Core & Main, Inc.

Hello and welcome to the Call and Main Q2 2022 earnings call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I will now hand over to your host, Robin Bradbury with Call and Main. Robin, please go ahead.

Thank you. Good morning, everyone. This is Robin Bradbury, Vice President of Finance and Investor Relations for Core and Main. I am joined today by Steve LeClair, our Chief Executive Officer, and Mark Wieckowski, our Chief Financial Officer. Steve will lead today's call with a brief business update, followed by an overview of our recent acquisitions. He will then discuss our confidence in the resilience of our business and the demand for our products and services. Mark will then discuss our record second quarter financial results and full year outlook, followed by a Q&A. We will conclude the call with Steve's closing remarks. We issued our fiscal 2022 second quarter earnings this morning and posted a presentation to the investor relations section of our website. As a reminder, our press release presentation and the statements made during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission. Additionally, we will discuss certain non-GAAP financial measures which we believe are useful to assess the operating results of our business. A reconciliation of these measures can be found in our earnings press release and in the appendix of our fiscal 2022 second quarter investor 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. If you're following along with our second quarter investor presentation, I'll begin on slide five with a brief business update. I am pleased to report another record quarter as we continue to build in our momentum, achieving strong growth in both net sales and adjusted EBITDA. This is a remarkable accomplishment considering the challenges we face from weather and flooding during the quarter, continued supply chain challenges, and our strong performance in the same period last year. Our teams are leveraging our best in class capabilities and executing at a high level to support our customers, suppliers, and communities. We can continue to execute our strategies to drive above market growth while navigating ongoing supply chain constraints and inflation. Strong demand and constrained manufacturing capacity supported elevated prices, and caused continued project delays during the second quarter. Supply remains constrained for many of our product categories. However, we are beginning to see capacity free up for certain products. And while it is possible that commodity prices could moderate at some point, we expect the demand for our products to remain resilient, causing market prices to moderate at a slower pace than other industries. In addition to strong pricing in the quarter, we continue to drive growth from both higher volume and M&A, Our customers remain busy, and we continue to experience healthy demand across each of our end markets and product lines. Municipal repair and replacement activity remains strong and continues to benefit from healthy municipal budgets. Bidding, backlog, and order activity are all trending favorably across municipal and market, giving us confidence in demand through the end of the fiscal year. As a reminder, municipal repair and replacement activity makes up roughly 40% of our net sales. We are encouraged by the strength in many pockets of non-residential development as suburban communities expand, which increases the demand for our waterworks, storm drainage, and fire protection products on these projects. We have continued to experience softness in certain metro areas in both the east and west coasts, which has impacted our volume of fire protection products, and we expect that to remain the case for the balance of this year. Despite the softness in these metro areas, we expect non-residential activity to be positive given our backlog and bidding activity. Residential volume was healthy through the second quarter and our bidding activity and backlog remained positive. Recently, we are beginning to see a few geographies where residential lot development project scopes are becoming smaller in size as developers assess the current market environment and the reduction in housing starts. As we look across the balance of the year, we believe the trend could continue particularly if the Fed takes additional actions to combat inflation. As a result, we believe we could see softening in residential lot development at some point. While the near-term prospects for the residential end market remains uncertain, we continue to believe the current undersupply of housing relative to household formation provides for a multi-year secular growth trend. As you can see, our teams are delivering strong results in a dynamic environment. We have a resilient business model and a leadership team capable of navigating through various economic cycles. We remain confident in the long-term stability of our business and the end markets, as roughly 50% of our net sales is driven by non-discretionary repair and replacement activity. 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. Lastly, we remain active in M&A, driving sustainable growth through acquisitions. During and subsequent to the quarter, we closed the Earthsavers Erosion Control and Inland Water Works supply acquisitions and signed a definitive agreement to acquire the Municipal Water Works Division of Trumbull Industries. I'll discuss each of these businesses in greater detail on slide six. Earthsavers Erosion Control operates three branches in Northern California and is a full-service distributor of geosynthetics 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 the California, Nevada, and Arizona markets and the surrounding areas. Inland Water Works supplies a single branch, full-service distributor of water and wastewater products based in Southern California. With a focus on personal service and attention to detail, Inland Water Works Supply has proven itself to be a supplier of choice in its local market for 70 years. This strategic acquisition will allow us to better serve our combined customer base alongside a highly experienced and passionate team. The Municipal Water Works Division of Trumbull Industries is a distributor and private label provider of specialized branded accessories and tools in the water and wastewater industry. Operating for more than 100 years and with four branches in Ohio and Pennsylvania, this team has built a long-lasting customer relationship through their industry expertise and unparalleled service. We expect that the acquisition of Trumbull will accelerate our private label initiative as we look to broaden their reach throughout our existing branch network. Each of these acquisitions provides us valuable talent and unmatched capabilities in their respective markets, collectively adding approximately 95 million of annual net sales. We remain active on the M&A front this year and we expect to continue acquiring and integrating companies in the coming quarters. As an experienced integrator and with a respected reputation as the acquirer of choice in our industry, we are well positioned to grow sustainably through acquisitions for many years to come. Now turning to page seven, I'd like to spend a few minutes discussing our confidence in the resilience of our business and the demand for our products and services. Our nation's water and wastewater infrastructure is aging and the need for maintenance and repair is growing. Municipal repair and replacement demand has exhibited stable growth over the long term due to the consistent and critical need to replace aged water infrastructure. However, due to the limited availability of funding, the pace of investment has lagged the need to upgrade water systems throughout the U.S. In 2020, the average age of water and wastewater pipes was 45 years, up 20 years from 1970. There are approximately 300,000 water main breaks every year, representing the equivalent of a water main break every two minutes. On average, municipalities lose approximately 16% of their treated water on an annual basis due to leaks. An estimated $2.2 trillion is required for repairs and upgrades over the next 20 years to close the growing water infrastructure gap, which would more than double the historical growth rate in water and wastewater investment. In recent years, access to capital, increased utility rates, and necessity have increased municipal investment in water. Municipalities appear to be taking a more active role in repairing and upgrading their water and wastewater systems, and our business is well positioned to benefit from these dynamics. We expect that funds from the infrastructure bill will begin to strengthen investments in municipal water infrastructure repair in 2023 and beyond. Another demand trend we anticipate persisting through the next economic cycle is growing response to extreme weather events. Cities across the country are investing to mitigate the impacts of extreme weather events like those we've seen this summer related to tragic flooding across the U.S. As the frequency and magnitude of flooding events increases, our customers continue to demand more robust storm drainage infrastructure and treatment plant solutions. Our national distribution network and access to specialized products makes us well positioned to support these growing needs. To wrap up my prepared remarks, I am proud of how our team has come together to deliver these fantastic 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 in 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. I will now turn the call over to our Chief Financial Officer, Mark Wieckowski, to discuss our second quarter financial results and full year outlook. Go ahead, Mark. Thanks, Steve.