NX

• Macroeconomic Environment: North American new residential construction activity is weaker than anticipated (starts down ~16% YoY), but permits remain stable (+3% YoY), suggesting demand is deferred rather than destroyed. European markets show mixed results with recovery in Iberia/Scandinavia but softness in UK/Germany/France/Italy.
• Inflation & Pricing: Input cost inflation persists but at a diminished pace. The company implemented targeted price increases (mid-single digits to low teens) phased through Q3, significantly narrowing the cost-price gap. Further margin protection may require additional customer discussions or surcharges.
• Operational Optimization: Post-acquisition integration of Tymon has moved into the 'optimization' stage. Strategic projects based on the 80-20 principle are underway to improve customer performance, optimize footprint, and strengthen margins. SG&A reductions are beginning but benefits are expected to accelerate in Q4 and beyond.
• Capital Allocation: Strong focus on free cash flow generation and debt reduction. The company paid down debt and repurchased shares during the quarter. Future cash priorities include continued debt repayment and funding organic projects that drive returns.
• Segment Specifics: Hardware segment benefited from resolved operational issues in Monterrey. Custom solutions wood business gained share via new contracts (~$10M annual run rate) and potential insourcing opportunities due to US-Canada tariff dynamics. Extruded segment margins supported by high-margin IG Spacers and UK vinyl businesses.

• Consolidated Revenue: Expected to grow 2-3% in Q4 2026 compared to Q4 2025.
• Adjusted EBITDA Margin: Expected to expand by 50 to 75 basis points in Q4 2026 versus Q4 2025.
• Tax Rate: Estimated effective tax rate of approximately 24% for Q4 2026.
• Leverage Ratio: Management expects to exit 2026 with a lower net leverage ratio than the current 2.8x, driven by cash generation and debt repayment.

Hardware Solutions: Net sales of $220.9 million (decrease from $227.1 million in Q3 2025), representing a slight decline due to volume drops (-0.5%) and tariff reimbursements (-4%), partially offset by price increases (+1.5%). Adjusted EBITDA improved to $27.1 million from $24.7 million, driven by pricing and the absence of prior-year operational issues in Monterrey. Revenue contribution approx. 44%.

Extruded Solutions: Net sales of $179.3 million (increase from $174.4 million in Q3 2025), up 2.8%, supported by pricing gains (+3.5%) despite flat volumes (-0.5%). Adjusted EBITDA declined slightly to $35.6 million from $37.1 million due to inflationary pressures. Revenue contribution approx. 36%.

Custom Solutions: Net sales of $111 million (increase from $102.3 million in Q3 2025), up 8.5%, driven by volume growth (+3%) and strong pricing (+5.5%). Adjusted EBITDA decreased to $12 million from $12.9 million, impacted by inflation. Revenue contribution approx. 22%.

• Macroeconomic Headwinds: Weakness in new residential construction starts and persistent softness in key European markets (UK, Germany, France, Italy).
• Inflationary Pressures: Ongoing variability in input costs, transportation, raw materials, and energy prices, particularly influenced by geopolitical tensions in the Middle East.
• Tariff Volatility: Fluctuating US-Canada trade policies and tariffs impact revenue recognition (reimbursements) and create uncertainty for custom solution customers regarding sourcing strategies.
• Execution Risk: Success of the optimization phase depends on the effective implementation of 80-20 projects and footprint simplification; benefits are not yet fully realized year-over-year.

Q: Julio Romero asked about the drivers of the 160 bps margin expansion in Hardware Solutions, specifically the split between price realization, operational improvements, and 80-20 initiatives, as well as the remaining impact of tariff reimbursements in Q4.

A: Scott Zuehlke noted that while full pricing impact will be seen in Q4, the immediate Q3 gain was largely from price ($3.1M benefit). George Wilson added that 80-20 benefits were negligible in Q3 as they are in early stages, with meaningful contributions expected in Q4 and next year. Regarding tariffs, the significant $9M revenue headwind in Q3 hardware is expected to be much smaller in Q4.

Q: Adam Thalheimer questioned the sources of the impressive Q4 adjusted EBITDA margin guidance (50-75 bps expansion) and the outlook for the Custom Solutions wood business amidst tariff uncertainties.

A: Management attributed margin strength primarily to the Hardware segment, citing the absence of last year's Monterrey operational issues and the full-quarter benefit of recent price hikes. For Custom Wood, revenue growth was aided by $10M in new business wins. While market conditions are soft, active quoting for insourcing opportunities has increased due to US-Canada tariff fluidity, offering potential upside.

Q: Stephen Ramsey sought details on the strong performance of Spacers and Screens within the Extruded and Hardware segments, respectively, including demand drivers and sustainability.

A: George Wilson explained that Spacer demand is tied to high-end energy-efficient windows, growing as consumers seek savings amid elevated energy costs; pricing mechanisms have successfully passed through petroleum-based input inflation. Scott Zuehlke clarified that the Extruded segment's high margins are driven by product mix, with IG Spacers and UK vinyl linear extrusion comprising 65-70% of segment revenue. Regarding screens, the business is outpacing market growth as OEMs outsource production, and footprint optimizations continue to drive efficiency.

Q: John McGlade asked about the company's philosophy on handling tariff refunds and pass-throughs, noting inconsistencies in industry practices.

A: George Wilson emphasized a core operating philosophy of transparency and fairness. Quantix does not view tariffs as a margin-generating tool, especially when consumer pressure is high. Any refunds received from government tariff adjustments are directly passed back to customers, ensuring the company does not retain funds that do not belong to them.