Q2 2023 Janus International Group Inc Earnings Call

Participants

Anselm Wong; Executive VP & CFO; Janus International Group, Inc.

John Rohlwing; VP of IR and FP&A; Janus International Group, Inc.

Ramey Pierce Jackson; CEO & Director; Janus International Group, Inc.

Bradley Thomas Hewitt; Research Analyst; Wolfe Research, LLC

Daniel Joseph Moore; MD of Research; CJS Securities, Inc.

Jeffrey David Hammond; MD & Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division

Reuben Garner; Senior Equity Research Analyst; The Benchmark Company, LLC, Research Division

Spencer Andrew Kaufman; Associate Analyst; UBS Investment Bank, Research Division

Stanley Stoker Elliott; VP & Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Presentation

Operator

Hello, and welcome to Janus International Second Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the call over to your host, Mr. John Rohlwing, Vice President of Investor Relations and FP&A.
Thank you. You may begin, Mr. Rohlwing.

John Rohlwing

Thank you, operator, and thank you all for joining our second quarter 2023 earnings conference call. We hope that you have seen our earnings release issued this morning. Please note that we have also posted a presentation in support of this call, which can be found in the Investors section of our website at janusintl.com.
As a reminder, today's conference call may include forward-looking statements regarding the company's future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated.
Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission and we encourage you to review those factors carefully.
In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted net income and adjusted EPS. Please see our earnings release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure.
I'm joined today by our Chief Executive Officer, Ramey Jackson, who will provide an overview of our business and give an operations update; and our Chief Financial Officer, Anselm Wong, who will continue with a discussion of our financial results and outlook before we open up the call for your questions.
At this point, I'll turn the call over to Ramey.

Ramey Pierce Jackson

Thank you, John, and good morning, everyone. The momentum we established to start the year accelerated in the second quarter, resulting in record financial results that position us to deliver another year of outstanding performance across the platform.
Customer demand for our products and solutions continue to be robust as the long-term bullish fundamentals we see across our end markets show resilience against an uncertain economic backdrop. Specifically, the demand from facility owners, driven by high occupancy rates and fundamental shifts in their customers' behavior continues on both the new construction and R3 side of the business.
Our backlog and visibility into our end markets gives us the confidence to once again raise our outlook for the year and positions us to achieve our longer-term goals for revenue growth and margin. I would like to thank all of our employees without whom our continued strong performance and success wouldn't be possible.
Now turning to some specific thoughts around the quarter. Janus' record second quarter operational and financial results included solid year-over-year gains in revenues, dramatic margin improvement, further deleveraging and solid cash generation. The fundamentals inherent throughout the industry that fuel investment decisions by our customers to add much needed capacity are happening both through new construction and conversions and expansions.
Our Noke Smart Entry system had another strong quarter as we continue to ramp our capabilities and expand our market penetration. We ended second quarter with approximately 230,000 total installed units representing nearly 39% growth year-to-date.
Our Smart Access solution headlined by Noke represent the best our industry has to offer, and we are excited by both the accelerating adoption of its use in the future it has in store.
Now shifting to the financial highlights for the quarter. We delivered consolidated revenue of $270.6 million, an increase of approximately 9.2% as compared to the same period last year. This growth included particular strength in New Construction up 33.9%, while R3 was up 7.6% and Commercial and Other was 9.3% lower.
Our adjusted EBITDA of $74 million came in approximately 46% higher than Q2 2022, which represents an adjusted EBITDA margin of 27.3%, an improvement of 680 basis points year-over-year.
During the quarter, favorable mix, productivity initiatives and commercial actions more than offset higher costs we continue to experience in many parts of the business, particularly labor and logistics.
Our company continues to generate strong cash flows when Anselm will discuss in further detail shortly. Over the past 12 months through the end of the second quarter, our free cash flow conversion of adjusted net income was 100%. We expect cash conversion to remain solid over time, putting us in a strong position to focus on maintaining a robust balance sheet while also maintaining the firepower to respond to value-enhancing M&A opportunities as we identify them.
Speaking of the balance sheet, our net leverage remains a key focus of our board and our management team. I am extremely proud that we were able to reduce our net leverage this quarter by another 30 basis points, putting us at 2.1x net debt to trailing 12-month adjusted EBITDA at quarter end and comfortably within our target range of 2 to 3x.
Before I hand it over to Anselm, I'd like to talk about our progress towards our longer-term objective laid out in our Q4 2022 earnings call. We are on pace to achieve all these targets by expanding our industry-leading position in our end markets, growing Noke adoption with our self-storage customers, driving efficiencies across the platform and when appropriate, executing value-accretive M&A.
With respect to our stated longer-term goals, our top line growth for the first half of this year puts us on track to achieve our full year target range of 4% to 6% organic revenue growth. Our EBITDA margins for the quarter in the first half of 2023 positions us well towards achieving our longer-term target range of 25% to 27%.
Our strong conversion of adjusted net income to free cash flow in the first half of 2023 sets us up to achieve our target conversion range of 75% to 100% for the full year. Our end markets remain strong and resilient. We continue to look at ways to leverage our leadership position to capture additional share and create long-term value for all of our stakeholders.
With that, I'll turn the call over to Anselm for an overview of the financials and our updated outlook for the full year.

Anselm Wong

Thanks, Ramey, and good morning, everyone. In the second quarter, revenue of $270.6 million was up 9.2% compared to the prior year quarter. New construction led the way and was up 33.9% while R3 was up 7.6% and Commercial and Other was 9.3% lower versus the prior year quarter. We continue to show a good mix of diversity and stability from our offerings as evidenced by our revenue mix for the quarter, which continues to be well balanced across our 3 sales channels.
Now diving deeper into the sales channels, our overall strength in the quarter came primarily from new construction, which was up 33.9% year-over-year. This improvement was a result of the combined impact of commercial actions taken in 2021 and early 2022 to offset inflationary pressures on many of our key inputs as well as volume growth. This quarter, we saw a catch-up spending by our customers, who experienced permitting delays.
Our R3 segment grew 7.6% in the quarter, bolstered by continued new capacity additions in the form of conversion and expansions and the positive impact of commercial actions. With the availability of idle brick-and-mortar retail is helping our customers focus on rapidly adding new capacity to meet persistent demand, which continues to drive growth in our R3 offering. Additionally, our customer continue to retrofit and upgrade their facilities for their customers and to stay competitive in the marketplace.
In Commercial and Other, we came up against difficult comparisons to a particularly strong 2022 quarter, which resulted in a year-over-year decline of 9.3%. As we've discussed before, during the pandemic, we stocked up on steel, which allowed us to take advantage of quicker lead times and increase our market share at a faster pace than anticipated.
As markets have begun to normalize, we have seen a shift in demand for certain product lines, which were at an all-time high during the pandemic. Our products are used in a broad range of end markets, including hotels, warehouses, pharmacies, schools and many others. We see continued potential for increased share gains in Commercial and Other as well as margin improvement over time.
Adjusted EBITDA of $74.0 million was up 46% compared to the year ago quarter. The combination of solid demand, commercial actions and cost savings initiatives continues to help offset increases in labor as we work to scale the business for continued growth, including additional investments in our Noke Smart Entry systems. Adjusted EBITDA margin for the quarter was 27.3%, an increase of roughly 680 basis points from the year ago quarter.
As a reminder, our margin profile for new construction in R3 is roughly similar, and these 2 sales channel produce higher margins than our Commercial and Other sales channel. The relative outperformance in new construction versus the decline in commercial in the quarter drive overall higher margins.
In addition, the quarter we saw a particularly strong contribution from some of our highest margin work in new construction, R3 due to the nature and timing of certain projects, along with favorable product mix. We expect the revenue mix to revert to more normalized levels over time, consistent with our longer term margin outlook.
For the second quarter 2023, we produced adjusted net income of $37.2 million, which is up 54.9% from second quarter 2022. Adjusted diluted earnings per share of $0.25 compared to $0.16 in the year ago quarter. We had another solid quarter of cash flow generation. Second quarter cash from operating activities was approximately $46.4 million and free cash flow was approximately $42.8 million, driven by volume growth, productivity and working capital. This adds to our multiyear trends of strong conversion of adjusted net income to free cash flow, representing a trailing 12-month free cash flow conversion of 100% of adjusted net income.
In the coming months, we have incremental growth CapEx in Europe and on the West Coast to expand production capacity to better serve our customers on lead times and to solve for Brexit issues, providing additional cost savings and growth opportunities for the West Coast and in Europe.
The strong first half results and outlook for the remainder of the year position us to deliver on our target of 75% to 100% free cash flow conversion for our long-term guidance. We also continue to focus on initiatives to improve working capital and strengthen our metric.
From a balance sheet perspective, we ended the quarter with $658.1 million of total debt, $110.7 million of cash and equivalents and a net leverage of 2.1x net debt to adjusted trailing 12 months EBITDA, down from 2.8x at the end of 2022 and 2.4x at the end of the first quarter.
Subsequent to quarter end, we paid down an additional $35 million of debt, bringing our year-to-date pay down to $85 million. We refinanced our first lien term loan facility to $625 million in a 7-year term. The refinance was strongly supported by a diverse syndicate of leading national banks and the terms that include a floating rate of SOFR plus 325 basis points, along with a step down to 25 basis point contingent on the ratings upgrade.
We also entered into a new $125 million asset-backed lending revolving credit facility, which was upside from the existing $80 million ABL revolving credit facility. This is reflective of the strength of the business and that the spread has not changed from the previous facility despite tightening of credit markets.
Our performance demonstrates our ability to delever quickly and we remain focused on maintaining our leverage within our long-term target range of 2.0 to 3.0x.
Now turning to our 2023 outlook. Based on our solid second quarter and year-to-date results, continued strong backlog and current visibility of end markets, we are pleased to once again raise our full year 2023 outlook for revenue and adjusted EBITDA. We now expect revenue to be in the range of $1.07 billion to $1.09 billion, a 5.9% increase at the midpoint compared to our full year 2022 results, driven primarily by a combination of commercial actions and volume-related organic growth.
We expect growth in 2023 to reflect the strong underlying fundamentals we see across all 3 sales channels. We are raising our expectations for adjusted EBITDA to be in the range of $269.5 million to $289.5 million, representing a 23.2% increase at the midpoint versus our full year 2022 results and a 25.9% EBITDA margin for the year.
Overall, we expect our full year results to reflect a solid year of margin improvement in our business as we pursue our long-term objectives to deliver healthy adjusted EBITDA margin in the range of 25% to 27% over the next several years.
Thank you. I will now turn the call back to Ramey for closing remarks.

Ramey Pierce Jackson

Great. Thank you again, Anselm. The focused effort of our entire team and the strength in our end markets helped us deliver financial results for the quarter that once again exceeded our expectations. Our backlog and pipeline remains solid, a continued testament to the resiliency of our business model. We believe we are in the early innings of a strong multiyear demand environment one that should continue to drive solid revenues, robust EBITDA margins and strong cash flow generation, while all maintaining a fortress balance sheet that affords us a broad range of strategic options.
I'd like to once again thank the entire Janus team for their unwavering focus and relentless execution as we continue to build long-term value for all of our stakeholders.
Thank you again for joining us. Operator, we can now open up the lines for Q&A, please.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Jeff Hammond with KeyBanc Capital Markets.

Jeffrey David Hammond

Maybe just to start, can you just speak to qualitatively to how backlog is trending? What you're seeing from an order activity standpoint, just given some of the more mixed results from some of the big self-storage customers, and it sounds like you had some catch-up in new construction. So I'm just wondering how that impacted backlog?

Ramey Pierce Jackson

Yes. Great question. Look, I think, as you know...
(technical difficulty)
Sorry, Jeff. Yes. Look, our top 10 accounts represent less than 15% of our total revenue. I think there was some decent print with our customers. They had a good quarter. As it relates to our dashboard, everything looks great, notwithstanding like I mentioned in the opening, the kind of economic backdrop. We're certainly conscientious to that, and we're optimistic around kind of what we're seeing with our internal data.
So you are correct, there was some kind of pent-up demand from a permitting perspective and timing on new construction and the same applies for R3.

Jeffrey David Hammond

Okay. And then maybe just unpack the product mix comment. I don't know if that's just simply that R3 and new construction were stronger versus commercial or if there was something else within that, that drove the better margins? And maybe just speak to the normalization dynamic into the second half along that line.

Ramey Pierce Jackson

Yes, I'll start. But yes, so when we talk about product mix, less revenue in commercial. As you know, the margins are slightly dilutive, and then kind of our internal components on some of the new construction with the hallway systems and things of that nature tend to be higher margin. So that's really the product mix we speak of. Anselm, you want to...

Anselm Wong

Yes, that's exactly right, Ramey. So it's 2 mixes. Exact commercial mix is the total and then the product piece. We just had a really tremendous quarter of products that are higher margin in the self-storage side, that should normalize a bit in the second half. Not a lot as you can see what we're forecasting, but just a little because of that.

Jeffrey David Hammond

Okay. Just last one. Leverage, great job delevering. Quickly here, you're kind of at the low end. Just wondering at what point you kind of turn the attention back to M&A or consider buyback to say, take out some of the Clearlake shares just given the strong free cash flow and where the leverage is?

Ramey Pierce Jackson

Yes. I appreciate. We worked really hard. I think we've done a great job deleveraging. Can't really comment on the Clearlake as -- certainly it is not up to us. It's their shares, but I think you saw some movement last quarter.
And as it relates to M&A, Jeff, you know the situation here. It's part of who we are. We'll continue to find assets that add value to the shareholder base. So again, when you look at the balance sheet, it gives us a lot of optionality and so what triggers -- what levers we want to pull, so to speak.

Anselm Wong

Yes, I'd agree with Ramey. I think the big thing is we're definitely actively looking for targets that are accretive to the business. And we're proud of where we landed on the net leverage. But again, this company was built on a lot of M&A. So we want to make sure that we continue to find targets that are accretive for us.

Operator

Our next question comes from Brad Hewitt with Wolfe Research.

Bradley Thomas Hewitt

So obviously, from a top line perspective, very strong results in new construction in Q2. Obviously, some catch-up from customers who'd experienced permitting delays in prior quarters. How do you think about where we are in the cycle for new construction and the outlook for industry square footage ads?

Ramey Pierce Jackson

Yes. I think when you look at our metrics internally, it shows a tremendous amount of strength in adding capacity. But we really don't dictate that, right? It can come kind of R3 with conversions and expansions or new construction. So I would say nothing has changed from our backlog. And pipeline perspective, we're still very optimistic there. I think when you look at the growth rates quarter-to-quarter, it's really around timing.

Bradley Thomas Hewitt

Okay. That's helpful. And then maybe switching over to mix. Obviously, you mentioned that mix was favorable in Q2 as it is expected to normalize in the coming quarters. Would you be able to quantify the mix benefit that you saw in Q2? And then how should we think about the puts and takes driving kind of the implied deceleration of margins in the second half, given the deflation we've seen in steel quarter-to-date?

Ramey Pierce Jackson

Yes, the way -- again, I wouldn't put a number, we haven't disclosed anything like that, but I just think about that high-level mix between self-storage and commercial, that will be kind of your easier way to kind of do a [calc] when that normalizes a bit more, you'll see kind of that piece. And that's why we said if you look at what we printed in Q2 it's not a really drastic change into the second half in terms of margin rate point of view.
I think in terms of looking at kind of how it will play out for the rest of the year for the mix, I think it will normalize a little. And again, the time recurring you said, we're performing, we deliver to what our customers need from a timing point of view. So, it wouldn't surprise me if we had some time where the mix changed and stayed where it is here, but again, it's timing. We can't always predict exactly how they wanted us to deliver the solution for them.

Operator

Our next question comes from Daniel Moore with CJS Securities.

Daniel Joseph Moore

Congrats on, obviously, great progress. Maybe just a little bit of color. The customers in new construction, I think you mentioned a little bit in R3 too that are experiencing some catch up. Do you expect that to spill into Q3? Or is that largely -- those customers largely been caught up from those prior permitting delays?

Ramey Pierce Jackson

No. I think the permitting issue is something that we'll have to deal with the rest of this year. I think you hear some of our listed customers speak to that issue. So I really don't see it going away anytime soon. But as it relates to new construction, you've heard us say in previous quarters that it's still strong as it relates to the prints that we have coming in, that we called our pipeline and then our backlog is...

Anselm Wong

Yes. I think, Dan, just a reminder, if you look at what our -- obviously, our [Re] customers printed they all still had occupancy and rates in that low 90s, which is, again, significantly higher than what the study say, 85% is. So again, we still have to build out to actually get that back down. But again, I know they had some comments about a bit of slowdown. But again, the data is the data they provided. They showed all pretty much in that low 90s range for occupancy rates this quarter.

Ramey Pierce Jackson

Yes. And one more comment there is, most of our listed customers deal in the top MSAs. And as you know, we're everywhere. We're in the secondary markets, tertiary market. So when you hear information from them quarter-to-quarter, it really stands those markets that are outside the top MSAs.

Daniel Joseph Moore

Helpful. And so any color or is there any discernible cadence that you expect in terms of operating margin of Q3 versus Q4 embedded in the adjusted full year guide. And as we think about kind of that full year '23 margin, is that a good jumping off points for fiscal '24?

Anselm Wong

Yes. I think that's kind of how I would lay it out the way you just said it. There is a decent jumping on point, the full year kind of looking and what is implied for the second half rate. I think, again, what we'll see is that, we'll see some normalization on what the mix of products they buy as well as the commercial to self-storage. So I think what you see what we're implying in the forecast is pretty good for it to use.

Daniel Joseph Moore

And nothing -- no discernible difference between the quarters and just kind of thinking about seasonality, if there is any?

Anselm Wong

Yes. We don't disclose it, but I would say your assumption here is probably valid one in terms of out there. I think there's -- as we said before in our business, the only quarter that has a bit of seasonality is Q1 because of January and all the other ones are a bit more consistent.

Daniel Joseph Moore

P Very good. And obviously, good to see penetration continue to increase on Noke. Any color as to what types of customers are increasing adoption and any color as to conversations that you may be having with maybe your top 10, 15, 20 customers .

Ramey Pierce Jackson

Yes. Look, we're very proud of the growth. I think it's a testament of the investment that we've made to really shore up the back end that we're investing a lot there to continue to make it robust.
In terms of the customer profile, what I'll say there is you'll see -- you're seeing customers expand your existing portfolio, you're seeing new customers come in. And I think it's really -- you've heard us talk about in the past, the pandemic, put it at center stage, this type of access control, the Smart Access control that what we're seeing right now is the shortage of labor and the nuance around labor productivity is really forcing our customers to get smart on trying to minimize that. And so you're seeing acceleration on interest and not only interest, but sales because of that issue.

Operator

Our next question comes from Reuben Garner with Benchmark Company.

Reuben Garner

So I hate to beat on the same drums as others, but a couple of clarifying questions here. The mix impact, specifically the commercial versus the self-storage space, is that specifically a gross margin comment, meaning the gross margins are higher in the self-storage and commercial, and they kind of net out to the same place from an EBITDA or operating standpoint? Or are the margins in storage now higher altogether?

Anselm Wong

No. It's first that we said, the gross margin for commercial has always been slightly lower than self-storage leading to the EBITDA margins to be slightly lower. I think it's always been there. I think it's improved, but it's always been lower.

Ramey Pierce Jackson

Yes. It's -- just to follow-up there, it's certainly has been improving, and will continue to improve. But it's more of a product sale on that commercial segment, Reuben. On the self-storage, you have the value-added proposition that we have with detailing, design and installation that should enhance margins on the self-storage side.

Reuben Garner

Okay. And then R3 deceleration, I guess, in growth. Is that kind of a one-off, was the deceleration on the -- I know the convergence, which is technically new square footage is within that R3 base? Was it just the mix between conversions and new construction was different this quarter and the growth rates will kind of revert to more normalized as the year goes along?

Ramey Pierce Jackson

Yes. I think they will. I think you'll see normalization there. And more than anything, this quarter, it's timing, right. We don't -- like Anselm mentioned, we don't really dictate in terms of when sites are ready, but we have no concern with the growth in R3. I think, we talked about our listed customers. They're all talking about beefing up the spin, [or] if it's remix or CapEx into redevelopment and things of that nature. So we're still very bullish on the R3 sector.

Reuben Garner

Okay. I'm going to sneak one more in, if I can. So going kind of beyond this year, G&A, is that where the most opportunity for kind of leverage and margin expansion would come from now that gross margins have kind of recovered and reached the levels they are today?

Ramey Pierce Jackson

I wouldn't say the biggest opportunity but Anselm, if you want to...

Anselm Wong

Yes. No. I think like we said, volume leverage, obviously, is an opportunity there. But I think there's this business has nice productivity management in terms of constantly looking at our product lines and how to improve and get more product out there. So I wouldn't say it's only one major lever. I think we look at everything. And so I think there's opportunity everywhere.

Reuben Garner

Okay. Great. Congrats on the strong results, again, guys, and good luck going forward.

Operator

Our next question comes from Stanley Elliott with Stifel.

Stanley Stoker Elliott

Turning back to Noke, are you seeing this more right now existing customers retrofitting it or your existing customers adding it to new units? Any color there would be helpful.
And then also, you guys have done a lot of work on the back end. Do you feel like you're in a place now where you can continue -- I mean I think you said 39% growth, which is great, but continue to scale at that and maybe even higher levels on a go-forward basis?

Ramey Pierce Jackson

Yes. So yes, the first part, the best way to describe it is, it's a good mix of new construction and renovation. Obviously, when we get a new construction project and that customer has an existing portfolio and they have success with that new construction, what we're seeing is kind of adoption among the existing portfolio. But in terms of the breakout, it's around 50-50.
And then on the back end, look, it's -- that's ever evolving. We will continue to refine and enhance the back end. But as you know, you've heard us talk about, we are still in the very, very early innings of this opportunity. Yes, we're happy with the growth rates, but we're certainly not satisfied in terms of what the total opportunity is and where we think the market is ultimately going long term.

Anselm Wong

Yes. I think the only addition I'll add there is just I think the back end as we're talking prior discussions is really to make sure we have the system that can scale for the future volume for it. What I don't want is not to be able to deliver a mission-critical solution to our customers without the proper back end. So that's why we've kind of focused our investment and make sure that it's there. We know that -- based on our backlog (inaudible) pilot that we know the growth is going to be there. So we want to make sure that our customers get the robust solution that they had they should be.

Stanley Stoker Elliott

Great. And then the industry is seeing some larger M&A deals here recently with some of your larger institutional customers, does that improve your forward visibility all else being equal.

Ramey Pierce Jackson

Yes, I think it does. Yes, it does. But not -- yes. It's specifically on the R3 side. Obviously, there's rebranding opportunities that exist. I'm not going to comment or quantify -- what that looks like based off of the acquisitions. But it's certainly -- look, there are customers. They rely on us for our solutions, and we really just stand ready to help them whichever direction they go with. We're either running dual brands. We're consolidating into one. We certainly don't have that information, but stand ready to help them with the R3 side of the business.

Stanley Stoker Elliott

Great. And then lastly, utilization is coming down at the industry. Does that allow you all to accelerate your R3 position kind of given the age of the fleet? How conversations gone with some of your existing customers around that?

Ramey Pierce Jackson

That's a great way to think about it. Look, I think when new construction -- look, I think the peak of new construction was 2019. We continue to print great growth in spite of that. I think when folks, they have a tendency when they're less busy with new construction to focus on existing portfolio with a lot of the new capacity coming online, there's a lot of competition. And so they're smart and they're going to renovate, they're going to stay relevant. They save and invest money into that -- into their existing portfolio. So that's a good assessment.

Operator

Our next question comes from John Lovallo with UBS.

Spencer Andrew Kaufman

This is actually Spencer Kaufman on for John. Maybe the first one, you guys have a pretty broad exposure to different end markets in the commercial side of the business. Can you just provide a little bit of color as to what you're seeing from your various end markets there? Which ones are doing better and which ones are a little bit more challenged.

Ramey Pierce Jackson

Yes. Look, we don't have great visibility in terms of where the product is going other than the feedback we're getting from our customers is the lion's share of the revenue is in the R&R space. So that's a good data point for us. .
There are some segments within the commercial sector that have pulled back or should I say, normalize that were kind of pandemic darling. So when you think about outdoor sheds and outdoor carports, that segment of the business is starting to normalize. So we do have some visibility onto that. But just the sheer fact that the R&R is most of the revenue is very comforting to us. And from here, it's a market share play for us.

Spencer Andrew Kaufman

Okay. Got it. And good to see you guys refinance the term loan, which now matures in 2030, I think. Should we expect you guys to continue utilizing excess cash to voluntarily prepay some of that debt earlier? Or how should we think about the capital allocation side of that?

Anselm Wong

Yes. I think that's one of the options. But if I put it prior to Ramey said earlier, we want to make sure that we're still proactively looking which we are in terms of meaningful acquisitions that are accretive to the business. So I think about it as, yes, we have a lot of optionality here. But if I would prioritize, I think we've got ourselves in a good position from the debt side and the leverage side, priority would be to get an acquisition if we could, that's out there that's accretive for the business.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to Ramey for closing comments.

Ramey Pierce Jackson

Great. Thank you, everyone, for joining us today. We appreciate your support of Janus International and look forward to updating you on our progress. Have a great day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.