBCI is a manufacturer of exterior building products in North America, with over 25 years’ servicing commercial, residential and repair markets. As a result of the acquisition, the Company will have an opportunity to increase its customer base of both the commercial and self-storage industries and expand its product offerings in the North American market.
On August 31, 2021, the Group, through its wholly owned subsidiary Janus Core acquired 100% of the equity of ACT, a company incorporated in North Carolina, for $10.3 million. Through this acquisition, the Group also acquired all assets and certain liabilities of PTI Australasia Pty Ltd.,Phoenix, a provider of access control securitycompany incorporated in North Carolina. ACT has specialized in protecting critical assets in the self-storage design and commercialindustrial building industries in Australia, New Zealandfor over 7 years. The ACT team is comprised of security industry experts who continually train to be at the forefront of emerging industry trends, technological advancements, and surrounding regions, for $0.032 million. The PTI Australasia Pty Ltd.new security vulnerabilities or hazards that threaten their clients. As a result of the acquisition, specifically bolstered the adoption ofCompany will have an opportunity to expand its Nokē Smart Entry Systems in Australia and New Zealand.
ground game.On January 2, 2020, Janus’s wholly-owned subsidiary, JIE purchased 100% of the outstanding shares of Steel Storage Asia Pte Ltd. and Steel Storage Australia Pty Ltd. (collectively “Steel Storage” or “SSA”) for $6.5 million. The rationale for the Steel Storage acquisition was geographic expansion. The Steel Storage acquisition specifically expanded Janus’s global presence.
The U.K. exit from the European Union on January 31, 2020, commonly referred to as Brexit, has caused, and may continue to cause, uncertainty in the global markets. Political and regulatory responses to the withdrawal are still developing, and we are in the process of assessing the impact that the withdrawal may have on our business as more information becomes available.developing. Any impact from Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade, regulatory, and other negotiations the U.K. conducts.
Impact of
COVID-19
and the CARES Act
In early 2020, the Coronavirus
(COVID-19)
swiftly began to spread globally, and the World Health Organization (WHO) subsequently declared
COVID-19
to be a public health emergency of international concern on March 11, 2020. The
COVID-19
outbreak
has resulted in travel restrictions and in some cases, prohibitions of
non-essential
activities, disruption and shutdown of certain businesses and greater uncertainty in global financial markets. The full extent to which
COVID-19
impacts Janus’s business, results of operations and financial condition are dependent on the further duration and spread of the outbreak mainly within the United States, Europe, and Australia.
To aid in combating the negative business impacts of
COVID-19,
the federal government enacted the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” on March 27, 2020. Under the CARES Act, Janus deferred $2.6 million in payroll
taxes.taxes of which half of the balance was paid on December 31, 2021 and the remaining balance, or $1.3 million is due December 31, 2022.As a result of
COVID-19
and in support of continuing its manufacturing efforts, Janus has undertaken a number of steps to protect its employees, suppliers and customers, as their safety and well-being is one of our top priorities.
Janus has taken several safety measures including implementing social distancing practices and requiring employees to wear masks. There was
$0.1 million and $0.2 million in
COVID-19
related expenses in the
periodthree months ended
June 26,April 2, 2022 and March 27, 2021,
respectively, primarily related to
COVID-19
PPE supplies and COVID tests.
Notwithstanding our continued operations and performance, the
COVID-19
pandemic may continue to have negative impacts on our operations, supply chain, transportation networks and customers, which may compress our margins as a result of preventative and precautionary measures that Janus, other businesses, and governments are taking. Any resulting economic downturn could adversely affect demand for our products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products, services and raw materials. The progression of this matter could also negatively impact our business or results of operations through the temporary closure of our operating locations or those of our customers or suppliers, among others. In addition, the ability of our employees and our suppliers’ and customers’ employees to work may be significantly impacted by individuals contracting or being exposed to
COVID-19,
or as a result of the control measures noted above, which may significantly hamper our production throughout the supply chain and constrict sales channels. The extent to which the
COVID-19
pandemic may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the pandemic and the effectiveness of actions globally to contain or mitigate its effects.
Our unaudited consolidated financial statements and discussion and analysis of financial condition and results of operations reflect estimates and assumptions made by management as of
June 26, 2021.April 2, 2022. Events and changes in circumstances arising after
June 26, 2021,April 2, 2022, including those resulting from the impacts of the
COVID-19
pandemic, will be reflected in management’s estimates for future periods.
Management continues to monitor the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce.
Management evaluates the performance of its reportable segments based on the revenue of services and products, gross profit, operating margins, and cash from business operations. We use Adjusted EBITDA, which is a
non-GAAP
financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends. Please see the section
“Non-GAAP
“Non-GAAP Financial Measure” below for further discussion of this financial measure, including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest GAAP financial measures.
Human capital is also one of the main cost drivers of the manufacturing, selling, and administrative processes of Janus. As a result, headcount is reflective of the health of Janus and indicative of an expansion or contraction of the overall business. We expect to continue to increase headcount in the future as we grow our business. Moreover, we expect that we will needcontinue to hire additional accounting, finance, and other personnel in connection with our becoming, and our efforts to comply with the requirementrequirements of being a public company.
The following table sets forth key performance measures for the periodsthree months ended June 26,April 2, 2022 and March 27, 2021 and June 27, 2020
| | | | | | | | | | | | | | | | |
| | | | | | |
| |
| | |
| | | | | | | |
| | $ | 174,182,389 | | | $ | 122,229,623 | | | $ | 51,952,765 | | | | 42.5 | % |
| | $ | 35,919,274 | | | $ | 28,509,597 | | | $ | 7,409,676 | | | | 26.0 | % |
Adjusted EBITDA (% of revenue) | | | 20.6 | % | | | 23.3 | % | | | | | | | (2.7 | )% |
(dollar amounts in thousands)
| | | | | | | | | | | | | | | | |
| | | | | | |
| |
| | |
| | | | | | | |
| | $ | 327,006,656 | | | $ | 260,043,418 | | | $ | 66,963,238 | | | | 25.8 | % |
| | $ | 68,549,115 | | | $ | 56,927,473 | | | $ | 11,621,642 | | | | 20.4 | % |
Adjusted EBITDA (% of revenue) | | | 21.0 | % | | | 21.9 | % | | | | | | | (0.9 | )% |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variance |
| April 2, 2022 | | March 27, 2021 | | $ | | % |
Total Revenue | $ | 229,520 | | $ | 152,824 | | $ | 76,696 | | | 50.2 | % |
Adjusted EBITDA | $ | 44,667 | | $ | 32,614 | | $ | 12,053 | | | 37.0 | % |
Adjusted EBITDA (% of revenue) | 19.5 | % | | 21.3 | % | | | | (1.8) | % |
As of June 26,April 2, 2022, and March 27, 2021, and June 27, 2020, theour employee headcount was 1,7582,125 (including 420519 temporary employees) and 1,4611,699 (including 247380 temporary employees), respectively.
Total revenue increased by $52.0 million and $67.0$76.7 million or 42.5% and 25.8% from50.2% for the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 20202021 primarily due to increased volumes and improved market conditions, commercial actions instituted in 2021 and increased volumes partially related
to pull through of the 2021 new construction pent up demand coupled with a $22.1 million increase in inorganic revenue growth as theCOVID-19
pandemic significantly impacted revenue ina result of the second quarterDBCI and ACT acquisitions. (See “Results of 2020. (See Results of OperationsOperations” section
). Adjusted EBITDA increased by $7.4 million and $11.6$12.1 million or 26.0% and 20.4% from37.0% for the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months periods ended JuneMarch 27, 20202021, primarily due to increased revenue which was partially offset by increased cost of sales and general and administrative expenses.
Adjusted EBITDA as a percentage of revenue decreased 2.7% and 0.9%1.8% for the three and six months period ended June 26,April 2, 2022 compared to the three months ended March 27, 2021, primarily due to inflationary increases toin raw material, labor and logistics costs in advance of price increasescommercial and cost containment actions taking full effect. In addition to the inflationary cost pressures, Janus also experienced incremental costs as a public company and incremental headcount costs associated with strategic investments in both our Facilitate division coupled with ourthe continued build out of our NokeNokē Smart entry ground game and customer service department. (“Non-GAAP
Financial Measures” section)
. The unaudited consolidated financial statements have been derived from the accounts of Janus and its wholly owned subsidiaries. Janus’s fiscal year follows a
calendar which divides a year into four quarters of 13 weeks, grouped into two
4-week
“months” “months” and one
5-week
“month. “month.” As a result, some monthly comparisons are not comparable as one month is longer than the other two. The major advantage of a
calendar is that the end date of the period is always the same day of the week, making manufacturing planning easier as every period is the same length. Every fifth or sixth year will require a 53rd week.
We have presented results of operations, including the related discussion and analysis for the following periods:
the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 2020.
2021.Components of Results of Operations
Sale of products represents the revenue from the sale of products, including steelroll-up
and swing doors, rolling steel doors, steel structures, as well as hallway systems and facility and door automation technologies for commercial and self-storage customers. Product revenue is recognized upon transfer of control to the customer, which generally takes place at the point of destination (Janus Core) and at the point of shipping (all other segments). We expect our product revenue may vary from period to period on, among other things, the timing and size of orders and delivery of products and the impact of significant transactions. Revenues are monitored and analyzed as a function of sales reporting within the following sales channels,channels: Self-Storage New Construction, Self-Storage R3, and Commercial and Other. Service revenue reflects installation services to customers for steel facilities, steelroll-up
and swing doors, hallway systems, and relocatable storage units which is recognized over time based on the satisfaction of our performance obligation. Janus is highly integrated with customers at every phase of a project, including facility planning/design, construction, access control and R3 of damaged, orproducts or rebranding of facilities due to market consolidation. Service obligations are primarily short term and completed within aone-year
time period. We expect our service revenue to increase as we add new customers and our existing customers continue to add more and more content per square foot. Our cost of sales consists of the cost of products and cost of services. Cost of products includes the manufacturing cost of our steelroll-up
and swing doors, rolling steel doors, steel structures, and hallway systems which primarily consists of amounts paid to our third-party contract suppliers and personnel-related costs directly associated with manufacturing operations as well as overhead and indirect costs. Cost of services includes third-party installation subcontractor costs directly associated with the installation of our products. Our cost of sales includeincludes purchase price variance, cost of spare or replacement parts, warranty costs, excess and obsolete inventory charges, shipping costs, and an allocated portion of overhead costs, including depreciation. We expect cost of sales to increase in absolute dollars in future periods as we expect our revenues to continue to grow. Selling and marketing expense.
Selling expenses consist primarily of compensation and benefits of employees engaged in selling activities as well as related travel, advertising, trade shows/conventions, meals and entertainment expenses. We expect selling expenses to increase in absolute dollars in future periods as we expect our revenues to continue to grow.General and administrative expense
General and administrative (“G&A”) expenses are comprised primarily of expenses relating to employee compensation and benefits, travel, meals and entertainment expenses as well as depreciation, amortization, andnon-recurring
public company costs. We expect general and administrative expenses to increase in absolute dollars in future periods as we expect our revenues to continue to grow. We also expect G&A expenses to increase in the near term as a result of operating as a public company, including expenses associated with compliance with the rules and regulations of the Commission, and an increase in legal, audit, insurance, investor relations, professional services and other administrative expenses.Consists of interest expense on short-term and long-term debt, and amortization on deferred financing fees, (see“Longand interest associated with finance lease liabilities (See “Long Term Debt”
section).
Factors Affecting the Results of Operations
Key Factors Affecting the Business and Financial Statements
Janus’s management believes theirour performance and future growth depends on a number of factors that present significant opportunities but also pose risks and challenges.
Factors Affecting Revenues
Janus’s revenues from products sold are driven by economic conditions, which impacts new construction of self-storage facilities, R3 of self-storage facilities, and commercial revenue.
Janus periodically modifies sales prices of their products due to changes in costs for raw materials and energy, market conditions, labor
and logistics costs and the competitive environment. In certain cases, realized price increases are less than the announced price increases
because ofdue to project pricing, competitive reactions and changing market conditions. Janus also offers a wide assortment of products that are differentiated by style, design and performance attributes. Pricing and margins for products within the assortment vary. In addition, changes in the relative quantity of products purchased at different price points can impact
comparisons of net sales and operating income.
Service revenue is driven by the product revenue and the increase in value-added services, such as
pre-work
planning, site drawings, installation and general contracting, project management, and third-party
securitysecurity. Janus differentiates itself through
on-time
delivery, efficient installation, best
in-class
service, and a reputation for high quality products.
Factors Affecting Growth Through Acquisitions
Janus’s business strategy involves growth through, among other things, the acquisition of other companies. Janus tries to evaluate companies that it believes will strategically fit into its business and growth objectives. If Janus is unable to successfully integrate and develop acquired businesses, it could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results, which could have a material adverse effect on its financial results.
Janus may not be able to identify suitable acquisition or strategic investment opportunities or may be unable to obtain the required consent of its lenders and, therefore, may not be able to complete such acquisitions or strategic investments. Janus may incur expenses associated with sourcing, evaluating and negotiating acquisitions (including those that do not get completed), and it may also pay fees and expenses associated with financing acquisitions to investment banks and other advisors. Any of these amounts may be substantial, and together with the size, timing and number of acquisitions Janus pursues, may negatively affect and cause significant volatility in its financial results.
In addition, Janus has assumed, and may in the future assume, liabilities of the company it is acquiring. While Janus retains third-party advisors to consult on potential liabilities related to these acquisitions, there can be no assurances that all potential liabilities will be identified or known to it. If there are unknown liabilities or other obligations, Janus’s business could be materially affected.
Generally, Janus’s sales tend to be the slowest in January due to more unfavorable weather conditions, customer business cycles and the timing of renovation and new construction project launches.
Factors Affecting Operating Costs
Janus’s operating expenses are comprised of direct production costs (principally raw materials, labor and energy), manufacturing overhead costs, freight, costs to purchase sourced products and selling, general, and administrative (“SG&A”) expenses.
Janus’s largest individual raw material expenditure is steel coils. Fluctuations in the prices of steel coil are generally beyond Janus’s control and have a direct impact on the financial results. In 2020,2021 and 2022, Janus entered into agreements with threetwo of its largest suppliers in order to lock in steel coil prices for part of Janus’s production needs and partially mitigate the potential impacts of short-term steel coil price fluctuations. This arrangement allows Janus to purchase quantities of product within specified ranges as outlined in the contracts.
Freight costs are driven by Janus’s volume of sales of products and are subject to the freight market pricing environment.
Results of Operations - Consolidated
The period to period comparisons of our results of operations have been prepared using the historical periods included in our unaudited consolidated financial statements. The following discussion should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this document. We have derived this data from our unaudited consolidated financial statements included elsewhere in this
Quarterly filing andForm 10-Q.
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of total revenue.
Table of Contents
Results of Operations
(dollar amounts in thousands)
For the three and six months period ended June 26, 2021April 2, 2022 compared to the periodthree months ended JuneMarch 27, 2020
2021 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variance |
| April 2, 2022 | | March 27, 2021 | | $ | | % |
REVENUE | | | | | | | |
Sales of products | $ | 197,306 | | | $ | 121,696 | | | $ | 75,610 | | | 62.1 | % |
Sales of services | 32,214 | | | 31,128 | | | 1,086 | | | 3.5 | % |
Total revenue | $ | 229,520 | | | $ | 152,824 | | | $ | 76,696 | | | 50.2 | % |
Cost of Sales | 152,950 | | | 99,531 | | | 53,419 | | | 53.7 | % |
GROSS PROFIT | $ | 76,570 | | | $ | 53,293 | | | $ | 23,277 | | | 43.7 | % |
OPERATING EXPENSE | | | | | | | |
Selling and marketing | 13,349 | | | 9,458 | | | 3,891 | | | 41.1 | % |
General and administrative | 28,106 | | | 19,586 | | | 8,520 | | | 43.5 | % |
Operating Expenses | $ | 41,455 | | | $ | 29,044 | | | $ | 12,411 | | | 42.7 | % |
INCOME FROM OPERATIONS | $ | 35,115 | | | $ | 24,249 | | | $ | 10,866 | | | 44.8 | % |
Interest expense | (8,775) | | | (8,126) | | | (649) | | | 8.0 | % |
Other expense | (28) | | | (1,559) | | | 1,531 | | | (98.2) | % |
Other Expense, Net | $ | (8,804) | | | $ | (9,685) | | | $ | 881 | | | (9.1) | % |
INCOME BEFORE TAXES | $ | 26,311 | | | $ | 14,564 | | | $ | 11,747 | | | 80.7 | % |
Provision (benefit) for Income Taxes | 6,607 | | | (155) | | | 6,762 | | | (4362.6) | % |
NET INCOME | $ | 19,704 | | | $ | 14,719 | | | $ | 4,985 | | | 33.9 | % |
| | | | | | | | | | | | | | | | |
| | | | | | |
| |
| | |
| | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 140,556,306 | | | $ | 95,425,815 | | | $ | 45,130,491 | | | | 47.3 | % |
| | | 33,626,083 | | | | 26,803,808 | | | | 6,822,275 | | | | 25.5 | % |
| | | | | | | | | | | | | | | | |
| | | 174,182,389 | | | | 122,229,623 | | | | 51,952,766 | | | | 42.5 | % |
| | | 114,987,977 | | | | 77,449,920 | | | | 37,538,057 | | | | 48.5 | % |
| | | | | | | | | | | | | | | | |
| | | 59,194,412 | | | | 44,779,703 | | | | 14,414,709 | | | | 32.2 | % |
| | | | | | | | | | | | | | | | |
| | | 10,382,169 | | | | 7,717,283 | | | | 2,664,886 | | | | 34.5 | % |
General and administrative | | | 34,471,523 | | | | 16,931,440 | | | | 17,540,083 | | | | 103.6 | % |
| | | | | | | | | | | | | | | | |
| | | 44,853,692 | | | | 24,648,723 | | | | 20,204,969 | | | | 82.0 | % |
| | | | | | | | | | | | | | | | |
| | | 14,340,720 | | | | 20,130,980 | | | | (5,790,260 | ) | | | (28.8 | )% |
| | | (7,475,727 | ) | | | (8,737,328 | ) | | | 1,261,601 | | | | (14.4 | )% |
| | | (920,003 | ) | | | 23,883 | | | | (943,887 | ) | | | (3952.0 | )% |
Change in fair value of derivative warrant liabilities | | | (1,928,500 | ) | | | — | | | | (1,928,500 | ) | | | — | % |
| | | | | | | | | | | | | | | | |
| | | (10,324,230 | ) | | | (8,713,445 | ) | | | (1,610,786 | ) | | | 18.5 | % |
| | | | | | | | | | | | | | | | |
| | | 4,016,490 | | | | 11,417,535 | | | | (7,401,045 | ) | | | (64.8 | )% |
Provision for Income Taxes | | | 2,893,283 | | | | 400,067 | | | | 2,493,216 | | | | 623.2 | % |
| | | | | | | | | | | | | | | | |
| | $ | 1,123,207 | | | $ | 11,017,468 | | | $ | (9,894,261 | ) | | | (89.8 | )% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| |
| | |
| | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 262,252,532 | | | $ | 203,536,725 | | | $ | 58,715,807 | | | | 28.8 | % |
| | | 64,754,124 | | | | 56,506,693 | | | | 8,247,431 | | | | 14.6 | % |
| | | | | | | | | | | | | | | | |
| | | 327,006,656 | | | | 260,043,418 | | | | 66,963,238 | | | | 25.8 | % |
| | | 214,518,947 | | | | 167,180,130 | | | | 47,338,817 | | | | 28.3 | % |
| | | | | | | | | | | | | | | | |
| | | 112,487,709 | | | | 92,863,288 | | | | 19,624,421 | | | | 21.1 | % |
| | | | | | | | | | | | | | | | |
| | | 19,840,296 | | | | 17,977,566 | | | | 1,862,730 | | | | 10.4 | % |
General and administrative | | | 54,057,831 | | | | 34,566,666 | | | | 19,491,165 | | | | 56.4 | % |
| | | | | | | | | | | | | | | | |
| | | 73,898,127 | | | | 52,544,232 | | | | 21,353,895 | | | | 40.6 | % |
| | | | | | | | | | | | | | | | |
| | | 38,589,583 | | | | 40,319,056 | | | | (1,729,473 | ) | | | (4.3 | )% |
| | | (15,601,797 | ) | | | (18,678,476 | ) | | | 3,076,679 | | | | (16.5 | )% |
| | | (2,478,869 | ) | | | 99,211 | | | | (2,578,080 | ) | | | (2598.6 | )% |
Change in fair value of derivative warrant liabilities | | | (1,928,500 | ) | | | — | | | | (1,928,500 | ) | | | — | % |
| | | | | | | | | | | | | | | | |
| | | (20,009,166 | ) | | | (18,579,265 | ) | | | (1,429,901 | ) | | | 7.7 | % |
| | | | | | | | | | | | | | | | |
| | | 18,580,417 | | | | 21,739,791 | | | | (3,159,374 | ) | | | (14.5 | )% |
Provision for Income Taxes | | | 2,738,389 | | | | 770,292 | | | | 1,968,097 | | | | 255.5 | % |
| | | | | | | | | | | | | | | | |
| | $ | 15,842,028 | | | $ | 20,969,499 | | | $ | (5,127,471 | ) | | | (24.5 | )% |
| | | | | | | | | | | | | | | | |
(dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | |
| | | Variance % | | Revenue Variance Breakdown |
| April 2, 2022 | | March 27, 2021 | | Variance | | | Domestic Acquisitions | | Organic Growth | | Organic Growth % |
Sales of products | $ | 197,306 | | | $ | 121,696 | | | $ | 75,610 | | | 62.1 | % | | $ | 20,378 | | | $ | 55,232 | | | 45.4 | % |
Sales of services | 32,214 | | | 31,128 | | | 1,086 | | | 3.5 | % | | 1,698 | | | (612) | | | (2.0) | % |
Total | $ | 229,520 | | | $ | 152,824 | | | $ | 76,696 | | | 50.2 | % | | $ | 22,076 | | | $ | 54,620 | | | 35.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| |
| | | | |
| | |
| | |
| |
| |
| | |
| | | | |
| | $ | 140,556,306 | | | $ | 95,425,815 | | | $ | 45,130,491 | | | | 47.3 | % | | $ | 45,130,491 | | | | 47.3 | % |
| | | 33,626,083 | | | | 26,803,808 | | | | 6,822,274 | | | | 25.5 | % | | | 6,822,274 | | | | 25.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| |
| |
| | |
| | |
| |
| |
| | |
| | | | |
| | $ | 262,252,532 | | | $ | 203,536,725 | | | $ | 58,715,807 | | | | 28.8 | % | | $ | 58,715,807 | | | | 28.8 | % |
| | | 64,754,124 | | | | 56,506,693 | | | | 8,247,431 | | | | 14.6 | % | | | 8,247,431 | | | | 14.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The $52.0 and $67.0$76.7 million revenue increase for the three and six month periodmonths ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 20202021 is primarily attributable to increased volumes as a result of favorable industry dynamics in both the commercial and R3all three sales channels. Thechannels coupled with inorganic growth of $22.1 million as a result of the PTI Australasia Pty Ltd.DBCI and G&M Stor-More Pty Ltd. acquisitions are not separately stated above as these amounts were deemed immaterial.ACT acquisitions.
The following table and discussion comparescompare Janus’s sales by sales channel.
channel (dollar amounts in thousands). | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| |
| | | | | |
| | | | | | | | | | |
New Construction - Self Storage | | $ | 65,746,672 | | | | 37.7 | % | | $ | 56,643,349 | | | | 46.3 | % | | $ | 9,103,323 | | | | 16.1 | % |
| | | 55,578,419 | | | | 31.9 | % | | | 34,267,033 | | | | 28.0 | % | | $ | 21,311,386 | | | | 62.2 | % |
| | | 52,857,298 | | | | 30.4 | % | | | 31,319,241 | | | | 25.6 | % | | | 21,538,057 | | | | 68.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Three Months Ended | | Three Months Ended | | Variance |
| |
| | | | |
| | | | | | | | | |
| | | April 2, 2022 | | % of sales | | March 27, 2021 | | % of sales | | $ | | % |
New Construction - Self Storage | | $ | 121,864,066 | | | | 37.3 | % | | $ | 125,935,630 | | | | 48.4 | % | | $ | (4,071,564 | ) | | | (3.2 | )% | New Construction - Self Storage | $ | 81,001 | | | 35.3 | % | | $ | 56,117 | | | 36.7 | % | | $ | 24,884 | | | 44.3 | % |
| | | 98,568,315 | | | | 30.1 | % | | | 75,715,364 | | | | 29.1 | % | | | 22,852,951 | | | | 30.2 | % | R3 - Self Storage | 67,328 | | | 29.3 | % | | 42,990 | | | 28.1 | % | | 24,338 | | | 56.6 | % |
| | | 106,574,276 | | | | 32.6 | % | | | 58,392,424 | | | | 22.5 | % | | | 48,181,852 | | | | 82.5 | % | Commercial and Other | 81,191 | | | 35.4 | % | | 53,717 | | | 35.1 | % | | 27,474 | | | 51.1 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Total | $ | 229,520 | | | 100.0 | % | | $ | 152,824 | | | 100.0 | % | | $ | 76,696 | | | 50.2 | % |
| | | | | | | | | | | | | | | | | | | |
New construction sales increased by
$9.1$24.9 million or
16.1% and decreased by $4.1 million or 3.2%44.3% for the three
and six months
period ended
June 26, 2021April 2, 2022 compared to the three
and six months
period ended
JuneMarch 27,
2020,2021, respectively. The increase in the three months
period ended
June 26, 2021April 2, 2022 is primarily due to
commercial initiatives and strong growth related to the
continued recovery from theCOVID-19
global pandemic in the Janus International segment. The decrease in the six months period ended June 26, 2021
is due to a slow first quarter from continued pent up demand
and delaysin greenfield projects caused by
permitting delays associated with the
pandemic.COVID-19 global pandemic continuing to ship in the first quarter of 2022.
R3 sales increased by $21.3 million and $22.9$24.3 million or 62.2% and 30.2%56.6% for the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 20202021 due to the increase of conversions and expansions as more self-storage capacity continues to be brought online through R3 as opposed to greenfield operations.
sites coupled with the positive impacts from commercial actions.Commercial and other sales increased by
$21.5 and $48.2$27.5 million or
68.8% and 82.5%51.1% for the three
and six months
period ended
June 26, 2021April 2, 2022 compared to the three
and six months
period ended
JuneMarch 27,
20202021 due to Janus Core and ASTA experiencing favorable market gains due to the continued
e-commerce
movement coupled with share gains in
both the commercial steel roll up door market and
from ASTA’s
launch of the rolling steel product
lineline. In addition, the commercial and other sales channel continued to benefit from the commercial actions instituted in
the fourth quarter of 2020.2021.
Cost of Sales and Gross Margin
(dollar amounts in thousands)
Gross margin decreased by 2.6% and 1.3%1.5% to 34.0% and 34.4%33.4% for the three and six months period ended June 26, 2021April 2, 2022 from 36.6% and 35.7%34.9% for the three months ended March 27, 2021 due primarily to increased raw material, labor and six months period ended June 27, 2020.
logistics costs in advance of commercial and cost containment initiatives taking effect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Cost of Sales Variance Breakdown |
| April 2, 2022 | | March 27, 2021 | | Variance | | Variance % | | Domestic Acquisitions | | Organic Growth | | Organic Growth % |
Cost of Sales | $ | 152,950 | | $ | 99,531 | | | $ | 53,419 | | 53.7 | % | | $ | 17,677 | | $ | 35,743 | | 35.9% |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| |
| |
| | |
| | | | | |
| | | | | |
| |
| | $ | 114,987,977 | | | | 77,449,920 | | | $ | 37,538,057 | | | | 48.5 | % | | $ | 37,538,057 | | | | 48.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| |
| |
| | |
| | | | | |
| | | | | |
| |
| | $ | 214,518,947 | | | | 167,180,130 | | | $ | 47,338,817 | | | | 28.3 | % | | $ | 47,338,817 | | | | 28.3 | % |
The $37.5 million and $47.3$53.4 million or 48.5% and 28.3%53.7% increase in cost of sales for the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 20202021 is primarily attributable to the volumerevenue increases, resulting from improved market conditions which were partially offset by increased raw material, labor and logistics costs on a global basis.basis, and inorganic growth of $17.7 million as a result of the DBCI and ACT acquisitions.
Operating Expenses - Selling and marketing
Selling and marketing expenseexpenses increased $2.7 million and $1.9$3.9 million or 34.5% and 10.4%41.1% from the three and six months period ended June 26,March 27, 2021 compared to the three and six months period ended June 27, 2020April 2, 2022, primarily due to increased travel, health insurancemarketing, trade show and payroll related costs for additional headcount to support revenue growth coupled with limited travel, marketing and trade show costs in the prior year due to the pandemic. In addition, there was an increase in selling and marketing expenses of $0.9 million as a result of the DBCI and ACT acquisitions.
Operating Expenses - General and administrative
General and administrative expenses increased
$17.5 million and $19.5$8.5 million or
103.6% and 56.4%43.5% from the three
and six months
period ended
JuneMarch 27,
20202021 compared to the three
and six months
period ended
June 26, 2021April 2, 2022, primarily due to an increase in
general liability and health insurance
costs, professional fees and payroll related costs for additional headcount to support the continued top line revenue growth coupled with the transition to a public
company. In addition,company and $2.8 million as a result of the
Company incurred transaction related costs in conjunction with the June 2021 business combination of approximately $10.4 million which is further discussed inNon-GAAPDBCI and ACT acquisitions.
Financial Measures section.Interest expense decreased $1.3 million and $3.1increased $0.6 million or 14.4% and 16.5% from8.0% for the three and six months period ended JuneMarch 27, 20202021 compared to the three and six months period June 26, 2021ended April 2, 2022, primarily due to a lower interest rate environment coupled with a lower levelthe new borrowings of outstanding debt due to quarterly amortization coupled with a $2.0$155.0 million debt prepayment in July 2020. In addition, the Company entered into a Debt Modification agreement in February 2021 which consolidated the prior two outstanding tranches into a single tranche and resulted in a reduction in the overall interest rate. In conjunction with the business combination on June 7, 2021, the Company made a $61.6 million prepayment on debt which is further discussed in the LiquidityAugust 2021. (See “Liquidity and Capital Resources section.Resources” section).
Other Income (Expense)Expense
Other income (expense) increasedexpense decreased by $0.9 million and $2.6$1.5 million or 3952.0% and 2598.6%98.2% from $0.0 and $0.1$1.6 million of other incomeexpense for the three and six months period ended JuneMarch 27, 20202021 to $0.9 million and $2.5$0.03 million of other (expense)expense for the periodthree months ended June 26, 2021April 2, 2022. The decrease in other expense for the three months ended April 2, 2022is primarily due to a $0.9 million and $2.5$1.4 million loss on extinguishment of debt included in the three and six months period ended June 26,March 27, 2021 but not present in the three and six months period ended June 27, 2020.April 2, 2022.
Income tax expense increased by $2.5 million and $2.0$6.8 million or 623.2% and 255.5%4362.6% from $0.4 million and $0.8$(0.2) million for the three and six months period ended JuneMarch 27, 20202021 to $2.9$6.6 million and $2.7 million expense for the three and six months period ended June 26, 2021April 2, 2022, due to a tax structure change from a limited liability company that was considered a disregarded entity for tax purposes to a Corporation as a result of the Business Combination that occurred on June 7, 2021.
The $9.9 million and $5.1$5.0 million or 89.8% and 24.5% decrease as33.9% increase in net income for the three months ended March 27, 2021 compared to the three and six months period ended June 27, 2020April 2, 2022 is largely due to an increase in revenue, partially offset by increases in raw material, labor and logistics costs coupled with increasedincreases in selling and general and administrative expenses.expenses, interest expense, and income taxes.
Segment Results of Operations
We operate in and report financial results for two segments: Janus North America and Janus International with the following sales channels,channels: Self-Storage New Construction, Self-Storage R3, and Commercial and Other.
Segment operating income is the measure of profit and loss that our chief operating decision maker uses to evaluate the financial performance of the business and as the basis for resource allocation, performance reviews and compensation. For these reasons, we believe that Segment operating income represents the most relevant measure of Segment profit and loss. Our chief operating decision maker may exclude certain charges or gains, such as corporate charges and other special charges, to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base our operating decisions. We define Segment operating margin as Segment operating income as a percentage of the segment’s Net revenues.
The segment discussion that follows describes the significant factors contributing to the changes in results for each segment included in Net earnings.
Results of Operations - Janus North America
(dollar amounts in thousands)
For the three and six months period ended June 26, 2021April 2, 2022 compared to the periodthree months ended JuneMarch 27, 2020
2021 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variance |
| April 2, 2022 | | March 27, 2021 | | |
| | | $ | | % |
REVENUE | | | | | | | |
Sales of products | $ | 200,157 | | | $ | 120,893 | | | $ | 79,264 | | | 65.6% |
Sales of services | 25,099 | | | 25,641 | | | (542) | | | (2.1)% |
Total revenue | $ | 225,256 | | | 146,534 | | | $ | 78,722 | | | 53.7% |
Cost of Sales | 152,970 | | | 96,772 | | | 56,198 | | | 58.1% |
GROSS PROFIT | $ | 72,286 | | | 49,762 | | | $ | 22,524 | | | 45.3% |
OPERATING EXPENSE | | | | | | | |
Selling and marketing | 12,617 | | | 8,695 | | | 3,922 | | | 45.1% |
General and administrative | 24,814 | | | 17,152 | | | 7,662 | | | 44.7% |
Operating Expenses | $ | 37,431 | | | $ | 25,847 | | | $ | 11,584 | | | 44.8% |
INCOME FROM OPERATIONS | $ | 34,855 | | | $ | 23,915 | | | $ | 10,940 | | | 45.7% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 139,188,950 | | | $ | 95,751,111 | | | $ | 43,437,839 | | | | 45.4 | % |
| | | 25,056,299 | | | | 23,167,477 | | | | 1,888,822 | | | | 8.2 | % |
| | | | | | | | | | | | | | | | |
| | | 164,245,249 | | | | 118,918,588 | | | | 45,326,661 | | | | 38.1 | % |
| | | 110,340,809 | | | | 76,155,331 | | | | 34,185,478 | | | | 44.9 | % |
| | | | | | | | | | | | | | | | |
| | | 53,904,440 | | | | 42,763,257 | | | | 11,141,183 | | | | 26.1 | % |
| | | | | | | | | | | | | | | | |
| | | 9,472,257 | | | | 6,986,592 | | | | 2,485,665 | | | | 35.6 | % |
General and administrative | | | 31,844,886 | | | | 15,570,160 | | | | 16,274,726 | | | | 104.5 | % |
| | | | | | | | | | | | | | | | |
| | | 41,317,143 | | | | 22,556,752 | | | | 18,760,391 | | | | 83.2 | % |
| | | | | | | | | | | | | | | | |
| | $ | 12,587,297 | | | $ | 20,206,505 | | | $ | (7,619,208 | ) | | | (37.7 | )% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 260,082,109 | | | $ | 200,276,583 | | | $ | 59,805,526 | | | | 29.9 | % |
| | | 50,697,555 | | | | 47,073,167 | | | | 3,624,388 | | | | 7.7 | % |
| | | | | | | | | | | | | | | | |
| | | 310,779,664 | | | | 247,349,750 | | | | 63,429,914 | | | | 25.6 | % |
| | | 207,113,235 | | | | 160,190,520 | | | | 46,922,715 | | | | 29.3 | % |
| | | | | | | | | | | | | | | | |
| | | 103,666,429 | | | | 87,159,230 | | | | 16,507,199 | | | | 18.9 | % |
| | | | | | | | | | | | | | | | |
| | | 18,167,228 | | | | 15,823,475 | | | | 2,343,753 | | | | 14.8 | % |
General and administrative | | | 48,996,596 | | | | 31,689,350 | | | | 17,307,246 | | | | 54.6 | % |
| | | | | | | | | | | | | | | | |
| | | 67,163,824 | | | | 47,512,825 | | | | 19,650,999 | | | | 41.4 | % |
| | | | | | | | | | | | | | | | |
| | $ | 36,502,605 | | | $ | 39,646,405 | | | $ | (3,143,800 | ) | | | (7.9 | )% |
| | | | | | | | | | | | | | | | |
(dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variances | | Variance % | | Revenue Variance Breakdown |
| April 2, 2022 | | March 27, 2021 | | | | Domestic Acquisitions | | Organic Growth | | Organic Growth % |
Sales of products | $ | 200,157 | | | $ | 120,893 | | | $ | 79,264 | | | 65.6 | % | | $ | 20,378 | | | $ | 58,886 | | | 48.7 | % |
Sales of services | 25,099 | | | 25,641 | | | (542) | | | (2.1) | % | | 1,698 | | | (2,240) | | | (8.7) | % |
Total | $ | 225,256 | | | $ | 146,534 | | | $ | 78,722 | | | 53.7 | % | | $ | 22,076 | | | $ | 56,646 | | | 38.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | |
| |
| |
| | |
| | |
| | |
| |
| | $ | 139,188,950 | | | $ | 95,751,111 | | | $ | 43,437,839 | | | | 45.4 | % | | $ | 43,437,839 | | | | 45.4 | % |
| | | 25,056,299 | | | | 23,167,477 | | | | 1,888,822 | | | | 8.2 | % | | | 1,888,822 | | | | 8.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | |
| |
| |
| | |
| | |
| | |
| |
| | $ | 260,082,109 | | | $ | 200,276,583 | | | $ | 59,805,526 | | | | 29.9 | % | | $ | 59,805,526 | | | | 29.9 | % |
| | | 50,697,555 | | | | 47,073,167 | | | | 3,624,388 | | | | 7.7 | % | | | 3,624,388 | | | | 7.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The $45.3 million and $63.4$78.7 million or 38.1% and 25.6%53.7% revenue increase is primarily attributable to increased volumes as a result of favorable industry dynamics in bothall three sales channels, positive impact from commercial actions taken in 2021, coupled with inorganic growth of $22.1 million as a result of the commercialDBCI and R3 sales channels.ACT acquisitions.
The following table and discussion comparescompare Janus North America sales by sales channel.
channel (dollar amounts in thousands). | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| |
| | |
| | |
| | |
| | | | |
| | | | | | |
New Construction - Self Storage | | $ | 55,600,872 | | | | 33.9 | % | | $ | 55,763,077 | | | | 46.9 | % | | $ | (162,205 | ) | | | (0.3 | )% |
| | | 52,182,213 | | | | 31.8 | % | | | 30,411,543 | | | | 25.6 | % | | | 21,770,670 | | | | 71.6 | % |
| | | 56,462,164 | | | | 34.4 | % | | | 32,743,968 | | | | 27.5 | % | | | 23,718,196 | | | | 72.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Three Months Ended | | Variance |
| |
| | |
| |
| | |
| | | | | | April 2, 2022 | | % of total sales | | March 27, 2021 | | % of total sales | | |
| | | | | | | $ | | % |
New Construction - Self Storage | | $ | 104,301,403 | | | | 33.6 | % | | $ | 117,223,245 | | | | 47.4 | % | | $ | (12,921,842 | ) | | | (11.0 | )% | New Construction - Self Storage | $ | 75,709 | | | 33.6 | % | | $ | 48,701 | | | 33.2 | % | | $ | 27,008 | | | 55.5 | % |
| | | 91,513,670 | | | | 29.4 | % | | | 67,981,662 | | | | 27.5 | % | | | 23,532,008 | | | | 34.6 | % | R3 - Self Storage | 61,572 | | | 27.3 | % | | 39,331 | | | 26.9 | % | | 22,241 | | | 56.5 | % |
| | | 114,964,591 | | | | 37.0 | % | | | 62,144,843 | | | | 25.1 | % | | | 52,819,748 | | | | 85.0 | % | Commercial and Other | 87,975 | | | 39.1 | % | | 58,502 | | | 39.9 | % | | 29,473 | | | 50.4 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Total | $ | 225,256 | | | 100.0 | % | | $ | 146,534 | | | 100.0 | % | | $ | 78,722 | | | 53.7 | % |
| | | | | | | | | | | | | | | | | | | |
New Construction sales
decreasedincreased by
$0.2 million and $12.9$27.0 million or
0.3% and 11.0%55.5% for the three
and six months
period ended
June 26, 2021April 2, 2022 compared to the three
and six months
period ended
JuneMarch 27,
20202021, primarily due to
reduced volumescommercial initiatives and
continuedstrong growth related to shipments on the pent up demand in greenfield projects caused by permitting delays
in projects associated with the
COVID-19
global pandemic
coupled withthat negatively impacted first quarter 2021.R3 sales increased by $22.2 million or 56.5% for the three months ended April 2, 2022 compared to the three months ended March 27, 2021, primarily due to the continued trend of new self-storage capacity being brought online through conversions and expansions which are included in R3 sales.
R3 sales increased by $21.8 million and $23.5 million or 71.6% and 34.6% forcoupled with the three and six months period ended June 26, 2021 compared to the three and six months periods ended June 27, 2020 due primarily to the continued trend of new self-storage capacity being brought online through conversions and expansions.positive impacts from commercial actions.
Commercial and Other sales increased by $23.7 million and $52.8$29.5 million or 72.4% and 85.0%50.4% for the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 20202021 due to increases in both Janus Core and ASTA commercial steel roll up door market, from continued strong momentum with the launch of the ASTA rolling steel product line in the fourth quarter of 2020 and price increasescommercial initiatives implemented to offset the inflationary increases of raw materials, labor, and logistics costs.
Cost of Sales and Gross Margin
(dollar amounts in thousands)
Gross Margin decreased by 3.1% and 1.9% to 32.8% and 33.4%32.1% for the three and six months period ended June 26, 2021,April 2, 2022 from 36.0% and 35.2%34.0% for the three and six months period ended JuneMarch 27, 20202021, primarily due primarily to continued increased raw material, labor and logistics costs in advance of price increasescommercial and cost containment initiatives taking full effect.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variance | | Variance % | | Cost of Sales Variance Breakdown |
| April 2, 2022 | | March 27, 2021 | | | | Domestic Acquisitions | | Organic Growth | | Organic Growth % |
Cost of Sales | $ | 152,970 | | $ | 96,772 | | | $ | 56,198 | | 58.1% | | $ | 17,677 | | $ | 38,521 | | 39.8% |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Cost of Sales Variance Breakdown | |
| |
| | |
| | | Organic Growth (Reduction) | | |
| |
| | $ | 110,340,809 | | | $ | 76,155,331 | | | $ | 34,185,478 | | | | 44.9 | % | | $ | 34,185,478 | | | | 44.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Cost of Sales Variance Breakdown | |
| |
| | |
| | | Organic Growth (Reduction) | | |
| |
| | $ | 207,113,235 | | | $ | 160,190,520 | | | $ | 46,922,715 | | | | 29.3 | % | | $ | 46,922,715 | | | | 29.3 | % |
The $34.2 million and $46.9$56.2 million or 44.9% and 29.3%58.1% increase in cost of sales for the three and six months period ended June 26, 2021April 2, 2022 compared to the three and six months period ended JuneMarch 27, 20202021 is primarily due to increased revenue coupled with an increase in raw material, labor, and logistics costs. In addition, there was an inorganic increase of $17.7 million as a result of the DBCI and ACT acquisitions.
Operating Expenses - Selling and marketing
Selling and marketing expenses increased $2.5 million and $2.3$3.9 million or 35.6% and 14.8%45.1% from $7.0 million and $15.8$8.7 million for the three and six months period ended JuneMarch 27, 20202021 to $9.5 million and $18.2$12.6 million for the three and six months period ended June 26, 2021April 2, 2022, primarily due to increased travel, health insurancemarketing and trade show and payroll related costs for additional headcount to support revenue growth coupled with lower spend inon travel, marketing and trade shows in the prior year due to the pandemic. In addition, there was an increase in selling and marketing expenses of $0.9 million as a result of the DBCI and ACT acquisitions.
Operating Expenses - General and administrative
General and administrative expenses increased
$16.3 million and $17.5$7.7 million or
104.5% and 55.5%44.7% from
$15.6 million and $31.7$17.2 million for the three
and six months
period ended
JuneMarch 27,
20202021 to
$31.8 million and $49.0$24.8 million for the three
and six months
period ended
June 26, 2021April 2, 2022, primarily due to an increase in
general liability and health insurance
costs, professional fees and payroll related costs for additional headcount to support the incremental revenue coupled with the
incremental costs associated with the transition to a public
company. In addition,company and $2.8 million as a result of the
Company incurred transaction related costs in conjunction with the June 2021 business combination of approximately $10.4 million which is further discussed inNon-GAAPDBCI and ACT acquisitions.
Financial Measures section.Income from operations decreasedincreased by $7.6 million and $3.1$10.9 million or 37.7% and 7.9%45.7% from $20.2 million and $39.6$23.9 million for the three and six months period ended JuneMarch 27, 20202021 to $12.6 million and $36.5$34.9 million for the three and six months period ended June 26, 2021April 2, 2022, primarily due to an increase revenue, partially offset by an increase in cost of sales, selling and general and administrative expenses, partially offset by an increase in revenue.
Results of Operations - Janus International-International
(dollar amounts in thousands)
Results of Operations - Janus International - For the three and six months period ended June 26, 2021April 2, 2022 compared to the periodthree months ended JuneMarch 27, 2020
2021 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months ended | | Variance |
| April 2, 2022 | | March 27, 2021 | | |
| | | $ | | % |
REVENUE | | | | | | | |
Sales of products | $ | 10,798 | | | $ | 7,073 | | | $ | 3,725 | | | 52.7 | % |
Sales of services | 7,116 | | | 5,487 | | | 1,629 | | | 29.7 | % |
Total revenue | $ | 17,914 | | | $ | 12,560 | | | $ | 5,354 | | | 42.6 | % |
Cost of Sales | 13,641 | | | 9,055 | | | 4,586 | | | 50.6 | % |
GROSS PROFIT | $ | 4,273 | | | 3,505 | | | $ | 768 | | | 21.9 | % |
OPERATING EXPENSE | | | | | | | |
Selling and marketing | 732 | | | 763 | | | (31) | | | (4.1) | % |
General and administrative | 3,292 | | | 2,435 | | | 857 | | | 35.2 | % |
Operating Expenses | $ | 4,024 | | | $ | 3,198 | | | $ | 826 | | | 25.8 | % |
INCOME FROM OPERATIONS | $ | 249 | | | $ | 307 | | | $ | (58) | | | (18.9) | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 9,775,323 | | | $ | 3,618,698 | | | $ | 6,156,625 | | | | 170.1 | % |
| | | 8,569,784 | | | | 3,636,331 | | | | 4,933,453 | | | | 135.7 | % |
| | | | | | | | | | | | | | | | |
| | | 18,345,107 | | | | 7,255,029 | | | | 11,090,078 | | | | 152.9 | % |
| | | 13,052,984 | | | | 5,251,443 | | | | 7,801,541 | | | | 148.6 | % |
| | | | | | | | | | | | | | | | |
| | | 5,292,123 | | | | 2,003,586 | | | | 3,288,537 | | | | 164.1 | % |
| | | | | | | | | | | | | | | | |
| | | 909,913 | | | | 730,692 | | | | 179,221 | | | | 24.5 | % |
General and administrative | | | 2,626,637 | | | | 1,361,281 | | | | 1,265,356 | | | | 93.0 | % |
| | | | | | | | | | | | | | | | |
| | | 3,536,550 | | | | 2,091,973 | | | | 1,444,577 | | | | 69.1 | % |
| | | | | | | | | | | | | | | | |
| | $ | 1,755,573 | | | $ | (88,387 | ) | | $ | 1,843,960 | | | | (2086.2 | )% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | 16,848,388 | | | $ | 10,110,767 | | | $ | 6,737,621 | | | | 66.6 | % |
| | | 14,056,570 | | | | 9,433,526 | | | | 4,623,044 | | | | 49.0 | % |
| | | | | | | | | | | | | | | | |
| | | 30,904,958 | | | | 19,544,293 | | | | 11,360,665 | | | | 58.1 | % |
| | | 22,108,412 | | | | 13,894,965 | | | | 8,213,447 | | | | 59.1 | % |
| | | | | | | | | | | | | | | | |
| | | 8,796,546 | | | | 5,649,328 | | | | 3,147,218 | | | | 55.7 | % |
| | | | | | | | | | | | | | | | |
| | | 1,673,068 | | | | 2,154,092 | | | | (481,024 | ) | | | (22.3 | )% |
General and administrative | | | 5,061,235 | | | | 2,877,316 | | | | 2,183,919 | | | | 75.9 | % |
| | | | | | | | | | | | | | | | |
| | | 6,734,303 | | | | 5,031,408 | | | | 1,702,895 | | | | 33.8 | % |
| | | | | | | | | | | | | | | | |
| | $ | 2,062,243 | | | $ | 617,920 | | | $ | 1,444,323 | | | | 233.7 | % |
| | | | | | | | | | | | | | | | |
(dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | |
| |
| |
| | |
| | |
| | |
| |
| | $ | 9,775,323 | | | $ | 3,618,698 | | | $ | 6,156,625 | | | | 170.1 | % | | $ | 6,156,623 | | | | 170.1 | % |
| | | 8,569,784 | | | | 3,636,331 | | | | 4,933,453 | | | | 135.7 | % | | | 4,933,452 | | | | 135.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variances | | Variance % | | Revenue Variance Breakdown |
| April 2, 2022 | | March 27, 2021 | | | | Organic Growth | | Organic Growth |
Sales of products | $ | 10,798 | | | $ | 7,073 | | | $ | 3,725 | | | 52.7 | % | | $ | 3,725 | | | 52.7 | % |
Sales of services | 7,116 | | | 5,487 | | | 1,629 | | | 29.7 | % | | 1,629 | | | 29.7 | % |
Total | $ | 17,914 | | | $ | 12,560 | | | $ | 5,354 | | | 42.6 | % | | $ | 5,354 | | | 42.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | |
| |
| |
| | |
| | |
| | |
| |
| | $ | 16,848,388 | | | $ | 10,110,767 | | | $ | 6,737,621 | | | | 66.6 | % | | $ | 6,737,620 | | | | 66.6 | % |
| | | 14,056,570 | | | | 9,433,526 | | | | 4,623,044 | | | | 49.0 | % | | | 4,623,044 | | | | 49.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The $11.1 million and $11.4$5.4 million revenue increase includes a 152.9% and 58.1%42.6% increase in organic growth driven by increased sales volumes due to improved market conditions primarilyand commercial actions instituted in the second quarter of 2021. The inorganic growth as a result of the PTI Australasia Pty Ltd. and G&M Stor-More Pty Ltd. are not separately stated above as these amounts were deemed immaterial.
The following table illustrates the sales by channel for the three months ended April 2, 2022 and six months period ended June 26,March 27, 2021 and June 27, 2020.
(dollar amounts in thousands). | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
| |
| | |
| | |
| | | | | | | |
New Construction - Self Storage | | $ | 14,877,564 | | | | 70.9 | % | | $ | 3,360,150 | | | | 68.4 | % | | $ | 11,517,414 | | | | 342.8 | % |
| | | 3,467,543 | | | | 29.1 | % | | | 3,894,879 | | | | 31.6 | % | | | (427,336 | ) | | | (11.0 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | | Three Months Ended | |
% of total sales | | Variance |
| |
| | |
| |
| | | | | | | April 2, 2022 | |
% of total sales | | March 27, 2021 | | $ | | % |
New Construction - Self Storage | | $ | 23,778,978 | | | | 70.9 | % | | $ | 11,771,203 | | | | 68.4 | % | | $ | 12,007,775 | | | | 102.0 | % | New Construction - Self Storage | $ | 11,897 | | | 66.4 | % | | $ | 8,901 | | | 70.9 | % | | $ | 2,996 | | 33.7 | % |
| | | 7,125,980 | | | | 29.1 | % | | | 7,773,090 | | | | 31.6 | % | | | (647,110 | ) | | | (8.3 | )% | R3 - Self Storage | 6,017 | | | 33.6 | % | | 3,659 | | | 29.1 | % | | 2,358 | | 64.4 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Total | $ | 17,914 | | | 100.0 | % | | $ | 12,560 | | | 100.0 | % | | $ | 5,354 | | 42.6 | % |
| | | | | | | | | | | | | | | | | | | |
New Construction sales increased by
$11.5 million and $12.0$3.0 million or
342.8% and 102.0%33.7% to
$14.9 million and $23.8$11.9 million for the three
and six months
period ended
June 26, 2021April 2, 2022 from
$3.4 million and $11.8$8.9 million for the three
and six months
period ended
JuneMarch 27,
20202021 due to increased volumes,
commercial actions, and improved market conditions as the international market continues to open up after the
COVID-19
pandemic.
R3 sales decreasedincreased by $0.4 million and $0.6$2.4 million or 11.0% and 8.3%64.4% to $3.5 million and $7.1$6.0 million for the three and six months period ended June 26, 2021April 2, 2022 from $3.9 million and $7.8$3.7 million for the three months ended March 27, 2021, primarily due to increased volumes, commercial actions, and six months period ended June 27, 2020 due primarilyimproved market conditions as the international market continues to project mix fluctuations.
open up after the COVID-19 pandemic
Cost of Sales and Gross Margin
(dollar amounts in thousands)
Gross Margin increased by 1.2 % and decreased by 0.4%4.0% to 28.8% and 28.5%23.9% for the three and six months period ended June 26, 2021,April 2, 2022 from 27.6% and 28.9%27.9% for the period ended June 27, 2020. The increase in the three months period ended June 26, 2021 is due primarily to increased revenue resultingMarch 27, 2021. The decline in improved absorption. The slight declinegross margin for the sixthree months period ended June 26, 2021April 2, 2022 is the result of higher raw material, labor and logistics costs primarily related toand an increase in mezzanine product sales which typically have a lower margin profile than typical product offerings as these products are buy-resale, coupled with increased overhead costs as the business continues to add infrastructure to support the strategic growth plan.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variance | | Variance % | | Cost of Sales Variance Breakdown |
| April 2, 2022 | | March 27, 2021 | | | | Organic Growth | | Organic Growth % |
Cost of Sales | $ | 13,641 | | | $ | 9,055 | | | $ | 4,586 | | | 50.6 | % | | $ | 4,586 | | | 50.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Cost of Sales Variance Breakdown | |
| |
| | |
| | |
| | |
| |
| | $ | 13,052,984 | | | $ | 5,251,443 | | | $ | 7,801,541 | | | | 148.6 | % | | $ | 7,801,541 | | | | 148.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Cost of Sales Variance Breakdown | |
| |
| | |
| | |
| | |
| |
| | $ | 22,108,412 | | | $ | 13,894,965 | | | $ | 8,213,447 | | | | 59.1 | % | | $ | 8,213,447 | | | | 59.1 | % |
Cost of sales increased by $7.8 million and $8.2$4.6 million or 148.6% and 59.1%50.6% from $5.3 million and $13.9$9.1 million for the three and six months period ended JuneMarch 27, 2020,2021 to $13.1 and $22.1$13.6 million for the three and six months period ended June 26, 2021April 2, 2022 generally in line with a 58.1%42.6% increase in revenues coupled with an increase in raw material, labor and logistics costs related to an increase inand mezzanine product sales.
Operating Expenses - Selling and marketing
Selling and marketing expense
increased by $0.2 million andslightly decreased
by $0.5 million or 24.5% and 22.3% from
$0.7 million and $2.2$0.8 million for the three
and six months
period ended
JuneMarch 27,
20202021 to
$0.9 million and $1.7$0.7 million for the three
and six months
period ended
June 26, 2021 primarily due to decreases from limited travel and trade show cancellations due to theCOVID-19April 2, 2022.
global pandemic in 2020 and extending into first quarter of 2021.Operating Expenses - General and administrative
General and administrative expenses increased $1.3 million and $2.2$0.9 million or 93.0% and 75.9%35.2% from $1.4 million and $2.9$2.4 million for the three and six months period ended JuneMarch 27, 20202021 to $2.6 million and $5.1$3.3 million for the periodthree months ended June 26, 2021April 2, 2022 primarily due to the continued investment in personnel and infrastructure to support the strategic growth objectives and public company requirements of the international business operations coupled with lower costs in 2020 associated with the pandemic.operations.
Income from operations increased by $1.9 million and $1.6 million or 1103.2% and 366.7%remained consistent from $(0.2) and $0.4$0.3 million for the three and six months period ended JuneMarch 27, 20202021 to $1.8 million and $2.1$0.2 million for the three and six months period ended June 26, 2021 primarily due to an increaseApril 2, 2022.
Non-GAAP Financial Measures
(dollar amounts in revenue, partially offset by increased general and administrative expenses.
Non-GAAP
Financial Measure thousands)Janus uses measures of performance that are not required by or presented in accordance with GAAP in the United States.
Non-GAAP
financial performance measures are used to supplement the financial information presented on a GAAP basis. These
non-GAAP
financial measures should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis.
Janus presents Adjusted EBITDA which is a
non-GAAP
financial performance measure, which excludes from reported GAAP results, the impact of certain items consisting of acquisition events and other
non-recurring
charges. Janus believes such expenses, charges, and gains are not indicative of normal, ongoing operations, and their inclusion in results makes for more difficult comparisons between years and with peer group companies.
Adjusted EBITDA is a
non-GAAP
financial measure used by Janus to evaluate its operating performance,
generatedevelop future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, Janus believes these measures provide useful information to investors and others in understanding and evaluating Janus’s operating results in the same manner as its management and board of directors. In addition,
theythe Adjusted EBITDA provide useful measures for
comparisons of Janus’s business, as
theythe adjustments remove the effect of certain
non-cash
items and certain variable charges. Adjusted EBITDA is defined as net income excluding interest expense, income taxes, depreciation expense, amortization, and other
non-operational,
non-recurring
items.
Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income,
(loss), which is the nearest GAAP equivalent of Adjusted EBITDA. These limitations include that the
non-GAAP
financial measures:
•exclude depreciation and amortization, and although these arenon-cash
expenses, the assets being depreciated may be replaced in the future; •do not reflect interest expense, or the cash requirements necessary to service interest on debt, which reduces cash available;
•do not reflect the provision for or benefit from income tax that may result in payments that reduce cash available;
•excludenon-recurring
items which are unlikely to occur again and have not occurred before (e.g., the extinguishment of debt); and •may not be comparable to similarnon-GAAP
financial measures used by other companies, because the expenses and other items that Janus excludes in the calculation of thesenon-GAAP
financial measures may differ from the expenses and other items, if any, that other companies may exclude from thesenon-GAAP
financial measures when they report their operating results. Because of these limitations, these
non-GAAP
financial measures should be considered along with other operating and financial performance measures presented in accordance with GAAP.
The following table present a reconciliation of net income to Adjusted EBITDA for the periods indicated:
(dollar amounts in thousands)
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | |
| | $ | 1,123,207 | | | $ | 11,017,468 | | | $ | (9,894,262 | ) | | | (89.8 | )% |
| | | 7,475,727 | | | | 8,737,328 | | | | (1,261,601 | ) | | | (14.4 | )% |
| | | 2,893,283 | | | | 400,067 | | | | 2,493,216 | | | | 623.2 | % |
| | | 1,506,337 | | | | 1,402,779 | | | | 103,558 | | | | 7.4 | % |
| | | 6,790,812 | | | | 6,686,217 | | | | 104,595 | | | | 1.6 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Loss (gain) on extinguishment of debt (2) | | | 993,562 | | | | — | | | | 993,562 | | | | — | % |
COVID-19 related expenses (3) | | | 12,808 | | | | 265,738 | | | | (252,930 | ) | | | (95.2 | )% |
Transaction related expenses (4) | | | 10,398,423 | | | | — | | | | 10,398,423 | | | | — | % |
| | | 50,692 | | | | — | | | | 50,692 | | | | — | % |
Share-based compensation (6) | | | 2,059,223 | | | | — | | | | 2,059,223 | | | | — | % |
Change in fair value of contingent consideration (7) | | | 686,700 | | | | | | | | 686,700 | | | | — | % |
Change in fair value of derivative warrant liabilities (8) | | | 1,928,500 | | | | | | | | 1,928,500 | | | | — | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Variance |
| April 2, 2022 | | March 27, 2021 | | |
| | | $ | | % |
Net Income | $ | 19,704 | | | $ | 14,719 | | | $ | 4,985 | | | 33.9 | % |
Interest Expense | 8,775 | | | 8,126 | | | 649 | | | 8.0 | % |
Income Taxes | 6,607 | | | (155) | | | 6,762 | | | (4362.6) | % |
Depreciation of property and equipment | 1,857 | | | 1,473 | | | 384 | | | 26.1 | % |
Amortization | 7,225 | | | 6,832 | | | 393 | | | 5.7 | % |
EBITDA | $ | 44,168 | | | $ | 30,995 | | | $ | 13,173 | | | 42.5 | % |
Loss on extinguishment of debt(1) | — | | | 1,421 | | | (1,421) | | | (100.0) | % |
COVID-19 related expenses(2) | 109 | | 198 | | (89) | | | (45.1) | % |
Facility relocation(3) | 103 | | — | | 103 | | | — | % |
Acquisition Expense(4) | 287 | | | — | | 287 | | | — | % |
Adjusted EBITDA | $ | 44,667 | | | $ | 32,614 | | | $ | 12,053 | | | 37.0 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | |
| | $ | 15,842,028 | | | $ | 20,969,499 | | | $ | (5,127,471 | ) | | | (24.5 | )% |
| | | 15,601,797 | | | | 18,678,476 | | | | (3,076,679 | ) | | | (16.5 | )% |
| | | 2,738,389 | | | | 770,292 | | | | 1,968,097 | | | | 255.5 | % |
| | | 2,979,336 | | | | 2,832,701 | | | | 146,635 | | | | 5.2 | % |
| | | 13,622,957 | | | | 13,395,767 | | | | 227,190 | | | | 1.7 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | — | | | | 15,000 | | | | (15,000 | ) | | | (100.0 | )% |
Loss (gain) on extinguishment of debt (2) | | | 2,414,854 | | | | — | | | | 2,414,854 | | | | — | % |
COVID-19 related expenses (3) | | | 209,263 | | | | 265,738 | | | | (56,475 | ) | | | (21.3 | )% |
Transaction related expenses (4) | | | 10,398,423 | | | | — | | | | 10,398,423 | | | | — | % |
| | | 67,645 | | | | — | | | | 67,645 | | | | — | % |
Share-based compensation (6) | | | 2,059,223 | | | | | | | | 2,059,223 | | | | — | % |
Change in fair value of contingent consideration (7) | | | 686,700 | | | | | | | | 686,700 | | | | — | % |
Change in fair value of derivative warrant liabilities (8) | | | 1,928,500 | | | | | | | | 1,928,500 | | | | — | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) | Retainer fee paid to former BETCO owner, during the transition to a new President to run the business and relatedone-time-consulting
fee. |
(2) | Adjustment for loss (gain) on extinguishment of debt regarding the write off of unamortized fees and third-party fees as a result of the debt modification completed in February 2021 and the prepayment of debt in the amount of $61.6 million that occurred on June 7, 2021 in conjunction with the Business Combination. SeeLiquidity and Capital Resources section.
|
(3) | Expenses which areone-time
andnon-recurring
related to theCOVID-19
pandemic. See. |
(4) | Transaction related expenses incurred as a result of the Business Combination on June 7, 2021 which consist of employee bonuses and the transaction cost allocation.
|
(5) | Expenses related to the facility relocation for Steel Storage.
|
(6) | Share-based compensation expense associated with Midco, LLC Class B Common units that fully vested at the date of the Business Combination.
|
(7) | Adjustment related to the change in fair value of contingent consideration related to the earnout of the 2,000,000 common stock shares that were issued and released on June 21, 2021.
|
(8) | Adjustment related to the change in fair value of derivative warrant liabilities for the private placement warrants.
|
(1)Adjustment for loss on extinguishment of debt regarding the write off of unamortized fees and third-party fees as a result of the debt modification completed in February 2021.
(2)Expenses which are one-time and non-recurring related to the COVID-19 pandemic. (See Impact of COVID-19 section). (3)Expenses related to the facility relocation for ASTA.
43
(4)Expenses related to the transition services agreement for the DBCI acquisition which closed August 18, 2021.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, days sales outstanding, inventory turns, days payable outstanding, capital expenditure forecasts, interest and principal payments on debt and income tax payments.
Our primary sources of liquidity include cash balances on hand, cash flows from operations, proceeds from equity, debt offerings and borrowing availability under our existing credit facility. We believe our operating cash flows, includingalong with funds available under the line of credit, provide sufficient liquidity to support Janus’s liquidity and financing needs, which are working capital requirements, capital expenditures, service of indebtedness, as well as to finance acquisitions and pay distributions to members.acquisitions.
Our financial policy seeks to: (i) selectively invest in organic and inorganic growth to enhance our portfolio, including certain strategic capital investments;investments and (ii) return cash to shareholders through dividends and, (iii) maintain appropriate leverage by using free cash flows to repay outstanding borrowings.
We maintain a strong focus on liquidity and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidity position to meet our obligations under both normal and stressed conditions. At Janus, we manage our liquidity to provide access to sufficient funding to meet our business needs and financial obligations, as well as capital allocation and growth objectives, throughout business cycles.
Cash Management
Janus manages its operating cash management activities through banking relationships for the domestic entities and international entities. Domestic subsidiaries monitor cash balances on a monthly basis and excess cash is transferred to Janus to pay down intercompany debt, interest on the intercompany debt and intercompany sales of products and materials and other services. International subsidiaries monitor excess cash balances on a periodic basis and transfer excess cash flow to Janus in the form of a dividend. Janus compiles a monthly standalone business unit and consolidated
13-week
cash flow forecast to monitor various cash activities and forecast cash balances to fund operational activities.
Janus International Group, Inc.The Company was formed to consummate the business combination and act as a holding Companycompany of the Group,Janus Core, as such it owns no material assets and does not conduct any business operations of its own. As a result, Janus International Group, Inc.the Company is largely dependent upon cash dividends and distributions and other transfers from its subsidiaries to meet obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or make other distributions to us.
We have operations in various foreign countries, principally the United States, the United Kingdom, France, Australia, and Singapore. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.
In connection with the potential transition away from the use of the LIBOR as an interest rate benchmark, we are currently in the process of identifying and managing the potential impact to Janus. The majority of Janus’s exposure to LIBOR relates to the Amendment No. 34 1st Lien note payable which is discussed further below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal Amount | | Issuance Date | | Maturity Date | | Interest Rate | | Net Carrying Value |
| | | | | April 2, 2022 | | January 1, 2022 |
Notes Payable - Amendment No. 4 1st Lien | 726,413 | | | February 12, 2021 | | February 12, 2025 | | 4.25%1 | | 720,363 | | | 722,379 | |
Financing leases | | | | | | | | | 617 | | | — | |
Total principal debt | | | | | | | | | $ | 720,980 | | | $ | 722,379 | |
Less unamortized deferred finance fees | | | | | | | | | 9,743 | | | 10,594 | |
Less current portion of long-term debt | | | | | | | | | 8,215 | | | 8,067 | |
Long-term debt, net of current portion | | | | | | | | | $ | 703,022 | | | $ | 703,718 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | |
| | | | | | |
| | $ | 470,000,000/ | | |
| February 2018/ August 2019 | | |
| February 1, 2025 | | | | 4.75 | % 1 | | $ | — | | | $ | 562,363,000 | |
Notes Payable - 1st Lien B2 | | $ | 75,000,000/ | | | | March 1, 2019 | | |
| February 1, 2025 | | | | 5.50 | % 2 | | | — | | | | 73,875,000 | |
Notes Payable - Amendment No. 3 1st Lien | | $ | 634,607,146/ | | |
| February 1, 2021 | | |
| February 1, 2025 | | | | 4.25 | % 3 | | | 573,000,000 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | 573,000,000 | | | | 636,238,000 | |
Less unamortized deferred finance fees | | | | | | | | | |
| February 1, 2025 | | | | | | | | 9,079,684 | | | | 12,110,329 | |
Less: current portion of long-term debt | | | | | | | | | | | | | | | | | | | 6,346,071 | | | | 6,523,417 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt, net of current portion | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The interest rate on the 1st Lien term loan as of December 26, 2020, was 4.75%, which is a variable rate based on LIBOR, subject to a 1.00% floor, plus an applicable margin percent of 3.75%
|
(2) | The interest rate on the 1st Lien B2 term loan as of December 26, 2020, was 5.50%, which is a variable rate based on LIBOR, subject to a 1.00% floor, plus an applicable margin percent of 4.50%
|
(3) | The interest rate on the Amendment No. 3 1st Lien term loan as of June 26, 2021,(1)The interest rate on the Amendment No. 4 1st Lien term loan as of April 2, 2022, was 4.25%, which is a variable rate based on LIBOR, subject to a 1.00% floor, plus an applicable margin percent of 3.25%
|
Janus maintained one letter of credit totaling approximately $0.3 million and $0.3 million as of June 26, 2021 and December 26, 2020, respectively, on which there were no balances due. In addition, Janus maintained a line of credit totaling $50.0 million on which there was no balance outstanding as of June 26, 2021 and December 26, 2020.
In conjunction with the Business Combination with Juniper, Januspre-paid
approximately $61.6 million of existing 1st Lien Term Loan Debt upon the closing of the Transactions and the business becoming a public company. As a result of the prepayment a loss on extinguishment of debt of approximately $1.0 million was recognized. The loss is included in Other income (expense) on the Consolidated Statements of Operations and Comprehensive Income.On February 12, 2018, Janus was acquired by a private equity group. As a result of the acquisition, Janus originated a 1st Lien notes payable with a syndicate of lenders in the original amount of $470.0 million with interest payable in arrears. The interest rate on the facility was based on a Base Rate, unless a LIBOR Rate option was chosen by Janus. If the LIBOR Rate was elected, the interest computation was equal to the LIBOR Rate, subject to a 1.00% floor, plus the LIBOR Rate Margin. If the Base Rate was elected, the interest computation was equal to the Base Rate plus the Base Rate Margin. The outstanding loan balance was to be repaid on a quarterly basis of 0.25% of the original balance beginning the last day of June 2018 with the remaining principal due on the maturity date of February 12, 2025. The 1st Lien loan bore interest, as chosen by Janus, at a floating rate per annum consisting of the LIBOR, subject to a 1.00% floor, plus an applicable margin percent (total rate of 4.75% as3.25%
As of December 26, 2020).
April 2, 2022 and January 1, 2022, the Company maintained one letter of credit totaling approximately $0.4 million and $0.4 million, respectively, on which there were no balances due.
On August 9, 2019, the 1st Lien notes payable was amended to increase the notes payable by $106.0 million. Interest on the 1st lien was payable in arrears, and the interest rate on the facility was based on a Base Rate, unless a LIBOR Rate option was chosen by Janus. If the LIBOR Rate was elected, the interest computation was equal to the LIBOR Rate, subject to a 1.00% floor, plus the LIBOR Rate Margin. If the Base Rate was elected, the interest computation was equal to the Base Rate plus the Base Rate Margin. Previous to the amendment of the 1st Lien, the 1st Lien notes payable outstanding loan balance was to be repaid on a quarterly basis of 0.25% of the original balance beginning the last day of June 2018 with the remaining principal due on the maturity date of February 12, 2025. The 1st Lien loan bore interest, as chosen by Janus, at a floating rate per annum consisting of the London InterBank Offered Rate plus an applicable margin percent (total rate was 4.75% as of December 26, 2020).
On July 21, 2020, Janus repurchased approximately $2.0 million of principal amount of the 1st Lien at an approximate $0.3 million discount, resulting in a gain on the extinguishment of debt of approximately $0.3 million.
On March 1, 2019, the 1st Lien B2 notes payable was originated in the amount of $75.0 million comprised of a syndicate of lenders, with interest payable in arrears. The interest rate on the facility was based on a Base Rate, unless a LIBOR Rate option is chosen by Janus. If the LIBOR Rate was elected, the interest computation was equal to the LIBOR Rate, subject to a 1.00% floor, plus the LIBOR Rate Margin. If the Base Rate was elected, the interest computation was equal to the Base Rate plus the Base Rate Margin. The outstanding loan balance was to be repaid on a quarterly basis of 0.25% of the original balance beginning the last day of June 2019 with the remaining principal due on the maturity date of February 12, 2025. The 1st Lien B2 loan bore interest, as chosen by Janus, at a floating rate per annum consisting of the LIBOR plus an applicable margin percent (total rate of 5.50% as of December 26, 2020).
On February 5,18, 2021, the Company completed a repricingrefinancing of its First Lien Amendment No. 3, in which the principal terms of the amendment were a reduction in the overall interest rate based upon the loan type chosen, new borrowings of $155.0 million and a consolidation of the prior outstanding tranches into a single tranche of debt with the syndicate. The Amendment No.4 First Lien B2 Term Loans. The Amended debt is comprised of a syndicate of lenders originating on February 5,August 18, 2021 in the amount of $634.6$726.4 million with interest payable in arrears. The interest rate on the facility is based on a base rate, unless a LIBOR Rate option is chosen by the Company. If the LIBOR Rate is elected, the interest computation is equal to the LIBOR Rate plus the LIBOR Rate Margin. If the base rate is elected, the interest computation is equal to the base rate plus the base rate margin. The outstanding loan balance is to be repaid on a quarterly basis of 0.25% of the original balance beginning the last day of MarchSeptember 30, 2021 with the remaining principal due on the maturity date of February 12, 2025. As chosen by the Company, the Amendedamended loan bears interest at a floating rate per annum consisting of LIBOR, plus an applicable margin percent (total rate of 4.25% as of June 26, 2021)April 2, 2022). TheUnamortized debt is secured by substantially all business assets.issuance costs are approximately $9.7 million at April 2, 2022. This refinancing amendment was accounted for as modification of existing terms and as such no gain or loss was recognized for this transaction and any third party fees were expensed with bank fees, original issue discount and charges capitalized and are being amortized as a component of interest expense over the remaining loan term.
On February 12, 2018, Janus entered into a revolving line of credit facility with a domestic bank replacing the Predecessorpredecessor revolving line of credit. The line of credit facility is for $50.0 million with interest payments due in arrears that matures on February 12, 2023. The interest rate on the facility is based on a Base Rate, unless a LIBOR Rate option is chosen by Janus. If the LIBOR Rate is elected, the interest
computation is equal to the LIBOR Rate, subject to a 1.00% floor, plus the LIBOR Rate Margin. If the Base Rate is elected, the interest computation is equal to the Base Rate plus the Base Rate Margin. At the beginning of each quarter the applicable margin is set and determined by the administrative agent based on the average net availability on the line of credit for the previous quarter.
On August 18, 2021, the Company increased the available line of credit from $50.0 million to $80.0 million, incurred additional fees for this amendment of $0.4 million and extended the maturity date from February 12, 2023 to August 12, 2024. There was $0 and $6.4 million outstanding balance on the line of credit as of April 2, 2022 and January 1, 2022. As of June 26, 2021April 2, 2022 and December 26, 2020,January 1, 2022 the interest rate in effect for the facility was 3.50%3.8% and 3.50%3.5%, respectively. The line of credit is secured by accounts receivable and inventories.
The revolving line of credit facility 1st Lien note payable, 1st Lien B2 note payable, and Amendment No. 34 1st Lien note payable contain affirmative and negative covenants, including limitations on, subject to certain exceptions, the incurrence of indebtedness, the incurrence of liens, fundamental changes, dispositions, restricted payments, investments, transactions with affiliates as well as other covenants customary for financings of these types.
The line of credit facility also includes a financial covenant, applicable only when the excess availability is less than the greater of (i) 10% of the lesser of the aggregate commitments under the line of credit facility and the borrowing base, and (ii) $5.0 million. In such circumstances, we would be required to maintain a minimum fixed charge coverage ratio for the trailing four quarters equal to at least 1.0 to 1.0; subject to our ability to make an equity cure (no more than twice in any four quarter period and up to five times over the life of the facility). As of June 26, 2021,April 2, 2022, we were compliant with our covenants under the agreements governing our outstanding indebtedness.
Statement of cash flows
(dollar amounts in thousands)
The following tables presenttable presents a summary of cash flows from operating, investing and financing activities for the following comparative periods. For additional detail, please see the Consolidated Statements of Cash Flows in the Unaudited Consolidated Financial Statements.
Six month periodThree months ended June 26, 2021April 2, 2022 compared to Periodthe three months ended JuneMarch 27, 2020:
2021: | | | | | | | | | | | | | | | | | | | | | | | |
| April 2, 2022 | | March 27, 2021 | | Variance |
| | | $ | | % |
Net cash provided by operating activities | $ | 24,777 | | | $ | 25,560 | | | $ | (783) | | | (3.1) | % |
Net cash used in investing activities | (2,880) | | | (3,873) | | | 993 | | | (25.6) | % |
Net cash used in financing activities | (8,405) | | | (2,492) | | | (5,913) | | | 237.3 | % |
Effect of foreign currency rate changes on cash | (58) | | | 54 | | | (112) | | | (207.4) | % |
Net increase in cash and cash equivalents | $ | 13,434 | | | $ | 19,249 | | | $ | (5,815) | | | (30.2) | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | |
Net cash provided by (used in) operating activities | | $ | 44,822,882 | | | $ | 50,534,000 | | | $ | (5,711,118 | ) | | | (11.3 | )% |
Net cash provided by (used in) investing activities | | | (5,478,081 | ) | | | (8,388,248 | ) | | | 2,910,167 | | | | (34.7 | )% |
Net cash provided by (used in) financing activities | | | (69,502,870 | ) | | | (4,545,675 | ) | | | (64,957,195 | ) | | | 1429.0 | % |
Effect of foreign currency rate changes on cash | | | 191,035 | | | | (1,091,444 | ) | | | 1,282,479 | | | | (117.5 | )% |
| | | | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities
Net cash provided by operating activities
decreasedincreased by
$5.7$0.8 million to
$44.8$24.8 million for the
periodthree months ended
June 26, 2021April 2, 2022 compared to
$50.5$25.6 million for the
periodthree months ended
JuneMarch 27,
2020.2021. This was primarily due to an increase of
$1.3$7.2 million to net income adjusted for
non-cash
items and an investment in net working capital of
$4.3$10.5 million to continue to support revenue growth, which was driven by a
$0.4$1.3 million
deteriorationincrease in prepaid and other current assets,
$10.4$2.7 million
deteriorationincrease in inventory to ensure supply to our plants in the current raw material constrained environment
and a $20.5coupled with raw material inflation, $18.8 million
deteriorationincrease in accounts receivable and deferred revenue
offset byas a
$15.0result of increased sales volume and commercial initiatives, $4.7 million
improvementincrease in accounts payable, and a
$12.0$7.6 million
improvementincrease in other accrued expenses. Additionally, there was a
$2.8$2.5 million
deteriorationimprovement in other assets and long-term liabilities.
Net cash used in investing activities
Net cash used in investing activities increaseddecreased by $2.9$1.0 million for the periodthree months ended June 26, 2021April 2, 2022 as compared to the periodthree months ended JuneMarch 27, 2020.2021. This decrease was driven primarily by the acquisition of Steel Storage in January of 2020G&M Stor-More Pty Ltd. with net payment of $4.6 million as compared with thea net payment of $1.6 million forin the G&M Stor-More Pty Ltd. acquisition made in Januaryfirst quarter of 2021 which was partially offset by a slight$0.6 million increase in capital expenditures for the periodthree months ended June 26, 2021April 2, 2022 as compared with the periodthree months ended JuneMarch 27, 2020 to continue to support our strategic growth initiatives.2021.
Net cash used in financing activities
Net cash used in financing activities decreasedincreased by $65.0$5.9 million for the periodthree months ended June 26, 2021April 2, 2022 as compared to the periodthree months ended JuneMarch 27, 2020.2021. This increase was driven primarily by ana $6.4 million pay down on the line of credit and $0.4 increase of $59.0 million in principal payments of long-termlong term debt which was offset by a decrease of $0.8 million in deferred financing fees and a $3.8$0.1 million increase in netof distributions paid to members. The increaseMidco unitholders in the principal paymentsfirst quarter of long-term debt was primarily attributed to the prepayment of approximately $61.6 million of existing 1st Lien Term Loan Debt upon the closing of the Business Combination and the business becoming a public company. As a result of the business combination, the Company received $334.9 million related to proceeds from the merger and $250.0 million in proceeds from PIPE. In addition, the Company paid $541.7 million to Midco, LLC unitholders and $44.5 million in transaction costs.2021.
Capital allocation strategy
We continually assess our capital allocation strategy, including decisions relating to M&A,
dividends, stock repurchases, capital expenditures, and debt
pay-downs.
The timing, declaration and payment of future dividends, falls within the discretion of the Janus’s Board of Directors and will depend upon
many factors, including, but not limited to, Janus’s financial condition and earnings, the capital requirements of the business, restrictions imposed by applicable law, and any other factors the Board of Directors deems relevant from time to time.
Contractual Obligations
(dollar amounts in thousands)
Summarized below are our approximate contractual obligations as of June 26, 2021April 2, 2022 and their expected impact on our liquidity and cash flows in future periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Less than 1 year | | 1-3 years | | 3-5 years | | Thereafter |
Long Term Debt Obligations | $ | 720,980 | | | $ | 6,170 | | | $ | 14,435 | | | $ | 700,353 | | | $ | 22 | |
| | | | | | | | | |
Long Term Supply Contracts (1) | 38,343 | | | 38,343 | | | — | | | — | | | — | |
Other Long Term Liabilities (2) | 60,509 | | | 5,578 | | | 13,024 | | | 10,946 | | | 30,961 | |
Total | $ | 819,832 | | | $ | 50,091 | | | $ | 27,459 | | | $ | 711,299 | | | $ | 30,983 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Long Term Debt Obligations | | $ | 573,000,000 | | | $ | 4,759,554 | | | $ | 12,692,142 | | | $ | 555,548,304 | | | $ | — | |
| | | 39,224,549 | | | | 5,045,411 | | | | 8,516,489 | | | | 6,683,624 | | | | 18,979,025 | |
Long Term Supply Contracts (1) | | | 792,692 | | | | 792,692 | | | | — | | | | — | | | | — | |
Other Long Term Liabilities (2) | | | 2,885,874 | | | | 179,023 | | | | 1,347,933 | | | | 209,040 | | | | 1,149,878 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 615,903,115 | | | $ | 10,776,680 | | | $ | 22,556,564 | | | $ | 562,440,968 | | | $ | 20,128,903 | |
| | | | | | | | | | | | | | | | | | | | |
(1)Long Term Supply Contracts relate to the multiple fixed price agreements.
(1) | Long Term Supply Contracts relate to the multiple fixed price agreements.
|
(2) | Other Long-Term Liabilities primarily consists of FICA deferral under the CARES Act due in1-3
years and additional deferred leasing obligations. |
(2)Other Long-Term Liabilities relate to operating lease liabilities and $0.1 million of contingent consideration related to the ACT acquisition.
Long-Term Debt Obligations is comprised of an Amendment No 4 First Lien Term Loan (see Note 8 to our Unaudited Consolidated Financial Statements for a further discussion) that expires on February 12, 2025. The Company’s intention is to amend and extend or refinance this loan well in advance of the current maturity date. In addition, the Company has finance lease liabilities included in long-term debt.
Other Long Term Liabilities consist of operating lease liabilities for real and personal property leases with various lease expiration dates (see Note 14 to our Unaudited Consolidated Financial Statements for a further discussion) and $0.9 million of contingent consideration related to the ACT acquisition. The amount listed in the thereafter category is primarily comprised of five real property leases with expiration dates ranging from 2026 – 2036.
The table above does not include warranty liabilities because it is not certain when this liability will be funded and because this liability is considered immaterial.
In addition to the contractual obligations and commitments listed and described above, Janus also had another commitment for which it is contingently liable as of June 26, 2021April 2, 2022 and January 1, 2022 consisting of an outstanding letter of credit of $0.3$0.4 million.
Off-Balance
Sheet Arrangements
As of
June 26, 2021,April 2, 2022, we did not have any
off-balance
sheet arrangements that are material or reasonably likely to be material to our financial condition or results of operations.
Related Party Transactions
Jupiter Intermediate Holdco, LLC, on behalf of the Janus Core has entered into a Management and Monitoring Services Agreement (MMSA) with the Class A Preferred Unit holders group. Janus Core paid management fees to the Class A Preferred Unit holders group for the three and six months ended June 26, 2021 and June 27, 2020 of approximately $1,124,000 and $1,763,000 and $3,739,000 and $3,692,000, respectively. Approximately $869,000 of the Class A Preferred Unit holders group management fees were accrued and unpaid as of December 26, 2020 and no fees were accrued and unpaid as of June 26, 2021. As a result of the Business Combination the MMSA was terminated effective June 7, 2021.
As of June 27, 2020, there were related party sales of approximately $1,000 from the Company to its Mexican Joint Venture and no related party sales as of June 26, 2021. For the three months ended June 26, 2021 and June 27, 2020 there were no related party sales to the Mexican Joint Venture.
Janus Core leases a manufacturing facility in Butler, Indiana, from Janus Butler, LLC, an entity wholly owned by a member of the board of directors of Group. Rent payments paid to Janus Butler, LLC for the three and six months ended June 26, 2021 and June 27, 2020, were approximately $37,000 and $36,000 and $86,000 and $73,000, respectively. The lease extends through July 31, 2021, with monthly payments of approximately $12,000 with an annual escalation of 1.5%.
Janus Core is a party to a lease agreement with 134 Janus International, LLC, an entity majority owned by a member of the board of directors of Group. Rent payments paid to 134 Janus International, LLC in the three and six months ended June 26, 2021 and June 27, 2020, were approximately $114,000 and $112,000 and $229,000 and $223,000, respectively. The lease extends through September 30, 2021, with monthly payments of approximately $38,000 per month with an annual escalation of 2.5%.
The Group leases a distribution center in Fayetteville, Georgia from French Real Estate Investments, LLC, an entity partially owned by a shareholder of the Group. Rent payments paid to French Real Estate Investments, LLC for the three and six months ended June 26, 2021 and June 27, 2020, were approximately $26,000 and $26,000 and $53,000 and $53,000, respectively. The lease extends through July 31, 2022, with monthly payments of approximately $9,000 per month. The Group additionally acquired a lease agreement with ASTA Investment, LLC, for a manufacturing facility in Cartersville, Georgia an entity partially owned by a shareholder of the Company. The original lease term began on April 1, 2018 and extended through March 31, 2028 and was amended in June 2020 to extend the term until March 1, 2030, with monthly lease payments of $66,000 per month with an annual escalation of 2.0%. Rent payments to ASTA Investment, LLC for the three and six months ended June 26, 2021 and June 27, 2020, were approximately $199,000 and $197,000 and $397,000 and $346,000, respectively..
See Note 12 – “Related Party Transactions” in the accompanying interimto our Unaudited Consolidated Financial Statements respectively.
for a discussion of related party transactions.See Note 19 to our Unaudited Consolidated Financial Statements for a discussion of subsequent events.
For the quarterly consolidated financial statements as of June 26, 2021, Janus has evaluated subsequent events through the financial statements issuance date.
On July 27, 2021, the Company announced that it has signed a definitive agreement to acquire DBCI, a manufacturer of steel roll-up doors and building products for both the commercial and self-storage industries and a part of Cornerstone Building Brands (NYSE: CNR). The acquisition broadens Janus’s customer set by gaining direct access to DBCI’s core general contractor and distributor base and provides an opportunity to deliver more comprehensive, value-added solutions for DBCI’s customers from Janus.
Critical Accounting Policies and Estimates
For the critical Accounting Policies and Estimates used in preparing Janus’s unaudited consolidated financial statements, Janus makes assumptions, judgments and estimates that can have a significant impact on its revenue, results from operations and net income, as well as on the value of certain assets and liabilities on its consolidated balance sheets. Janus bases its assumptions, judgments and estimates on historical experience and various other factors that Janus believes to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP. To prepare these financial statements, Janus makes estimates, assumptions, and judgments that affect what Janus reports as its assets and liabilities, what Janus discloses as contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenues and expenses during the periods presented.
In accordance with Janus’s policies, Janus regularly evaluates its estimates, assumptions, and judgments, including, but not limited to, those concerning revenue recognition, inventory, accounts receivable, depreciation and amortization, contingencies, goodwill and other long
lived asset impairment, unit-based compensation, derivative warrant liability, contingent consideration, and income taxes, and bases its estimates, assumptions, and judgments on its historical experience and on factors Janus believes reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. If Janus’s assumptions or conditions change, the actual results Janus reports may differ from these estimates. Janus believes the following critical accounting policies affect the more significant estimates, assumptions, and judgments Janus uses to prepare these consolidated financial statements.
Emerging Growth Company Status
Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the FASB or the SEC either (i) within the same periods as those otherwise applicable to
non-emerging
growth companies or (ii) within the same time periods as private companies. Janus qualifies as an emerging growth company. Janus intends to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies.
Under ASC 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Our performance obligations include material, installation, and software support fees for the Nokē Smart Entry solution. Material revenue is recognized at a point in time when the product is transferred to the customer which is at the time of a customer pickup or when the delivery of the material to the customer takes place. Installation services are a separate single performance obligation and revenue is recognized over time based upon appropriate input measures. Revenue for software support fees is recognized over time for the period the software support revenue covers. For contracts with multiple performance obligations, the standalone selling price is readily observable. Our revenues are generated from contracts with customers and the nature, timing, and any uncertainty in the recognition of revenues is not affected by the type of good, service, customer or geographical region to which the performance obligation relates. Payment terms are short-term, are customary for our industry and in some cases, early payment incentives are offered.
Contract assets are disclosed as costs and estimated earnings in excess of billings on uncompleted contracts, and contract liabilities are disclosed as billings in excess of costs and estimated earnings on uncompleted contracts in the consolidated balance sheet.
Contracts that include installation are billed via payment requests (normally The American Institute of Architects (AIA) standard construction documents) instead of Company-generated invoices. The pay requests will often be submitted during the month following the period in which the revenues have been recognized, resulting in unbilled accounts receivable (costs and estimated earnings in excess of billings on uncompleted contracts) at the end of any given period. Accounts receivable also include any retention receivable under contracts.
Janus elected to apply an accounting policy election which permits an entity to account for shipping and handling activities as fulfillment activities rather than a promised good or service when the activities are performed, even if those activities are performed after the control of the good has been transferred to the customer. Therefore, Janus expenses shipping and handling costs at the time revenue is recognized. Janus classifies shipping and handling expenses in Cost of Sales in the Consolidated Statements of Operations and Comprehensive Income.
Janus elected a practical expedient which allows an entity to recognize the promised amount of consideration without adjusting for the time value of money if the contract has a duration of one year or less, or if the reason the contract extended beyond one year is because the timing of delivery of the product is at the customer’s discretion. Janus’s contracts typically are less than one year in length and do not have significant financing components.
Janus has not experienced significant returns, price concessions or discounts to give rise to any portfolio having variable consideration. Based on this, Janus has concluded the returns, discounts and concessions are not substantive and do not materially impact the adoption and continued application of ASC 606.
Allowance for doubtfulcredit losses
On January 2, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (“CECL”), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. The Company selected the loss-rate method to be used in the CECL analysis for trade receivables and contract assets.
The Company determined that pooling accounts
Based upon review receivable by business units was the most appropriate because of the outstandingsimilarity of risk characteristics within each line such as customers and services offered. Historical losses and customer-specific reserve information that are used to calculate the historical loss rates are available for each business unit. During the pooling process, the Company identified two
distinct customer types: commercial and self-storage. As these customer types have different risk characteristics, the Company concludes to pool the financial assets at this level within each business unit.
Commercial customers typically are customers contracting with the Company on short-term projects with smaller credit limits and overall, smaller project sizes. Due to the short-term nature and smaller scale of these types of projects, the Company expects minimal write-offs of its receivables historical collection informationat the Commercial pool.
Self-storage projects typically involve general contractors and existing economic conditions, Janus has established anmake up the largest portion of the Company’s accounts receivable balance. These projects are usually longer-term construction projects and billed over the course of construction. Credit limits are larger for these projects given the overall project size and duration. Due to the longer-term nature and larger scale of these types of projects, the Company expects a potential for more write-offs of its receivable balances within the Self-Storage pool.
See Note 2 to our Unaudited Consolidated Financial Statements for further discussion of allowance for doubtful accounts and other returns not yet processed. Janus has incorporated a general and specific reserve component which are reviewed and updated monthly. Janus does not typically charge interest on past due accounts.
credit losses.
Inventory is costed based on management estimates associated with material costs and allocations of certain labor and overhead cost pools for which a portion is ultimately captured within inventory costs. Inventories are measured using the
first-in,
first-out
(FIFO) method. Labor and overhead costs associated with inventory produced by Janus are capitalized. Inventories are stated at the lower of cost or net realizable value.
Janus maintains a reserve with general and specific components for inventory obsolescence. The general component of the reserve is updated monthly whereas the specific component is adjusted on a periodic basis to ensure that all slow moving and obsolete inventory items are appropriately accrued for. At the end of each quarter, management within each business entity, performs a detailed review of its inventory on an item by item basis and identifies which products are believed to be obsolete, excess or slow moving. Management assesses the need for and the amount of any obsolescence write-down based on customer demand for the item, the quantity of the item on hand and the length of time the item has been in inventory.
Property and equipment acquired in business combinations are recorded at fair value, when material, as of the acquisition date and are subsequently stated less accumulated depreciation. Property and equipment otherwise acquired are stated at cost less accumulated depreciation. Depreciation is charged to expense on the straight-line basis over the estimated useful life of each asset. Leasehold Improvements are amortized over the shorter of the lease term or their respective useful lives. Maintenance and repairs are charged to expense as incurred.
The estimated useful lives for each major depreciable classification of property and equipment are as follows:
| | | | | |
Manufacturing machinery and equipment | | 3-7 years |
Office furniture and equipment | | 3-7 years |
Vehicles | | 3-5 years |
Leasehold improvements | | Over the shorter of the lease term or respective useful life |
Janus reviews goodwill for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that its more likely than not that the goodwill may be impaired. If such circumstances or conditions exist, management applies the
twoone step process under
ASC350-20;
first,ASU 2017-04, the Company compares the fair value of the reporting unit with its carrying
amount. The Company recognizes a goodwill impairment charge for the amount
and second, ifby which the
fair value of the reporting is less than its carrying amount
the Company compares the implied fair value ofexceeds the reporting unit’s
goodwill with its carrying amount and records an impairment charge to the extent the carrying amount of the goodwill exceeds its implied fair
value.value We evaluate goodwill at the reporting unit level (operating segment or one level below an operating segment).
Janus measures the fair value of the reporting units to which goodwill is allocated using an income based approach, a generally accepted valuation methodology, using relevant data available through and as of the impairment testing date. Under the income approach, fair value is determined using a discounted cash flow method, projecting future cash flows of each reporting unit, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows. The key estimates and factors used in this approach include, but are not limited to, revenue growth rates and profit margins based on internal forecasts, a weighted average cost of capital used to discount future cash flows, and a review with comparable market multiples for the industry segment as well as our historical operating trends, all of which are subject to uncertainty. Future adverse developments relating to such matters as the growth in the market for our reporting units, competition, general economic conditions, and the market appeal of products or anticipated profit margins could reduce the fair value of the reporting units and could result in an impairment of goodwill in the reporting unit.
Intangible Assets
Fair values assigned to the definite life intangible assets, consisting of customer relationships, noncompete agreements, backlog and other intangibles (i.e., software) are amortized on the straight-line basis over estimated useful lives less than 15 years. Such assets are periodically evaluated as to the recoverability of their carrying values. In determining the impairment of intangible assets, management considers an analysis under ASC
If an intangible asset is tested for recoverability and the undiscounted estimated future cash flows to which the asset relates is less than the carrying amount of the asset, the asset costs is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of the intangible asset exceeds its fair value.
Trade names and trademarks have been identified as indefinite-lived intangible assets and are not amortized, but instead are tested for impairment annually or when indicators of impairment exist.
The estimated useful lives for each major classification of intangible asset are as follows:
| | | | | |
| | Indefinite |
| | 10-15 years |
| | 3-8 years |
| | 10 years |
| | Less than 1 year |
Significant judgment is also required in assigning the respective useful lives of intangible assets. Our assessment of intangible assets that have a finite life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, churn rate, operating plans, cash flows (i.e., economic life based on the discounted and undiscounted cash flows), future usage of intangible assets, and the macroeconomic environment. The costs of finite-lived intangible assets are amortized to expense over the estimated useful life.
Potential changes in the underlying judgments, assumptions, and estimates used in our valuations of acquired intangible assets could result in different estimates of the future fair values. A potential increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.
The approaches used for determining the fair value of the trade names, customer relationships,
non-compete
agreements, and other intangibles acquired depends on the circumstances and can include the following:
•The income approach (within the income approach, various methods are available such as multi-period excess earnings, with and without, incremental and relief from royalty methods). •In each method, a tax amortization benefit is included, which represents the tax benefit resulting from the amortization of that intangible asset depending on the tax jurisdiction where the intangible asset is held. •The cost approach – this approach estimates the cost to recreate the intangible assets and is used when cash flows about the intangible asset are not easily available. Long-Lived Asset Impairment
Janus evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows to which the asset relates is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No such charges were recognized during the periods presented.
Using a discounted cash flow method involves significant judgment and requires Janus to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Judgments are based on historical experience, current market trends, consultations with external valuation specialists and other information. If facts and circumstances change, the use of different estimates and assumptions could result in a materially different outcome. Janus generally develops these forecasts based on recent sales data for existing products, acquisitions, and estimated future growth of the market in which Janus operates.
Prior to June 7, 2021, the Company was a limited liability company taxed as a partnership for U.S. federal income tax purposes. The Company was generally not directly subject to income taxes under the provisions of the Internal Revenue Code and most applicable state laws. Therefore, taxable income or loss was reported to the members for inclusion in their respective tax returns.
After June 7, 2021, the Group is taxed as a Corporation for U.S. income tax purposes and similar sections of the state income tax
laws .laws. The Group’s effective tax rate is based on
pre-tax
earnings, enacted U.S. statutory tax rates,
non-deductible
expenses, and certain tax rate differences between U.S. and foreign jurisdictions. The foreign subsidiaries file income tax returns in the United Kingdom, France, Australia, and Singapore as necessary. For tax reporting purposes, the taxable income or loss with respect to the 45% ownership in the joint venture operating in Mexico will be reflected in the income tax returns filed under that country’s jurisdiction. The Group’s provision for income taxes consists of provisions for federal, state, and foreign income taxes.
The provision for income taxes for the three and six months ended June 26,April 2, 2022 and March 27, 2021 and June 27, 2020 includes amounts related to entities within the group taxed as corporations in the United States, United Kingdom, France, Australia, and Singapore. The Company determines its provision for income taxes for interim periods using an estimate of its annual effective tax rate on year to date ordinary income and records any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs. Additionally, the income tax effects of significant unusual or infrequently occurring items are recognized entirely within the interim period in which the event occurs.
Management of Janus is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes federal and certain states. Based on Janus’sJanus’ evaluation, Janus has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. Tax penalties and interest, if any, would be accrued as incurred and would be classified as tax expense on the consolidated statements of operations.
Janus recognizes accrued interest associated with uncertain tax positions as part of interest expense and penalties associated with uncertain tax positions as part of other expenses.
Business combinationsCombinations
Under the acquisition method of accounting, Janus recognizes tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. Janus records the excess of the fair value of the purchase consideration, plus fair value of noncontrolling interest, plus fair value of preexisting interest in the acquiree over the value of the net assets acquired as goodwill. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets and the fair value of contingent payment obligations. Janus uses a variety of information sources to determine the value of acquired assets and liabilities including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories,inventories; and legal counsel or other advisors to assess the obligations associated with legal, environmental or other claims. Critical estimates in valuing customer relationships, noncompete agreements, trademarks and tradenames, and other intangible assets (e.g., backlog, software, and technology) acquired, include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.
We record contingent consideration resulting from a business combination at its fair value on the acquisition date. We generally determine the fair value of the contingent consideration using the Monte Carlo simulation, and Probability-Weighted Payment method. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating expenses within the Consolidated Statements of Operations and Comprehensive Income. Changes in the fair value of the contingent consideration can result from changes in assumed discount periods and rates, and from changes pertaining to the achievement of the defined milestones. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period.
Equity Incentive Plan and Unit Option Plan
2021 EquityOmnibus Incentive Plan
Effective June 7, 2021,
the Group implemented an equity incentive program designed to enhance the profitability and value of its investment for the benefit of its
shareholdersstockholders by enabling
the Group to offer eligible directors, officers and employees equity-based incentives in order to attract, retain and reward such individuals and strengthen the mutuality of interest between such individuals and the Group’s
shareholders. As of June 26, 2021 no awards were granted to any individualsstockholders.The Company measures compensation expense for restricted stock units (“RSUs”) issued under the Plan.2021 Omnibus Incentive Plan (the “Plan”) in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). Stock-based compensation is measured at fair value on the grant date and recognized as compensation expense over the requisite service period. The Company records compensation cost for these awards using the straight-line method. Forfeitures are recognized as they occur.
2018 Equity Incentive Plan
After being acquired by CCG on February 12, 2018, Intermediate implemented a new equity incentive program (the “2018 Plan”) on March 15, 2018 designed to enhance the profitability and value of its investment for the benefit of its members by enabling Janus to offer eligible individuals equity-based incentives in order to attract, retain and reward such individuals and strengthen the mutuality of interest between such individuals and the Parent’s members. Under the 2018 Plan, incentive units are issued in the form of Class B Common Unit awards that are subject to either service condition (the “Time Vesting Units”) or market and implied performance vesting conditions (the “Performance Vesting Units”). Implied performance condition, which is a liquidity event such as an IPO or change in control, exists as the achievement of the market condition is only likely upon the occurrence of such liquidity events. Janus measures and recognizes compensation
expense for all incentive units granted based on the estimated fair values on the date of grant. The compensation expense is recognized on a straight-line basis over the requisite service period for Time Vesting Units while compensation expense for Performance Vesting Units are not recognized until the implied performance condition is achieved. If the market condition is not yet achieved at the time that performance condition is achieved, the proportionate amount of compensation expense recognized on a straight-line basis over the derived service period will be recognized and the remaining compensation cost will be recognized on a straight-line basis over the remaining derived service period regardless of whether the market condition is ultimately achieved. Forfeitures are recognized as they occur.
For Time Vesting Units granted in fiscal 2018, Janus used a market approach, specifically the subject company transaction method (the
“Backsolve”“Black-Scholes” method), weighted on the probability of Janus’s Performance Vesting Units achieving the vesting conditions to estimate the fair value of Janus’s equity. Monte Carlo simulations were used to determine the probability. The
BacksolveBlack-Scholes method was used since it is based on the terms of the then-recent acquisition of Janus by CCG in February 2018, representing the most reliable indication of value. The Black-Scholes option pricing model (“BSOPM”) was used to allocate the equity value to different classes of equity, with inputs for unit value of Janus, term to exit, risk-free rate, expected volatility, and exercise price. For Performance Vesting Units granted in fiscal 2018, Janus used a combination of probability analysis and Monte Carlo Simulation to estimate the fair value with inputs for Janus’s equity value, risk-free rate, expected volatility, expected tax and
non-tax
distributions, probability of merger and acquisition, expected term of the awards, and expected timing of achieving the vesting conditions. Discount for lack of marketability was applied in the valuation of all grants.
For Time Vesting Units granted in fiscal 2019 and fiscal 2020, Janus used a combination of the income and market approach, guideline public company method and comparable transaction method equally to estimate the fair value of Janus’s equity. Key inputs and assumptions to the valuation include income tax rate estimate, revenue, capital expenditure, change in net working capital, operating expense, and depreciation forecasts. BSOPM was used to allocate the equity value to different classes of equity, with inputs for unit value of Janus, term to exit, risk-free rate, expected volatility, and exercise price. For Performance Vesting Units granted in fiscal 2019 and fiscal 2020, Janus used a combination of probability analysis and Monte Carlo Simulation to estimate the fair value with inputs for Janus’s equity value, risk-free rate, expected volatility, expected tax and
non-tax
distribution, probability of merger and acquisition, expected term of the award, and expected timing of achieving the vesting condition. Discount for lack of marketability was applied in the valuation of all grants.
The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different. See Note 10,9, “Equity Incentive Plan and Unit Option Plan,” of the accompanying unaudited consolidated financial statements for more information. Effective June 7, 2021 this plan was terminated as a result of the Business Combination transaction closing.
Recently Issued Accounting Standards
In June 2016, the FASBSee Note 2 to our Unaudited Consolidated Financial Statements for a discussion of recently issued
ASU2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU2016-13,
as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years beginning after December 15, 2022 and
for interim periods within those fiscal years. The Company is currently evaluating the impact of this standard to the consolidated financial statements.In January 2017, the FASB issued ASU2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update removes Step 2 of the goodwill impairment test under current guidance, which requires a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Upon adoption, the guidance is to be applied prospectively. ASU2017-04
is effective for Emerging Growth Companies in fiscal years beginning after December 15, 2021, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of the adoption of ASU2017-04
on the consolidated financial statements and does not expect a significant impact of the standard on the consolidated financial statement.In March 2020, the FASB issued ASUNo. 2020-04,
Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying generally acceptedadopted accounting
principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is effective for all entities as of March 12, 2020, and will apply through December 31, 2022. Janus is currently evaluating the impact this adoption will have on Janus’s consolidated financial statements. pronouncements.
In June 2020, the FASB issued ASU2020-05,
which deferred the effective date for ASC 842, Leases, for one year. For private companies, the leasing standard will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption would continue to be allowed. The Company is evaluating the impact the standard will have on the consolidated financial statements; however, the standard is expected to have a material impact on the consolidated financial statements due to the recognition of additional assets and liabilities for operating leases.In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update2020-06,
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes. The standard will be effective for Janus beginning February 7, 2022 and can be applied on either a fully retrospective or modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2020. Janus is currently evaluating the impact of this standard on Janus’s consolidated financial statements.
| Quantitative and Qualitative Disclosures About Market Risk
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Foreign currency exposures
We areJanus is exposed to foreign currency exchange risk related to currency translation exposure because the operations of
ourits subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates; particularly, the United Kingdom and Australia. Any currency balances that are denominated in currencies other than the functional currency of the subsidiary are
re-measured
into the functional currency, with the resulting gain or loss recorded in
the other income (expense) in
ourJanus’ income statement. In turn, subsidiary income statement balances that
are denominated inuse functional currencies other than the U.S. dollar are translated into U.S. dollars
our functional currency, in consolidation using the average exchange rate in effect during each fiscal month during the period, with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income (loss). The assets and liabilities of subsidiaries that use functional currencies other than the U.S. dollar are translated into U.S. dollars in consolidation using period end exchange rates, with the effects of foreign currency translation adjustments included in accumulated other comprehensive income (loss).
We seekJanus seeks to naturally hedge ourits foreign exchange transaction exposure by matching the transaction currencies for ourits cash inflows and outflows and maintaining access to credit in the principal currencies in which we conductit conducts business. We doJanus does not currently use hedging instruments to hedge our foreign exchange transaction or translation exposure but may consider doing so in the future.
Other comprehensive income (loss) includes foreign currency translation adjustments.
Commodity/raw material price exposures and concentration of supplier risk
OurJanus’s biggest commodity group spend is steel coils, which is subject to price volatility due to external factors, and comprises approximately,
66.7%, 65.4%63.3% and
61.3%60.7% of commodity spend,
on a consolidated level for
the Combined 2018 Predecessor Period and Successor Period, the fiscal year ended December 28, 2019 and the fiscal year ended December 26, 2020, respectively. For the period ended
June 26, 2021April 2, 2022 and period ended
JuneMarch 27,
2020, steel coils comprised approximately, 61.5% and 62.4% of commodity spend,2021, respectively. Historically, exposures associated with these costs were primarily managed through terms of the sales and by maintaining relationships with multiple vendors. Prices for spot market purchases were negotiated on a continuous basis in line with the market at the time. Other than short term supply contracts and occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an
as-needed
basis. In early 2020
weJanus entered into multiple fixed price agreements to combat fluctuations in the price of steel locking in prices and will continue to do so in the future. These fixed price agreements expect to cover
35%30.5% of estimated steel purchases for fiscal year end
2021.2022. We have not entered into hedges with respect to our raw material costs at this time, but we may choose to enter into such hedges in the future.
Interest rate exposure
OurAs indicated in Note 8 of Janus’ unaudited consolidated financial statements, Janus’ outstanding borrowing under ourits credit facilitiesfacility includes the Amendment No. 3 to4 1st Lien term loan for $634.6 million.$721.0 million as of April 2, 2022. These borrowings accrue interest at our option of (i) a LIBOR rate, subject to a 1.00% floor, plus the applicable margin or (ii) a base rate (i.e., prime rate or federal funds rate) plus the applicable margin.
We also haveIn addition, Janus has a $50$80 million credit facility. For the three months ended April 2, 2022 and January 1, 2022, there is $0 and $6.4 million outstanding under this facility, which has no outstanding balance as of June 26, 2021, thatrespectively. The facility accrues interest at our option of (i) a LIBOR rate plus the applicable margin or (ii) a base rate plus the applicable margin.
At April 2, 2022 and January 1, 2022, the interest rate was 3.8% and 3.5%, respectively.We experienceJanus experiences risk related to fluctuations in the LIBOR rate and base rate at any given time. The interest rate onAs of April 2, 2022 and January 1, 2022, the Amendment No. 3 to 1st Lien term loan was the LIBOR rate plus 3.25% on June 26, 2021.
4 debt carried a total interest of 4.25%, respectively.
Taking into account the LIBOR floor of 1.0%, a hypothetical increase or decrease in 100 basis points of the LIBOR rate on the amounts outstanding under the Amendment No. 34 to 1st Lien term loan as of June 26, 2021,April 2, 2022, would have led to an approximate $0.8$1.8 million increase and no decreasechange in the interest expense of the Amendment No. 34 to 1st Lien term loan.loan on an annual basis. Historically, our management entered into interest rate hedges, but has not done so within the periods presented. Management would consider using such mitigating strategy in the future to combat potential exposure.
As of June 26, 2021,April 2, 2022 and January 1, 2022, our cash and cash equivalents were maintained at major financial institutions in the United States, Europe, Singapore, and Australia, and our current deposits are likely in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us.
Our accounts receivable primarily relate to revenue from the sale of products and services to established customers. To mitigate credit risk, ongoing credit evaluations of customers’ financial condition are performed, deposits are required for select customers, and lien rights on any jobs in which we provideJanus provides subcontracted installation services are available. As of June 26, 2021, ourApril 2, 2022 and January 1, 2022, Janus’ top 10 customers represented less than 30%20% and 25% of our gross trade accounts receivable.
receivable, respectively.Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of
April 2, 2022, the end of the period covered by this Quarterly Report on Form
10-Q.
The term “disclosure controls and procedures,” as defined in Rules 13a15(e) and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the
company’sCompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of
the end of the period covered by this Quarterly Report on Form10-Q,
April 2, 2022, our Chief Executive Officer and Chief Financial Officer concluded that
as of such date, our disclosure controls and procedures were
effective at the reasonable assurance level.Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule13a-15(d)
or15d-15(d)
of the Exchange Act during the period covered by this Quarterly Report on Form10-Q,
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not
experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotelyeffective due to the
COVID-19
outbreak. We are continually monitoring and assessing existence of the
COVID-19
situation and our internal controls to minimize any impact on their design and operating effectiveness. material weaknesses described below.
Remediation Efforts to Address Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements could not be prevented or detected on a timely basis. At April 2, 2022, the following material weaknesses existed:
Entity Level Controls
As discussedManagement did not maintain appropriately designed entity-level controls impacting the (1) control environment, (2) risk assessment procedures, and (3) monitoring activities to prevent or detect material misstatements to the financial statements and assess whether the components of internal control were present and functioning. These deficiencies were primarily attributed to an insufficient number of qualified resources to support and provide proper oversight and accountability over the performance of controls.
Control Activities
Management did not have adequate selection and development of effective control activities resulting in the Risk Factors of our registration statement filed on Form S-4 on March 22, 2021, the Company identified an unremediatedfollowing material weakness related to the Control Environment and Control Activities elements established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”) as of December 26, 2020.weaknesses:
The material weakness relates to the Company’s failure to implement and maintain appropriate•Information Technology (IT) General Controls – Certain information technology general controls including appropriate logicalfor security application and administration of key IT systems were not designed properly or did not operate effectively. Specifically, (i) periodic user access reviews of roles and permissions were not performed sufficiently throughout the period for certain key IT systems, (ii) certain key IT systems were not logically restricted between business and IT administration access privileges, resulting in improper segregation of duties. The lackduties for certain business processes, and (iii) there was an insufficient evaluation of these information technologythird party service organization controls (when combinedfor a single business unit.
•Management Review Controls – Management review controls over revenue, income taxes, complex non-routine transactions, and other business processes were not designed with procedure and control deficiencies) prevent the Company from achieving complete, accurate, and timely financial accounting, reporting, and disclosures. As a result, monitoring was not at a sufficientan appropriate level of precision to provide fordetect a material misstatement and sufficient appropriate evidence was not maintained to support the appropriate level of oversight of activities related to the Company’s internal control in connection with its financial reporting. Specifically, the Company does not maintain an adequate reviewexecution and approval process for certain journal entries and account reconciliations. In addition, users had excessive rights which caused segregation of duties conflicts and users possessed excessive administration or security access across severalevaluation of the IT applications thatprocedures performed, including the review of the completeness and accuracy of the source data utilized, over the significant estimates and business assumptions used in these areas.
•Financial Reporting – Management did not design and implement effective controls over processes and disclosure of amounts in the financial statements, including the review of the completeness and accuracy of the underlying support of amounts contained in the Company’s financial reporting.
statements.
Remediation of Material Weaknesses
Remediation of the identified material weaknesses and strengthening our internal control environment is a priority for usus.Management is actively engaged in 2021. In responsethe implementation of remediation plans to address the control deficiencies contributing to the material weakness,weaknesses. The remediation actions include, but are not limited to, the following:
Entity Level Controls – In an effort to provide additional support, oversight and accountability over the performance of controls, the Company hasrecently hired a Tax Director, V.P. of Finance and Accounting, and a SEC Reporting Manager and is actively recruiting for other key financial reporting positions. Management will continue to assess the composition of its resource needs, both internal and external, which may include adding additional accounting and compliance resources at both the corporate and subsidiary levels. Management may also consider engaging additional third-party advisors when necessary to supplement its existing resources.
As previously disclosed, the Company hired a Director of Internal Audit and has engaged third partythird-party consultants to assessmanage the Company’s SOX 404 assessment of internal control over financial reporting as well as monitoring management’s remediation efforts.
Information Technology General Controls - User access assessments for logical security (roles and privileges) will be performed and periodic user access reviews for key IT systems will be implemented.All IT processes will be centrally managed and IT Management will transition certain hosting and administration responsibilities from third-parties.
Management Review Controls – Management will enhance the design of and implementationimplement controls around the rigor of the review process over revenue, income taxes, complex non-routine transactions, and other business processes.
Financial Reporting – Management will enhance the design of controls over the processes and disclosures of amounts in the financial reporting. Specific corrective actions are also underway to addressstatements including the deficiencies related toreview of the material weakness. completeness and accuracy of the underlying support of amounts contained in the financial statements.
The material weaknesses cannot be considered remediated until the applicable controls have been identified and implemented and have operated for a sufficient period of time, and management has concluded, through testing, that these controls are operating effectively.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, as specified above. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions, and cannot provide absolute assurance that its objectives will be met.
Changes in Internal Control Over Financial Reporting
There were no changes, other than the remediation efforts described above, in our internal control over financial reporting identified in connection with the evaluation required by Rule13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting due to the COVID-19 pandemic. While some remote work has continued, most of our workforce have returned and are working from our company locations. We are continually monitoring and assessing the COVID-19 situation and our internal controls to minimize any impact on their design and operating effectiveness.