American Woodmark Corporation

Okay, and welcome to the American Woodmark Corporation First Fiscal Quarter 2022 Conference Call. Today's call is being recorded August 31st, 2021. During this call, the company will discuss certain non-GAAP financial measures included in our earnings release, such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage, and adjusted EPS per diluted share. The earnings release, which can be found on our website, AmericanWoodmark.com, includes definitions of each of these non-GAAP financial measures, the company's rationale for their usage, and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. We also use our website to publish other information that may be important to investors, such as investor presentations. We will begin the call by reading the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements, even if expedience or future changes make it clear that any projected results expressed or implied therein will not be realized. I would now like to turn the call over to Joe Hinchak, Vice President and CFO. Please go ahead, sir.

Good morning, ladies and gentlemen, and welcome to American Woodmark's first fiscal quarter conference call. Thank you all for taking time today to participate. Joining me today is Scott Culberth, President and CEO. Scott will begin with a review of the quarter, and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions. Scott?

Thank you, Paul, and thanks to everyone for joining us today for our first fiscal quarter earnings call. I hope that you and your loved ones continue to remain safe as the country begins to manage the growing number of COVID cases related to the Delta variant. Our teams did an exceptional job of delivering sales growth in the quarter, but our margins were once again pressured by materials, logistics, and labor inflation. Improved productivity, increasing production levels, and a second round of pricing actions have been announced, or are in process that will deliver additional margin improvement in the second half of our fiscal year that I will provide additional details on in a few minutes. Our first quarter sales were up 13.5%. Demand once again continued to outpace production in the quarter across all platforms. Our ability to match demand remains limited by two factors, labor and material availability. Material shortages led to unplanned downtime and efficiency loss and substitutions were made when available to continue production. Container challenges also persist with higher rates and air freighting at times due to poor congestion. Backlog increased across our made-order platform with incoming order rates increasing over 25-plus percent versus the prior year. As a reminder, we level load our production on the made-order platform. I mentioned last quarter that our incoming order rates across both the new construction and remodeled businesses exceeded shipments for the quarter and that our teams were increasing production levels, which would drive incremental sales in our first fiscal quarter as we improve backlog levels. Incoming orders again exceeded shipments in our first fiscal quarter, and we did not make as much progress as planned in reducing backlog. In fact, backlog increased significantly as we struggled with labor attraction and retention, impacting our ability to increase production. Going forward, production levels will continue to increase and drive incremental sales over the next few quarters. Our teams will continue to invest in production capability via outsourcing, staffing additions, and productivity improvements. Within new construction, our business grew 8.5% versus prior year. Our Timberlake direct business count positive low teens in units, while our frameless PCS business count positive in units over 20%. These growth rates were partially offset by mix, with our origins product positioned at a lower price point than our poor Timberlake offering. Demand and backlog in the coming months are expected to increase as many of the builders are attempting to close the unprecedented number of homes that were started in calendar Q2 before their fiscal year closes in calendar Q4. This anticipated increase in desired closings from all builders late in the year is going to continue to put pressure on the capacity of all finished trades in the upcoming months. Looking at our remodel business, which includes our home center and independent deal and distributor businesses, revenue was up 17.1% the prior year. Within this, our home center business was up 20.3%. Our made-to-order remodel business continued to improve with 20-plus percent comps. Our stock business performed well as pro- and DIY demand drove comps into high teens. With regards to our dealer distributor business, we were up 6.3% for the quarter. Demand has remained strong across both the remodel and new construction channel, especially within the value segment. Our adjusted EBITDA was $32.1 million, with EBITDA margins at 7.3% for the quarter, with reported EPS of $0.18 and adjusted EPS of $0.70. We expect the new construction remodel market to remain strong and anticipate growth to continue for the remainder of our fiscal year. We are positioned to take advantage of this market as consumers invest in their homes and existing home sales and single-family starts remain healthy. Lot supply, interest rates, and overall price appreciation in new construction may impact demand in the early calendar year 2022, but long-term growth remains solid. Should a short-term reduction in demand impact the market, our backlog will allow us to maintain a higher production level. I shared last quarter the cost of goods sold inflation expectations for the fiscal year included an additional approximately 2.5% to 3% for material and logistics on top of what was already realized in fiscal year 21. The impact is more than double that for our current estimates. We will be able to recover inflation via price increases, but note there is a lag between incurred inflation and realized pricing. As stated previously, we are taking additional action in the current period across all channels. We will improve margins in fiscal year 22. Pricing has not kept pace with inflation in the past two quarters due to our elevated backlog and unprecedented materials and logistics increases, but we will be in better alignment by our fiscal third quarter with full realization of all pricing in the fourth quarter. Many of our actions are affected 10-1, which will place additional pressure on our fiscal second quarter adjusted EBITDA margins. Keep in mind that we only realized approximately $3 million of impact in the first quarter of fiscal 2022 for pricing. At our current sales levels, we expect the impact of our confirmed pricing action to increase in the second half of fiscal 2022 to over $25 million per quarter. Additional efforts are also underway within our operations teams to improve productivity and increase production levels. Sequential margin improvement is forecasted for each of the next three quarters, with our fiscal fourth quarter comping positively versus the prior year. The Board and our team firmly believe in the long-term potential of this business, and the strategy I shared during our May call is unchanged. Investments will continue in our digital online capabilities and product, while we focus our efforts on the enablers of customer experience, platform design, talent, and ESG efforts. All of these will contribute to incremental revenue growth and improve margins. In closing, despite our financial results not matching the level of effort our teams are putting forth this quarter, I'm proud of our employees for what they have accomplished, and I look forward to their continued contributions. I will now turn the call back over to Paul for additional details on the financial results for the quarter.