Scott Zuehlke

Thanks, George. On a consolidated basis, we reported net sales of $280.3 million during the third quarter of 2024, which represents a decrease of 6.4% compared to $299.6 million during the third quarter of 2023. The decrease was mostly attributable to softer market demand across all operating segments.
Net income decreased to $25.4 million or $0.77 per diluted share for the three months ended July 31, 2024, compared to $31.7 million or $0.96 per diluted share for the three months ended July 31, 2023. After adjusting for onetime items, net income decreased to $24.2 million or $0.73 per diluted share for the quarter compared to $31.9 million or $0.97 per diluted share for the same period of last year.
On an adjusted basis, EBITDA for the quarter decreased to $42 million compared to $48.5 million during the same period of last year. The decrease in adjusted earnings for the three months ended July 31, 2024 was mostly due to decreased operating leverage because of lower volumes related to softer market demand combined with higher material costs in both of our North American segment.
Now for results by operating segment, we generated net sales of $170.3 million in our North American Fenestration segment for the third quarter of 2024, which represents a decrease of 3.9% compared to $177.1 million in the third quarter of 2023, primarily due to lower volume.
We estimate the volumes in this segment decreased by approximately 5% year over year, offset by a slight increase in pricing. Adjusted EBITDA decreased to $24.7 million in this segment compared to $27.7 million for the same period of 2023.
Our European Fenestration segment generated revenue of $59.6 million in the third quarter, which represents a decrease of approximately 11% compared to the third quarter of 2023. After adjusting for the foreign exchange impact.
We estimate the volumes declined by approximately 8% year over year in this segment with pricing down by approximately 2.5% and a negative foreign exchange translation impact of about 1%. Adjusted EBITDA decreased and came in at $15.3 million for the quarter compared to $18.6 million in the third quarter of 2023.
We generated net sales of $51.5 million in our North American cabinet components segment during the quarter, which was 7.1% lower than prior year. This decrease was driven by lower volumes and lower index pricing for hardwoods.
We estimate that volumes declined by approximately 8% in this segment year over year, offset slightly by an increase in pricing. Adjusted EBITDA was $3.4 million for the third quarter in this segment compared to $5.4 million in the third quarter of 2023.
Moving on to cash flow and the balance sheet. Cash provided by operating activities was $46.4 million for the third quarter of 2024 compared to $64.1 million for the third quarter of 2023. Free cash flow decreased for the quarter, mainly driven by lower net income because of softer demand, higher SG&A that included $6 million in transaction and advisory fees related to the Tyman acquisition and a higher income tax expense.
Our leverage ratio of net debt to last 12 months, adjusted EBITDA was negative 0.3 times as of July 31, 2024 or said another way, we were net debt free. Of course, this was prior to closing on the Tyman acquisition on August 1.
As referenced in the earnings release, our completion of the Tyman acquisition means that our prior guidance for fiscal 2024 is no longer valid. Note that we still feel comfortable with our prior guidance for the legacy Quanex business. And our updated guidance is simply layering in the contribution from the legacy Tyman business for the fourth quarter.
On a consolidated basis, we now estimate net sales of $1.275 billion to $1.285 billion, which should result in $171 million to $176 million in adjusted EBITDA for fiscal 2024. Please note that this revised guidance incorporates an expected cost impact of approximately $3 million related to performing a full physical inventory count at all legacy Tyman manufacturing plants prior to our fiscal year end on October 31.
Performing physical inventory accounts following acquisitions and annually thereafter is vital to ensuring the accuracy and integrity of financial records and regulatory compliance. These counts verify the inventory records match actual stock levels support accurate financial reporting, meet regulatory requirements, enhance operational efficiency and safeguard against fraud and errors.
It's also worth noting that we plan to report the legacy Tyman results for the fourth quarter of 2024 as a separate operating segment. As George said, we're in the process of establishing a new operating and segment reporting structure which will be implemented in fiscal 2025 and which we hope to unveil at an Investor Day in early calendar 2025.
In addition, for modeling purposes, please use the following initial guidance for the full year 2024, which incorporates the legacy Tyman business for Q4. Depreciation and amortization of approximately $53 million to $55 million.
SG&A of $168 million to $170 million after adjusting for one-time transaction and advisory costs. Interest expense of $18 million to $20 million and a tax rate of 22%. From a cadence perspective for the fourth quarter of this year versus the third quarter of this year, we expect revenue to be flat to up 2% for the legacy Quanex business and up approximately 75% on a consolidated basis, including the legacy Tyman business.
By segment for the fourth quarter of this year compared to the third quarter of this year, we expect revenue to be flat to up 2% in our North American Fenestration segment, flat to down 2% in our European Fenestration segment and flat in our North American cabinet components segment.
We're forecasting revenue of $210 million to $215 million for the legacy Tyman business for the fourth quarter. Adjusted EBITDA margin is expected to be up approximately 25 basis points for the legacy Quanex business in the fourth quarter of 2024, again compared to the third quarter of this year.
On a consolidated basis, which includes the legacy Tyman business and the previously mentioned costs related to physical inventory counts. Adjusted EBITDA margin is expected to be down 25 basis points to 50 basis points for the fourth quarter compared to the third quarter.
Operator, we will now take your questions.

Question and Answer Session

Operator

(Operator Instructions)
Steven Ramsey, TRG.

Steven Ramsey

Hi, good morning. Maybe wanted to start with the legacy company, full year outlook being unchanged. Wanted to think about this in the context of many building product companies in our coverage and more broadly who reduced their outlook for fiscal -- for calendar '24 for lower demand.
You guys are keeping your legacy outlook. Can you talk about maybe why you are able to hold that outlook and then looking within your different end markets and products, did you adjust anything up or down by market or by product in results or your outlook? Thanks.

George Wilson

Yeah, good question, Steven. In terms of our full year guidance, I think our projections for what we've given in the past two quarters. I think we've always been somewhat conservative in our approach and really had built in not a lot of movement from the Fed early in the year.
So I think we were probably a little more conservative than some of our peers and thus didn't have to change our outlook on a go-forward basis. I think our operating teams and the sales teams have done a good job going out and trying to get some spot onetime business or picking up some different things that helps offset some of those softness.
In addition of some introduction of some new products that are starting to roll out. So I think it's a combination of things, but again being relatively conservative in our full year outlook early in the year, combined with the just the sales teams going out and pushing hard to get spot business has enabled us to stay fairly flat.

Steven Ramsey

Okay. That's helpful. And then maybe to get you to build more on the potential share gains you've gotten in winning business. And can you go into more detail on maybe where that has come from and then maybe put this business that you've won, put it into context into prior years and maybe if it's a comparable or even superior to prior years in winning business at this point in a calendar year?

George Wilson

Yeah, I think the markets themselves, especially coming out of some pretty challenging supply chain [1 year, 1.5 year] there hasn't been an enormous amount of shifts in terms of market share through with our competitors are in the market zone.
I think we've seen the most market share gain probably over in our European Fenestration business, and that's really because of some competitors had filed for administration. So there's fewer competitors and I think all of the people that still exist in that market have picked up some market share on, but that's been some nice wins for us on volume.
We've continued to utilize our thermal performance as a selling point to get new businesses for our spacer products as around the world, the thermal performance and thermal efficiency of windows continues to grow. I think we continue to find opportunities to build off of that sustainability platform and have had some nice wins globally there.
But outside of that, really the markets have kind of been stable. I think what we see when we do pick up businesses that's usually short term and I'll use, for example, our cabinet business, it's pretty entrenched in, but we've been able to pick up some spot business and with some smaller customers those are the types of wins we see. So not a lot of shift in long contractual wins on that side of our business, but some nice spot wins.

Steven Ramsey

Okay. That's helpful. And then one more for me. One of the positive aspects of the Tyman deal was the limited product overlap between the two companies and another positive feature was time and greater mix of highly engineered products that carry better pricing.
Can you talk about if there is any overlap on products where Tyman's mix of highly engineered products is better than yours and maybe where you see that evolving strategically over the next year as you put the companies together and go to market?

George Wilson

Yeah, another great question. I think again, we're one month into this but what we anticipated through our due diligence and what we've seen in this first 30 days, 45 days is exactly that there's very little overlap in the products and little channel conflict in what we do.
So for us being able to effectively, as I mentioned in my script, doing everything but the glass, we're pretty excited about the opportunities, one to sell a full basket of goods you become more of a distributor type approach to all of our customers.
But on new product development, I think you'll see a stronger focus for us to migrate even more into systems development, effectively doing everything, but the glass trying to find ways to create systems that integrate multiple components to create something new and different. And it's too early to tell those types of engineered and development projects take time. But I will tell you we're extremely excited about the potential opportunity of doing exactly that.

Steven Ramsey

Excellent. Thank you.

George Wilson

Thanks.

Operator

Julio Romero, Sidoti & Company.

Julio Romero

Thanks. Hey, good morning, guys. I wanted to stay on Tyman for a little bit. -- Good morning. Can you maybe just talk about how the reception has been from employees, customers, suppliers, et cetera, given the first month of our integration post-close?

George Wilson

Yeah, we've been very busy in trying to get out to visit the plants meet as many people a lot of work to do, especially when you're at a quarter end so it's been a balance. But we have been extremely pleased with the level of talent of people that we see in the organization, the excitement.
One of the things that we identified fairly early the cultures are very similar on things that are extremely important to us, how we serve our customers. The focus most importantly, the focus on safety, our willingness and anxiousness to develop people all of those things are extremely similar.
So we're very excited, I think once the deal closed, the level of sharing of data and obviously starting to build together, I mentioned in my script that we have a integration management office that has folks from pre-acquisition, both sides of the table.
And these folks are working as though they've been colleagues for 30 years and it's been great to see. And I'm excited to see what sort of energy that and opportunities that they're going to create. I think our customers have been very supportive.
We spent time talking to many of them about learning in their eyes what are the strengths and the weaknesses of each. And it's our job to build on the strengths of those companies and minimize what would be a perceived weakness.
And I think we overlay very, very well. I mean, I think the Quanex has been very strong manufacturing base company and I think of Tyman team was probably a little more commercial driven and engineered types of solutions. And I think when you overlay those two, it's going to create something very, very special.

Julio Romero

Absolutely. Really helpful color there. And then Scott, you talked about give some physical inventory counts and the cost impact related to that. Do you also lose any days of operations to do that and if so, how many days? And then secondly, do you expect maybe to implement a new ERP, you have some data tracking and maybe reduce that physical inventory count impact over time?

Scott Zuehlke

Yeah, absolutely. We're going to get much more efficient on it the second time around/ I mean, this was something that they weren't expecting to have to get done by October 31 is something that we feel is very necessary there will be a financial impact.
I quantified that the cost side, there will be some downtime that will affect a little of the revenue side, which is also reflected in the guidance that we gave. So it's a learning process on their end is something we're used to here at legacy Quanex, but we're partners now we're going to work with them to make sure that going forward, this is a more efficient process.

George Wilson

And from an ERP perspective, your question there, I think once we finalize on the new reporting structures, we'll obviously do an in-depth look at what ERPs exist within the legacy organizations and how they match up with the new reporting structure.
And we'll do everything that we can to streamline I think that's one of the things on in terms of trying to optimize margin, take out costs while not impacting our customer. That's always been a focus for the Quanex team and we'll make sure that, that continues to exist on a go-forward basis.

Julio Romero

Got it. How does the SKU count for timing compared to legacy Quanex? Is it meaningfully different or how would you describe that?

George Wilson

I would say that there tends to be more SKUs on the legacy Tyman business. It is a different type of business model Quanex has typically been made to order, I would say, Tyman as more make to stock. So they typically have a higher levels of inventory.
They're engineered into specific windows system. So for example, when a customer engineers in a product into a window system, even if the window system it goes out of manufacture and build kind of like an OE win for an automotive.
When a car year expires, you still have to have the ability to make that product through the aftermarket life. It's very similar with their organization in that regard. So little more SKUs a little more inventory, we'll work to kind of drive that as much as we can to make to order versus make the stock, but a little different of a business model.

Julio Romero

Okay, I'll pass it on. Thanks very much, guys.

George Wilson

Thanks.

Operator

Reuben Garner, Benchmark.

Reuben Garner

Thanks. Good morning, everybody. So just to follow up on Julia's question about the Tyman deal and customer conversations. I think revenue potential synergies or cross-selling opportunities was something mentioned around the initial announcement of the deal.
I was just curious what your kind of feedback was from customers on that front. Are there any dis-synergy risks, any customers that maybe don't want to get overly exposed to one supplier? Any other kind of thoughts there would be helpful.

George Wilson

I don't see any initial dis-synergy home. It's too early into the process to identify the revenue opportunities. We obviously think that they're there and I'm not only by selling a basket of goods, but also the future development of new systems utilizing the whole breadth of our portfolio.
Again, I want to remind people in our projections and preannouncement, we had never baked in any sort of revenue upside. So we feel good about that. I think any sort of protection from customers isn't necessarily based on the size of the supplier.
It will be product line by product line that everyone will look to evaluate the risk profile. And I feel very, very good about our position, I think -- I actually think the scale that Quanex has become actually protects our customers from the smaller type of customer base that has more financial risk.
I mean, we become a pretty large OE supplier. And with that scale, comes from security in terms of our financial wherewithal. So it's our job to make sure that they understand that we have a supply chain that is able to support every one of our product lines and that they don't have risk in terms of a supply chain side of it.
So I feel pretty good where we're at and we'll continue to have these discussions and build the relationships with our customer on a go-forward basis. I'm really excited, I think the combination will be able to you hear it a lot, but I do think that this can be a win-win for us and our customers as we learn and work with each one of these customers to develop engineered solutions on a go-forward basis. And that's where our focus is going to be.

Reuben Garner

Got it. And then switching gears. Any signs, -- it's been a few years since we've had really a ton of focus on affordability, but just wanted to hear what you're kind of seeing from a trade down standpoint, whether it's in windows or on the cabinet side. Any -- has that picked up at all? And can you just remind us how that kind of impacts you on both the spacers front and in the cabinet business.

George Wilson

I think on the affordability front, I really think it impacts our cabinet side of the business more than the window side of our business. If you're going to get to the point where you need to replace a window. It's either because it's broken or it's failed or you're trying to reduce your energy costs.
I mean the one thing that we are still seeing across the globe is energy costs are not getting cheaper so there's an opportunity to get a payback by upselling your window and becoming more thermally performance.
The cabinet piece of our business, we're very happy with what our team has done operationally, but at the end of the day, it is a little more of a discretionary spend. And as consumer confidence still lags and they tend to be kind of a higher level purchase that may require some borrowing to redo cabinets. So it's going to be impacted more in our opinion than the windows, and I think we're seeing that right now.

Reuben Garner

Great. I'm going to sneak one more in. I know it's still a little early for an initial '25 outlook, but just kind of big picture, your revenue guide for the fourth quarter implies some improvement on a year over year basis, maybe kind of starting to flatten out. Is it too early to expect that maybe we've turned a corner in growth can resume in '25?

Scott Zuehlke

Yeah. I mean, good question, I'm sure a lot of people are thinking the same thing. And it is too early for us to get into any sort of early look at next year. But I will say that there -- we feel like there is prospect to return to growth next year. I think that the second half is more -- we're more optimistic about the second half of next year than we are in the first half just because near-term uncertainty. But yeah, I think there's an opportunity for growth.

George Wilson

And the timing of those I think we saw today that the jobs report came out, it's nothing spectacular and there's more points starting to lead that the Fed will probably cut rates. So I think here over the next 30 to 60 days, when we see how large of a cut that potentially could be and the impact that has on consumer confidence.
We'll give us a better feel kind of December and into the beginning of the calendar year of how strong we're going to believe 2025 is. We think there's an opportunity for it to be a pretty decent year. But there's still noise between the interest rates and the election.

Reuben Garner

Great. Thanks. (multiple speakers)

George Wilson

Thank you.

Reuben Garner

Thank you, sir. Congrats, guys. Thanks.

Operator

Adam Thalhimer, Thompson Davis.

Adam Thalhimer

Hey, good morning, guys.

George Wilson

Good morning.

Adam Thalhimer

Congrats on the quarter and closing Tyman early.

Scott Zuehlke

Thanks.

George Wilson

Thanks.

Adam Thalhimer

And given it's a full quarter of Tyman that's pretty cool.

Scott Zuehlke

Yeah, we plan it perfectly.

Adam Thalhimer

Nice and clean. Kind of in line with Ruben's last question, I was wondering if you guys are seeing any green shoots in the EU.

George Wilson

I think consumer confidence has started to show a little more of a bounce back in the UK and a little not as much yet in Europe. UK has been a little more positive than what we've seen in Continental Europe. I think the Bank of England has been a little more ahead, but their economy has lagged a little longer than the US has.
So I think that the UK market has suffered a little bit. So I think that there is some -- there's probably more optimism for us in the UK than we do see in Continental Europe on a short term basis.

Adam Thalhimer

Got it. Okay. Scott, what was the net debt after the close?

Scott Zuehlke

Yeah, we haven't since it's during our fourth quarter we haven't disclosed that, but it's not -- it's pretty much in line with what we thought it would be.

Adam Thalhimer

Okay. And then if I'm doing this correctly, the Q4 tax rate jumps up a little bit to call it, 24%.Is that right?

Scott Zuehlke

Roughly, yeah. So yeah, [22%] for the whole year, so a little higher in Q4.

Adam Thalhimer

And is that like a good tax rate to use going forward.

Scott Zuehlke

Pretty close. We'll give more clarity there as we look into next year. But the reason for the uptick a little bit is mainly related to the UK patent box, which is a look for a lower rate that we enjoy as legacy Quanex, which legacy Tyman did not enjoy. So we're trying to do a little work there to help us.

Adam Thalhimer

Got it. And then what share count are you using for Q4, not that you gave EPS guidance, but --

Scott Zuehlke

Yes, it's roughly $47 million.

Adam Thalhimer

Okay. And then do you have any sense for go-forward CapEx for the combined company or thoughts on Q4?

George Wilson

Probably a little too early for that where we've come in and I don't think it will -- if you were to go back and look at the standard run rates of both companies, that will probably be pretty consistent. We're in the process of evaluating all of the current projects that we have in place.
So I don't think that there will be anything significantly out of line. And as of -- we don't have any plans for any like plant consolidation types of projects that would chew up CapEx. So I think it will be a pretty standard year in terms of spending.

Scott Zuehlke

Outside of -- yeah, outside of the one project, I think we mentioned in the past is we're expanding in the Southeast. We're opening a new plant in Jackson, Georgia, help follow some of our bigger customers. So that will take a little bit CapEx next year.

George Wilson

Yeah, that was already built in dollars.

Adam Thalhimer

Okay, got it. Great. Thank you, guys.

Scott Zuehlke

I appreciate it.

George Wilson

Thank you.

Operator

And thank you. And I'm showing no further questions. I would now like to turn the call back over to George Wilson for closing remarks.

George Wilson

I would like to thank everyone for joining today. But before we go, I do want to take this opportunity to again welcome all of our new teammates who have joined us as part of the Tyman transaction. And to thank the entire team for all their hard work during the transaction. And now as we move forward together with the integration, we're really excited about the future for Quanex and look forward to updating you all again on our progress. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.