Core & Main, Inc.

Ladies and gentlemen, welcome to the Core and Main Q3 2022 Earnings Call. My name is Glen, and I'll be the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I will now hand you over to host Robin Bradbury, Vice President of Finance and Investor Relations, to begin. Robin, please go ahead.

Thank you. Good morning, everyone. This is Robin Bradbury, Vice President of Finance and Investor Relations for CORE in Maine. 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 business update and an overview of our recent acquisitions. He will then highlight an example of how we helped build sustainable water resources for the communities we serve, followed by a discussion on the resilience of our end markets. Mark will then discuss our third 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 third quarter earnings press release 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 third 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 are following along with our investor presentation, I will begin on page five with a brief business update. I am pleased to report another strong quarter as we continue to build on our momentum. achieving double-digit growth in both net sales and adjusted EBITDA. This marks our eighth consecutive quarter of double-digit net sales growth, with third quarter net sales exceeding our expectations due to healthy end market demand, robust performance across our growth initiatives, and continued price realization. This is an impressive accomplishment considering the 39% sales growth we achieved in the same period last year. Our teams continue to execute at a high level to grow the business and support our customers, suppliers, and communities. We achieved strong volume growth in third quarter driven by a combination of end market growth and share gains from the execution of our product, customer, and geographic expansion initiatives. Municipal repair and replacement activity was strong. We expect it to remain positive through the end of the year and beyond. Municipalities continue to benefit from healthy budgets, allowing them to invest in improvements to their aging water infrastructure. Additionally, we believe the funding available through the infrastructure bill will start to flow to municipalities at some point in 2023. During the quarter, we saw non-residential construction activities strengthened as suburban communities expand, which increases the demand for our waterworks, storm drainage, and fire protection products. Historically, Non-residential construction activity has lagged residential housing development by roughly 12 to 18 months. We believe we are currently seeing non-residential construction strengthened due to the growth in residential development we experienced in late 2000 and 2021. We expect continued strength and resilience for both our municipal and non-residential end markets. Shipments for residential projects were healthy throughout most of the quarter. We began comparing against very strong volumes at the end of the quarter, both year over year and sequentially. Residential bidding activity varies across the country. Many areas remain positive, but in some areas, project scopes are shrinking in size as developers assess the evolving economic environment and the recent reduction in housing starts. Over the long term, we believe home builders will continue developing lots, and that the lack of home supply will continue to drive growth in the residential market over a multi-year period. Supply remains constrained for many of our products. Certain products continue to have long lead times or lead times that are inconsistent, which has made it difficult to fully optimize our inventory levels. As the quarter progressed, we began to see product availability and lead times improve for certain products, including PVC pipes. We saw PVC pipe prices stabilize and remain elevated during the quarter, despite the improvement in lead times and availability. We believe the specificity of our products to our industry has provided resilience against price volatility, but we are monitoring closely to assess the impact of improving product availability and slowing demand due to normal fourth quarter seasonality. As product availability improved and lead times became more predictable for certain products, we began to reduce inventory levels for those products as the quarter progressed. In such cases, we no longer need to carry as much inventory to maintain service levels with our customers. We expect to continue optimizing inventory levels in the fourth quarter and into next year as supply chains improve for other product categories. On the M&A front, we welcomed four new companies to core in Maine during and subsequent to the quarter, strengthening our product lines, geographic footprint, and talent, while highlighting our ability to drive sustainable growth through M&A. We have now surpassed 800 million in combined annualized historical net sales from acquisitions since becoming an independent company in 2017. Acquisitions are a key source of new talent and expertise, and they continue to enhance our competitive position as we grow. Our pipeline remains robust with significant opportunity for continued growth through M&A. We also opened a new location in Fort Collins, Colorado, our second greenfield this year. This new location extends our Water Works product offerings in Northern Colorado and Southern Wyoming, building on our commitment to make our products and expertise more accessible in every region we serve. We issued our 2022 Environmental, Social, and Governance Report in October. At Core and Main, ESG and sustainability is an integral element of our business. We are focused on supporting our nation's critical water infrastructure needs while delivering long-term value to our stakeholders. Our approach to ESG is holistic strategy that spans from our vision to our core principles and policies to how we meaningfully engage with our associates, customers, suppliers, shareholders, and communities. As we continue to make progress toward our ESG priorities, I am pleased to share Corn Main's accomplishments in our second ESG report, which demonstrates the impact of this important work and the goals we strive to achieve in the coming years. I'll now discuss each of our acquisitions in greater detail on page six. Inland Water Works Supply is 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 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. Trumbull is a distributor of pipes, valves, and fittings, storm drainage products, and meter products with additional capabilities that will significantly expand our private label offerings. Trumbull operates out of three locations. two of which are distribution facilities, and one of which specializes in private label products serving municipal and industrial end markets. The Trumbull brand is well known and trusted throughout the industry for their tools and accessory kits used in the maintenance and repair of water infrastructure products and facilities. We will leverage our scale, internal purchasing processes, sourcing network, and distribution footprint to grow the Trumbull brand as we expand our product offering into new categories. Distributors Inc. is a full-service distributor and fabricator of fire protection products located in Hawaii. Operating out of its facility in Honolulu, Distributors Inc. provides fire protection contractors with quality products and services for new fire protection systems and the maintenance and repair of existing systems. Our recent acquisition of Pacific Pipe expanded our Water Works product offering in Hawaii for the first time. After more than a year of building our capabilities in this market, We are excited to now offer a complete line of fire protection products through the acquisition of Distributors, Inc. Lanier Municipal Supply is a full-service distributor of water, wastewater, storm drainage, and meter products, operating out of four locations across Florida and Georgia. They have spent the last four decades building a reputation as a leading distributor in the Southeast. The depth of knowledge and expertise they bring to us strengthens our position as a leading specialty distributor in the region. This acquisition adds key talent and expands our product offering in an underserved market. Each of these businesses align well with our core M&A strategy, offering expansion in new geographies, access to new product lines, and the addition of key talent, while adding approximately 115 million of combined annualized net sales. On page seven, we highlight an example of how we build sustainable water resources for the communities we serve. The city of Waukesha, Wisconsin needed a new sustainable water solution to continue supplying clean water to its community of 72,000 residents. The area relies primarily on a local sandstone aquifer for their water, but the water levels in the aquifer were dwindling as time passed due to a growing population. The city formed a specialized task force to address this issue and completed thorough studies to find a sustainable solution that would serve the community's clean drinking water needs for the long term. It involved transporting water from Lake Michigan to the city of Waukesha and then transporting the water back after it was used and treated. Corps in Maine was selected to help address this infrastructure challenge. Our local experts led trainings to educate project partners on potential solutions and supplied 26 miles of 30-inch ductile iron pipe, including all the necessary valves, fittings, and accessories to build a new pipeline from Lake Michigan to Waukesha. Our product expertise combined with the lead contractor, provided an all-encompassing approach to developing a complete and environmentally effective water infrastructure solution. We are proud of the work we do to support local communities, whether it be supporting access to clean drinking water, water conservation efforts, solutions to reduce the impacts from droughts and flooding, or through the safety provided by our fire protection systems. We believe that our people, products, and services make a positive impact to communities. Now turning to page eight, I'd like to spend a few minutes discussing our end markets and the resilient demand for our products and services. We have diversified end market exposure between municipal, non-residential, and residential construction markets nationwide. We maintain a balanced mix between new development and repair and replacement projects. Our municipal end market, which makes up roughly 39 percent of our net sales, consists primarily of repair and replacement projects to existing infrastructure. 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, the pace of investment in our nation's water infrastructure has lagged the need for investment, especially over the last decade, and an estimated $2.2 trillion is required for repairs and upgrades over the next 20 years to close the growing water infrastructure gap. In recent years, access to capital, increased water utility rates, and necessity of increased municipal investment in water. We expect funding from the Infrastructure Investment and Jobs Act to strengthen investments in municipal water infrastructure in 2023 and beyond. The first tranche of funding has been distributed to the state revolving funds, and municipalities are in the process of applying and evaluating whether their projects qualify. Once funds are awarded and allocated, municipalities will begin building them into their fiscal budgets. At that point, we expect they will begin spending these funds on new projects. Our non-residential end market, which makes up roughly 39% of our net sales, consists of a balanced mix between new development and repair and replacement projects. It includes everything from commercial and industrial development to less cyclical road and bridge rehabilitation projects, which benefits our storm drainage product lines. This market also encompasses most of our fire protection projects, including the installation of fire protection systems in new buildings, along with the retrofit of existing systems to comply with changing regulations or redesigns. Our residential end market, which makes up roughly 22% of our net sales, consists primarily of the water, sewer, and storm drainage products supporting new lot development for residential building sites. Land developers often purchase large tracts of land for development that were not previously connected to utility infrastructure. We supply our products to the underground contractors installing the infrastructure to support the community. Over the long term, we believe the lack of developed lots and the undersupply of new homes will continue to drive growth in our residential end market. I am proud of how our team continually executes and want to thank our associates for their dedication and commitment to customer service. I also want to thank our customers and suppliers for their continued partnership. We continue to execute across our key growth strategies, deepening our competitive advantage, and building on our foundation of long-term profitable growth. I will now turn the call over to our Chief Financial Officer, Mark Wieckowski, to discuss our third quarter financial results and full year outlook. Go ahead, Mark.