Core & Main, Inc.

Hello everyone and a warm welcome to the call and main Q1 2022 earnings call. My name is Melissa and I'll be your operator. If you would like to ask a question following today's presentation, you can press star followed by one on your telephone keypads. I now have the pleasure of handing over to your host Robin Bradbury to begin. Robin, over to you.

Thank you. Good morning and welcome to the Core and Main Fiscal 2022 First Quarter Earnings Call. This is Robin Bradbury, Vice President of Investor Relations and FP&A for Core and Main. I am joined today by Steve LeClair, our Chief Executive Officer, and Mark Witkowski, our Chief Financial Officer. Steve will lead today's call with a brief business update, followed by a review of our growth strategy and an example of how we are targeting growth in under-penetrated product categories. Mark will then discuss our first quarter financial results and a full year outlook, followed by a Q&A session. We will conclude the call with Steve's closing remarks. We issued our fiscal 2022 first quarter earnings release this morning and posted a presentation to the investor relations section of our website. As a reminder, our earnings press release presentation and the statements made during this call include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially from those expectations and projections. Such risks and uncertainties include the factors set forth in the earnings press release and in our filings with the Securities and Exchange Commission. Additionally, we will discuss certain non-GAAP financial measures during today's call, which we believe are useful to assess the operating results and efficiency of our business. A reconciliation of these measures can be found in our earnings press release and in the appendix of our fiscal 2022 first quarter earnings presentation. Thank you for your interest in Core and Main. I will now turn the call over to Chief Executive Officer Steve LeClair.

Thanks, Robin. Good morning, everyone. Thank you for joining us today and welcome to our fiscal 2022 first quarter earnings call. Starting on page five, I'll begin with a brief business update. We delivered an extraordinary start to fiscal 2022 as we achieved strong growth in both net sales and adjusted EBITDA. This marks our 25th consecutive quarter of average daily sales growth. Growth in the quarter was driven by strong demand across each of our end markets and higher average selling prices as we passed along rising material costs, execution across our sales initiatives to drive market share gains, and acquisitions. Inflation remained elevated and supply chain challenges persisted through the first quarter, but our resilience and execution delivered remarkable results. We achieved another quarter of solid gross margin rate expansion relative to the prior year. When combined with our 52% net sales growth and cost leverage, we delivered over 101% adjusted EBITDA growth for the quarter. Market demand continues to be strong and broad-based across the country. We are encouraged by the strength in residential land and lot development, despite rising interest rates and inflationary pressures across the residential building sector. We saw non-residential construction activity accelerate through the first quarter, and municipal repair and replacement activity remained very strong. Bidding activity, backlog, and pace of orders all trended favorably through the first quarter, giving us confidence in demand through the end of the fiscal year. Product shortages persisted through the first quarter and continue to impact lead times and material costs. We continue to benefit from our size and scale by maintaining industry-leading product availability, a testament to our value proposition. We are focused on maintaining the right inventory to stay efficient, while also ensuring we have access to products that support our customers and their installation schedules. We have been increasing our inventory to maintain fulfillment levels, but we are closely monitoring bidding and project activity to be prepared for any changes in the market. Most of the inventory we have on hand is either reserved for a job or is a commonly used product that can be moved quickly. Our investments in inventory and supply chain strategies are generating significant returns for the business. We remained active in M&A during and subsequent to the quarter, highlighting our commitment to drive sustainable growth through acquisitions. We closed on the Dodson Engineered Products and Lock City supply acquisitions and signed a definitive agreement to acquire Earthsavers Erosion Control. Dodson Engineered Products is a single branch, full-service distributor of water, wastewater, storm drainage, agricultural, and irrigation products based in western Colorado. Lock City is a single-branch, full-service distributor of water and wastewater products based in New York. With almost 50 years of industry experience, Lock City Supply has proven itself to be a distributor of choice in its local market. Earth Savers Erosion Control operates three branches in California and is a full-service distributor of geosynthetics and erosion control materials, including straw wattles, erosion control blankets, and a broad array of geotextile products. For over a decade, Earthsavers has been a leading and preferred resource in California, Nevada, and Arizona markets and surrounding areas. We look forward to combining forces and expanding our expertise to further serve our customer base in the western region. Each of these businesses are great examples of what we look for in acquisitions, offering an expansion into new geographies, access to new product lines, and the addition of key talent. The integrations are progressing according to plan. Employee engagement is positive, and feedback from customers and suppliers has been great. Our acquisitions are performing considerably well, and we're working to optimize the synergy potential from each business. We maintain a large and highly diverse acquisition pipeline, which we will continue to pursue to position ourselves for sustainable growth. In addition to our focus on M&A, we also remain focused on attracting, developing, and retaining top talent in the tight labor market. Our associates are our most valuable asset and are essential to our success. We offer a pay-for-performance culture to attract and retain high-performing teams. This is especially important for our customer-facing and support roles within our branches. We believe that our people-first culture, consistent investment in the health, well-being, and the development of our people, and competitive compensation programs result in lower turnover rates among our associates. Sales associates and branch management have the opportunity to earn competitive pay through our performance-based compensation structure. Our local business nationwide philosophy incentivizes both our sales force and our operations team to be entrepreneurial, making decisions grounded in customer-centric approach. We have a resilient business model and a leadership team with a history of navigating through various economic cycles. The diversified nature of our end markets, customer base, product offerings, and geographic footprint provides better stability for our business relative to other distributors operating on a smaller scale. The municipal, residential, and non-residential construction markets have historically operated on different cycles and benefit from varied demand drivers. Additionally, roughly 40% of our business consists of nondiscretionary municipal repair and replacement activity, which has proven resilient during the previous economic downturns. We have a long and established track record of strong cash flow generation. Our working capital optimization provides both counter-seasonal and counter-cyclical stability, allowing us to invest and build working capital during periods of growth, yet remain agile in the event of an economic decline. Our variable compensation structure also allows us to quickly take costs out of the business in times of economic declines. We are sharing these characteristics because certain market uncertainty is a common discussion topic right in the market right now. However, as mentioned earlier, we are very confident in the current demand environment, the resilience of our business, and in the end markets in which we operate. While our current expectation is that we may not see incremental volume from the infrastructure bill until 2023 or beyond, Due to constrained supply chains and labor shortages, we believe those funds could be accessed sooner in the event of an economic downturn. Materials and labor utilized on private construction projects today could likely be redeployed and accelerate projects in the municipal water sector. On page six, we outline the levers that enable us to drive sustainable growth. Over the last several years, we've invested in people and capabilities to strengthen our ability to drive growth. As we look ahead, we see multiple avenues to continue pursuing. We have demonstrated that we can grow faster than our underlying markets and believe that our competitive advantages allow us to continue gaining share at the local level. We continue to drive organic expansion into under-penetrated geographies through new greenfield locations. We have meaningful runway to increase our share through strategic accounts, which include large private water companies and national contractors. Our size and scale position us to continue accelerating the adoption of products and technology in our industry, such as geosynthetics and erosion control solutions, smart meters, usable HDPE technology, and a number of other developing product categories. As I mentioned earlier, acquisitions are a key component of our growth strategy, and we have a long runway to consolidate our fragmented industry. Finally, we have opportunities to continue enhancing gross margins, including private label through global sourcing and pricing and procurement initiatives. We have an opportunity to transition ancillary spend to internally sourced products. We have a team of pricing analysts who have been able to enhance product margins using data to drive pricing decisions and by proactively updating price changes to increase visibility to our branch network. Additionally, our category management team has the opportunity to continue shifting spend to suppliers with the best pricing and payment programs to optimize gross margins. We are in the early innings of executing on many of these initiatives and see a long path of growth ahead. On page seven, we highlight an example of how we are constantly valuing opportunities to expand our addressable market and drive sustainable growth. We have recently increased our presence in the geosynthetics and erosion control market, which is large, highly fragmented, and estimated to be roughly $5 billion of our $32 billion addressable market. Geosynthetics and erosion control products are used to prevent soil erosion and stormwater runoff. Geotextiles, geogrids, erosion control blankets, and other related products come in both earth-friendly and biodegradable options. They are primarily used to reduce environmental disruption during construction. Land development tends to increase soil erosion risk, but geosynthetics and erosion control products reduce the likelihood that soil erosion will cause pollution and displace native wildlife. We estimate that our current share in this market is only 1%, but we have a long runway of organic and inorganic growth opportunities ahead. We developed a platform for growth in this market after our successful acquisition and integration of erosion resources supply in 2019 and L&M Baggins Supply last fall. Our recent agreement to acquire Earthsaver's erosion control illustrates our ability to consolidate this large and fragmented market. We maintain a large pipeline of high-priority geosynthetics targets, and we see meaningful bolt-on opportunities ahead. In addition to growth through M&A, we have multiple avenues of organic growth to pursue in geosynthetics and erosion control as we pull these products through our national branch network and into the hands of our existing customers. We have the ability to increase our private label offerings from the fabrication capabilities brought to us in our recent acquisition of L&M Bag & Supply. Environmentally conscious regulations for stormwater runoff prevention are becoming more prevalent, and we are aligning our sales efforts nationwide to capitalize on that locally regulated driven demand. Our sales associates take a consultative approach, using their knowledge of the local regulatory requirements and specifications to provide customer-specific product and service solutions. We are deeply involved in our customers' planning process, and our ability to support our customers by enabling them to comply with local regulations provides us with a significant competitive advantage. We are utilizing our acquired talent and expertise, trainings, and incentives to drive cross-selling with our existing customer base. Lastly, we are benefiting from our sourcing and consolidated buying capabilities to enhance the margin profile of certain geosynthetics and erosion control product categories. Our roll-up strategy is underway. We have a highly experienced team working to expand our product portfolio and service capabilities nationwide. To wrap up my remarks, I continue to be impressed with how our team has come together to deliver these great results. Earlier this year, we talked about our focus areas for fiscal 2022, executing on our key growth strategies, deepening our competitive advantage, and building on our foundation of long-term profitable growth. We've made great progress in each of these areas and continue to position the company for success. We acknowledge the amount of uncertainty associated with inflation, rising interest rates, and the war in Ukraine, but we have not yet seen this translate into lower demand. Furthermore, we expect to continue gaining market share as we deliver high value to our customers and execute on our product, customer, and geographic expansion initiatives. We remain focused on our operating priorities and delivering a best-in-class customer experience. I will now turn the call over to our Chief Financial Officer, Mark Wachowski, to discuss our first quarter financial results and full year outlook. Go ahead, Mark.