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Q3 2026 Earnings Call
Sep 04, 2026 12:00 AMOperator: Good day, and thank you for standing by. Welcome to the third quarter 2 thousand 26 Quanex Building Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. Will then hear a automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Scott Michael Zuehlke. Senior vice president, CFO, and treasurer. Please go ahead.
Scott Michael Zuehlke: Thanks for joining the call this morning. On the call with me today is George L. Wilson, our president and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance. And Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer, and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I will now turn the call over to George for his prepared remarks.
George L. Wilson: Thanks, Scott, and good morning to everyone on the call. Similar to prior calls, I will start with our perspective on the current macroeconomic environment, then I will walk through our results for the quarter, and I will close my prepared remarks with our priorities for the balance of the fiscal year. 3 months ago, I described housing demand in North America and Europe as showing early signs of stabilization with a recovery that would proceed gradually. Since then, the data has been mixed. On the new construction side of the market, activity has been weaker than we anticipated, The July new residential construction report single family starts at an annual rate of 808 thousand which is down roughly 16% from a year ago and the lowest monthly reading since late 22. Single family completions, the more direct driver of demand for our products, came in at 878 thousand which represents a decrease of about 13% year over year and down about 10% year to date. Units under construction were down roughly 7% from a year ago. That said, there is a moderately positive signal underneath these numbers. Permits have held up nicely. Total permits in Julio were up 3% year over year, Single family permits were modestly higher, and the number of homes authorized but not yet started is up about 10% from a year ago. This means that builders are keeping their entitlement pipelines intact but are choosing not to break ground. That is a decision that can reverse relatively quickly when affordability and consumer confidence improve, and it is why we continue to view the current market as being demand deferred rather than demand destroyed. In The UK and Europe, we see the same general dynamics as in North America, though the impact varies significantly by region. We believe recovery is underway in the new build blazing and finish fenestration markets in both Iberia and Scandinavia, while softness persists in The UK, Germany, France, and Italy. We expect that future recovery in this segment will be driven by consumer confidence improvements and government sponsored social housing initiatives across the continent. Turning to the ongoing inflationary pressures around input costs, the picture remains highly variable. The inflation we described on our last call in June has not stopped, but it does appear that the pace has diminished. Raw material, energy, freight and logistic costs all remain elevated, and the disruption to international shipping routes continues to add both cost and lead time. Our response has not changed since we last discussed this issue in June. We said then that we would implement targeted price increases in the mid single digit to low teens range phased in through the third quarter and tailored by product line. And we have executed on that plan. Scott will provide more color in his comments but we believe we have meaningfully narrowed the cost price gap. That said, we also recognize that any further change in this dynamic will require additional discussions with our customers or additional surcharges to protect margins. Moving on to operational performance for the quarter. Despite the macro headwinds the market continues to face, volumes were in line with our expectations, and our operational teams performed well. As you know, shortly after we acquired Time in a little over 2 years ago, we initiated a project to resegment our business units to better support our customers enable organic growth, and improve both operational and financial performance. A great deal of heavy lifting and integration work goes into this type of project, and I am pleased with the progress to date. Since the acquisition, the plan has always been to execute our strategy in 3 stages, stabilization, optimization, and growth. I am extremely pleased with the progress made across all our reporting segments as we have worked to steady the combined business over the past 2 years. As we now move into the optimization stage, we continue to advance strategic projects built around the 80/20 principle and are completing several value stream mapping exercises. These projects are designed to improve our customer performance, optimize our footprint and cost structure, and strengthen our margins. We will continue focusing on serving our customers while improving our footprint and cost structure so that when the markets do improve, we are ready to capitalize on those opportunities. Finally, I would like to comment on free cash flow generation and capital allocation priorities. As we have said previously, most of our free cash flow is generated in our final 2 fiscal quarters And given the normal seasonality we have been experiencing, this year should be no different. I am very pleased with the work of our team in managing working capital. Which enabled us to pay down debt and repurchase shares during the quarter. Going forward, our focus on reducing inventory through 80/20 projects simplifying our footprint, and reducing intercompany transfers should translate into stronger cash flow generation. For the current quarter, our cash priorities will be to continue paying down debt and to fund organic projects that drive financial returns. I will now turn the call over to Scott, who will discuss our financial results in more detail.
Scott Michael Zuehlke: Thanks, George. On a consolidated basis, we reported net sales of $502 million during the third quarter of 26. Which represents an increase of 1.3% compared to 495 million for the same period of 2025. The increase was mainly due to favorable impacts from pricing, partially offset by the impact of the IEPA tariff reimbursements to customers. We estimate that volumes were flat pricing was up about 3%, and the negative tariff refund impact was approximately 2%. Foreign exchange did not really influence the quarter. We reported net income of 26.5 million or $0.58 per diluted share during the 3 months ended July 31, 2026 compared to a net loss of $276 million or $6.04 per diluted share during the 3 months ended 07/31/2025. The reported net loss during the third quarter of 25 was primarily the result of a 302 million noncash goodwill impairment related to the resegmentation of our business. The effective tax rate in the third quarter of 26 excluding discrete items, was approximately 23%, which matched our expectation. On an adjusted basis, reported net income of 36 million or $0.79 per diluted share during the third quarter of 26 compared to net income of 31.6 million or 69¢ per diluted share during the third quarter of 25. The adjustments being made to net income are primarily related to severance and other expenses associated with manufacturing footprint and operational performance optimization, including reorganizational and restructuring charges, transaction and advisory fees, amortization expense related to intangible assets, foreign currency impacts, and goodwill impairment. On a consolidated basis, the increase in reported earnings for the third quarter of 26 compared to the third quarter of 25 was mainly due to improved pricing, lower depreciation and amortization expense, and lower interest expense. On an adjusted basis, EBITDA for the quarter was $72.7 million compared to $70.3 million during the same period of last year. Now for results by operating segment. We generated net sales of $221 million in our Hardware Solutions segment for the third quarter of 26. A slight decrease compared to $227 million in the third quarter of 25. We estimate that volumes were down about 0.5% Pricing was up by about 1.5% in this segment. Negative tariff impact due to customer reimbursements was roughly 4% The absence of the operational issues we had in Monterrey, Mexico last year had a positive impact of about 0.5%. And foreign exchange translation had a negligible impact. Adjusted EBITDA was $27.1 million in this segment for the third quarter of 26. Compared to $24.7 million in the same period of 2025. The increase was largely due to improved pricing and the absence of operational issues in Monterrey, Mexico, that impacted Q3 of last year. Our Extruded Solutions segment generated revenue of $170 million in Q3 of this year. An increase of 2.8% compared to 174 million in Q3 of last year. We estimate that volumes for the quarter were down about 0.5% year over year in this segment, with pricing up almost 3.5% and a very minor negative foreign exchange translation impact. Adjusted EBITDA declined slightly to $35.6 million in this segment for the quarter, versus $37.1 million during the same period of last year. Mainly due to general inflationary pressures partially offset by improved pricing. We reported net sales of $111 million in our Custom Solutions segment during the quarter. Which represented growth of 8.5% compared to prior-year revenue of $102 million For the quarter, we estimate that volumes were up about 3% pricing increased by about 5.5%, and the pass through of tariffs was a minor benefit. Adjusted EBITDA declined to 12 million from $12.9 million in this segment for the quarter. Mostly due to inflationary pressures we have already discussed partially offset by improved pricing. Moving on to cash flow and the balance sheet. Cash provided by operating activities was $58.6 million for the third quarter 26, which compares to $60.7 million for the third quarter of 25. Our free cash flow increased by 3.5% to $47.8 million in Q3 of 26 compared to $46.2 million in Q3 of 25. We generated sufficient cash to repay 42.3 million of debt during the third quarter of 26, and we also repurchased 1.7 million of our stock. As of 07/31/2026, our liquidity which is really just the borrowing capacity under our revolver, combined with the cash on the balance sheet, was approximately 363 million an increase of 10.5% versus Q2 of this year. We expect liquidity to improve again in the fourth quarter. As of 07/31/2026, our leverage ratio of net debt to the last 12 months adjusted EBITDA decreased to 2.8 times. We continue to believe we will exit 2026 with an even lower net leverage ratio as we continue to generate cash and repay debt. Our long term view for the residential housing market remains positive. However, due to the ongoing macroeconomic challenges, we remain cautious on the near term outlook. We continue to monitor the situation in The Middle East which is still having an impact on transportation costs the price of raw materials and energy. We do believe that the initial rate and magnitude of inflationary cost pressures have somewhat subsided. For modeling purposes, please use the following cadence for the fourth quarter of 26 versus the fourth quarter of 25. On a consolidated basis, we expect revenue growth of 2% to 3% and adjusted EBITDA margin expansion of 50 to 75 basis points. In addition, we believe an estimated tax rate of approximately 24% should be reasonable for the fourth quarter of 26. As always, we will stay focused on the things that we can control with near term emphasis on generating cash to reduce debt while opportunistically repurchasing our stock repurchasing our stock and identifying further operational improvements and efficiencies that can benefit us when economic conditions improve. Operator, we are now ready to take questions.
Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder to us, question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Our first question comes from the line of Julio Romero of Sidoti. Your line is now open.
Julio Romero: Great, thanks. Good morning, George and Scott.
George L. Wilson: Good morning.
Julio Romero: Wanted to start on Good morning. Wanted to start on the hardware solutions segment. You realized year over year gross margin improvement of about 160 basis points there. Can you speak to how much of the margin expansion reflects price realization from the increases phased in during the third quarter. Versus operational improvements versus eightytwenty initiatives? And then also, can you speak to how much of the announced price increases were realized and how much of the benefit is there to come in the fourth? So do not know if I can get into specifics about that.
Scott Michael Zuehlke: But in general, I would say that the price increases we implemented in the third quarter were phased so that we do expect a bigger or a more impact or full impact in the fourth quarter of this year. Since we will get the full quarter impact there. From a pricing standpoint, I would say that year over year, quarter over quarter in hardware solutions, talking about adjusted EBITDA. Price improved by about 3.1 million of the of the increase. Okay.
Julio Romero: And how much was if we are speaking about the EBITDA line, can you speak to the eightytwenty benefit the quarter for that segment?
George L. Wilson: Yeah. So as it relates to the 80/20 projects that we have going on right now, I would say the benefits are minimal versus prior year because they are just now starting. I would I would say, you know, we have taken some actions on reducing some SG&A. But we are in the infancy stages of that, so I think you will see those continue to pick up in the fourth quarter. And then in the next year, you will see more meaningful benefits. So pretty negligible, year over year for Q3. But the momentum and progress of those projects will continue to pick up and continue to add benefit as we go forward.
Julio Romero: Okay. Great. And then last 1 for me is Scott, I think you called out in the prepared that the tariff reimbursements to customers was a 2% headwind in the quarter. How much of a headwind remains for the fourth quarter?
Scott Michael Zuehlke: A lot less than that. So magnitude really mostly in the hardware solution segments was roughly $9 million on the revenue side. Impact in the third quarter. So something significantly less than that in the fourth quarter is expected. Got it.
Julio Romero: I will pass it on. Thanks, guys.
George L. Wilson: Thank you.
Operator: Thank you. 1 moment for our next question. And our next question comes from the line of Adam Thalhimer of Thompson Davis. Your line is now open.
Adam Thalhimer: Hey, good morning, guys. Congrats on the solid Q3.
George L. Wilson: Thank you.
Adam Thalhimer: Hey, Scott. The Your margin guidance for Q4 struck me as particularly impressive. You know, at least up 50-basis-points, I guess, sequentially and year over year. Is that where should we model that from a segment standpoint? Where do you think that strength comes through?
Scott Michael Zuehlke: Yeah. I would focus more on the hardware solution segment. mainly because if you think back to last year, 4 q, we still had a pretty big impact from the Monterrey issues. That should not be there this year. And then the other piece along with that we just talked about with Julio is that you are obviously gonna get the full benefit of a full quarter's worth of the pricing impact. So those 2 things compared on an annual year over year basis should especially in the hardware segment stick out the most?
Adam Thalhimer: Okay. And you had good SG&A control in the third quarter, so I guess that continues in Q4.
George L. Wilson: it is obviously a focus of ours. As we have gotten all of the new segments, stabilized, finalized, and we are operating, in a really pretty efficient manner, we can identify opportunities to continue to improve. Obviously, the basis of everything that we are doing from an 80/20 perspective, evaluates the amount of SG&A that you are using to support very little levels of revenue, and we are trying to address those. So, appreciate the comment. I think that, you know, it is a focus of ours, and you will continue to see improvements, both in fixed cost and SG&A.
Adam Thalhimer: Great. And then I wanted to ask about because the revenue growth was impressive in Custom Solutions. And within Custom Solutions, it is particularly impressive within Wood Solutions. So I was curious Within Wood Solutions, how does the growth breakdown between kind of core volume price, and then the outsourcing opportunity that you had this year? And what is the outlook for that segment?
Scott Michael Zuehlke: So, yeah, for wood, I would there is a couple things playing into the improvement in revenue. From a volume perspective, the market in general is still soft in that in that business. However, we were and I think we have commented on this before, we were able to win some new business that started hitting us earlier this year. To the tune of, like, $10 million a year. So that is definitely helping that business this year. Which is in contrast to what the market is doing.
George L. Wilson: Okay. Now on a go-forward basis, you know, so we started picking up that business at the very end of our Q4 and really Q1 of this year. So you will probably see 1 more quarter of year over year benefit. And as we discussed the tariffs and obviously, what is going on between The U.S. and Canada, depending on where all those tariffs settle out, you know, that could be an opportunity for more insourcing of cabinet products because of the reliance on the wood and the wood tariffs between the 2 countries. So more to come. it is fluid as it relates to the tariffs, and it seems to change every day. So, could be some upside there, but more to come.
Adam Thalhimer: Are you having active discussions on those? Or you are just saying that the backdrop remains favorable?
George L. Wilson: What I would tell you is that the quoting activity is significant and I think, you know, customers that are sourcing product from Canada, are trying to find options to determine what it needs to be on a go forward basis. So they are going there. They are doing their due diligence by finding opportunities, and we are actively quoting. So, again, really fluid. Every day is different. Okay.
Adam Thalhimer: Sounds great. And then, lastly, you know, obviously, very good cash flow, debt pay down.
George L. Wilson: I just wanted to think kind of big picture multiyear Because before you bought Tymon, you would actually flipped to net cash. And I just wonder as you let the model run out here, maybe we get a better demand environment Is getting back to net cash a goal? Or do you think you would rather get back to doing tuck in M&A? 1 of the important part of our thesis in acquiring time and in resegmenting is that we have identified opportunities for future growth down the road. So I do not think it would be prudent for us to be in a net cash plus position. You know, I think if we cannot find opportunities to grow both organically and inorganically, in adjacent markets. We are not doing our job. So I think we would, if we get down to 1 to 1.5x I think you would see us probably looking to do more transformative type of things. But, again, we are a fairly conservative company in that regards, and we manage our debt I think, very prudently. So I think you will see the near term focus continue to be on paying down debt and using reducing the interest expense so we can grow organically. And then once we continue to drive it down, our goal is to expand into adjacent markets both organically and inorganically. So I do not think you will ever find us or it is not a goal to be in a net cash plus position.
Adam Thalhimer: Okay. Good color. Thanks, guys.
Scott Michael Zuehlke: You.
Operator: 1 moment for the next question. Our next question comes from the line of Steven Ramsey of Thomas Research Group. Your line is now open.
Steven Ramsey: Hey. Good morning, everyone. I wanted to start-- yeah.
George L. Wilson: Wanted to start with the spacers product within extruded. Very strong results year to date. And, again, in the quarter, and it is a high margin product for you, Can you go into some details on the demand and the pricing in that category? And can you talk about the mix impact it is bringing to the segment margins? Yes.
Scott Michael Zuehlke: As we look, obviously, I think we gave any breakdown of by product line, but that is obviously a part of the Extruded Solutions segment. And that market has grown, very nicely. And the warm edge spacer markets are very much tied to, high end energy efficient windows. So I think as energy cost, continue to be elevated and our people are being able to, justify replacing windows to get energy, savings. That the demand for our spacer product will continue to grow. You know, that started long ago in Europe, which has always been kind of the leading indicator for what is happened in North America, and I think we are seeing that. You know, it is it is been influenced in most of that product especially in North America, are on index pricing mechanisms, and a lot of that is petroleum based. So, you know, a lot of the price of that product, we have been able to pass through and cover inflation very good. So the you know, overall, I would say our margins have done well. it is a very efficient plant, and we have pricing mechanisms in place to protect us from inflationary pressures.
George L. Wilson: Yeah.
Scott Michael Zuehlke: The only thing I will add there, Steven, is within that extruded solution segment, yes, you have the IG spacers Business, which everybody knows is a good profitability business for us. But you also have the Liniar business in the U.K. is the vinyl extrusion business, which is also a very good, highly profitable business. So the reasons for those that segment being high margins is because of the product mix. Those 2 product lines make up from a revenue perspective, like, 65% to 70% of the revenue of that segment. So that should give you some color.
George L. Wilson: Yep.
Steven Ramsey: that is great color and great performance there. Also wanted to dig into the screen's performance Very good. In the quarter and up on a I believe, up on a year to date basis. Can you talk about the screens performance within hardware, what the outlook is implied there in the fourth quarter? And do you see the strength sustaining beyond this fiscal year?
George L. Wilson: You know, the screens segment and product line within the hardware segment has been a good growing business for us. We continue to service the customers well. It is an area that at times, has outpaced market growth because the OE window makers, the ones that insource that, it is 1 of the first things that they can look to outsource if they are having a hard time getting labor, or taking up too much floor space in their manufacturing facilities. So we have been able to grow share probably a little faster than the market has grown, and we continue to like that business. I think we are working very hard on footprint optimization things to drive to drive more efficiency. So you know, over the course of the last couple years, we closed a couple facilities in the West Coast and are able to service that area from bigger plants and get some operational performance benefits out of that. And I think we will continue to focus on that. So, in terms of our portfolio, the entry level or the entry level screens business is probably the is near commodity product that we sell, but I think we are doing some really nice things to continue to buffer that margin. And, I think the future is great for that group.
Steven Ramsey: Okay. that is helpful. Thanks for the color. Thanks.
Scott Michael Zuehlke: Thanks.
Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Reuben Garner of Stonex. Your line is now open.
Kevin Gainey: Hey, good morning, guys. This is John McLean on for Ruben Garner.
George L. Wilson: Hey, John.
Kevin Gainey: Hi. So most of my questions have been asked or at least touched on to an extent. Just 1 quick 1. Just kind of based on the prepared remarks there, it sounded like the tariff refunds and pass throughs were a detriment to, hardware solutions, but then it sounded like you said there was a benefit in custom. I was just wondering if you could kind of outline, you know, was that a full pass through you did to customers? Was it kind of product by product? Or categorized in some extent? Any details there? Just you know, we have seen a lot of companies, like, kind of hold on to those refunds. And kinda justify that in the sense of, new tariff policies and the inflationary pressures? Just anything you could provide color wise on the impacts there and the strategy of, passing those along.
George L. Wilson: Yeah. So the tariff refunds really only impacted the hardware solutions business during the quarter. The slight improvement or benefit in the Custom Solutions segment, we are just talking about passing through tariffs like we had done prior to last quarter in most of other businesses. So it is just a nuance there. And on your last point, I think it is important that I do know, as it relates to giving back or retaining and holding tariffs, you know, our philosophy has been we are not trying to use tariffs as a margin generating item. Especially in a in a market or an environment where the consumers are pressured so hard. So our philosophy has always been that we are going to be very transparent with our customers. I think it is the way we try to do business. And so, you know, if we have passed through or pushed a tariff through and we have gotten a refund as a result of it, it is not our money to keep. And, you know, it is just a core operating philosophy of how we are going to treat our customers. So everything we have done, has been a direct pass through. And if we get refunds, we will pass it directly back through the customer. Not meant to be a margin grab for us.
Kevin Gainey: Alright. that is great color, and I, I am sure your customers appreciate that as well. Good luck in the quarter ahead, guys.
George L. Wilson: Thanks.
Scott Michael Zuehlke: Thank you.
Operator: Thank you. I am showing no further questions at this time. I will now turn it back to George L. Wilson for closing remarks.
George L. Wilson: I would like to thank everyone for joining the call today, and we look forward to providing the update in early December. Thank you.
Operator: Thank you for participation in today's conference. This does conclude the program. You may now disconnect.
Scott Michael Zuehlke: Thanks for joining the call this morning. On the call with me today is George L. Wilson, our president and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance. And Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer, and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I will now turn the call over to George for his prepared remarks.
George L. Wilson: Thanks, Scott, and good morning to everyone on the call. Similar to prior calls, I will start with our perspective on the current macroeconomic environment, then I will walk through our results for the quarter, and I will close my prepared remarks with our priorities for the balance of the fiscal year. 3 months ago, I described housing demand in North America and Europe as showing early signs of stabilization with a recovery that would proceed gradually. Since then, the data has been mixed. On the new construction side of the market, activity has been weaker than we anticipated, The July new residential construction report single family starts at an annual rate of 808 thousand which is down roughly 16% from a year ago and the lowest monthly reading since late 22. Single family completions, the more direct driver of demand for our products, came in at 878 thousand which represents a decrease of about 13% year over year and down about 10% year to date. Units under construction were down roughly 7% from a year ago. That said, there is a moderately positive signal underneath these numbers. Permits have held up nicely. Total permits in Julio were up 3% year over year, Single family permits were modestly higher, and the number of homes authorized but not yet started is up about 10% from a year ago. This means that builders are keeping their entitlement pipelines intact but are choosing not to break ground. That is a decision that can reverse relatively quickly when affordability and consumer confidence improve, and it is why we continue to view the current market as being demand deferred rather than demand destroyed. In The UK and Europe, we see the same general dynamics as in North America, though the impact varies significantly by region. We believe recovery is underway in the new build blazing and finish fenestration markets in both Iberia and Scandinavia, while softness persists in The UK, Germany, France, and Italy. We expect that future recovery in this segment will be driven by consumer confidence improvements and government sponsored social housing initiatives across the continent. Turning to the ongoing inflationary pressures around input costs, the picture remains highly variable. The inflation we described on our last call in June has not stopped, but it does appear that the pace has diminished. Raw material, energy, freight and logistic costs all remain elevated, and the disruption to international shipping routes continues to add both cost and lead time. Our response has not changed since we last discussed this issue in June. We said then that we would implement targeted price increases in the mid single digit to low teens range phased in through the third quarter and tailored by product line. And we have executed on that plan. Scott will provide more color in his comments but we believe we have meaningfully narrowed the cost price gap. That said, we also recognize that any further change in this dynamic will require additional discussions with our customers or additional surcharges to protect margins. Moving on to operational performance for the quarter. Despite the macro headwinds the market continues to face, volumes were in line with our expectations, and our operational teams performed well. As you know, shortly after we acquired Time in a little over 2 years ago, we initiated a project to resegment our business units to better support our customers enable organic growth, and improve both operational and financial performance. A great deal of heavy lifting and integration work goes into this type of project, and I am pleased with the progress to date. Since the acquisition, the plan has always been to execute our strategy in 3 stages, stabilization, optimization, and growth. I am extremely pleased with the progress made across all our reporting segments as we have worked to steady the combined business over the past 2 years. As we now move into the optimization stage, we continue to advance strategic projects built around the 80/20 principle and are completing several value stream mapping exercises. These projects are designed to improve our customer performance, optimize our footprint and cost structure, and strengthen our margins. We will continue focusing on serving our customers while improving our footprint and cost structure so that when the markets do improve, we are ready to capitalize on those opportunities. Finally, I would like to comment on free cash flow generation and capital allocation priorities. As we have said previously, most of our free cash flow is generated in our final 2 fiscal quarters And given the normal seasonality we have been experiencing, this year should be no different. I am very pleased with the work of our team in managing working capital. Which enabled us to pay down debt and repurchase shares during the quarter. Going forward, our focus on reducing inventory through 80/20 projects simplifying our footprint, and reducing intercompany transfers should translate into stronger cash flow generation. For the current quarter, our cash priorities will be to continue paying down debt and to fund organic projects that drive financial returns. I will now turn the call over to Scott, who will discuss our financial results in more detail.
Scott Michael Zuehlke: Thanks, George. On a consolidated basis, we reported net sales of $502 million during the third quarter of 26. Which represents an increase of 1.3% compared to 495 million for the same period of 2025. The increase was mainly due to favorable impacts from pricing, partially offset by the impact of the IEPA tariff reimbursements to customers. We estimate that volumes were flat pricing was up about 3%, and the negative tariff refund impact was approximately 2%. Foreign exchange did not really influence the quarter. We reported net income of 26.5 million or $0.58 per diluted share during the 3 months ended July 31, 2026 compared to a net loss of $276 million or $6.04 per diluted share during the 3 months ended 07/31/2025. The reported net loss during the third quarter of 25 was primarily the result of a 302 million noncash goodwill impairment related to the resegmentation of our business. The effective tax rate in the third quarter of 26 excluding discrete items, was approximately 23%, which matched our expectation. On an adjusted basis, reported net income of 36 million or $0.79 per diluted share during the third quarter of 26 compared to net income of 31.6 million or 69¢ per diluted share during the third quarter of 25. The adjustments being made to net income are primarily related to severance and other expenses associated with manufacturing footprint and operational performance optimization, including reorganizational and restructuring charges, transaction and advisory fees, amortization expense related to intangible assets, foreign currency impacts, and goodwill impairment. On a consolidated basis, the increase in reported earnings for the third quarter of 26 compared to the third quarter of 25 was mainly due to improved pricing, lower depreciation and amortization expense, and lower interest expense. On an adjusted basis, EBITDA for the quarter was $72.7 million compared to $70.3 million during the same period of last year. Now for results by operating segment. We generated net sales of $221 million in our Hardware Solutions segment for the third quarter of 26. A slight decrease compared to $227 million in the third quarter of 25. We estimate that volumes were down about 0.5% Pricing was up by about 1.5% in this segment. Negative tariff impact due to customer reimbursements was roughly 4% The absence of the operational issues we had in Monterrey, Mexico last year had a positive impact of about 0.5%. And foreign exchange translation had a negligible impact. Adjusted EBITDA was $27.1 million in this segment for the third quarter of 26. Compared to $24.7 million in the same period of 2025. The increase was largely due to improved pricing and the absence of operational issues in Monterrey, Mexico, that impacted Q3 of last year. Our Extruded Solutions segment generated revenue of $170 million in Q3 of this year. An increase of 2.8% compared to 174 million in Q3 of last year. We estimate that volumes for the quarter were down about 0.5% year over year in this segment, with pricing up almost 3.5% and a very minor negative foreign exchange translation impact. Adjusted EBITDA declined slightly to $35.6 million in this segment for the quarter, versus $37.1 million during the same period of last year. Mainly due to general inflationary pressures partially offset by improved pricing. We reported net sales of $111 million in our Custom Solutions segment during the quarter. Which represented growth of 8.5% compared to prior-year revenue of $102 million For the quarter, we estimate that volumes were up about 3% pricing increased by about 5.5%, and the pass through of tariffs was a minor benefit. Adjusted EBITDA declined to 12 million from $12.9 million in this segment for the quarter. Mostly due to inflationary pressures we have already discussed partially offset by improved pricing. Moving on to cash flow and the balance sheet. Cash provided by operating activities was $58.6 million for the third quarter 26, which compares to $60.7 million for the third quarter of 25. Our free cash flow increased by 3.5% to $47.8 million in Q3 of 26 compared to $46.2 million in Q3 of 25. We generated sufficient cash to repay 42.3 million of debt during the third quarter of 26, and we also repurchased 1.7 million of our stock. As of 07/31/2026, our liquidity which is really just the borrowing capacity under our revolver, combined with the cash on the balance sheet, was approximately 363 million an increase of 10.5% versus Q2 of this year. We expect liquidity to improve again in the fourth quarter. As of 07/31/2026, our leverage ratio of net debt to the last 12 months adjusted EBITDA decreased to 2.8 times. We continue to believe we will exit 2026 with an even lower net leverage ratio as we continue to generate cash and repay debt. Our long term view for the residential housing market remains positive. However, due to the ongoing macroeconomic challenges, we remain cautious on the near term outlook. We continue to monitor the situation in The Middle East which is still having an impact on transportation costs the price of raw materials and energy. We do believe that the initial rate and magnitude of inflationary cost pressures have somewhat subsided. For modeling purposes, please use the following cadence for the fourth quarter of 26 versus the fourth quarter of 25. On a consolidated basis, we expect revenue growth of 2% to 3% and adjusted EBITDA margin expansion of 50 to 75 basis points. In addition, we believe an estimated tax rate of approximately 24% should be reasonable for the fourth quarter of 26. As always, we will stay focused on the things that we can control with near term emphasis on generating cash to reduce debt while opportunistically repurchasing our stock repurchasing our stock and identifying further operational improvements and efficiencies that can benefit us when economic conditions improve. Operator, we are now ready to take questions.
Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder to us, question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Our first question comes from the line of Julio Romero of Sidoti. Your line is now open.
Julio Romero: Great, thanks. Good morning, George and Scott.
George L. Wilson: Good morning.
Julio Romero: Wanted to start on Good morning. Wanted to start on the hardware solutions segment. You realized year over year gross margin improvement of about 160 basis points there. Can you speak to how much of the margin expansion reflects price realization from the increases phased in during the third quarter. Versus operational improvements versus eightytwenty initiatives? And then also, can you speak to how much of the announced price increases were realized and how much of the benefit is there to come in the fourth? So do not know if I can get into specifics about that.
Scott Michael Zuehlke: But in general, I would say that the price increases we implemented in the third quarter were phased so that we do expect a bigger or a more impact or full impact in the fourth quarter of this year. Since we will get the full quarter impact there. From a pricing standpoint, I would say that year over year, quarter over quarter in hardware solutions, talking about adjusted EBITDA. Price improved by about 3.1 million of the of the increase. Okay.
Julio Romero: And how much was if we are speaking about the EBITDA line, can you speak to the eightytwenty benefit the quarter for that segment?
George L. Wilson: Yeah. So as it relates to the 80/20 projects that we have going on right now, I would say the benefits are minimal versus prior year because they are just now starting. I would I would say, you know, we have taken some actions on reducing some SG&A. But we are in the infancy stages of that, so I think you will see those continue to pick up in the fourth quarter. And then in the next year, you will see more meaningful benefits. So pretty negligible, year over year for Q3. But the momentum and progress of those projects will continue to pick up and continue to add benefit as we go forward.
Julio Romero: Okay. Great. And then last 1 for me is Scott, I think you called out in the prepared that the tariff reimbursements to customers was a 2% headwind in the quarter. How much of a headwind remains for the fourth quarter?
Scott Michael Zuehlke: A lot less than that. So magnitude really mostly in the hardware solution segments was roughly $9 million on the revenue side. Impact in the third quarter. So something significantly less than that in the fourth quarter is expected. Got it.
Julio Romero: I will pass it on. Thanks, guys.
George L. Wilson: Thank you.
Operator: Thank you. 1 moment for our next question. And our next question comes from the line of Adam Thalhimer of Thompson Davis. Your line is now open.
Adam Thalhimer: Hey, good morning, guys. Congrats on the solid Q3.
George L. Wilson: Thank you.
Adam Thalhimer: Hey, Scott. The Your margin guidance for Q4 struck me as particularly impressive. You know, at least up 50-basis-points, I guess, sequentially and year over year. Is that where should we model that from a segment standpoint? Where do you think that strength comes through?
Scott Michael Zuehlke: Yeah. I would focus more on the hardware solution segment. mainly because if you think back to last year, 4 q, we still had a pretty big impact from the Monterrey issues. That should not be there this year. And then the other piece along with that we just talked about with Julio is that you are obviously gonna get the full benefit of a full quarter's worth of the pricing impact. So those 2 things compared on an annual year over year basis should especially in the hardware segment stick out the most?
Adam Thalhimer: Okay. And you had good SG&A control in the third quarter, so I guess that continues in Q4.
George L. Wilson: it is obviously a focus of ours. As we have gotten all of the new segments, stabilized, finalized, and we are operating, in a really pretty efficient manner, we can identify opportunities to continue to improve. Obviously, the basis of everything that we are doing from an 80/20 perspective, evaluates the amount of SG&A that you are using to support very little levels of revenue, and we are trying to address those. So, appreciate the comment. I think that, you know, it is a focus of ours, and you will continue to see improvements, both in fixed cost and SG&A.
Adam Thalhimer: Great. And then I wanted to ask about because the revenue growth was impressive in Custom Solutions. And within Custom Solutions, it is particularly impressive within Wood Solutions. So I was curious Within Wood Solutions, how does the growth breakdown between kind of core volume price, and then the outsourcing opportunity that you had this year? And what is the outlook for that segment?
Scott Michael Zuehlke: So, yeah, for wood, I would there is a couple things playing into the improvement in revenue. From a volume perspective, the market in general is still soft in that in that business. However, we were and I think we have commented on this before, we were able to win some new business that started hitting us earlier this year. To the tune of, like, $10 million a year. So that is definitely helping that business this year. Which is in contrast to what the market is doing.
George L. Wilson: Okay. Now on a go-forward basis, you know, so we started picking up that business at the very end of our Q4 and really Q1 of this year. So you will probably see 1 more quarter of year over year benefit. And as we discussed the tariffs and obviously, what is going on between The U.S. and Canada, depending on where all those tariffs settle out, you know, that could be an opportunity for more insourcing of cabinet products because of the reliance on the wood and the wood tariffs between the 2 countries. So more to come. it is fluid as it relates to the tariffs, and it seems to change every day. So, could be some upside there, but more to come.
Adam Thalhimer: Are you having active discussions on those? Or you are just saying that the backdrop remains favorable?
George L. Wilson: What I would tell you is that the quoting activity is significant and I think, you know, customers that are sourcing product from Canada, are trying to find options to determine what it needs to be on a go forward basis. So they are going there. They are doing their due diligence by finding opportunities, and we are actively quoting. So, again, really fluid. Every day is different. Okay.
Adam Thalhimer: Sounds great. And then, lastly, you know, obviously, very good cash flow, debt pay down.
George L. Wilson: I just wanted to think kind of big picture multiyear Because before you bought Tymon, you would actually flipped to net cash. And I just wonder as you let the model run out here, maybe we get a better demand environment Is getting back to net cash a goal? Or do you think you would rather get back to doing tuck in M&A? 1 of the important part of our thesis in acquiring time and in resegmenting is that we have identified opportunities for future growth down the road. So I do not think it would be prudent for us to be in a net cash plus position. You know, I think if we cannot find opportunities to grow both organically and inorganically, in adjacent markets. We are not doing our job. So I think we would, if we get down to 1 to 1.5x I think you would see us probably looking to do more transformative type of things. But, again, we are a fairly conservative company in that regards, and we manage our debt I think, very prudently. So I think you will see the near term focus continue to be on paying down debt and using reducing the interest expense so we can grow organically. And then once we continue to drive it down, our goal is to expand into adjacent markets both organically and inorganically. So I do not think you will ever find us or it is not a goal to be in a net cash plus position.
Adam Thalhimer: Okay. Good color. Thanks, guys.
Scott Michael Zuehlke: You.
Operator: 1 moment for the next question. Our next question comes from the line of Steven Ramsey of Thomas Research Group. Your line is now open.
Steven Ramsey: Hey. Good morning, everyone. I wanted to start-- yeah.
George L. Wilson: Wanted to start with the spacers product within extruded. Very strong results year to date. And, again, in the quarter, and it is a high margin product for you, Can you go into some details on the demand and the pricing in that category? And can you talk about the mix impact it is bringing to the segment margins? Yes.
Scott Michael Zuehlke: As we look, obviously, I think we gave any breakdown of by product line, but that is obviously a part of the Extruded Solutions segment. And that market has grown, very nicely. And the warm edge spacer markets are very much tied to, high end energy efficient windows. So I think as energy cost, continue to be elevated and our people are being able to, justify replacing windows to get energy, savings. That the demand for our spacer product will continue to grow. You know, that started long ago in Europe, which has always been kind of the leading indicator for what is happened in North America, and I think we are seeing that. You know, it is it is been influenced in most of that product especially in North America, are on index pricing mechanisms, and a lot of that is petroleum based. So, you know, a lot of the price of that product, we have been able to pass through and cover inflation very good. So the you know, overall, I would say our margins have done well. it is a very efficient plant, and we have pricing mechanisms in place to protect us from inflationary pressures.
George L. Wilson: Yeah.
Scott Michael Zuehlke: The only thing I will add there, Steven, is within that extruded solution segment, yes, you have the IG spacers Business, which everybody knows is a good profitability business for us. But you also have the Liniar business in the U.K. is the vinyl extrusion business, which is also a very good, highly profitable business. So the reasons for those that segment being high margins is because of the product mix. Those 2 product lines make up from a revenue perspective, like, 65% to 70% of the revenue of that segment. So that should give you some color.
George L. Wilson: Yep.
Steven Ramsey: that is great color and great performance there. Also wanted to dig into the screen's performance Very good. In the quarter and up on a I believe, up on a year to date basis. Can you talk about the screens performance within hardware, what the outlook is implied there in the fourth quarter? And do you see the strength sustaining beyond this fiscal year?
George L. Wilson: You know, the screens segment and product line within the hardware segment has been a good growing business for us. We continue to service the customers well. It is an area that at times, has outpaced market growth because the OE window makers, the ones that insource that, it is 1 of the first things that they can look to outsource if they are having a hard time getting labor, or taking up too much floor space in their manufacturing facilities. So we have been able to grow share probably a little faster than the market has grown, and we continue to like that business. I think we are working very hard on footprint optimization things to drive to drive more efficiency. So you know, over the course of the last couple years, we closed a couple facilities in the West Coast and are able to service that area from bigger plants and get some operational performance benefits out of that. And I think we will continue to focus on that. So, in terms of our portfolio, the entry level or the entry level screens business is probably the is near commodity product that we sell, but I think we are doing some really nice things to continue to buffer that margin. And, I think the future is great for that group.
Steven Ramsey: Okay. that is helpful. Thanks for the color. Thanks.
Scott Michael Zuehlke: Thanks.
Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Reuben Garner of Stonex. Your line is now open.
Kevin Gainey: Hey, good morning, guys. This is John McLean on for Ruben Garner.
George L. Wilson: Hey, John.
Kevin Gainey: Hi. So most of my questions have been asked or at least touched on to an extent. Just 1 quick 1. Just kind of based on the prepared remarks there, it sounded like the tariff refunds and pass throughs were a detriment to, hardware solutions, but then it sounded like you said there was a benefit in custom. I was just wondering if you could kind of outline, you know, was that a full pass through you did to customers? Was it kind of product by product? Or categorized in some extent? Any details there? Just you know, we have seen a lot of companies, like, kind of hold on to those refunds. And kinda justify that in the sense of, new tariff policies and the inflationary pressures? Just anything you could provide color wise on the impacts there and the strategy of, passing those along.
George L. Wilson: Yeah. So the tariff refunds really only impacted the hardware solutions business during the quarter. The slight improvement or benefit in the Custom Solutions segment, we are just talking about passing through tariffs like we had done prior to last quarter in most of other businesses. So it is just a nuance there. And on your last point, I think it is important that I do know, as it relates to giving back or retaining and holding tariffs, you know, our philosophy has been we are not trying to use tariffs as a margin generating item. Especially in a in a market or an environment where the consumers are pressured so hard. So our philosophy has always been that we are going to be very transparent with our customers. I think it is the way we try to do business. And so, you know, if we have passed through or pushed a tariff through and we have gotten a refund as a result of it, it is not our money to keep. And, you know, it is just a core operating philosophy of how we are going to treat our customers. So everything we have done, has been a direct pass through. And if we get refunds, we will pass it directly back through the customer. Not meant to be a margin grab for us.
Kevin Gainey: Alright. that is great color, and I, I am sure your customers appreciate that as well. Good luck in the quarter ahead, guys.
George L. Wilson: Thanks.
Scott Michael Zuehlke: Thank you.
Operator: Thank you. I am showing no further questions at this time. I will now turn it back to George L. Wilson for closing remarks.
George L. Wilson: I would like to thank everyone for joining the call today, and we look forward to providing the update in early December. Thank you.
Operator: Thank you for participation in today's conference. This does conclude the program. You may now disconnect.