Quanex Building Products CORP 10-Q

Item 1. Financial Statements QUANEX BUILDING PRODUCTS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) July 31, 2024 October 31, 2023 (In thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 93,966 $ 58,474 Accounts receivable, net of allowance for credit losses of $ 183 and $ 843 87,554 97,311 Inventories 99,127 97,959 Income taxes receivable 1,447 8,298 Prepaid and other current assets 19,305 11,558 Total current assets 301,399 273,600 Property, plant and equipment, net of accumulated depreciation of $ 384,809 and $ 368,763 251,890 250,664 Operating lease right-of-use assets 63,642 46,620 Goodwill 186,195 182,956 Intangible assets, net 66,606 74,115 Other assets 2,718 3,188 Total assets $ 872,450 $ 831,143 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 63,948 $ 74,371 Accrued liabilities 54,796 50,319 Income taxes payable — 384 Current maturities of long-term debt 2,690 2,365 Current operating lease liabilities 6,435 7,224 Total current liabilities 127,869 134,663 Long-term debt 51,406 66,435 Noncurrent operating lease liabilities 59,099 40,361 Deferred income taxes 27,438 29,133 Other liabilities 12,502 14,997 Total liabilities 278,314 285,589 Commitments and contingencies Stockholders’ equity: Preferred stock, no par value, shares authorized 1,000,000 ; issued and outstanding - none — — Common stock, $ 0.01 par value, shares authorized 125,000,000 ; issue d 37,127,024 and 37,176,958 , respectively; outstanding 33,112,593 and 33,011,119 , respectively 371 372 Additional paid-in-capital 250,297 251,576 Retained earnings 448,351 409,318 Accumulated other comprehensive loss ( 30,131 ) ( 38,141 ) Less: Treasury stock at cost, 4,014,431 and 4,165,839 shares, respectively ( 74,752 ) ( 77,571 ) Total stockholders’ equity 594,136 545,554 Total liabilities and stockholders' equity $ 872,450 $ 831,143 The accompanying notes are an integral part of the financial statements. 1 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 (In thousands, except per share amounts) Net sales $ 280,345 $ 299,640 $ 785,701 $ 835,091 Cost and expenses: Cost of sales (excluding depreciation and amortization) 209,441 221,065 597,127 637,586 Selling, general and administrative 36,509 30,516 103,579 94,631 Depreciation and amortization 10,953 10,596 32,999 31,672 Operating income 23,442 37,463 51,996 71,202 Non-operating (expense) income: Interest expense ( 878 ) ( 2,068 ) ( 2,896 ) ( 6,571 ) Other, net 9,474 402 10,520 591 Income before income taxes 32,038 35,797 59,620 65,222 Income tax expense ( 6,688 ) ( 4,099 ) ( 12,644 ) ( 10,103 ) Net income $ 25,350 $ 31,698 $ 46,976 $ 55,119 Basic earnings per common share $ 0.77 $ 0.97 $ 1.43 $ 1.68 Diluted earnings per common share $ 0.77 $ 0.96 $ 1.42 $ 1.67 Weighted-average common shares outstanding: Basic 32,876 32,716 32,857 32,841 Diluted 33,106 32,919 33,087 33,031 Cash dividends per share $ 0.08 $ 0.08 $ 0.24 $ 0.24 The accompanying notes are an integral part of the financial statements. 2 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 (In thousands) Net income 25,350 31,698 $ 46,976 $ 55,119 Other comprehensive income: Foreign currency translation gain, net of tax 4,500 3,078 8,010 17,532 Other comprehensive income, net of tax 4,500 3,078 8,010 17,532 Comprehensive income $ 29,850 $ 34,776 $ 54,986 $ 72,651 The accompanying notes are an integral part of the financial statements. 3 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended July 31, 2024 2023 (In thousands) Operating activities: Net income $ 46,976 $ 55,119 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 32,999 31,672 Stock-based compensation 2,159 1,828 Deferred income tax ( 2,321 ) 177 Gain on deal contingent foreign exchange forward currency contract ( 9,200 ) — Other, net 886 2,423 Changes in assets and liabilities: Decrease in accounts receivable 11,114 9,918 (Increase) decrease in inventory ( 183 ) 23,864 Decrease (increase) in other current assets 1,646 ( 439 ) Decrease in accounts payable ( 9,634 ) ( 15,471 ) Increase (decrease) in accrued liabilities 948 ( 5,152 ) Decrease (increase) in income taxes receivable 6,659 ( 3,534 ) Increase in deferred pension benefits — 22 Increase in other long-term liabilities 707 609 Other, net 577 1,523 Cash provided by operating activities 83,333 102,559 Investing activities: Business acquisition — ( 91,302 ) Capital expenditures ( 23,435 ) ( 22,450 ) Proceeds from disposition of capital assets 115 183 Cash used for investing activities ( 23,320 ) ( 113,569 ) Financing activities: Borrowings under credit facilities — 102,000 Repayments of credit facility borrowings ( 15,000 ) ( 60,000 ) Repayments of other long-term debt ( 1,893 ) ( 1,954 ) Common stock dividends paid ( 7,943 ) ( 7,952 ) Issuance of common stock 573 753 Payroll tax paid to settle shares forfeited upon vesting of stock ( 1,193 ) ( 567 ) Purchase of treasury stock — ( 5,593 ) Cash (used for) provided by financing activities ( 25,456 ) 26,687 Effect of exchange rate changes on cash and cash equivalents 935 2,482 Increase in cash and cash equivalents 35,492 18,159 Cash and cash equivalents at beginning of period 58,474 55,093 Cash and cash equivalents at end of period $ 93,966 $ 73,252 The accompanying notes are an integral part of the financial statements. 4 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Nine Months Ended July 31, 2024 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity (In thousands, no per share amounts shown except in verbiage) Balance at October 31, 2023 $ 372 $ 251,576 $ 409,318 $ ( 38,141 ) $ ( 77,571 ) $ 545,554 Net income — — 6,249 — — 6,249 Foreign currency translation adjustment — — — 6,081 — 6,081 Common dividends ($ 0.08 per share) — — ( 2,645 ) — — ( 2,645 ) Stock-based compensation activity: Expense related to stock-based compensation — 583 — — 583 Stock options exercised — 22 — — 378 400 Restricted stock awards granted — ( 1,357 ) — — 1,357 — Performance restricted stock units vested — ( 917 ) — — 917 — Other ( 1 ) ( 1,192 ) — — — ( 1,193 ) Balance at January 31, 2024 $ 371 $ 248,715 $ 412,922 $ ( 32,060 ) $ ( 74,919 ) $ 555,029 Net income — — 15,377 — — 15,377 Foreign currency translation adjustment — — — ( 2,571 ) — ( 2,571 ) Common dividends ($ 0.08 per share) — — ( 2,649 ) — — ( 2,649 ) Stock-based compensation activity: Expense related to stock-based compensation — 782 — — — 782 Stock options exercised — 5 — — 149 154 Balance at April 30, 2024 $ 371 $ 249,502 $ 425,650 $ ( 34,631 ) $ ( 74,770 ) $ 566,122 Net income — — 25,350 — — 25,350 Foreign currency translation adjustment — — — 4,500 — 4,500 Common dividends ($ 0.08 per share) — — ( 2,649 ) — — ( 2,649 ) Stock-based compensation activity: Expense related to stock-based compensation — 794 — — — 794 Stock options exercised — 1 — — 18 19 Balance at July 31, 2024 $ 371 $ 250,297 $ 448,351 $ ( 30,131 ) $ ( 74,752 ) $ 594,136 5 Table of Contents Nine Months Ended July 31, 2023 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders’ Equity (In thousands, no per share amounts shown except in verbiage) Balance at October 31, 2022 $ 372 $ 251,947 $ 337,456 $ ( 49,422 ) $ ( 75,518 ) $ 464,835 Net income — — 1,909 — — 1,909 Foreign currency translation adjustment — — — 11,372 — 11,372 Common dividends ($ 0.08 per share) — — ( 2,661 ) — — ( 2,661 ) Stock-based compensation activity: Expense related to stock-based compensation — 679 — — — 679 Stock options exercised — 6 — — 93 99 Restricted stock awards granted — ( 1,752 ) — — 1,752 — Performance restricted stock units vested — ( 605 ) — — 605 — Other — ( 545 ) — — — ( 545 ) Balance at January 31, 2023 $ 372 $ 249,730 $ 336,704 $ ( 38,050 ) $ ( 73,068 ) $ 475,688 Net income — — 21,512 — — 21,512 Foreign currency translation adjustment — — — 3,082 — 3,082 Common dividends ($ 0.08 per share) — — ( 2,659 ) — — ( 2,659 ) Purchase of treasury stock — — — — ( 5,593 ) ( 5,593 ) Stock-based compensation activity: Expense related to stock-based compensation — 719 — — — 719 Other — ( 22 ) — — — ( 22 ) Balance at April 30, 2023 $ 372 $ 250,427 $ 355,557 $ ( 34,968 ) $ ( 78,661 ) $ 492,727 Net income — — 31,698 — — 31,698 Foreign currency translation adjustment — — — 3,078 — 3,078 Common dividends ($ 0.08 per share) — — ( 2,632 ) — — ( 2,632 ) Stock-based compensation activity: Expense related to stock-based compensation — 430 — — — 430 Stock options exercised — 25 — — 629 654 Balance at July 31, 2023 $ 372 $ 250,882 $ 384,623 $ ( 31,890 ) $ ( 78,032 ) $ 525,955 The accompanying notes are an integral part of the financial statements. 6 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations and Basis of Presentation Quanex Building Products Corporation is a global, publicly traded manufacturing company primarily serving original equipment manufacturers (OEMs) in the fenestration, cabinetry, solar, refrigeration and outdoor products markets. These components can be categorized as window and door (fenestration) components and kitchen and bath cabinet components. Examples of fenestration components include: (1) energy-efficient flexible insulating glass spacers, (2) extruded vinyl profiles, (3) window and door screens, and (4) precision-formed metal and wood products. We also manufacture cabinet doors and other components for OEMs in the kitchen and bathroom cabinet industry. In addition, we provide certain other non-fenestration components and products, which include custom mixing, solar panel sealants, trim moldings, vinyl decking, vinyl fencing, customized compounds, water retention barriers, and conservatory roof components. We have organized our business into three reportable business segments. For additional discussion of our reportable business segments, see Note 13, “Segment Information.” We use low-cost, short lead-time production processes and engineering expertise to provide our customers with specialized products for their specific window, door, and cabinet applications. We believe these capabilities provide us with unique competitive advantages. We serve a primary customer base in North America and the United Kingdom (U.K.), and also serve customers in international markets through our operating plants in the U.K. and Germany, as well as through sales and marketing efforts in other countries. Unless the context indicates otherwise, references to “Quanex,” the “Company,” “we,” “us,” and “our” refer to the consolidated business operations of Quanex Building Products Corporation and its subsidiaries. Basis of Presentation and Principles of Consolidation The accompanying interim unaudited condensed consolidated financial statements include the accounts of Quanex Building Products Corporation. All intercompany accounts and transactions have been eliminated in consolidation. These financial statements have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of October 31, 2023 was derived from audited financial information but does not include all disclosures required by U.S. GAAP. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. In our opinion, the accompanying financial statements contain all adjustments (which consist of normal recurring adjustments, except as disclosed herein) necessary to fairly present our financial position, results of operations and cash flows for the interim periods. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year or for any future periods. Use of Estimates In preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. We review our estimates on an on-going basis, including those related to impairment of long-lived assets and goodwill, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates. Revenue from Contracts with Customers Revenue recognition We recognize revenue that reflects the consideration we expect to receive for product sales upon transfer to customers. Revenue for product sales is recognized when control of the promised products is transferred to our customers, and we are entitled to consideration in exchange for such transfer. We account for a contract when a customer provides us with a firm purchase order that identifies the products to be provided, the payment terms for those products, and when collectability of the consideration due is probable. Performance obligations A performance obligation is a promise to provide the customer with a good or service. Our performance obligations include product sales, with each product included in a customer contract being recognized as a separate performance obligation. 7 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) For contracts with multiple performance obligations, the standalone selling price of each product is generally readily observable. Revenue from product sales is recognized at a point in time when the product is transferred to the customer, in accordance with the shipping terms, which is generally upon shipment. We estimate a provision for sales returns and warranty allowances to account for product returns related to general returns and product nonconformance. We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. Additionally, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Pricing and sales incentives Pricing is established at or prior to the time of sale with our customers and we record sales at the agreed-upon net selling price, reflective of current and prospective discounts. Shipping and handling costs We account for shipping and handling services as fulfillment services; accordingly, freight revenue is combined with the product deliverable rather than being accounted for as a distinct performance obligation within the terms of the agreement. Shipping and handling costs incurred by us for the delivery of goods to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying condensed consolidated statements of income. Contract assets and liabilities Deferred revenue, which is not significant, is recorded when we have remaining unsatisfied performance obligations for which we have received consideration. Disaggregation of revenue We produce a wide variety of products that are used in the fenestration industry, including window spacer systems; extruded vinyl products; metal fabricated products; and astragals, thresholds and screens. In addition, we produce certain non-fenestration products, including kitchen and bath cabinet doors and components, flooring and trim moldings, solar edge tape, plastic decking, fencing, water retention barriers, conservatory roof components, and other products. 8 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes our product sales for the three and nine months ended July 31, 2024 and 2023 into groupings by segment which we believe depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by economic factors. For further details regarding our results by segment, refer to Note 13, “Segment Information.” Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 (In thousands) North American Fenestration: United States - fenestration $ 131,394 $ 138,090 $ 362,674 $ 379,613 International - fenestration 6,950 8,542 20,559 22,019 United States - non-fenestration 27,873 26,423 81,196 73,823 International - non-fenestration 4,041 4,026 13,598 11,581 $ 170,258 $ 177,081 $ 478,027 $ 487,036 European Fenestration: International - fenestration $ 50,551 $ 51,752 $ 139,270 $ 142,009 International - non-fenestration 9,066 16,137 26,367 44,595 $ 59,617 $ 67,889 $ 165,637 $ 186,604 North American Cabinet Components: United States - fenestration $ 3,791 $ 4,486 $ 11,203 $ 12,613 United States - non-fenestration 47,287 50,199 133,456 148,774 International - non-fenestration 370 700 1,004 2,190 $ 51,448 $ 55,385 $ 145,663 $ 163,577 Unallocated Corporate & Other Eliminations $ ( 978 ) $ ( 715 ) $ ( 3,626 ) $ ( 2,126 ) $ ( 978 ) $ ( 715 ) $ ( 3,626 ) $ ( 2,126 ) Net sales $ 280,345 $ 299,640 $ 785,701 $ 835,091 Allowance for Credit Losses We have established an allowance for credit losses to estimate the risk of losses, which represents an estimate of expected losses over the remaining contractual life of our receivables. The allowance is determined using two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. Second, a reserve is determined for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection rates, write-off experience, and forecasts of future economic conditions. Actual write-offs are charged against the allowance when collection efforts have been unsuccessful. Related Parties N et sales include transactions with a customer which is a related party with one of our non-employee directors for three and nine months ended July 31, 2024 of was $ 0.3 million and $ 0.8 million, respectively, and $ 0.3 million and $ 0.9 million for the comparable prior year periods. We performed a review of these transactions, of which no single transaction or series of related transactions exceeded $ 120,000 in amount, and determined that these transactions were enacted independently of each other. We are not aware of any other related party transactions with any of our current non-employee directors or officers outside of their normal business functions or expected contractual duties. 9 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Acquisition On November 1, 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with LMI Custom Mixing, LLC (“LMI”) and the equity owners of LMI, Lauren International, Ltd. and Meteor-US-Beteiligungs GMBH. Under the Purchase Agreement, we acquired substantially all of the operating assets comprising LMI’s polymer mixing and rubber compound production business (collectively, the “Purchased Assets”) and also agreed to assume certain liabilities relating to the Purchased Assets (collectively, the “LMI Acquisition”). As consideration for the Purchased Assets, we paid $ 91.3 million in cash utilizing funds borrowed under our Credit Facility. In connection with the LMI Acquisition, we amended our existing financ e lease with Lauren Real Estate Holding LLC for the purpose of adding an additional lease renewal option and increasing rental space by approximately 60,000 square feet of rental space which was added to the 313,595 square feet of rentable area located in Cambridge, Ohio. 3. Inventories Inventories consisted of the following at July 31, 2024 and October 31, 2023 (in thousands): July 31, 2024 October 31, 2023 Raw materials $ 59,865 $ 53,585 Finished goods and work in process 37,343 42,195 Supplies and other 1,919 2,179 Total $ 99,127 $ 97,959 Fixed costs related to excess manufacturing capacity, if any, have been expensed in the period they were incurred and, therefore, are not capitalized into inventory. 4. Leases We recognize a right-of-use (ROU) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We include ROU assets and lease liabilities for leases that exist within other contracts. Leases with an original term of 12 months or less are not recognized on the balance sheet, and the rent expense related to those short-term leases is recognized over the lease term. We do not account for lease and non-lease (e.g., common area maintenance) components of contracts separately for any underlying asset class. We lease certain manufacturing plants, warehouses, office space, vehicles and equipment under finance and operating leases. Lease commencement occurs on the date we take possession or control of the property or equipment. Original terms for our real estate-related leases are generally between five years and twenty years . Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one year and ten years . Some of our leases also include rental escalation clauses. Renewal options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital. If readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. When the implicit rate is not determinable, our estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement. Total lease costs recorded include fixed operating lease costs and variable lease costs. Most of our real estate leases require we pay certain expenses, such as common area maintenance costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs are recognized when probable and are not included in determining the present value of our lease liability. The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date and initial direct costs. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required. 10 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) The table below presents the lease-related assets and liabilities recorded on the balance sheet at July 31, 2024 and October 31, 2023 (in thousands): Leases Classification July 31, 2024 October 31, 2023 Assets Operating lease assets Operating lease right-of-use assets $ 63,642 $ 46,620 Finance lease assets Property, plant and equipment (less accumulated depreciation of $ 9,594 and $ 6,691 ) 60,760 58,496 Total lease assets $ 124,402 $ 105,116 Liabilities Current Operating Current operating lease liabilities $ 6,435 $ 7,224 Finance Current maturities of long-term debt 3,000 2,676 Noncurrent Operating Noncurrent operating lease liabilities 59,099 40,361 Finance Long-term debt 52,007 52,309 Total lease liabilities $ 120,541 $ 102,570 The table below presents the components of lease costs for the three and nine months ended July 31, 2024 and 2023 (in thousands): Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 Operating lease cost $ 3,722 $ 2,322 $ 7,720 $ 6,731 Finance lease cost Amortization of leased assets 1,237 824 2,706 2,439 Interest on lease liabilities 839 612 1,863 1,815 Variable lease costs 523 420 1,461 1,210 Total lease cost $ 6,321 $ 4,178 $ 13,750 $ 12,195 11 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) The table below presents supplemental cash flow information related to leases for the nine months ended July 31, 2024 and 2023 (in thousands): Nine Months Ended July 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Finance leases - financing cash flows $ 2,112 $ 1,762 Finance leases - operating cash flows $ 1,863 $ 1,815 Operating leases - operating cash flows $ 6,826 $ 6,848 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 22,025 $ 3,714 Finance leases $ 1,308 $ 25,723 The table below presents the weighted-average remaining lease terms and weighted-average discount rates for the Company's leases as of July 31, 2024 and October 31, 2023: July 31, 2024 October 31, 2023 Weighted-average remaining lease term (in years) Operating leases 10.8 10.7 Financing leases 17.7 18.7 Weighted-average discount rate Operating leases 4.66 % 4.09 % Financing leases 4.69 % 4.52 % The table below presents the maturity of the lease liabilities as of July 31, 2024 (in thousands): Operating Leases Finance Leases 2024 (remaining three months) $ 2,341 $ 1,379 2025 9,299 5,436 2026 9,150 5,276 2027 8,148 5,109 2028 7,316 4,931 Thereafter 49,112 59,006 Total lease payments 85,366 81,137 Less: present value discount 19,832 26,130 Total lease liabilities $ 65,534 $ 55,007 12 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Goodwill and Intangible Assets Goodwill The change in the carrying amount of goodwill for the nine months ended July 31, 2024 was as follows (in thousands): Nine Months Ended July 31, 2024 Beginning balance as of November 1, 2023 $ 182,956 Foreign currency translation adjustment 3,239 Balance as of the end of the period $ 186,195 At our last annual test date, August 31, 2023, we evaluated the recoverability of goodwill at each of our five reporting units with goodwill balances and determined that our goodwill was no t impaired. We evaluated for indicators of impairment for all reporting units during the three and nine months ended July 31, 2024 and determined that there were no triggering events. For additional discussion of change in reporting units and a summary of the change in the carrying amount of goodwill by segment, see Note 13, “Segment Information.” Identifiable Intangible Assets Amortizable intangible assets consisted of the following as of July 31, 2024 and October 31, 2023 (in thousands): July 31, 2024 October 31, 2023 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Customer relationships $ 159,707 $ 107,116 $ 157,629 $ 99,230 Trademarks and trade names 56,166 44,989 55,519 42,879 Patents and other technology 25,162 22,324 25,127 22,051 Total $ 241,035 $ 174,429 $ 238,275 $ 164,160 We had aggregate amortization expense related to intangible assets for the three and nine months ended July 31, 2024 of $ 2.8 million and $ 9.0 million, respectively, and $ 3.0 million and $ 9.1 million for the comparable prior year periods. Estimated remaining amortization expense, assuming current intangible balances and no new acquisitions, for future fiscal years as of July 31, 2024 (in thousands): Estimated Amortization Expense 2024 (remaining three months) $ 2,797 2025 10,393 2026 10,151 2027 10,152 2028 4,918 Thereafter 28,195 Total $ 66,606 13 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Debt and Finance Lease Obligations Long-term debt consisted of the following at July 31, 2024 and October 31, 2023 (in thousands): July 31, 2024 October 31, 2023 Revolving Credit Facility $ — $ 15,000 Finance lease obligations and other 55,007 55,000 Unamortized deferred financing fees ( 911 ) ( 1,200 ) Total debt $ 54,096 $ 68,800 Less: Current maturities of long-term debt 2,690 2,365 Long-term debt $ 51,406 $ 66,435 Credit Agreement On August 1, 2024, we completed our previously announced acquisition (the “Tyman Acquisition”) of Tyman plc, a company incorporated in England and Wales (“Tyman”). On June 12, 2024, in connection with the Tyman Acquisition, the Company, Wells Fargo Bank, National Association (“Wells Fargo Bank”, acting as agent, swingline lender and issuing lender, the “Agent”), the other entities therein specified in the capacities therein specified, and the lenders parties thereto, entered into an amendment to the Second Amended and Restated Credit Agreement, dated as of July 6, 2022 (the “Existing Credit Agreement”, and the Existing Credit Agreement as so amended, the “Amended Credit Agreement”). The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion the Tyman Acquisition. For further information regarding the Tyman Acquisition and the Amended Credit Agreement, refer to Note 16, “Subsequent Events.” On July 6, 2022, we entered into our Existing Credit Agreement with Wells Fargo Securities, LLC, as Agent, Swingline Lender and Issuing Lender, and BofA Securities, Inc. serving as Syndication Agent. We capitalized $ 1.2 million of deferred financing fees related to the Credit Facility . This $ 325.0 million revolving credit facility has a five -year term, maturing on July 6, 2027, and replaces our previous credit facility. Interest payments for the Existing Credit Agreement are calculated, at our election and depending upon the Consolidated Net Leverage Ratio, at a Base Rate (as defined within the Existing Credit Agreement) plus an applicable margin or at the same rate as Risk-Free Rate (“RFR”) Loans for domestic borrowings or Eurocurrency Rate Loans plus an applicable margin. In addition, we are subject to commitment fees for the unused portion of the Existing Credit Agreement. The applicable margin and commitment fees are outlined in the following table: Pricing Level Consolidated Net Leverage Ratio Commitment Fee Eurocurrency Rate Loans and RFR Loans Base Rate Loans I Less than or equal to 1.50 to 1.00 0.150 % 1.25 % 0.25 % II Greater than 1.50 to 1.00, but less than or equal to 2.25 to 1.00 0.175 % 1.50 % 0.50 % III Greater than 2.25 to 1.00, but less than or equal to 3.00 to 1.00 0.200 % 1.75 % 0.75 % IV Greater than 3.00 to 1.00 0.250 % 2.00 % 1.00 % In the event of default, outstanding borrowings would accrue interest at the Default Rate, as defined, whereby the obligations will bear interest at a per annum rate equal to 2 % above the total per annum rate otherwise applicable. The Existing Credit Agreement provides for incremental revolving credit commitments for a minimum principal amount of $ 10.0 million, up to an aggregate amount of $ 150.0 million or 100% of Consolidated EBITDA, subject to the lender's discretion to elect or decline the incremental increase. We can also borrow up to the lesser of $ 15.0 million or the revolving credit commitment, as defined, under a Swingline feature of the Existing Credit Agreement. The Existing Credit Agreement contains a: (1) Consolidated Interest Coverage Ratio requirement whereby we must not permit the Consolidated Interest Coverage Ratio, as defined, to be less than 3.00 to 1.00, and (2) Consolidated Net Leverage Ratio requirement, whereby we must not permit the Consolidated Net Leverage Ratio, as defined, to be greater than 3.25 to 1.00. In addition to maintaining these financial covenants, the Existing Credit Agreement also limits our ability to enter into certain business transactions, such as to incur indebtedness or liens, to acquire businesses or dispose of material assets, make 14 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) restricted payments, pay dividends (limited to $ 25.0 million per year) and other transactions as further defined in the Existing Credit Agreement. Some of these limitations, however, do not take effect so long as Consolidated Net Leverage Ratio is less than or equal to 2.75 to 1.00 and available liquidity exceeds $ 25.0 million. Substantially all of our domestic assets, with the exception of real property, are used as collateral for the Existing Credit Agreement. As of July 31, 2024, we had no borrowings outstanding under the Existing Credit Agreement , unamortized debt issuance costs of $0.9 million, $ 3.7 million of outstanding letters of credit and $ 55.0 million outstanding primarily under finance leases and other debt. We had $ 321.3 million available for use under the Existing Credit Agreement at July 31, 2024. Our weighted-average borrowing rate for borrowings outstanding during the nine months ended July 31, 2024 and 2023 was 6.69 % and 5.91 %, respectively. We were in compliance with our debt covenants as of July 31, 2024. 7. Retirement Plans Pension Plan Our non-contributory, single employer defined benefit pension plan covered certain of our employees in the U.S. During the year ended October 31, 2023, we terminated our defined contribution plan and settled the obligation during the three months ended October 31, 2023. The net periodic pension (benefit) cost for this plan for the three and nine months ended July 31, 2024 and 2023 was as follows (in thousands): Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 Service cost $ — $ 95 $ — $ 287 Interest cost — 390 — 1,169 Expected return on plan assets — ( 366 ) — ( 1,099 ) Amortization of net loss — 11 — 32 Settlement reimbursement — — ( 903 ) — Net periodic pension (benefit) cost $ — $ 130 $ ( 903 ) $ 389 Other Plans We also have a supplemental benefit plan covering certain executive officers and key employees and a non-qualified deferred compensation plan covering members of the Board of Directors and certain key employees. As of July 31, 2024 and October 31, 2023, our liability under the supplemental benefit plan was approximately zero and $ 2.0 million, respectively. During the year ended October 31, 2023, the supplemental benefit plan was terminated. Benefits associated with this plan were distributed in June 2024 in accordance with Internal Revenue Service regulations. As of July 31, 2024 and October 31, 2023, the liability associated with the deferred compensation plan was approximately $ 4.9 million and $ 3.9 million, respectively. We record the current portion of liabilities associated with these plans under the caption “Accrued liabilities,” and the long-term portion under the caption “Other liabilities” in the accompanying condensed consolidated balance sheets. 8. Income Taxes To determine our income tax expense or benefit for interim periods, consistent with accounting standards, we apply the estimated annual effective income tax rate t o year-to-date results, plus any applicable discrete items, which are recorded in the period in which they occur. Discrete items include, among others, such events as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statutes of limitations, tax benefits on equity compensation, and increases or decreases in valuation allowances on deferred tax assets. Our estimated annual effective tax rates from continuing operations for the nine months ended July 31, 2024 and 2023 were 21.2 % and 18.2 %, respectively. The difference between our estimated annual effective income tax rate and the U.S. federal statutory rate of 21 % principally results from discrete tax items, U.S. state taxes, a non-U.S. tax rate differential and other permanent differences. The primary discrete items affecting the 2024 effective rate were the benefit of $ 0.4 million related to the vesting or exercise of equity-based compensation awards and a charge of $ 0.7 million related to the true up of the deferred tax rate. The primary discrete item affecting the 2023 effective rate was a benefit of $ 1.7 million related to a true-up of tax provision accrual to tax return filings. As of July 31, 2024, our liability for uncertain tax positions (UTP) of $ 0.3 million relates to certain U.S. federal and state tax items regarding the interpretation of tax laws and regulations, including a minimal amount of interest and penalties. We include all interest and penalties related to uncertain tax benefits within our income tax provision account. To the extent interest 15 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) and penalties are not assessed with respect to uncertain tax positions or the uncertainty of deductions in the future, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. We evaluate the likelihood of realization of our deferred tax assets by considering both positive and negative evidence. We maintain a valuation allowance for certain state net operating losses which totaled $ 0.6 million as of July 31, 2024 and October 31, 2023, respectively. 9. Contingencies Remediation and Environmental Compliance Costs Under applicable state and federal laws, we may be responsible for, among other things, all or part of the costs required to remove or remediate wastes or hazardous substances at locations we, or our predecessors, have owned or operated. From time to time, we also have been alleged to be liable for all or part of the costs incurred to clean up third-party sites where there might have been an alleged improper disposal of hazardous substances. Currently, we are not involved in any such matters. From time to time, we incur routine expenses and capital expenditures associated with compliance with existing environmental regulations, including control of air emissions and water discharges, and plant decommissioning costs. We have not incurred any material expenses or capital expenditures related to environmental matters during the past three fiscal years, and do not expect to incur a material amount of such costs in fiscal 2024. While we will continue to have future expenditures related to environmental matters, any such amounts are impossible to reasonably estimate at this time. Based upon our experience to date, we do not believe that our compliance with environmental requirements will have a material adverse effect on our operations, financial condition or cash flows. Litigation From time to time, we, along with our subsidiaries, are involved in various litigation matters arising in the ordinary course of our business, including those arising from or related to contractual matters, commercial disputes, intellectual property, personal injury, environmental matters, product performance or warranties, product liability, insurance coverage and personnel and employment disputes. We regularly review with legal counsel the status of all ongoing proceedings, and we maintain insurance against these risks to the extent deemed prudent by our management and to the extent such insurance is available. However, there is no assurance that we will prevail in these matters or that our insurers will accept full coverage of these matters, and we could, in the future, incur judgments, enter into settlements of claims, or revise our expectations regarding the outcome or insurability of matters we face, which could materially impact our results of operations. We have been and are currently party to multiple claims, some of which are in litigation, relating to alleged defects in a commercial sealant product that was manufactured and sold during the 2000’s. While we believe that our product was not defective and that we would prevail in these commercial sealant product claims if taken to trial, the timing, ultimate resolution and potential impact of these claims is not currently determinable. Nevertheless, after taking into account all currently available information, including our defenses, the advice of our counsel, and the extent and currently-expected availability of our existing insurance coverage, we believe that the eventual outcome of these commercial sealant claims will not have a material adverse effect on our overall financial condition, results of operations or cash flows, and we have not recorded any accrual with regard to these claims. 10. Fair Value Measurement of Assets and Liabilities Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market data developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to Level 1 and the lowest priority to Level 3. The three levels of the fair value hierarchy are described below: • Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. • Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the 16 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) asset or liability (e.g., interest rates) and inputs that are derived principally from or corroborated by observable market data by correlation or other means. • Level 3 - Inputs that are both significant to the fair value measurement and unobservable. Carrying amounts reported on the balance sheet for cash, cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments. Our outstanding debt is variable rate debt that re-prices frequently, thereby limiting our exposure to significant change in interest rate risk. As a result, the fair value of our debt instrument approximates carrying value at July 31, 2024, and October 31, 2023 (Level 2 measurement). On May 2, 2024, we entered into a deal contingent foreign exchange forward currency contract to manage our exposure to foreign currency exchange rate fluctuations against the USD and GBP for approximately $ 605 million, as part of the $ 1.1 billion purchase consideration for the Tyman Acquisition. Our deal contingent forward contract is adjusted to fair value by recording gains and losses to “Other, net,” and we record the related asset to “Other Current Assets” in the accompanying condensed consolidated statement of income and condensed consolidated balance sheets, respectively. During the three months ended July 31, 2024, we recognized a gain of $ 9.2 million related to this foreign exchange forward currency contract and the contract was concluded in August 2024 as a result of the completion of the Tyman Acquisition. The value of our foreign exchange forward currency contract fluctuated based on exchange rate fluctuations against the USD and GBP (Level 2 measurement). For further information regarding the Tyman Acquisition, refer to Note 16, “Subsequent Events.” Our performance share awards are marked-to-market on a quarterly basis during a three-year vesting period based on market data (Level 2 measurement). For further information, refer to Note 11, “Stock-Based Compensation - Performance Share Awards.” 11. Stock-Based Compensation We have established and maintain an Omnibus Incentive Plan (2020 Plan) that provides for the granting of restricted stock awards, stock options, restricted stock units, performance share awards, performance restricted stock units, and other stock-based and cash-based awards. The 2020 Plan is administered by the Compensation and Management Development Committee of the Board of Directors. The aggregate number of shares of common stock authorized for grant under the 2020 Plan is 3,139,895 as approved by shareholders. Any officer, key employee and/or non-employee director is eligible for awards under the 2020 Plan. We grant restricted stock units to non-employee directors on the first business day of each fiscal year. As approved by the Compensation & Management Development Committee of our Board of Directors annually, we grant a mix of restricted stock awards, performance shares and performance restricted stock units to officers, management and key employees. We also historically granted stock options to certain officers, directors and key employees. Occasionally, we may make additional grants to key employees at other times during the year. Restricted Stock Awards Restricted stock awards are granted to key employees and officers annually, and typically cliff vest over a three-year period with service and continued employment as the only vesting criteria. The recipient of the restricted stock award is entitled to all of the rights of a shareholder, except that the award is nontransferable during the vesting period and quarterly dividends are not paid until the award vests. The fair value of the restricted stock award is established on the grant date and then expensed over the vesting period resulting in an increase in additional paid-in-capital. Shares are generally issued from treasury stock at the time of grant. 17 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) A summary of non-vested restricted stock awards activity during the nine months ended July 31, 2024 is presented below: Restricted Stock Awards Weighted-Average Grant Date Fair Value per Share Non-vested at October 31, 2023 242,300 $ 22.36 Granted 72,900 32.15 Forfeited ( 11,800 ) 22.30 Vested ( 66,600 ) 20.68 Non-vested at July 31, 2024 236,800 $ 25.85 The total weighted-average grant-date fair value of restricted stock awards that vested during each of the nine months ended July 31, 2024 and 2023 was $ 1.4 million and $ 1.0 million, respectively. As of July 31, 2024, total unrecognized compensation cost related to unamortized restricted stock awards was $ 3.0 million. We expect to recognize this expense over the remaining weighted-average vesting period of 1.9 years. Stock Options Historically, stock options have been awarded to key employees, officers and non-employee directors. In December 2017, the Compensation & Management Development Committee of the Board of Directors approved a change to the long-term incentive award program eliminating the grant of stock options and replacing this award with a grant of performance restricted stock units and performance shares as further described below. As a result, the final stock options were granted during the fiscal year ended October 31, 2017. Stock options typically vested ratably over a three-year period with service and continued employment as the vesting conditions. Our stock options may be exercised up to a maximum of ten years from the date of grant. The fair value of the stock options was determined on the grant date and expensed over the vesting period resulting in an increase in additional paid-in-capital. For employees who were nearing retirement-eligibility, we recognize stock option expense ratably over the shorter of the vesting period or the period from the grant-date to the retirement-eligibility date. We use a Black-Scholes pricing model to estimate the fair value of stock options. A description of the methodology for the valuation assumptions was disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. The following table summarizes our stock option activity for the nine months ended July 31, 2024: Stock Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (000s) Outstanding at October 31, 2023 107,530 $ 19.48 Exercised ( 29,280 ) 19.58 Outstanding at July 31, 2024 78,250 $ 19.45 1.7 $ 1,092 Vested at July 31, 2024 78,250 $ 19.45 1.7 $ 1,092 Exercisable at July 31, 2024 78,250 $ 19.45 1.7 $ 1,092 Intrinsic value is the amount by which the market price of the common stock on the date of exercise exceeds the exercise price of the stock option. The total intrinsic value of stock options exercised during the nine months ended July 31, 2024 and 2023 was $ 0.4 million and $ 0.3 million, respectively. Restricted Stock Units Restricted stock units may be awarded to key employees and officers from time to time, and annually to non-employee directors. The non-employee director restricted stock units vest immediately but are payable only upon the director's cessation of service unless an election is made by the non-employee director to settle and pay the award on an earlier specified date. Restricted stock units awarded to employees and officers typically cliff vest after a three-year period with service and continued employment as the vesting conditions. Restricted stock units are not considered outstanding shares and do not have voting rights, although the holder does receive a cash payment equivalent to the dividend paid, on a one-for-one basis, on our outstanding common shares. Once the criteria is met, each restricted stock unit is payable to the holder in cash based on the market value of one share of our common stock. Accordingly, we record a liability for the restricted stock units on our balance sheet and recognize any changes in the market value during each reporting period as compensation expense. 18 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) During the nine months ended July 31, 2024 and 2023, non-employee directors received 26,215 and 38,704 restricted stock units, respectively, at a weighted-average grant date fair value of $ 26.70 per share and $ 20.67 per share, respectively, which vested immediately. During the nine months ended July 31, 2023, 21,774 restricted stock units, which were awarded to key employees, vested. D uring the nine months ended July 31, 2024, we paid $ 0.6 million and $ 0.4 million for the comparable prior year to settle vested restricted stock units. Performance Share Awards We have awarded annual grants of performance shares to key employees and officers. Performance share awards vest with return on net assets (RONA) as the vesting condition and pay out 100 % in cash, and are accounted for as liability. The expected cash settlement of the performance share award is recorded as a liability and is being marked to market over the three-year term of the award and can fluctuate depending on the number of shares ultimately expected to vest. Depending on the achievement of the performance conditions, 0 % to 200 % of the awarded performance shares may ultimately vest. The following table summarizes our performance share grants and the grant date fair value for the RONA performance metrics: Grant Date Shares Awarded Grant Date Fair Value Shares Forfeited December 9, 2021 80,900 $ 22.54 4,600 December 7, 2022 89,300 $ 23.49 4,600 December 7, 2023 72,200 $ 32.15 — In December 2023, 122,400 shares vested pursuant to the December 2020 grant, which were settled with a cash payment of $ 3.4 million. Performance share awards are payable in cash based upon the number of performance shares ultimately earned, and are therefore not considered outstanding shares. Performance Restricted Stock Units We award performance restricted stock units to key employees and officers. These awards cliff vest upon a three-year service period with the absolute total shareholder return of our common stock over this three-year term as the vesting criteria. The number of shares earned is variable depending on the metric achieved, and the settlement method is 100 % in our common stock, with accrued dividends paid in cash at the time of vesting, assuming the shares had been outstanding throughout the performance period. To value the performance restricted stock units, we used a Monte Carlo simulation model to arrive at a grant-date fair value. This amount will be adjusted for forfeitures and expensed over the three-year term of the award with a credit to additional paid-in-capital. Depending on the achievement of the performance conditions, a minimum of 0 % and a maximum of 150 % of the awarded performance restricted stock units may vest. Specifically, the awards vest on a continuum with the following Absolute Total Shareholder Return (A-TSR) milestones: Vesting Level Vesting Criteria Percentage of Award Vested Level 1 A-TSR greater than or equal to 50% 150 % Level 2 A-TSR less than 50% and greater than or equal to 20% 100 % Level 3 A-TSR less than 20% and greater than or equal to -20% 50 % Level 4 A-TSR less than -20% — % 19 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes our performance restricted stock unit grants and the grant date fair value for the A-TSR performance metric: Grant Date Shares Awarded Grant Date Fair Value Shares Forfeited December 9, 2021 50,900 $ 21.06 3,400 December 7, 2022 51,500 $ 23.22 3,100 December 7, 2023 40,700 $ 30.35 — During the nine months ended July 31, 2024 , 49,228 performance restricted stock units vested. The performance restricted stock units are not considered outstanding shares, do not have voting rights, and are exclud ed from diluted weighted-average shares used to calculate earnings per share until the performance criteria is probable to result in the issuance of contingent shares. As of July 31, 2024, we have de emed 67,626 shares related to the December 2021 grant of performance restricted stock units as probable to vest. The following table summarizes amounts expensed as selling, general and administrative expense related to restricted stock awards, stock options, restricted stock units, performance share awards and performance restricted stock units for the three and nine months ended July 31, 2024 and 2023 (in thousands): Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 Restricted stock awards $ 514 $ 356 $ 1,333 $ 1,258 Restricted stock units 39 1,444 1,815 1,873 Performance share awards 444 592 1,372 3,934 Performance restricted stock units 280 74 826 570 Total compensation expense $ 1,277 $ 2,466 $ 5,346 $ 7,635 Treasury Shares We record treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Shares are generally issued from treasury stock at the time of grant of restricted stock awards, upon the exercise of stock options, and upon the vesting of performance restricted stock units. On the subsequent issuance of treasury shares, we record proceeds in excess of cost as an increase in additional paid in capital. A deficiency of such proceeds relative to costs would be applied to reduce paid-in-capital associated with prior issuances to the extent available, with the remainder recorded as a charge to retained earnings. There were no charges to retained earnings during the nine months ended July 31, 2024. The following table summarizes the treasury stock activity during the nine months ended July 31, 2024: Nine Months Ended July 31, 2024 Beginning Balance as of November 1, 2023 4,165,839 Restricted stock awards granted ( 72,900 ) Performance restricted stock units vested ( 49,228 ) Stock options exercised ( 29,280 ) Balance at July 31, 2024 4,014,431 20 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. Other, net Other, net on the condensed consolidated statements of income consisted of the following for the three and nine months ended July 31, 2024 and 2023 (in thousands): Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 Foreign currency transaction (losses) gains $ ( 38 ) $ 126 $ ( 94 ) $ 36 Foreign currency derivative gains 9,200 16 9,200 1 Pension service benefit — 309 903 494 Interest income 300 81 772 114 Other 12 ( 130 ) ( 261 ) ( 54 ) Other, net $ 9,474 $ 402 $ 10,520 $ 591 13. Segment Information We present three reportable business segments (1) NA Fenestration, comprising four operating segments primarily focused on the fenestration market in North America including vinyl profiles, insulating glass spacers, screens, custom compound mixing, and other fenestration components; (2) EU Fenestration, comprising our U.K.-based vinyl extrusion business, manufacturing vinyl profiles & conservatories, and the European insulating glass business manufacturing insulating glass spacers; and (3) NA Cabinet Components, comprising our cabinet door and components operations. Additionally, we maintain an Unallocated Corporate & Other which includes transaction expenses; stock-based compensation; long-term incentive awards based on the performance of our common stock and other factors; certain severance, legal and other costs not deemed to be allocable to all segments; depreciation of corporate assets; interest expense; other, net; income taxes and inter-segment eliminations; and executive incentive compensation and medical expense fluctuations relative to planned costs as determined during the annual planning process. Other general and administrative costs associated with the corporate office are allocated to the reportable segments, based upon a relative measure of profitability in order to more accurately reflect each reportable business segment's administrative costs. We allocate corporate expenses to businesses acquired mid-year from the date of acquisition. The accounting p olicies of our operating segments are the same as those used to prepare the accompanying condensed consolidated financial statements. Corporate general and administrative expense allocated during the three and nine month period ended July 31, 2024 was $ 6.6 million and $ 20.8 million, respectively, and $ 6.3 million and $ 17.1 million for the comparable prior year periods. ASC Topic 280-10-50, “Segment Reporting” (ASC 280) permits aggregation of operating segments based on factors including, but not limited to: (1) similar nature of products serving the building products industry, primarily the fenestration business; (2) similar production processes, although there are some differences in the amount of automation amongst operating plants; (3) similar types or classes of customers, namely the primary OEMs; (4) similar distribution methods for product delivery, although the extent of the use of third-party distributors will vary amongst the businesses; (5) similar regulatory environment; and (6) converging long-term economic similarities. 21 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Segment information for the three and nine months ended July 31, 2024 and 2023, and total assets as of July 31, 2024 and October 31, 2023 are summarized in the following table (in thousands): NA Fenestration EU Fenestration NA Cabinet Components Unallocated Corp. & Other Total Three Months Ended July 31, 2024 Net sales $ 170,258 $ 59,617 $ 51,448 $ ( 978 ) $ 280,345 Depreciation and amortization 5,194 2,609 3,093 57 10,953 Operating income (loss) 17,845 12,688 282 ( 7,373 ) 23,442 Capital expenditures 4,339 847 1,024 42 6,252 Three Months Ended July 31, 2023 Net sales $ 177,081 $ 67,889 $ 55,385 $ ( 715 ) $ 299,640 Depreciation and amortization 5,033 2,434 3,084 45 10,596 Operating income (loss) 22,668 16,150 2,271 ( 3,626 ) 37,463 Capital expenditures 3,201 2,244 1,744 187 7,376 Nine Months Ended July 31, 2024 Net sales $ 478,027 $ 165,637 $ 145,663 $ ( 3,626 ) $ 785,701 Depreciation and amortization 15,887 7,705 9,240 167 32,999 Operating income (loss) 44,652 30,597 ( 3,209 ) ( 20,044 ) 51,996 Capital expenditures 15,799 3,253 3,959 424 23,435 Nine Months Ended July 31, 2023 Net sales $ 487,036 $ 186,604 $ 163,577 $ ( 2,126 ) $ 835,091 Depreciation and amortization 15,328 7,135 8,988 221 31,672 Operating income (loss) 47,686 36,052 1,928 ( 14,464 ) 71,202 Capital expenditures 11,673 5,300 5,085 392 22,450 As of July 31, 2024 Total assets $ 389,715 $ 242,228 $ 149,862 $ 90,645 $ 872,450 As of October 31, 2023 Total assets $ 379,286 $ 239,333 $ 158,824 $ 53,700 $ 831,143 The following table summarizes the change in the carrying amount of goodwill by reportable business segment for the nine months ended July 31, 2024 (in thousands): NA Fenestration EU Fenestration NA Cabinet Comp. Unallocated Corp. & Other Total Balance as of October 31, 2023 $ 80,105 $ 63,704 $ 39,147 $ — $ 182,956 Foreign currency translation adjustment — 3,239 — — 3,239 Balance as of July 31, 2024 $ 80,105 $ 66,943 $ 39,147 $ — $ 186,195 For further details of Goodwill, see Note 5, “Goodwill & Intangible Assets,” located herewith. 22 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) We did not allocate non-operating loss or income tax benefit to the reportable segments. The following table reconciles operating income as reported above to net income for the three and nine months ended July 31, 2024 and 2023 (in thousands): Three Months Ended Nine Months Ended July 31, July 31, 2024 2023 2024 2023 Operating income $ 23,442 $ 37,463 $ 51,996 $ 71,202 Interest expense ( 878 ) ( 2,068 ) ( 2,896 ) ( 6,571 ) Other, net 9,474 402 10,520 591 Income tax expense ( 6,688 ) ( 4,099 ) ( 12,644 ) ( 10,103 ) Net income $ 25,350 $ 31,698 $ 46,976 $ 55,119 23 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. Earnings Per Share We compute basic earnings per share by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per common and potential common shares include the weighted-average of additional shares associated with the incremental effect of dilutive employee stock options, non-vested restricted stock as determined using the treasury stock method prescribed by U.S. GAAP and contingent shares associated with performance share awards, if dilutive. Basic and diluted earnings per share for the three and nine months ended July 31, 2024 and 2023 were calculated as follows (in thousands, except per share data): Net Income Weighted-Average Shares Per Share Three Months Ended July 31, 2024 Basic earnings per common share $ 25,350 32,876 $ 0.77 Effect of dilutive securities: Stock options — 29 — Restricted stock awards — 133 — Performance restricted stock units — 68 — Diluted earnings per common share $ 25,350 33,106 $ 0.77 Three Months Ended July 31, 2023 Basic earnings per common share $ 31,698 32,716 $ 0.97 Effect of dilutive securities: Stock options — 33 — Restricted stock awards — 124 — Performance restricted stock units — 46 — Diluted earnings per common share $ 31,698 32,919 $ 0.96 Nine Months Ended July 31, 2024 Basic earnings per common share $ 46,976 32,857 $ 1.43 Effect of dilutive securities: Stock options — 34 — Restricted stock awards — 128 — Performance restricted stock units — 68 — Diluted earnings per common share $ 46,976 33,087 $ 1.42 Nine Months Ended July 31, 2023 Basic earnings per common share $ 55,119 32,841 $ 1.68 Effect of dilutive securities: Stock options — 30 — Restricted stock awards — 114 — Performance restricted stock units — 46 — Diluted earnings per common share $ 55,119 33,031 $ 1.67 We do not include equity instruments in our calculation of diluted earnings per share if those instruments would be anti-dilutive. We had zero and 1,364 of anti-dilutive restricted stock award equivalents for the three and nine months ended July 31, 2024, respectively, and no corresponding equivalents for the comparable prior year periods . Such dilution is dependent on the excess of the market price of our stock over the exercise price and other components of the treasury stock method. 24 Table of Contents QUANEX BUILDING PRODUCTS CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 15. New Accounting Guidance From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standards setting bodies that we adopt as of the specified effective date. We did not adopt any new accounting pronouncements during the three and nine months ended July 31, 2024. Accounting Standards Not Yet Adopted In November 2023, the FASB issued “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. In December 2023, the FASB issued “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which includes updates to the income tax disclosures related to the rate reconciliation and disaggregation of income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The amendments should be applied prospectively, however retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. 16. Subsequent Events On August 1, 2024, we completed the Tyman Acquisition of Tyman plc, a company incorporated in England and Wales (“Tyman”). The aggregate consideration due pursuant to the Tyman Acquisition at closing comprised of 14,139,477 newly issued Quanex common shares (“New Quanex Shares”) and cash consideration of approximately $ 504.1 million (being the Pound Sterling amount of cash consideration of £ 392.2 million in respect of all of the Tyman Shares converted to U.S. Dollars at an exchange rate of 1.2855 ). New Quanex Shares issued in connection with the Tyman Acquisition on the New York Stock Exchange took effect on August 2, 2024 and Tyman’s shares on the London Stock Exchange were canceled. On June 12, 2024, in connection with the Tyman Acquisition, the Company, Wells Fargo Bank, National Association (“Wells Fargo Bank”, acting as agent, swingline lender and issuing lender, the “Agent”), the other entities therein specified in the capacities therein specified, and the lenders parties thereto, entered into an amendment to the Second Amended and Restated Credit Agreement, dated as of July 6, 2022 (the “Existing Credit Agreement”, and the Existing Credit Agreement as so amended, the “Amended Credit Agreement”). The Amended Credit Agreement did not become effective until August 1, 2024 upon the completion of the Tyman Acquisition. The Amended Credit Agreement will (i) increase the senior secured revolving credit facility to an aggregate principal amount of $ 475 million (the “Revolving Credit Facility”) and (ii) provide for a senior secured term loan A facility in an aggregate principal amount of $ 500 million (the “Term A Facility” and together with the Revolving Credit Facility, the “Facilities”). The Revolving Credit Facility will include alternative currency, letter of credit, and swing-line sub-facilities of $ 100 million, $ 30 million, and $ 15 million, respectively. The maturity date of the Facilities will be five years after the acquisition effective date, maturing on August 1, 2029. 25 Table of Contents Unless the context indicates otherwise, references to “Quanex,” the “Company,” “we,” “us,” and “our” refer to the consolidated business operations of Quanex Building Products Corporation and its subsidiaries. Cautionary Note Regarding Forward-Looking Statements Certain of the statements contained in this document and in documents incorporated by reference herein, including those made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include “forward-looking” statements as defined under the Private Securities Litigation Reform Act of 1995. Generally, the words “expect,” “believe,” “intend,” “estimate,” “anticipate,” “project,” “will,” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are statements as to matters that are not historical facts, and include statements about our plans, objectives, expectations and intentions, including (1) all statements which address future operating performance, (2) events or developments that we expect or anticipate will occur in the future, including statements relating to the Tyman Acquisition and statements relating to volume, sales, operating income, and earnings per share, and (3) statements expressing general outlook about future operating results. Forward-looking statements also include any statements relating to future capital expenditures, expenses, revenues, economic performance, financial conditions, dividend policy, losses, future prospects or business or management strategies, and the expansion and/or growth of the operations of the Company. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our current projections or expectations. As and when made, we believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, provided, that we cannot give any assurance that such expectations will prove to be correct. However, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made and there can be no assurance that such forward-looking statements will occur. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to the following: • impacts from public health issues (including pandemics, such as the COVID-19 pandemic and quarantines) on the economy, demand for our products or our operations, including the responses of governmental authorities to contain such public health issues; • our ability to integrate and implement our plans, forecasts, and other expectations with respect to Tyman; • changes in market conditio ns, particularly in the new home construction, and residential remodeling and replacement (R&R) activity markets in the United States, United Kingdom, Germany and elsewhere; • changes in non-pass-through raw material costs; • changes in domestic and international economic conditions; • changes in availability and prices of raw material including inflationary pressures and supply chain challenges, which could be exacerbated by political or global unrest such as the current military conflicts in Ukraine and Gaza; • our ability to attract and retain skilled labor; • changes in purchases by our principal customers; • fluctuations in foreign currency exchange rates; • our ability to maintain an effective system of internal controls; • our ability to successfully implement our internal operating plans and acquisition strategies; • our ability to successfully implement our plans with respect to information technology (IT) systems and processes; • our ability to control costs and increase profitability; • changes in environmental laws and regulations; • changes in warranty obligations; • changes in energy costs and the availability of energy; • changes in tax laws, and interpretations thereof; • changes in interest rates; • our ability to service our debt facilities and remain in good standing with our lenders; • changes in the availability or applicability of our insurance coverage; • our ability to maintain good relationships with our suppliers, subcontractors, and key customers; and • the resolution of litigation and other legal proceedings. 26 Table of Contents For information on additional factors that could cause actual results to differ materially, please refer to the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. About Third-Party Information In this report, we rely on and refer to information regarding industry data obtained from market research, publicly available information, industry publications, U.S. government sources and other third parties. Although we believe this information is reliable, we cannot guarantee the accuracy or completeness of the information and have not independently verified it. 27 Table of Contents