American Woodmark Corporation

Good day everyone and welcome to the American Woodmark Corporation's second fiscal quarter 2025 conference call. Today's call is being recorded November 26, 2024. During this call, the company may 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 the 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'll begin today's 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, the annual report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements, even if experience 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 Paul Jahimchak, Senior Vice President and CFO. Please go ahead, sir.

Hey, good morning, and welcome to American Woodmark's second fiscal quarter conference call. Thank you for taking the time today to participate. Joining me 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 second fiscal quarter earnings call. Our teams delivered net sales of $452.5 million, representing a decline of 4.5% versus the prior year. This was in line with the expectations we shared last quarter. The year-over-year decline was due to continued softer demand in the remodel market, along with a slowdown in new construction single-family starts over the summer. Despite Fed rate cuts, mortgage rates are up 60 basis points from the low achieved in late September. which continues to put pressure on existing home sales and new construction activity. In addition, sales of existing home sales fell to a 14-year low last month in October, according to the National Association of Realtors, slowing the demand for remodel projects. Single-family housing starts comped positively in August and September, but declined in October due to a slowdown in the southeast that was impacted by weather. We believe that the Southeast will rebound in future months and that the impacts from favorable starts activity should benefit cabinet installations in future quarters. Although net sales were negative for the quarter versus prior year, unit growth for the new construction channel was positive, but was more than offset by price mix. Our home center customers continue to be impacted by our interest rates and macroeconomic pressures that lead to weaker spending on projects. This remains more significant for higher price discretionary projects like kitchen and bath. We are not experiencing loss of share with our customers, and our teams remain focused on growing share of our accounts. Our belief is that as mortgage rates decline, consumer confidence increases, existing home sales increase, and the potential for home projects increases. This should serve as a tailwind for our business in the future. Our adjusted EBITDA results were $60.2 million, or 13.3% for the quarter. The reported EPS was $1.79. Operational excellence improvements and SG&A spending benefits in the quarter were more than offset by lower sales, restructuring costs to right-size our operations, debt refinancing costs, and a mark-to-market entry for Peso hedging that Paul will cover in his remarks. Our cash balance was $56.7 million at the end of the second fiscal quarter, and the company has access to an additional $313.2 million under its revolving credit facility. Leverage was at 1.4 times adjusted EBITDA, and the company repurchased 349,000 shares, or 2.3% of shares outstanding, in the quarter. Our teams did an excellent job of refinancing the company's debt with a slight increase to our interest rate exposure. Our outlook for the industry in fiscal year 2025 assumes the repair and remodel market will be down mid-single digits and new construction to be up low single digits. Within R&R, larger discretionary projects will trend worse than the overall market and are projected to be down high single digits. Our expectation for the company's net sales is unchanged at a low single digit decrease versus fiscal year 2024. Adjusted EBITDA expectations are targeted in the range of $225 million to $235 million. Our team continues to execute our strategy that has three main pillars, growth, digital transformation, and platform design with a number of key accomplishments over the past quarter. Conversion activity continues with our distribution business as almost 80% of customers have moved to our new brand, 1951 Cabinetry. Our teams are also actively pursuing a number of new accounts within the channel. Load-ins are almost complete for the stock bath and kitchen wins I shared last quarter. Digital transformation efforts continue with our teams optimizing the use of Salesforce for our sales teams and completing the planning for our ERP Go Live at our West Coast Maidstock facility next year. Platform design work continues with the continued ramp of our Monterey, Mexico and Hamlet, North Carolina facilities, and automation efforts are progressing well in our mill component and assembly operations. In closing, I'm proud of what this team accomplished in the second fiscal quarter and look forward to their continuing contributions during fiscal year 25. I'll now turn the call back over to Paul for additional details on financial results for the quarter.