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DATE

Friday, June 5, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — George L. Wilson
• Senior Vice President, Chief Financial Officer & Treasurer — Scott Michael Zuehlke

TAKEAWAYS

• Consolidated Revenue -- $462 million, up 2.2%, driven by a 1.5% increase in pricing, 1% tariff pass-throughs, and a 2.5% foreign exchange benefit, offset by a 3% decline in volume.
• Adjusted EBITDA -- $44.2 million, down from $63.1 million, mainly due to lower operating leverage, inflationary pressures, and higher transportation and raw material costs.
• Gross Margin -- Declined 350 basis points, primarily due to increased raw material and logistics costs, with the Hardware Solutions segment most impacted by inflation.
• Adjusted Net Income -- $11.3 million ($0.25 per diluted share), down from $29.1 million ($0.63 per diluted share), reflecting plant closure costs, advisory fees, reorganization expenses, and higher amortization.
• Free Cash Flow -- $7.9 million, down from $13.6 million, as cash provided by operating activities dropped to $18.9 million from $28.5 million.
• Hardware Solutions Revenue -- $203 million, essentially flat, with a 5% drop in volume, 0.5% rise in pricing, 2.5% tariff pass-through, and 2% forex tailwind; adjusted EBITDA fell to $5.2 million from $27 million.
• Extruded Solutions Segment -- Revenue of $165 million, up slightly, with a 4% decline in volume, 1% higher pricing, 3.5% positive forex impact, and adjusted EBITDA marginally down to $30.4 million from $30.7 million.
• Custom Solutions Segment -- Revenue declined 6.6% to $104 million; volumes increased about 1%, pricing rose 4.5%, and tariffs plus forex added about 1%; adjusted EBITDA was $11 million versus $13 million.
• Liquidity -- $329 million as of April 30, 2026, with $63.7 million cash on hand and additional revolving credit facility capacity.
• Net Leverage Ratio -- 3.1x net debt to last 12 months adjusted EBITDA, with expectations to decrease by year-end through debt repayment from future cash generation.
• Q3 Guidance -- Management projects consolidated revenue to be flat to up 1% and adjusted EBITDA margin flat to up 25 basis points compared to the previous year, with an expected 24% tax rate.
• Strategic Actions -- Targeted price increases, phased through Q3 across product lines, transition to make-to-order model in Hardware Solutions, and ongoing operational focus on working capital and cash flow generation.
• Share Repurchase & Debt Reduction -- Management stated "our priority will absolutely be to pay down debt," noting any share repurchases are secondary to deleveraging.

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RISKS

• Gross margin contracted 350 basis points due to "sharp increases in raw materials and logistics costs," and management stated, "inflationary pressures have increased," reducing earnings power.
• "we are not reaffirming our previously issued guidance for fiscal 26 at this time," citing increased inflation, geopolitical uncertainty, weaker consumer confidence, and lower visibility for the second half.
• Significant exposure to transportation and logistics disruptions from "the ongoing war in The Middle East," requiring costlier alternate shipping routes and driving up expenses, especially for international shipments.

SUMMARY

Management highlighted demand stabilization in North American and European housing but acknowledged that persistent headwinds, such as affordability challenges and geopolitical tensions, are constraining rapid recovery. Sequential volume growth is expected due to seasonal trends in Q3, with price increases being implemented to counteract escalating input costs. Volume in the Custom Solutions segment grew year over year despite broader end-market declines, attributed to share gains in wood products. Management detailed that supply chains are stable, with customers currently reluctant to switch suppliers, resulting in low market share volatility. Each quarter's contract index pass-through timing introduces a lag in pricing response to raw material inflation, contributing to margin variability. The company indicated that operational changes including inventory reduction and make-to-order transitions in Hardware Solutions are underway and being led by recently appointed leadership. New phase-in price increases, focused operational efficiencies, and strategic working capital management are being prioritized to close the inflationary cost gap in the coming quarters.

• Management explained, "that lack of visibility on what is happening from a macro perspective and in the geopolitical influences We just have no visibility," emphasizing forecasting uncertainty.
• The company's liquidity as of April 30, 2026, included revolver capacity beyond the $63.7 million cash balance, ensuring operational flexibility.
• Management intends to generate most annual cash flow in the second half, with expected improvements in inventory levels expected to further support free cash flow.
• Customer consolidation in kitchen and bathroom cabinet markets is leading to a pause in new insourcing decisions, though Quanex reported volume gains amid broader market softness.
• International freight and war-related routing challenges particularly affected shipments to the GCC region, incurring "significantly more expensive" alternate logistics paths and insurance premiums.

INDUSTRY GLOSSARY

• Index Pricing Mechanism: Contractual arrangement tying product price adjustments (up or down) to underlying changes in raw material cost indices, with pass-throughs often executed quarterly and subject to segment-specific lags.
• Make-to-Order: Manufacturing strategy where production begins only after receiving specific customer orders, aiming to minimize inventory and align product flow with demand.
• Pass-Throughs: Pricing actions where increases in tariffs or raw material costs are directly charged (passed through) to customers via contract or price adjustment.
• GCC Region: Gulf Cooperation Council countries, a key export market referenced for international freight challenges.

Full Conference Call Transcript

George L. Wilson: I will now turn the call over to George for his prepared remarks. Thanks, Scott, and good morning to everyone on the call. In my commentary, I will give our perspective on the current macroeconomic environment, provide an overview of our results, highlight some inflationary challenges and the actions being taken by Quanex, and then discuss go forward priorities. From a macroeconomic perspective, housing demand in North America and Europe is showing early signs of stabilization, but the recovery will likely proceed gradually. Progress remains constrained by persistently weak consumer confidence, which remains below historical norms. Inflation fatigue, affordability challenges, and ongoing geopolitical uncertainty are outweighing an otherwise strong labor market.

In the US, mortgage rates above 6% further dampen activity while the lock in effect where homeowners are reluctant to relinquish previously secured low rates continues to limit mobility. Even as rising home equity reflects higher property values. Given these ongoing challenges, we do not expect housing markets to rebound sharply in the near term. We instead anticipate a steady recovery over the medium to longer term and this will depend on, 1, an improvement in affordability, 2, a decrease or stabilization of interest rates, and 3, improvement in consumer confidence influenced by a period of geopolitical stability. I will now provide some commentary on our results for the second quarter of 26.

Despite the headwinds I just mentioned, demand for our products came in largely as expected and we performed well from an operational standpoint. On a consolidated basis, revenue increased modestly year over year. As pricing actions, tariff related pass throughs, and favorable foreign exchange more than offset lower volumes. Looking ahead to Q3, we expect seasonal demand patterns to continue, which should mean sequential volume growth. Notably, volume softened following Memorial Day last year And although we realized it is still early, we have not observed similar trends to date this year. We will remain vigilant in this regard closely monitoring order patterns to respond quickly to any changes in demand.

Gross margins declined 350-basis-points year over year in Q2, primarily due to sharp increases in raw materials and logistics costs. Our hardware solutions segment was impacted the most by inflationary pressures during Q2 of this year due to the legacy nature of the make-to-stock business model for the window and door hardware product line and the fact that inventory levels are highest in this segment. Although our North American index pricing mechanisms are designed to adjust for input cost fluctuations, quarterly timing of these adjustments, varying by commodity, customer, and product line can create temporary earnings pressures during periods of rapid inflation like those we have seen in the past few months.

In our European and international markets where index pricing is less prevalent, price adjustments rely more on customer negotiations and announced increases. Often with advanced notice periods that further extend timing impacts. Cost pressures on raw materials were broad based across segments during Q2 of this year. The Hardware Solutions segment was most affected by cost increases for aluminum, zinc, stainless steel, and plastic resins, The Extruded Solutions segment was most impacted by cost increases for butyl rubber silicone compounds, carbon black, desiccants, and PVC resins, and our custom solutions segment was most impacted by cost increases for EPDM, Carbon Black, oils, aluminum, plastic resins, and certain hardwoods.

Rising costs in packaging particularly plastic and paper, as well as increases in freight and logistics costs impacted margins across all segments and product lines. To mitigate these pressures, we have implemented and will continue to implement targeted price increases ranging from mid-single-digit to low teens percentages to be phased in throughout Q3 and tailored by product line. Going into Q3, our operational priorities will be on closing the price cap cost gap across all product lines, accelerating the transition from make-to-stock to make-to-order for the window and door hardware business, executing on our 20 initiative in the North American window and door hardware business, improving working capital, and then generating more free cash flow.

We believe that by executing on these actions, we will be well positioned to deliver shareholder value as market conditions improve.

Scott Michael Zuehlke: I will now turn the call over to Scott who will discuss our financial results in more detail. Thanks, George. On a consolidated basis, we reported net sales of $462 million during the second quarter of 26, which represents an increase of 2.2% compared to $453 million for the same period of 2025. The increase was mainly due to favorable impacts from pricing tariff pass throughs and foreign exchange translation. We estimate that volumes were down about 3% Pricing was up approximately 1.5%. The tariff pass through impact was about 1%. And foreign exchange translation was a benefit of about 2.5%.

Reported net income of $3.4 million or $0.07 per diluted share during the 3 months ended 04/30/2026, compared to net income of $20.5 million or $0.44 per diluted share during 3 months ended 04/30/2025. The effective tax rate in the second quarter of 26 excluding discrete items, approximately 24%, which is what was expected. On an adjusted basis, we reported net income of $11.3 million or $0.25 per diluted share during the second quarter of 26 compared to net income of $29.1 million or $0.63 per diluted share during the second quarter of 25.

The adjustments being made to net income are primarily for expenses related to a plant closure or relocation, transaction and advisory fees, reorganizational costs, amortization expense related to intangible assets, and foreign currency impacts. On an adjusted basis, EBITDA for the quarter was $44.2 million compared to $63.1 million during the same period of last year. The decrease in adjusted earnings for the second quarter of 26 compared to the second quarter of 25 was mainly due reduced operating leverage from lower volumes related to ongoing macroeconomic uncertainty combined with weak consumer confidence tariff related costs, inflationary pressures.

More specifically, due to the ongoing war in The Middle East and other macroeconomic factors, we realized a significant increase in transportation and raw material costs during the quarter. Now for results by operating segment. We generated net sales of $2.00 $3 million in our Hardware Solutions segment for the second quarter of 26, a slight increase compared to $203 million in the second quarter of 25. We estimate that volumes were down approximately 5% Pricing was marginally up by about 0.5% in this segment. The tariff pass throughs impact was about 2.5%. Foreign exchange translation was a benefit of about 2%.

Adjusted EBITDA was $5.2 million in this segment for the second quarter of 20 compared to $27 million in the same period of 2025. This decrease was largely due to reduced operating leverage from lower volumes combined with impacts from tariff changes and inflationary pressure on materials, freight, and labor costs. All of which meaningfully impacted gross margin. Our Extruded Solutions segment generated revenue of $165 million in Q2 of this year a slight increase compared to $164 million in Q2 of last year. We estimate that volumes were down approximately 4% year-over-year in this segment for the quarter with pricing up by approximately 1%, and a positive foreign exchange translation impact of about 3.5%.

Adjusted EBITDA declined slightly to $30.4 million in this segment for the quarter versus $30.7 million during the same period of last year. Mainly due to decreased operating leverage related to lower volumes and general inflationary pressure. We reported net sales of $104 million in our Custom Solutions segment saw a revenue decline of 6.6% compared to the prior year. For the quarter, we estimate that volumes were up by approximately 1%, pricing increased by approximately 4.5%, and foreign exchange translation coupled with the pass through of tariffs had a benefit of approximately 1%. Adjusted EBITDA declined to $11 million from $13 million in this segment for the quarter, mostly due to inflationary pressures we have already discussed.

Moving on to cash flow and the balance sheet. Cash provided by operating activities was $18.9 million for the second quarter of 26, which compares to 28.5 million for the second quarter of 25. Free cash flow was $7.9 million in Q2 of 26, compared to $13.6 million in Q2 of 25. We expected to be a net borrower during the second quarter due to the longer cash conversion cycle of the legacy Tyman business, but continued execution on managing working capital enabled us to avoid being a net borrower for the quarter. For context, we were a net borrower of almost $19 million in Q2 of last year.

Our liquidity was 329 million as of 04/30/2026, consisting of 63.7 million in cash on hand plus availability under our senior secured revolving credit facility due 2029. Less letters of credit outstanding. As of 04/30/2026, our leverage ratio of net debt to last 12 months adjusted EBITDA was 3.1x. We expected our leverage ratio to increase in Q2 but we continue to believe we will exit 2026 with a lower net leverage ratio as we generate cash and repay debt in the second half. Our long term view continues to be favorable as the underlying fundamentals for the residential housing market remain positive.

We entered fiscal 26 with a cautious outlook, due to the ongoing macroeconomic challenges and remain cautious considering the current geopolitical events. We continue to monitor the situation in the Middle East is contributing to a significant impact on the price of raw materials energy, and transportation costs. During our last earnings call in March, we mentioned that fiscal 26 could be somewhat flat compared to fiscal 25 with puts and takes. But that the first half of 26 may be more challenged than the first half of 25. Implying a somewhat improved second half year over year.

Since that time, inflationary pressures have increased and the broader uncertainty related to geopolitical developments, consumer confidence, interest rates, and tariffs has reduced visibility into the balance of the year. Accordingly, we are not reaffirming our previously issued guidance for fiscal 26 at this time. However, we will provide our expectations for the current quarter. Please use the following cadence for the third quarter of 26 versus the third quarter of 25. On a consolidated basis, we expect revenue to be flat to up 1%, and adjusted EBITDA margin is expected to be flat to up 25 basis points. In addition, an estimated tax rate of approximately 24% should be reasonable for the third 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 repurchasing our stock and identifying further synergies that can benefit us when the economic conditions improve.

Operator: Operator, we are now ready for questions. Thank you. Question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. 1 moment for questions. And our first question comes from Steven Ramsey with Thompson Research Group.

Analyst (Steven Ramsey): You may proceed. Hi. Good morning. Maybe wanted to start with if you could elaborate a little bit further on the index pass through timing in North America, how it impacts various segments and maybe how it is embedded in the Q3 outlook and if more of the benefits are after the third quarter?

George L. Wilson: Yeah. So as we mentioned, as price increases come in, and I am going to talk specifically about the ones that have material index, automatic indexes the raw materials that are on that index pricing mechanisms. We tend to review those on a quarterly basis. So you have got any inflation that occurs within that quarter will either trigger up or down, and in this case, up, an index. But until those quarterly review points, we tend to either get the benefit or, in this case, take the brunt of any inflation. And then when it triggers, obviously, the pricing goes through at that point in time.

So you could have anywhere from a 90 to maybe a 2-day lag depending on when in the cycle the-- the price increases go. That tends to be different based on the commodity and the customer contract. Those tend to be negotiated. As it relates to our Q3 and Q4 outlook, what we are assuming right now is that the pricing that we are at today remains somewhat stable and that those price increases that have triggered were gone in. So we are assuming no more additional inflation, or decrease inflation.

And the challenge in what in what we have tried to say in our commentary is that lack of visibility on what is happening from a macro perspective and in the geopolitical influences We just have no visibility. So we are in a chase mode here. And that is going to continue. So our forecast assumes no price increases, but, your forecaster at this point is probably as accurate as anyone's because no 1 knows.

Analyst (Steven Ramsey): Okay. that is helpful. And then you discussed the volumes in total, and by segment in the quarter. Do you feel like there was any market share shift in any of your larger product categories or do you feel like volumes were overall aligned with the market?

George L. Wilson: I think that, you know, the puts and takes in the hardware section. You know, where we have gained some share and then we have had pressure on share. It depends on the product line. I think the area where we benefited is we have taken some share or there is been some strategy changes amongst our customers in outsourcing additional materials on the wood, the custom solutions segment. Specifically within the wood product lines where we have actually been a winner.

Otherwise, I would say that the supply chain is relatively stabilized, and there is not a lot of people out in today's world really looking to rattle their supply chain because of the risks and the ability to supply. So I think you tend to see the supply base kind of retrenched and entrenched in, and, that is what we have seen to this point.

Analyst (Steven Ramsey): Okay. Sounds good. And last quick 1 for me. Last year, we saw fourth quarter EBITDA margin edge up a bit over the third quarter. Is that directionally the way to think about fourth quarter EBITDA margin?

Scott Michael Zuehlke: Yes. I think right now, that is a fair assumption. Mainly because these price increases that are stepping in during the third quarter, we should get the full benefit in the fourth quarter.

George L. Wilson: And the other thing to add to that, as I mentioned in my commentary, you know, last year was a little bit of an aberration that in the Q3 volume actually kind of flattened out, which was not normal seasonality. Typically, we see, Q3 ramping up and then Q4 being our strongest volume month. So Q3 last year was a little flat, and then Q4 started to bounce up. We would if we see normal seasonality, we would expect margins to improve just because of the leverage aspect of some of our business. Volumes will drive profitability.

Analyst (Steven Ramsey): Okay. Thanks for the color, guys. Yep. Thank you.

Operator: Thank you. Our next question comes from Kevin Gainey with Thompson Davis and Company.

Analyst (Kevin Gainey): You may proceed. Hi, George Scott. it is Kevin on for Adam. Yep. Good morning. Good morning.

Scott Michael Zuehlke: Maybe if we could talk on status quo. Last year, in the back half, you generated about $100 million? Should we expect maybe that capability in this second half or is inflation going to have an sizable impact to that?

George L. Wilson: We definitely expect to generate most of our cash in the second half of this year. that is no different than any other year. To the extent and the magnitude of the cash flow, that will depend on several things. 1 of which is the rate of inflation that we have seen. And then obviously, we had-- you need to expect volumes to increase due to the seasonality of our business. But the other thing that we are doing that will help cash flow is and we saw that in the in the at the end of the second quarter is, we are making a meaningful improvement in the inventory levels coming down.

We expect that to continue, which should help cash flow as well.

Analyst (Kevin Gainey): Appreciate the color there. And then you mentioned in the release paying down debt and opportunistically repurchase share repurchase shares in the second half. Do you expect the toggle between the 2 and then how attractive are buybacks at the current levels in your models?

George L. Wilson: So I think you can assume that our priority will absolutely be to pay down debt. We will evaluate the price. We are obviously believe our stock is trading at a discount, and we will continue to look at it. But the impact we have the math and the impact for us on buying or paying down debt at this point is more influential for our investor base than repurchasing shares. So that is the prioritization of that for us. I think you can assume the pay down of debt will come first.

Analyst (Kevin Gainey): Thanks for the questions. Guys. I will hop back in the queue. Thank you.

Operator: Thank you. Our next question comes from Julio Romero with Sidoti and Company.

Analyst (Julio Romero): You may proceed. Thanks. Hey. Good morning, George and Scott. Good morning.

Scott Michael Zuehlke: The release and your comments, good morning, also called out the increase in transportation costs in the quarter. Alongside the increased material costs. Can you maybe put a little finer point on the impact of that increase in the quarter? And if that is related to higher freight rates or surcharge fuel surcharges or expedited freight? And then how does that trend in the third quarter? In your view?

George L. Wilson: Yeah. We have not given clarity on breaking that out from a dollar amount, but I can generally speak. it is impacted us in 2 ways. Obviously, the fuel cost and the cost of energy. I mean, almost every company has levied surcharges or fuel surcharges to offset the ramp up specifically after, you know, the war in the Middle East started. So that has taken a pretty immediate and rather rapid toll. And we are doing the same to try to offset it, but it is always a catch up. And then secondly, especially on our international, you know, we ship products to all over the world.

And whether that is from The US, whether it is from The UK, or whether it is from Italy. And depending on the location. So for the products that go to our warehouse in Dubai and service the GCC region, Obviously, getting product through the Straits of Hormuz, you know, is not feasible at this point. So you have to create different logistics chains that significantly more expensive, increases the time to get and impact the ability to ensure and protect those shipments. So it is impacted us in 2 different ways.

Analyst (Julio Romero): Understood. Yeah. You also recently, appointed a new president of hardware solutions in April. Can you maybe discuss what his more immediate priorities are for the Hardware Solutions segment? Where on that priority list is the that transition you mentioned from the made to stock product lines to the made to order product lines? And then, you know, where his longer term focus for the segment is.

George L. Wilson: No. I appreciate the question, and it gives me the opportunity, first and foremost, to thank Bob Daniels who will be retiring at the end of the year. Bob's been with Quanex for a long time, and had announced his intention to retire. Even at the point when we purchased Tyman. And so this was a planned upon move. And then adding Chad Collins to that position. You know, we felt like it continued to you know, strengthen the areas that we felt needed to be strengthened. Not only is he a phenomenal businessman and can add value to the entirety of Quanex.

But his background in looking at how we go to market and how we engineer products, very much the focus on an 80/20 principle, to streamline and really optimize the cost footprint of our organization, identifying, you know, what SKUs actually generate revenue and making sure that we are focused on doing those right things. You know, we were very excited to get him. he is already been able to come in and identify opportunities, which we kind of highlighted, and it is full systems go. So I think the future is bright. for that group and look forward to being able to talk more about what he is doing in those areas going forward.

So he came into Quanex and has hit the ground running.

Analyst (Julio Romero): Excellent. Last 1 for me here is, you know, for George. On the index pricing, kind of a broader strategic question, Are there longer term opportunities or thoughts on improving or changing the terms on the contractual mechanisms over time, whether it be with the duration of the lag or how much the underlying material cost has to change before being triggered? We would just love to hear your high level thoughts on that topic there, George.

George L. Wilson: Yeah. it is a great question, Julio. And so I would say every contract in today's world is being reviewed to say, is it still, you know, adequate, still doing what it is meant to do and, have things shifted, where the contract needs to change. So, yes, we will evaluate each and every 1 of them. I think it very much depends on the product line. Our competitive positioning within that segment. So rather vague answer for you, Julio, and for that, I am sorry, but the answer is yes. But it is very dependent and situational based.

But the world is different today, and I think that is us and every other company in the world are looking at everything with a new set of lenses, and, we will continue to evaluate ways to create win-win solutions for both us and for our customers.

Analyst (Julio Romero): Thanks. I appreciate the thoughts there. That is helpful. I will pass it on. Thank you.

Operator: Our next question comes from Reuben Garner with The Benchmark Company.

Analyst (Reuben Garner): May proceed. Hi. Good morning, George and Scott. This is John on for Reuben. Good morning. Good morning. Hi.

George L. Wilson: So a pretty thorough Q and A so far today. I just have 1 quick 1 left for me. I know last quarter, we had talked about how you were seeing some opportunities for increased sales and volumes in custom solutions, especially with reshoring and near shoring trends? Just now that we are a little bit further out from the tariff decisions and maybe a little bit more clarity on how those refunds are going, I understand a lot of it comes-- it is a long tail as far as the decisions that have to be made on how your customers are manufacturing elsewhere.

But are you seeing any shift in kind of strategy or maybe the long term decisions to even move more manufacturing back closer to The US to your operations yet? So I think the answer to that would be it depends on the customer, and their strategy. You know, with the custom or the kitchen cabinet and the bathroom cabinet markets, you know, there is there is continued consolidation in that area. I think there will be a pause to see, you know, where the merger, of 2 of the big players you know, what their go-forward strategy will be looking like.

But the other customers in that market, we have seen some areas where there is insourcing and as you can see in our numbers and what we called out, we had in what is a relatively soft or even a down market for the cabinets. We grew we grew volumes year over year despite that fact. So it is it is obvious we have taken some share and have been able to successfully, you know, sell our value proposition to those customers, and I think our focus will be to continue to do that.

And I feel good about what that product line is doing for us, and, you know, we will continue to push and try to optimize that in every way we can. But I feel good about what the team in the wood components is doing.

Analyst (Reuben Garner): Alright. I appreciate the color, and good luck in the quarter ahead. Thank you. Thanks. Thanks.

Operator: Thank you. I would now like to turn the call back over to George L. Wilson for any closing remarks.

George L. Wilson: I would like to thank you all for joining the call today, and we look forward to providing an update in our call in September. Thank you very much.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.