Core & Main, Inc.

our Chief Financial Officer. He will begin today's call by discussing the executive changes we announced this morning. He will then provide an overview of our business and strategy, followed by an update on our fiscal 2024 accomplishments. Mark will then discuss our financial results and fiscal 2025 outlook, followed by a Q&A session. Our press release presentation and the statements made during this call may 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. We will also discuss certain non-GAAP financial measures which we believe are useful in assessing 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 investor presentation. Thank you for your interest in Quora in Maine. I will now turn the call over to Chair and Chief Executive Officer Steve LeClair.

Thanks, Robin. Good morning, everyone. Thank you for joining us today for our fiscal 2024 fourth quarter and full year earnings call. I'll begin by discussing the executive leadership changes we announced this morning. After much thoughtful consideration and planning, I've decided that now is the right time for a smooth transition of leadership at core and main. At the end of the month, I will transition to the role of executive chair. Well, we'll continue to lead the board and serve as an advisor to the business to ensure a smooth transition. I'm pleased to share that Mark Wachowski or CFO will succeed me as CEO and Robin Bradbury, our senior vice president of finance and investor relations will become CFO. Mark will also be joining our board of directors. Mark and Robin know our business well, and have been instrumental in the development and execution of our successful strategy. I have worked with both of them for over a decade, and I have full confidence that they are the right people to lead corn main going forward. It has been the privilege of a lifetime to lead this great organization. And I am so proud of what we have accomplished together, including exceptional business performance, outstanding service for our customers, and meaningful value creation for our shareholders. With this strong foundation in place, now is the right time to transition the leadership of the company to Mark, Robin, and the rest of our talented executive team. I am confident in their ability to execute against our strategic priorities and take our organization to the next level. Now turning to our results, we were pleased to finish the year with strong momentum. as we achieved 18% sales growth and solid gross margins in the fourth quarter. Our results have truly been a team effort, and I want to thank our associates for their dedication and commitment to our customers. I'll begin on page five of the presentation with an overview of CornMaine and our market position. CornMaine is a leader in advancing reliable infrastructure with local service nationwide. As a specialty distributor with a dedicated focus on water, wastewater, storm drainage and fire protection products, we provide solutions to municipalities, private water companies, and professional contractors across municipal, non-residential, and residential end markets. We have a deep portfolio of more than 225,000 products, many of which are made specific for our sector and must meet water industry regulations and local municipal specifications. Our footprint consists of more than 370 branches across 49 states, which serves as a critical link between over 5,000 suppliers and a diverse base of more than 60,000 customers, with no single customer accounting for more than 1% of our annual sales. We are an industry leader, yet we estimate we have only 19% share of a highly fragmented $39 billion addressable market. Our long-term opportunity to grow and gain market share is significant, as is our opportunity to grow our addressable market over time. We maintain balanced exposure across new construction and repair and replacement projects. Central to this balance is our stable, non-discretionary municipal demand, which accounts for over 40% of our sales. Municipal spending on water infrastructure has demonstrated long-term resilience and is expected to continue growing, driven by the need to address aging water systems, environmental challenges, and water scarcity. Our significant exposure to municipal repair and replacement activity provides the business with a strong foundation, ensuring stability, even if our other end markets experience a period of volatility. Customers partner with Core and Main for our breadth of products and services, extensive industry knowledge, familiarity with local municipal specifications, convenient branch locations, and project management capabilities, all of which make it easy to do business with us. We serve both smaller local customers and large regional or national contractors with relevant expertise. Our sales associates take a consultative approach in providing tailored solutions for projects of all sizes. And we are deeply involved in our customers' planning processes, all the way from project design through completion. Our strategy is rooted in our people first culture, where we prioritize the well-being, growth, and development of our associates. From there, we thrive by fostering an entrepreneurial mindset at the local level, being action-oriented, driving operational excellence, and then rewarding our associates with performance-based compensation. One underappreciated element in our operating model is the linkage between local expertise and national capabilities. We supplement our local presence with the power of scale, enabling us to value engineer complex projects by utilizing our extensive supply chain and national resources. Data centers and other mega projects are great examples of where these capabilities come to life. These projects require a sophisticated approach that blend local presence with national support. They involve intricate technical requirements, ever-changing timelines, and a need for precise coordination. With boots on the ground at the local level, we become intimately familiar with the specific needs and challenges of each project, offering hands-on support and quick response times. Our national scale allows us to utilize our robust supply chain to secure access to the right products, while leveraging our distribution network and project management capabilities to ensure an efficient project delivery that meets timelines and stays within budget. And we do all this while maintaining the customer service and reliability that our customers have come to expect from Core and Main. The impact of these capabilities are reflected in the work we do every day to help communities advance reliable infrastructure. We highlight a great example of this on page seven of the presentation. As you know, in August 2023, a devastating wildfire struck Lahaina, Hawaii. Nearly two years later, Lahaina's long cleanup process continues, and efforts to return to a sense of normalcy have progressed with the completion of an elementary school. Rebuilding required extensive water infrastructure, and the contractor selected to complete the project relied on CoreMaine to be its one-stop-shop provider. The project involved design build plans, so the material list, quantities, and product lines changed constantly. Our nearest branch was a short distance away, enabling our local team to be on the job site daily, sometimes multiple times a day, to ensure our customer had the right products at the right time. And if our local team didn't have the products on hand because of redesigns or change orders, They called on other core main branches and product specialists along the West Coast for support. The project was completed in an impressive 95 days, marking a significant milestone in Lahaina's recovery. The school serves as a vital stepping stone, helping to reestablish a sense of community while Lahaina's permanent infrastructure is rebuilt over the next three to five years. Turning to our recent accomplishments. Fiscal 2024 was a notable year for Core and Main, and it marked our 15th consecutive year of positive sales growth. Our teams navigated a dynamic environment to deliver strong financial performance, including record net sales of over $7.4 billion, adjusted EBITDA of $930 million, and operating cash flow of more than $620 million. The consistency of our results is driven by our balanced business mix, the dedication and expertise of our associates, and our ability to generate significant cash flow to reinvest back into the business, including investments to support and execute our growth strategies. Our product customer and geographic expansion initiatives produce strong results throughout the year as we continue to accelerate the adoption of new products in the industry, improve our differentiated value proposition. This included strong double digit average daily sales growth and metering and storm drainage products. High single digit average daily sales growth and treatment plant projects in additional market share gains as our green fields continue to grow and mature. We opened two new locations and attractive markets during the year to expand our reach, building on our commitment to make our products and expertise more accessible nationwide. We also welcomed 10 complimentary businesses to the corn main family, adding over $600 million of annual sales while expanding our presence in key geographies, gaining access to new product lines and adding key talent. In terms of organic sales growth, We believe we outgrew the market by a couple hundred basis points in 2024. And looking ahead, we have ample opportunities to drive additional growth, expand gross margins, and improve our operating leverage. We continue to develop a scalable assortment of private label brands and products used in water, wastewater, geosynthetics, and fire protection applications. We added over 30,000 square feet of distribution space and more than 1,000 private label SKUs to our offerings since the end of last year. We ended fiscal 2024 with private label products representing approximately 4% of our sales with an opportunity for it to grow to 10% of our sales or more over time. Our cash flow generation and flexible balance sheet allowed us to invest in the growth of the business while returning capital to shareholders. We deployed $176 million in fiscal 2024 to repurchase 4 million shares under our repurchase program. We expect to generate similar levels of operating cash flow going forward, resulting in significant available capital being reinvested in the business in return to shareholders. Moving to our acquisition strategy and recent success, we are one of only two national distributors competing in our space And the remainder of the market is served by hundreds of other local and regional distributors. Since 2017, we have completed over 40 acquisitions. Most of the deals were proprietorially sourced based on our relationships and reputation in the industry. We are honored that so many owners and operators in our space have chosen core and main as a home for their businesses. And many of them continue to thrive in leadership positions throughout our company. We are well connected with some of the best companies in our industry, and we have a healthy pipeline of potential deals to pursue. We expect to continue adding and integrating businesses in 2025 and beyond to support our long-term growth and value creation efforts. Before I hand it over to Mark, I want to address a few other recent topics of interest. Starting with tariffs, we do not anticipate a significant impact on our business, as most of our products are produced in the United States. Where we do have exposure, we anticipate that it may lead to rising product costs, and we are working closely with our customers to ensure real-time transparent pricing. As I mentioned last quarter, we generally view tariffs as neutral to slightly positive to our pricing and gross margins. The tariff environment continues to evolve, creating a level of uncertainty that could limit end market growth in the near term. That being said, our spring bidding activity is encouraging and sentiment from our customers continues to be positive. In regards to the status of federal funding, there have not been cuts to any of the water funding set aside by the Infrastructure Investment and Jobs Act. Investments in water infrastructure continue to receive bipartisan support. in part due to the extreme circumstances highlighted across the country when water, sewer, or stormwater management systems fail. While federal grants and low interest loans are available to municipalities to help fund their projects, the vast majority of the municipal funding is produced by local revenue streams, including local taxes and utility usage fees. To wrap up my prepared remarks, Our teams have had to navigate several challenges and distractions throughout the year, and we consistently rose to the occasion, demonstrating focus, agility, and resilience. Our team's ability to adapt, collaborate, and deliver best-in-class service to our customers speaks volumes about the strength of our culture and dedication of our people. Thank you all for your ongoing support. I look forward to what Core and Main will accomplish in the years ahead. Go ahead, Mark.

Thank you, Steve, and thank you to everyone for being with us today. Steve, we have been so fortunate to have benefited from your tremendous leadership for over a decade at Quorumain. I know that I speak for the entire Quorumain family in thanking you for your dedication and commitment to excellence. You've been the architect behind much of our success to date, and I'm honored to have been able to work side by side with you. and now be selected to lead Corn Main in the next chapter alongside Robin and the rest of our executive team. Having worked closely with Robin for over a decade now, I know she is ideally suited to serve as our Chief Financial Officer. Robin and I played an integral role in shaping Corn Main's current strategy, which will remain unchanged during this transition. Our focus remains on driving profitable growth, both organically and through acquisitions, while generating strong cash flow and delivering value to shareholders. We will continue to provide the high level of service our customers expect from Quorumain while building on the strength of our supplier relationships that are essential in achieving our growth objectives. This is an incredible business with the best talent in the industry, and I look forward to collaborating with our associates to build on the strong culture we have established. With that, I'll now turn to our financial performance. Fiscal 2024 was another record sales year for Corn, Maine. Since our separation seven years ago, we have grown net sales at an average annual rate of approximately 15%, while significantly improving profitability. These results have been driven by our team's focus on operational excellence and delivering exceptional value to our customers. Starting with our fourth quarter results, we grew net sales by 18% to nearly $1.7 billion, Acquisitions contributed about 9% of our sales growth, and organic average daily volumes were up low single digits. As anticipated, pricing was stable on a sequential basis, but it was down slightly year over year. Approximately 7% of our sales growth in the quarter was driven by an extra selling week compared to the fourth quarter of last year, resulting in average daily sales growth of roughly 11%. Gross margin in the fourth quarter finished at 26.6%, which was consistent with last quarter. During our third quarter call in December, we communicated our expectation of maintaining gross margins at these levels. Our teams delivered on that by driving consistent performance across our private label, sourcing, and pricing initiatives. Selling general and administrative expenses increased 21% in the fourth quarter to $279 million. The year-over-year increase in SG&A primarily reflects the impact of acquisitions, inflation, investments to support our growth initiatives, and additional costs from the 53rd week. Excluding acquisitions and the impact of the 53rd week, SG&A in the fourth quarter was up approximately 2%. Adjusted EBITDA in the fourth quarter increased approximately 12% to $179 million. and adjusted EBITDA margin decreased 60 basis points to 10.5%. As a reminder, our operating margins are typically lower in our first and fourth quarters due to a reduction in volumes associated with normal seasonality. Turning to our full year performance, fiscal 2024 net sales grew approximately 11% to a record of just over $7.4 billion. The increase was driven by approximately nine points of growth from acquisitions, organic market share gains, and approximately two points of contribution from the 53rd selling week, partially offset by a minor impact from pricing. We estimate that unmarket volumes were roughly flat for the year, consisting of mid-single-digit growth in residential lot development and low single-digit growth in municipal repair and replacement activity, partially offset by a low single-digit decline in nonresidential construction starts. We achieved a couple hundred basis points of above-market sales growth from the execution of our product, customer, and geographic expansion initiatives as our teams have done an incredible job delivering best-in-class service to our customers and proving our value proposition to the industry. We also drove additional market share gains from strategic acquisitions, strengthening our presence in key geographies and product lines. Gross margins for the year came in at 26.6% compared with 27.1% for fiscal 2023, a difference of about 50 basis points and in line with our expectations. The year-over-year decline in gross margin was driven by a higher average cost of inventory this year compared to fiscal 2023. Going forward, we expect to continue driving sustainable gross margin enhancement through the execution of our initiatives. Selling general administrative expenses for fiscal 2024 increased approximately 16% to nearly $1.1 billion. The increase in SG&A primarily reflects the impact of acquisitions, inflation, investments to support our growth initiatives, and additional costs from the 53rd week. Excluding acquisitions and the impact of the 53rd week, SG&A expenses were up about 1% for the year. Interest expense for fiscal 2024 was $142 million compared with $81 million in the prior year. The increase was due to higher average borrowings partially offset by a decrease in rates on our variable rate debt. The provision for income taxes for fiscal 2024 was $143 million compared with $128 million in the prior year. And our effective tax rates were 24.8 and 19.4% respectively. Our effective tax rate for fiscal 2024 reflects a more normalized ongoing rate, and the increase over the prior year was due to exchanges of partnership interest in fiscal 2023, resulting in a reallocation of taxes to Corn Main Inc. Adjusted EBITDA for fiscal 2024 increased 2% to $930 million, and adjusted EBITDA margin decreased 110 basis points to 12.5%. Moving to our balance sheet and cash flow, we ended the year with net debt of roughly $2.3 billion and net debt leverage of 2.4 times. Total liquidity was over $1.1 billion, consisting primarily of availability under an ABL credit facility. We generated $621 million of operating cash flow during the year and allocated it to priorities that resulted in growth and value creation for shareholders. We spent $741 million on 10 acquisitions and returned $176 million of capital to shareholders, buying back approximately 4 million shares at an average price of approximately $44 a share. We have now returned over $1.5 billion of capital to shareholders through share repurchases in the past two years. And as of today, we still have $324 million remaining under our current repurchase authorization. Turning to our outlook for fiscal 2025, we expect another year of growth in both sales and profitability. While there are uncertainties surrounding interest rates, federal funding, tariffs, and their potential impact on construction activity, we are confident in our ability to navigate these challenges and deliver strong results, especially given our exposure to non-discretionary municipal water infrastructure projects, and the long runway of opportunities we have to drive above-market growth and margin expansion. We remain bullish on the long-term fundamentals for residential lot development. With mortgage rates trending lower in recent weeks, we have yet to see that materialize into a release of pent-up demand that could accelerate growth. We anticipate an inflection point in residential demand as mortgage rates fall and sustain at lower levels but given the uncertainty around timing, we are not factoring that into our outlook. We believe non-residential construction starts will be relatively flat in 2025. The broader macroeconomic environment may continue restraining investment and construction in the non-residential sector, but some businesses remaining cautious about starting new capital projects. Our broad exposure within this market, spanning traditional commercial through heavy industrial, and even highway and street projects generally provides stability as demand for these projects can happen on different cycles. Municipal spending on water infrastructure is expected to remain resilient with end market growth projected in the low single digit range for 2025. The stability is driven by necessary investments in water and wastewater systems as municipalities continue to address aging infrastructure and comply with environmental regulations. To help fund these initiatives, municipalities have raised water and wastewater utility rates at a mid single-digit average annual increase over the last decade. We are optimistic about the growth of this end market in 2025 and beyond. We anticipate that prices will remain sequentially stable through 2025, resulting in a roughly neutral sales impact for the year. We offer a strong value proposition of the industry and expect to achieve another two to four points of above market volume growth by expanding our presence and under penetrated geographies, driving the adoption of new products in the industry and acquiring and developing new sales talent. We expect two points of sales growth from the acquisitions that have already closed. We have a good pipeline of high quality targets, and we expect to add more companies to the core and main family throughout the year. We benefited from a 53rd selling week in fiscal 2024, contributing approximately 2% of our total sales growth. We expect a sales impact of roughly the same amount in fiscal 2025 due to fewer selling days in the fourth quarter. We expect to drive gross margin expansion in 2025 supported by our private label, sourcing optimization, and pricing initiatives. With these factors in mind, we expect fiscal 2025 net sales to range from 7.6 to 7.8 billion dollars, reflecting year-over-year growth of 2 to 5 percent or 4 to 7 percent on an average daily sales basis. We expect adjusted EBITDA to range from 950 million to 1 billion dollars, reflecting year-over-year growth of 2 to 8 percent or 4 to 10 percent on an average daily sales basis. with adjusted EBITDA margins ranging from 12.5 to 12.8%. We expect to generate strong operating cash flow, and our capital allocation priority is to invest in the growth of the business, both organically and through the execution of our M&A strategy. We expect to have excess capital after delivering on these objectives, which will allow us to return capital to shareholders, likely through share repurchases. In the near term, We will continue evaluating our pipeline of priority targets while maintaining liquidity and leverage levels within our stated objectives. As I wrap up, I want to reiterate that we are confident in the fundamentals of our industry and INCORN Maine's leadership position. Our sector has strong fundamentals and we have a unique and proven business model to continue strengthening our position. The long-term underlying trends of our end markets are favorable and our products and services play a critical role in advancing reliable infrastructure. We expect to outperform the market even as the broader economic environment evolves. Our business is well positioned to capitalize on opportunities for growth, both organically and inorganically, and we remain committed to building on our track record of delivering value to shareholders. With that, let's open it up for questions.