Core & Main, Inc.

Director of Investor Relations for Core and Main. We are excited to have you join us this morning for our fiscal 2025 first quarter earnings call. I am joined today by Mark Witkowski, our Chief Executive Officer, and Robin Bradbury, our Chief Financial Officer. Mark will begin today's call with a brief business update. Robin will then discuss our financial results in fiscal 2025 outlook, followed by a Q&A session. We will conclude the call with Mark's closing remarks. 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 Core and Main. I will now turn the call over to Chief Executive Officer Mark Witkowski.

Thanks, Glenn. Good morning, everyone. Thank you for joining us today. We are proud to deliver another quarter of strong performance at Core and Main, highlighted by first quarter net sales of $1.9 billion and adjusted EBITDA of $224 million, both all-time highs for the first quarter. Achieving these results in a dynamic macroeconomic environment speaks to the resilience of our end markets, the strength of our business model, and most importantly, the commitment of our associates to advance reliable infrastructure with local service nationwide. Our strong local relationships product and service breadth, and product expertise continues to differentiate us and enables long-term value for our customers and stakeholders. We are seeing steady growth in municipal construction activity and funding from the Infrastructure Investment and Jobs Act continues to generate new opportunities for growth in our end markets. The pipeline of shovel-ready projects utilizing the funding particularly water and wastewater treatment plants, transmission line replacements, and stormwater management initiatives is expanding, giving us confidence in our near and long-term outlook for municipal construction. Residential lot development was resilient through the first quarter, and we were pleased with the activity we saw to start the year. We are beginning to see signs of softening in response to general economic conditions and affordability pressures. Specifically, we are hearing from some of our customers that developers are reducing footprints in an effort to manage their capital investments. Despite the short-term uncertainty surrounding residential development, the secular fundamentals underpinning the US housing market are strong, and we continue to expect builders to keep building homes and a release of pent-up demand as interest rates moderate and affordability improves. Our diversified mix within the non-residential end market provided stability despite shifting dynamics across project types. We continue to see strong sales volumes into data center construction and positive trends for institutional buildings, multifamily housing, and road and bridge projects. In contrast, activity remains softer for commercial buildings, manufacturing, and warehousing. That said, we're encouraged by the level of bidding activity across our non-residential portfolio, and we believe our balanced exposure provides us an opportunity to outperform the broader market over time. Market volume growth in the first quarter was supplemented by robust share gains from the execution of our product, customer, and geographic expansion initiatives to deliver mid-single digit organic sales growth. We drove 10% growth in meters and growth well into the double digits in our treatment plant and fusible high density polyethylene offerings. This level of execution illustrates our ability to make the right investments in talent, the power of our scale, and our role in accelerating the adoption of new products in the industry. We saw sequential improvement in gross margins in the first quarter. driven by disciplined pricing and solid execution in our private label and sourcing efforts. The consistency of our gross margin reflects the value we deliver to our customers, and it reinforces the strength of our differentiated value proposition. While tariffs and trade restrictions between the U.S. and other countries are at the top of everyone's mind, the direct impact on CornMain's supply chain to date has been minimal, as the majority of our products are domestically made. We are actively working with our suppliers to mitigate any supply chain disruption, and we have taken pricing actions to the extent necessary. The direct and indirect impacts of tariffs on the broader economy and on private construction specifically remain uncertain, and we are monitoring the environment closely. We continue to execute on our capital priorities, deploying approximately $58 million during the first quarter between organic capital investments, share repurchases, and debt service. Investing in the growth of the business continues to be our highest priority for capital allocation. Our acquisition pipeline is healthy, and we continue to evaluate several opportunities of various sizes. We're also committed to returning capital to shareholders, and in the first quarter, we bought back nearly 837,000 shares of our stock at an attractive valuation. Turning to page six of the presentation, I'll wrap up my prepared remarks with a discussion on the levers we have to drive growth and scale our capabilities over the long term. Each of our 370 branches strive to sell more products to more customers and generate more profit every day. We equip the field with data on their markets, their share wallet, and their profitability, and they bring us new opportunities for organic growth. Our operating model generates organic share gains by focusing on local service combined with a pay for performance culture that aligns with our business strategy. We have an ongoing process to collect and evaluate these ideas, culminating in our annual strategic plan. The strategic plan gives us clarity on which of the many great opportunities to pursue, whether they are organic, inorganic, or often a combination of both. We work to bring these opportunities to life as initiatives where we resource them for scale and we measure them with a focus on profitability. Our product initiatives, including meters, fusible HDPE, treatment plant, storm drainage, and geosynthetics have allowed us to grow faster than the market historically, and we expect they will continue to help drive market share gains in the future. The 10-year growth of these initiatives has been impressive. averaging 13% annually, and they are delivering almost $2.5 billion in combined annual net sales today. To compete effectively, having a strong physical presence and strong local relationships in every market we serve is critical. No one is better equipped to identify service gaps and local growth opportunities than our local teams. With our local expertise and our market intelligence, we have significantly expanded our footprint since becoming an independent company in 2017 through a series of Greenfields and bolt-on acquisitions. Greenfields are a powerful way to expand geographically, and we are well positioned to do so given our talent pool, our scale, and the lessons learned from our past successes. They require minimal capex to open and operate, And each of the 20 green fields we've opened since 2017 has generated positive operating income within the first two years. Together, they are now delivering nearly $300 million of annual net sales. And of course, none of this is possible without our people, which is why we continue to invest heavily in their growth and development. Our award-winning training program commercializes our go-to-market strategy, deepens industry expertise, and ensures our 600 plus field sales reps who average 14 years of experience are equipped to drive profitable growth. Our associates learn from the best of the best on the job in our national training center through in-house subject matter experts and with virtual and online learning academies. Our learning team offers a wide range of sales, operations, product expertise, leadership, and safety training programs and courses. We also provide customized training and early career rotational programs for college graduates to develop as future leaders. We partner with our suppliers to enhance our knowledge base as new products and best practices are continually introduced in our industry. Our comprehensive approach and dedication to developing industry leaders earned Corn Main the number 23 spot on Training Magazine's Global Apex Awards list for excellence in employee training and development. Because strong local relationships are key to success in new markets, bolt-on acquisitions is often the fastest approach, and you can see that in our results. Since 2017, we've completed over 40 acquisitions, adding approximately 140 branches, and $1.8 billion of annual net sales. And we aren't done. With only 19% share of a highly fragmented $39 billion addressable market, our long-term opportunities to grow and gain market share is significant. We've proven we can add substantial sales and profitability to our business through these initiatives. Then we add sustainable margin expansion to the mix through private label, sourcing optimization, pricing analytics, and digitization, and that is an exciting formula for profitable growth. Thank you all for your ongoing support and trust in our long-term vision. I look forward to what Coramain will accomplish in the years ahead. And I'll now turn it over to Robin to provide our financial update.

Thank you, Mark. I want to start by thanking our teams for their hard work in delivering another record quarter. I'll begin on page eight with some highlights from our first quarter results. We grew net sales 10% to a first quarter record of $1.9 billion. Organic sales were up mid single digits and acquisitions contributed the balance of growth in the quarter. Pricing improved sequentially from the prior quarter, resulting in a neutral impact to sales growth compared to the prior year. Our end markets were slightly positive in total, and we believe we achieved considerable share gains from the execution of our product, customer, and geographic expansion initiatives. As mentioned on our last call, we estimate that approximately 85% of our sales are products that are domestically manufactured and distributed. For the balance of products that are imported by our suppliers or have imported components, there is usually a domestic alternative. While tariffs did not significantly impact our first quarter results, we are starting to see some tariff-related cost increases from our suppliers, and we expect to pass through these costs as we have done historically. Gross margins in the first quarter finished at 26.7% compared to 26.6% last quarter and 26.9% in the prior year. The sequential improvement in gross margin was driven by pricing discipline and continued execution of our private label and sourcing initiatives while achieving share gains. The year-over-year decline was expected and is due to a higher average cost of inventory this year compared to last year, partially offset by accretive acquisitions and the success of our initiatives. Selling general and administrative expenses increased 14% in the first quarter to $293 million. The increase in SG&A is primarily due to the impact of acquisitions and inflation. Excluding the effect of acquisitions and equity-based compensation, SG&A expenses were up approximately 4%, reflecting underlying gains in productivity. Interest expense was $30 million compared with $34 million in the prior year. The decrease was primarily due to lower average borrowings under our ABL credit facility and a decrease in rates on our variable rate debt. Provision for income taxes in the first quarter was $36 million compared with $33 million in the prior year, and our effective tax rates were 25.5 and 24.6% respectively. Our effective tax rate this year reflects a more normalized ongoing rate and the increase over the prior year was due to exchanges of partnership interest that increased the allocation of net income to core and main Inc. Diluted earnings per share increased approximately 6% to 52 cents. The increase in diluted EPS was due to an increase in net income and lower share counts following the share repurchase transactions we completed throughout fiscal years 2024 and 2025. First quarter adjusted EBITDA increased 3% to $224 million. Adjusted EBITDA margins declined 80 basis points to 11.7%, which was in line with our expectations. Moving to our balance sheet and cash flow, we ended the quarter with net debt of nearly $2.3 billion and net leverage of 2.4 times. Total liquidity was $1.1 billion, consisting primarily of availability under our ABL credit facility. We generated $77 million of operating cash flow, and we are pleased with this result and what has historically been a lower cash generation quarter for us. We continue to allocate our cash flow to priorities that we believe will result in growth or returns for shareholders. We deployed $39M in the first quarter to repurchase 837,000 shares at an average price of $46.64 per share, finishing the quarter with $285M remaining under our authorization. Investing and growth remains our top capital allocation priority and our M&A pipeline is active. We are actively engaging with dozens of potential targets and we are being prudent in our evaluation to ensure they are the right cultural and strategic fit. Turning to our outlook, we are reaffirming our full year guidance for net sales of $7.6 to $7.8 billion and adjusted EBITDA of $950 million to $1 billion. This reflects our continued expectation for adjusted EBITDA margins in the range of 12.5 to 12.8%. We have good visibility into demand through the next quarter and expect to finish the first half strong, supported by healthy project activity and backlogs. That said, uncertainty associated with tariffs, inflation, and interest rates could impact customer sentiment and demand in the back half of the year. At a high level, we continue to expect our end markets to be roughly flat for the full year, stable in the near term, but with less clarity as we move into the second half. We offer a strong value proposition to the industry, and we are on track to achieve the two to four points of above market volume growth we communicated last quarter by expanding our presence in under-penetrated geographies, driving product line expansion, and acquiring and developing new sales talent. Pricing improves sequentially, and we believe that the impact of sales growth for the full year will be neutral or better. We expect to improve gross margins for the full year through the execution of our private label, sourcing optimization, and pricing initiatives, and our first quarter results support this trend. While SG&A growth has been outpacing sales growth in recent quarters due to the impact of acquisitions, we have been pleased to see organic productivity gains and have commenced cost-add activities and expect them to drive improvements through the end of the year. These productivity improvements combined with our expectation for gross margin expansion reinforce our confidence in achieving adjusted EBITDA margins in the 12.5 to 12.8% range for the year. In closing, I want to reiterate that our sector has strong fundamentals, and we have a proven strategy to continue strengthening CoreMain's leadership position. The long-term trends underlying 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, and we remain committed to building on our track record of delivering value to shareholders. With that, let's open it up for questions.