Core & Main (CNM) 6 Jun 232024 Q1 Earnings call transcript

Good morning, everyone, and welcome to the Core & Main First Quarter 2023 Earnings Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to the management team to begin. Please go ahead.

Thank you. everyone. morning, Good Bradbury, for Robyn of and Finance This & Vice Main. Relations Core Investor is President Core is local service & infrastructure nationwide. reliable Main a leader advancing in with

our join acquisitions. We by and today Chief our and this have Financial thrilled Officer; first with by LeClair, earnings by session. you Executive Witkowski, are morning an year am to Steve our for Mark recent first Chief joined will quarter Officer. followed followed quarter overview call. I us our our discuss results update, lead Mark a today's a then business full call outlook financial will of Q&A Steve

We this section website. will issued release morning remarks. We and closing posted of our to call conclude Relations with a Steve's Investor earnings our first quarter presentation the the

the results our during and projections. expectations materially are Commission. forth release subject and the in reminder, press made the factors press include Exchange statements. that and our Securities in uncertainties to and Such actual and set our risks presentation release, could These earnings statements forward-looking with a cause filings differ and to statements uncertainties call include this our As from risks

Appendix & LeClair. the in Chief which our business. can interest the call We certain discuss will non-GAAP to financial of to investor in our of your A found be over presentation. Thank I Executive for Officer, Core and results believe will the are release now useful measures, assess in reconciliation Steve of also measures you operating our we Main. these turn press earnings

first our return in today. net results presentation, us line for X first finished the our share a quarter quarter. seasonality to morning, with to expectations, with of Thanks, everyone. Page Robyn. typical for Good you excited the joining more Thank you. Starting sales reflecting on We're

in XX record disruptive the especially cost quarter of with XX% makes confronted excellent grew XX%. year-over-year from an standpoint, margin inflationary gross with comparisons first another a markets. We for major last tough, year-over-year the the outperformed of and when volume first sales our year. solid chains. some adjusted and to EBITDA of against a sales had XX% XXXX points lower weather of And quarter new deliver in increasing margins quarter to profitability fiscal in This offsetting adjusted a pressure basis our Prices elevated quarter. supply expectations, EBITDA improving remained outcome first Our quarter

Our healthy end backed demand first throughout stable markets remained resilience, replacement backlogs. and Nondiscretionary the to municipal municipal by and show quarter. budgets project repair strong continued

vacant down the prior were to said, are year of we and strong we industry the That public of of we a our balance, still short are the volumes customers Residential supply residential demand lot of compared significantly is many expected, lots. solid, homebuilders. with a seeing and pleased we comparable. believe representing level As long-term fundamentals housing from are in the development developed

nonresidential our have in trends capture the projects, generated number has growth projects an onshoring increasing large side, select to us scale On advantage meaningful these markets. positioned from of and

lending tightening the and that optimistic development, to market, services. nonresidential impact could a medium-term remain impact standards on opportunities for could the in demand we about nonresidential we growth While products our the have for recognize short- which

growth, $XXX in capacity significant laid we we to investing In allocation million we've And strides over repurchases. opportunities. in maintained and we executing growth prior the quarter, framework in deployed capital acquisitions made first ample of quarter, the capital out the organic share During quarters. continue to

geographic product, We which customer drive the growth market invest and expansion and of in our to continue outperformance resources creation. support long-term initiatives, helped to value

make grow our the nationwide. expertise during our and opened in we locations example, first footprint more X new to For and markets products underserved quarter accessible

offer continue and mature new opportunities. Our to growth greenfields

talent in programs. pool attractive ability We efficiently the scale new branches advantage, and to due training our open have markets to

footprint, during with are the with complement our definitive acquire progress to broaden geographic of time growth across and as enhance to entered our investments busiest a key these agreement initiatives to our pleased organic selling product quarter the lines, season. We acquisitions we've subsequent completed We acquisitions talent. the made we X markets another business signed and enter the adjacent acquire quarter. We our

remains we Our & very XXXX M&A pipeline new expect family active, beyond. the adding to continue to throughout Main Core and businesses and

cash by which a Our to repurchase $XXX XX operating repurchase to record quarter also share liquidity shareholder, with fund from X offering. shares. a The million a million reduced million diluted share share was contributed first count share the concurrent flow secondary majority our

and capital capital return organic opportunities but we inorganic arise. as #X will Looking remain growth allocation to shareholders to priority, our investments ahead, look

of Turning to the team provider Supplies UPSCO to and geosynthetics Since services nearly our business X. area. a the providing family infrastructure. our well-regarded high-performing has & utility control for services its Lakes product combined signed full-service We and with of The with XXXX, to reputation acquisition Page historical in the years regions customers York geosynthetics customers adds has our more and net over businesses in Landscape sales and products a best-in-class XX recent the key offering ago, our erosion the of a Midwest. UPSCO to Upper subsequent offices trusted fourth, talent Mid-Atlantic infrastructure in remediate a Northeast, Finger and $XXX with Midwest of the LCS products Construction existing a earned and to added utility in of headquartered at expands than X customers sales products is annualized provider region in states. and, build and Since opening generating U.S. is the New serves Chicago X XX built million. acquisitions quarter, locations on Metropolitan

team challenges. and to Since for storm XXXX, of the for of and seeking of solutions, to site agriculture team unique acquisition and municipalities work to services sets, brings control offer broad and the to and at adjacent Main concrete communities UPSCO the innovative its geographic including commitment and valves, X high-quality team our and at installer that the other full-service The Core Supply shares drainage products, branch, for producer, choice has in customer is existing Foster Kentucky, solutions distributor products products have and out expands business. Midwest needs they addressable This product contractors, acquisition and water cross-selling will & providing erosion contractors team to specialty the solutions been market to storm in products we thereby and prefabricated service are Tennessee they commitment a our and municipalities Pipe utility lines partner unique a Bringing West offering Northern of meter allow infrastructure, of join us single reach products excited reliable throughout them Supply and our to addition precast our state. drains to Pipe a wide This service serve. Foster and alongside Works Supply range meet our customers as company is product distributor Iowa. combine differentiated Since our the and a customers. us reputation shared with XXXX, to drainage, needs and team dedication and solutions. In The services. base, and a range piping of for geosynthetics leading opportunities Midwest, a septic offers fittings at Midwest operating satisfy the of services, our of products dependable collective and of Water pipe, product distributor offerings across the built customers. expertise and Virginia. fusible for better Supply locations has works a the water expanding strong

of growth I infrastructure Lastly, to extremely our realized see the through that I'm of strategies. advancing want achievement to reliable share proud our vision

Our foundation companies strategy in Core our is to in talent leverage long & a deliver strategy, Main come resources, growth the consistently and and we our our opportunities largest in value industry, significant all teams the ahead. runway to and the to have We've experience for building our support customers entrepreneurial and suppliers. we of of capabilities have of scale, and a way one as local executing

Now I'll Mark. call discuss outlook. ahead, financial and turn fiscal Financial Mark to over XXXX to Go results our our Witkowski, Officer, Chief the

nearly results. when first of quarter and fiscal strong quarter, slight billion at more saw Page XX% due X.X% decrease and levels, net comparative elevated highlights the year experienced our grew typical Thanks, price $X.X volumes Steve. quarter to to the in net positive on quarter. was performance expected the the quarter during for compared sales as I'll we sales begin have compared first the the reported The a period. year with sales decline seasonality on X We first sustained prior contribution follows of year-over-year pressure with XXXX. We of prior with of costs return for a material

seen our continue of basis execution acquisitions, accretive XX.X% in since of and demand to the the of the country. Gross across points gross and expenses year the more April of beginning benefit the year. Selling, lower margin of likely and stable SG&A to conditions the enhancement expect the The of the gross weather reflects half quarter. May, start to dryer XXX our second and at first growth. impact points to XX.X%. be XXX inventory. increased was than X.X% into as than the than period anticipated have of low-cost fiscal higher and in the margins million year a first We anticipated of with cost Despite the XXXX, stronger the prior to initiatives quarter, $XXX we strong margin margins utilization increased we acquisitions and inflation, for basis but percentage general for sales in net to support investments full administrative increase SG&A reflects improve

SG&A was quarter Inc., SG&A for higher compared increase the the share. higher the was in million XX%, plus to and The expense weighted is lower The million structure. Interest in volume, and was partially resulting margin share million in the first the year expense The held offset unhedged rates of diluted of first per portion the tax to our variable points EBITDA A favorable due nearly in reflecting per in our first million with prior attributable and Main, partnership due $XX by fixed interest. Adjusted The $XXX expenses, Core net due senior the first percentage year impact margin performance first partially the effective prior of partnership of quarter rates stock, compared to typically at Class Class $XXX share for interest a in year $XXX our with quarter income basic prior inflation quarter to by shares exchange loan. issued from common recorded rate quarter, during outstanding Our due in adjusted net higher of per XX.X% increased the period. earnings increase for tax performance. Diluted was expenses million XX%. adjusted margin holders. We income stock of impact prior interest increase interest by tax compared the calculation interest sales period, Income includes period and basis A dilutive million, in earnings strong to term the & decrease to increased as in common cost million seasonality sales $X.XX $XX and a on decline period. sales of gross noncontrolling cost EBITDA was higher line was EBITDA to margin was with upon investments primarily to $XX in would with average be increase effective of the The offset growth. an XX quarter year that gross due the our to of support the $XX respectively. X%

quarter a and our record was on Turning $XXX flow balance performance million. at Page sheet cash first flow Operating X. for the to cash

inventory we We first a cash year. in prepare the and middle our quarter from the the $XX the and selling summer to prior year, for We inventory initiative second quarter of in million first generating in million optimization in with last seasons. $XXX of build investment compared continued spring the typically inventory started

prudent However, in through while due inventory this acquired year. On and with maintaining reduce inventory the basis, even prior able with levels costs, new inventory the customers greenfields. we our higher to in inventory investments support our product inventory the was a first about to year-over-year down were our service year acquisitions to X% net quarter,

secondary at conversion adjusted we we continued we liquidity took of targeting quarter, EBITDA, offering repurchase the an as last the the the shares quarter progress concurrently end of mentioned XXX% I with our year. Net and the and range operating following million throughout we of the public The actions As in cash million XX% cash leverage to done quarter. available we are was debt share flows improvement X.Xx, deployment quarter $X.X billion at during majority $XXX our during was X capital shareholder. by executed stands of a expect

shares. reduced we our the XX by repurchase, count of diluted result a share As million

with allocation consistent or to remains framework through shareholders and what we growth to allocation we dividends. investments returning continue share capital laid our priority, Organic capital Our quarter. inorganic capital intend out remain and #X last repurchases

to We throughout as on of have wrap invest, XX ample update remain capture in the our we growth opportunities and confident the up year. I'll remainder with ability XXXX. for capacity on our to Page an develop they outlook

We expect of end-market rest the volumes to the year. remain for stable

We and since and expect new level to our a for sentiment public year-over-year homebuilders last quarter. down residential the lot has from be but customers basis, development construction improved of demand on

continue a down expect for the range diverse market to volumes municipal the relatively to a to nondiscretionary continue total, year. to replacement exposure. and by nonresidential We In end in and repair growth stable end mid-single-digit project be markets low activity supported we in expect

expansion from growth expect geographic of to X initiatives. to customer the our execution We deliver product, points and of above-market X

acquisitions, of XXXX. adding points companies forward & Main acquisitions months, high-quality to growth Core of XX in within the In the sales or we've acceleration X now activity expect and last have we family months. in signed an closed more look from recent of terms roughly seen to We that

We utilization price a likely Our price as our to fiscal moderate margins them to XXXX, normalize anticipated quarter inventory. gross year. and impact continue from result flat we company. We've last better in ability than for performing we but a lapse expect the the as integrate ago, low-cost our our still inflation continue be contribution roughly seen continued acquisitions full well, of of expect the to to improve price is we to we continue are and to into increases year

adjusted strong sales to now and to we are fiscal We range billion to margin for Given in billion, the million in our $XXX our and of raising expect $XXX of $X.X in be sales be net performance expect first to acquisitions adjusted recent the quarter, $X.X expectations the we XXXX EBITDA. million. net range EBITDA and

XX% Our expectation XXX% to cash EBITDA. adjusted for operating of conversion unchanged remains at

year, focus optimization. cash the inventory throughout operating opportunities, progress and we organic continue growth inorganic As on through and to we margin expansion will conversion

well positioned the demand we forward customers We our as like reliable are our for this to build environment, look of stakeholders. open part for outperform more to construction time, We value all a creating to it I'd complex season. At helping the infrastructure market questions. enter this key in up

Thompson Research question from Kathryn first comes Our Thompson Instructions] [Operator from Group.

looked how to federally I & Act bigger Reduction several CHIPS more question the funded a initiatives, get Core picture in flow they dollars -- as first Just And before Inflation and in through? IIJA, to Act. the We does win with short, those? quarter. those do at they How Main participate really

benefit This itself is you. in, all a of able getting couple of of multiple what part our infrastructure have major and would a some new contractors involved lot given that for support size in cases, in able been these been with help other I We've this that been us, to has themselves us. going assist country. to the in Kathryn. A just across access are chip utilized addition with onshoring still of would facilities in share different is of that scale, also geographies. being are A short opportunity the may be piece areas it's projects But whether or of Steve. parts product supply Certainly, we've these the battery lot that, that to in that Thanks, facilities. activity I the lot share

unfair utilize as and So scale in to to ways of larger areas. get larger we these our size and those work to find of with business lot continued we've these own share contracts, a continue to projects

and driven I a quarter. then the and in that declines resi. on fire modest Okay. more color protection segment. protection clarity more maybe give you fire pipe, valves sales the bit more digging Pipe deeper was little And to on and the fittings, saw assume in little modest a just fittings bit And Could that? by softness

residential. with first start I'll Well, Yes.

got from up the residential sentiment softening exited slightly last was challenging given we've development to end, as the homebuilders quarter. certainly, call more seen with So positive QX. of have quarter scaling we some year. what we're beginning as been also certainly And anticipated pretty as difficult against we we back. we I'd a in land here, going from into a anticipated new particularly That comps that change saw the But the the

As XX% you saw, we up were last year.

So challenges we there. some seeing were certainly

was Weather couple to As year we the and with And weather saw. in between extraordinarily returned which in seasonality far pretty impact were California in that exactly softness areas in in of we some wet in impacted country. then a impacted that where typical seasonality, as across some all on the later difficult of see the also a weather. the areas it fire protection, last put much It's some how even of seasonality pushed part a and areas, spring. We the areas other parceled were things our work. of northern did returned, and certainly finger lot different out into winter other those of underground the areas was the tough

question comes Michael next from Market. Our from Dahl Capital RBC

pipeline? some think anticipated. about maybe do the think might I allocation. but with of pieces in made that think like of you when is activity. start accelerating nice the progressing sounds you help Obviously, in M&A deals you you of along on a X what's what -- points. us the just the the the now I wanted have then driving quarter you the outlined off understand to of than kind about kind Can acceleration buyback, It and lot comments better And contribution, you a capital moving

higher would closed. based you've is on a already deals -- clear, I because have than little thought the that be to Just that's

you're deals expecting still inclusive to and of any close? is So contribution contemplating that that from

what of bit the quarter. first a about little I'll delivered Well, in we M&A talk terms in

that as through quarter. we So XX saw million branches in $XXX in and you there, sales to annualized that close had came

to pipeline very robust. be continues Our

get last Pipe solid continuing Supply. And saw of into that bolt-on see as You well, some We've categories, acquisition a number Midwest year, then tie number able with as into get to well control. Works. of increase product been different those targets in erosion in really we We're to too. as other acquisitions for a had space Water you too geosynthetics and of we our

have lot a and multiples gone a talk of little very as been let see continue and capital to the we through been Mark we've favorable us there. a pipeline. The seeing we're we've I So robust opportunity for about allocation this, very bit And more prioritizing. can how

Yes, for the thanks question. Michael,

the change top the continue what capital On then laid terms out. priorities, our our think again, last And from completed really that deployment we to quarter you that we commitment to repurchase priorities we'll can I path Organic in the growth quarter inorganic priorities. the capital being along we've expect during that represented capital no described the that allocation, shareholders. growth, back of allocation of and

on addition have the your guide, embedded terms UPSCO, of points which question parts includes of in there, of and do In XXXX. acquisitions X the the Foster for of we Midwest Pipe remaining

at of signed, that So and acquisitions have been completed that's acquisitions all been this contemplation no that not point. have

my allocation. follow-up around very that's helpful. And is Okay, capital also

leverage up, like else look the cash in Xs to at to close you'd the if or low you're X around year, So and in equal, range the for -- it flow seems sheet all end the that balance we probably net Xx. the guiding like

of EBITDA that technically powder based $XXX to of leverage, like your a your dry more or I million this turn available relative guide. you range, think full of kind which So on is year target gives

of M&A you would Or more this that order is to terms you magnitude in layering be way about deploy about a the in potentially of can is that So what think between and right on buybacks, year kind deployment? of incremental thinking think -- of you kind of gradual it?

about shakes a way assess potentially the where continue leverage capital. and level that again and out dividends. of X to time. The deploying provides to to Yes, our cash level about we'll us. But the flows to we think Xx period it think capital inorganic over how that's organic that feel comfortable that right that that's as is we liquidity look this it, timing of initiatives, timing Michael, amount I of think the of we'll a And and/or deploy year, yes, additional share decent and for for leverage repurchases a through

comes Ritchie question next from Our from Joe Sachs. Goldman

little So wondering on I by maybe color can your start growth a organic if was bit you giving more quarter. just this us

first specifically, but So be is the end quarter of order standpoint. contributed from out of kind to year, different flat expected they the like and how pricing how know any also the quarter. pricing on a markets And volume to for magnitude I that curious, like in started curious the

range muni a really the I'd low volume impact impacts, breakdown of what we've Thanks, obviously, from Yes. say there perspective, talked terms with the down that And quarter. double-digit and of market return the I'd comps, and stabilize. And price to standpoint, perspective, an the market in saw say the to in in a the, given were say, the non-resi weather residential we the some less there impact. Definitely, to Yes, of years the lesser in Joe. extent the typical the from and was prior the the seen that kind in residential from of tough we a some as end year. particular I'd the a primarily in in in range than that about for bigger of seasonality for then due quarter, prior single-digit sales we volume much softness pricing

that market necessarily So the but I necessarily, in volume were softer drivers quarter. wouldn't of the call the

like of come just ceiling. maybe spending infrastructure now We of just like to while have second helpful. seem some muni-driven? debt in through. you been and the gotten for bit question predominantly mentioned that my waiting better into you a are through your I know That's hearing specifically, curious things what seeing, would And around to that April to what May. for helpful. side clearly, we've a half follow-on Just is, Was that, got Okay. color the guess, you I'm super I that clearly, that any be from early are the on little this muni customers?

Sure.

I to gone and be seeing to one period. flowing. We have really make by we've has things as what been We've with projects encouraged that's first been of in some in The Municipal had but through seeing weather Arizona certainly we're piece continue municipal incredibly starting allocated. seasonality that some hampered budgets piece. From some been perspective, activity a in think this strong. resilient the bid quarter, we're funds have trickle few seen another in a IIJA municipal been its way into projects. Florida, the

what is that slower But coming know we and anticipate. way ramifications would those still So to positive make some see through we shoots of certainly its also green to through. and starting starting than it

the That's I the start great better I looking you're guide Clearly, off year, at at for just XX.X%. maybe much could in Steve. to to to hear, adjusted If margin EBITDA was XQ ask XX.X% your one a more. just XX%.

So like progress of some we you think next through at What from quarters? offsets high in number the seems of about it very looks as Because this looks conservative. -- are least like the level, how a the of our it rest -- year? X kind the do

Yes.

of releases, the in terms in had quarter. the low-cost look of inventory us, some obviously from at I some of the we for embedded surprise was guide think additional gross what the you the margin as

throughout at at the gross about point on to revise that we're say EBITDA we basis margin expecting, that still to the little margin it as reset expect though low-cost margin some normalization As early normalization But that we even primary we year. was of at about. I'd we've do in a make the year-end, some to I yet release, did us we But quarter. inventory progress level range. that think say we XXX gross talked some progress for which that's have XXX the the driver too in the point talked I'd

Anthony from question comes next Citigroup. from Our Pettinari

Anthony. on Sohnen for Asher is This

in at last expected. looking increase than following the to more on it -- not to inventory driven guide, part Just the your low-cost up one, be only EBITDA by seems

So through than pressure, inventory a with able So into more make enough of expected of or function to may driving maybe that? continue of doing slower some you sort is has prebuys? been what's pricing that your bucket, be maybe the to moving just you're volume strong low-cost basis inventory or sit or even

Asher, all items you the to get softness longer us system that inventory I QX we answer of And in think mentioned given that I good volume. through is question. really there. the take to the just some the mean, did in

us that through. also are to some hanging we on longer that some categories of than to in continued It's to So anticipated. we've opportunity see given an come invest product other price

pricing private that, initiatives So of some got. we've the are label say beyond of the those I'd particular in factors. And make continuing our other have been that some then we to progress against gross and initiatives, margin

we expecting, it us the to -- gross that too normalization for a what we of offset think some to early the have I level. we've of to have. think you'll inventory, release that the some more that kind takes just is I of little an So of opportunity been again, see that But longer margin adjust us that reset

tightening. start wondering just that? the just And risk something through delayed actually sort on seeing have of of or seen switching maybe kind the that? or still anecdotally, In I about impact credit think Okay, But remarks, at like I'm then gears. get projects segment from private of to kind you you come even that's the Are presented commercial your helpful. sort non-res prepared talked of you the

And have all have, much from mix the project As that impact or the at credit of haven't been really credit little data volume warehouses, to institution have a us, continued there. and perceived we favorable talked the types at challenges that projects in of we that the have those and we challenges buildings, look bit and a see you really diverse trends end for if quarter, bid of and from seen first out onshoring -- these of have about activity nonresidential. been large projects and commercial we've centers, Everything we that happened, there. all

that's billion for addition just drainage we earmarked the products. of a as view funding In particularly and contain control $XXX at roads projects federal infrastructure we storm and look bridges, as that to tailwind, been that erosion

we're what's sure aspect little terms of in happening seen So make here this. to understand it. But not a of we watching closely lending so far, the we've bit

Bank next of question comes from from Our Andrew Obin America.

This it versus year? better outperformance fiscal the additional bridge adjusted Can versus of had this gross than being the Ridley-Lane How was margin David help here the Andrew. acquisitions change guidance you on much is quarter for EBITDA you the maybe in feared? for first

for question. David, Yes, thank the

look the to you was up it for that year, million. full the that we acquisitions the $XX in adjustment we prior not better-than-expected quarter. As would added I'd be were in took of that midpoint. primarily that at to it remainder margins It the included The EBITDA the the had we say was of Half the guidance gross related at about guide.

much And improve initiatives you of gross how then different to a know margin. because of couple the have -- internally I

kind sell-through lower of sort I'm the of was what from versus underlying wondering, kind of another the benefit of so just And progress cost the inventory? just

standpoint, had that in benefit and at pricing particular, it place. looking in other but gross still Hard from just still I'd some of some was over of gross some of improvement low-cost label the say lot the of to say it of from of quarter, initiatives chunk initiatives, to of still And if initiatives most in but a year-over-year, number. a we that if a there, some QX QX, sequentially that that release a from a releases on of low-cost nice through the I'd inventory. David, margin margin put release inventory you're nice lot good of had make I'd inventory. Yes. those you of in private coming look some at say progress QX

those I'd the So components of are, that. say, primary

no further now hand ahead. have We your questions. host go to remarks. further Please will I any for back

was on today. you joining It Thank call. again pleasure you for a all the us have to

and end of markets. and diversity field strong consistently functional our of direct of operational products a support Our the work teams, quarter-after-quarter performance the our on result hard and discipline focus is our

our a outlook XXXX. We for fiscal build are to and strong positioned well positive momentum, we on have

grounded as Our for creation significant agility, execution. opportunity in platform strategy provides our innovation growth and value is

tremendous our us, & Main. execute are opportunities. Thank those and in that your to you call. ahead positioned of a amount have Operator, interest we We of on concludes opportunity Core well for

Thank Thank call. for This concludes you you. joining. today's

may disconnect great now your a lines. Have You day.