Masonite International Corporation

Greetings and welcome to Masonite's first quarter 2022 earnings conference call. During the presentation, all participants will be in a listen only mode. After management's prepared remarks, investors are invited to participate in a question and answer session. Please note that this conference call is being recorded. I would now like to turn the call over to Rich Leland, Vice President, Finance and Treasurer. Thank you. You may begin.

Thank you and good morning, everyone. We appreciate you joining us for today's call. With me here this morning are Howard Heckes, President and Chief Executive Officer, and Russ Tijema, Executive Vice President and Chief Financial Officer. Also joining us today for Q&A are both Chris Ball, our President of Global Residential, and Randy White, our Senior Vice President, Operations and Supply Chain. We issued a press release and earnings presentation yesterday reporting our first quarter 2022 financial results, and these documents are available on our website at masonite.com. Before we begin, let me remind you that this call will include forward-looking statements. Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the section entitled Forward-Looking Statements in the press release we issued yesterday. More information about risks can be found under the heading Risk Factors in Masonite's most recently filed annual report on Form 10-K and our subsequent Form 10-Qs, which are available at scc.gov and at masonite.com. The forward-looking statements in this call speak only as of today, and we undertake no obligation to update or revise any of these statements. Our earnings release and today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliations which are in the press release and the appendix of the earnings presentation. Our agenda for today's call includes a business overview from Howard, followed by a review of the first quarter results from Russ, and Howard will provide some closing remarks and will host a question and answer session. With that, let me turn the call over to Howard.

Thanks, Rich. Good morning and welcome, everyone. I'm very pleased to report that Masonite is off to a fantastic start in 2022, delivering strong performance across all key financial metrics as outlined on slide four. Net sales for the quarter grew 12% year over year, while adjusted EBITDA increased 22%, and our adjusted EBITDA margin improved by 140 basis points. Adjusted earnings per share for the period were up 50%, driven by our strong operating results and the impact of a lower share count. We deployed $140 million towards share repurchase in the quarter, including $100 million for the accelerated repurchase program we announced on our year-end 2021 earnings call. These results exceeded our expectations given the slow start in January when we were still dealing with the lingering effects of the global spike in Omicron that constrained production. Ultimately, it was exceptional execution by our North American residential team that enabled us to recover production and service pent-up demand, as well as disciplined management of price cost across all business segments that made it possible to grow the top and bottom line so significantly. I am encouraged by these results, not only because they give us a great start to the year, but also because they demonstrate the returns that we are getting from our Doors That Do More strategy and the investments we have made to position the company to capture upside opportunities from healthy demand. While our European and architectural segment results this quarter were not as strong as North American residential, those management teams are executing well to navigate the headwinds affecting their business. The European team is adapting to the impact of inflation and softening market demand due to weakening consumer confidence in the UK, and the architectural team continues to make progress on the operational and supply chain challenges they have been facing and are on track to return to profitability as planned in Q2. Overall, on a consolidated level, we have certainly generated the right momentum in the first quarter and are well positioned for another year of strong results in 2022. Let's turn to slide five. The Doors That Do More strategy that we articulated at our investor day about a year ago has been our north star and has contributed to our success over the last two years. As you may recall, the strategy has three core pillars, deliver consistent and reliable supply, drive specified demand, and win at the point of sale. Delivering consistent and reliable supply is about operational excellence. By consistently delivering high quality products and outstanding service, we aim to secure Masonite's position as the industry's preferred supplier and business partner. Driving specified demand is about product. It starts with listening to the needs of our end users, then creating a variety of compelling products and innovative solutions that customers ask for because of how they make life and living better. And winning at the point of sale is about building the power of our brand by increasing awareness, making it easy to do business with us, and driving preference through creative down-channel marketing. In recent months, driving specified demand has been getting considerable attention from both customers and investors because of the enthusiasm surrounding the launch of our groundbreaking MPower smart entry door system, which was showcased at both the Consumer Electronics Show and the International Builders Show earlier this year. Beyond MPower, a door that does a lot more, we've also been highlighting our doors that do a little more. These are doors that give home and building owners more of what they want, more privacy, more light, more security, more style. This strategic pillar of driving specified demand is particularly important because along with giving customers more of what they want, these doors can also deliver higher average unit price and gross profits for masonry. Today, however, I'd like to provide more insight into the pillar of consistent and reliable supply, which in many ways was a key enabler to delivering such strong results in Q1. Let's turn to slide six. As I said, this pillar is about securing Masonite's position as a preferred supplier and business partner by consistently delivering high-quality products and outstanding service. We've been working on a number of initiatives in this area, including investing in capacity and productivity projects to cost optimize our manufacturing network, diversifying our supply chain to ensure consistent availability of high quality components, and leveraging our mVantage operating system to drive out waste and improve throughput across our operations. These are multi-year initiatives, and our work in these areas is never complete, but here are a few examples of what we've achieved over the past two years. Despite COVID-related disruptions, we successfully opened a greenfield interior door plant in Tijuana, Mexico, and have since ramped up weekly shipments to match volumes at our other North American interior plants. This facility replaced less efficient capacity elsewhere and is allowing us to more cost-effectively service Western markets. Focused capital investments and the application of M-Vantage continuous improvement projects has also benefited our existing plants. Over the past two years, we've completed projects that increased production by over 25% at our interior door plants in Monterey, Mexico and Chian, Chile. We have also increased production by over 40% at two of our U.S. door fabrication facilities servicing our retail business. To support our strategy of continually improving the mix in our product portfolio, we have introduced new equipment, new suppliers, and optimized processes that enabled a 20% increase in weekly solid core production and a 30% increase in our heritage interior door production over the past two years. Our global supply chain team has substantially reduced our single source exposure by qualifying additional suppliers for several critical inputs. This has helped to make our supply chain both more resilient and more geographically diverse. And finally, as an example of the benefits we are getting from targeted automation, we make capital investments at one of our exterior door plants that have resulted in double digit percentage reduction in the people needed to run our assembly lines. specifically in positions that were very ergonomically challenging. Our hard work and commitment in these areas hasn't been readily visible in the face of industry-wide labor and supply chain constraints, but it is proving to be a smart investment as conditions normalize. The improvements we have made were an important part of our ability to drive excellent performance in the back half of Q1. And I believe that through many new projects we have in flight now, we are developing a strong competitive advantage based on providing consistent and reliable supply to our customers. Looking out longer term, our early successes in the execution of our Doors That Do More strategy is what gives us confidence in our ability to deliver our Centennial Plan financial goals as outlined on slide seven. Organic growth has been stronger than expected, and the potential we see in our doors that do more product innovations, together with the possibility of strategic M&A, positions us nicely on the glide path towards our goal of achieving $4 billion of net sales in 2025. As revenue has increased, so has the amount of adjusted EBITDA dollars that are falling through to the bottom line. We have a number of initiatives focused on driving richer product mix, managing price costs, and leveraging M-Vantage to drive production efficiencies, all of which position us to achieve our 20% margin goal. We made strong improvement in ROIC in 2021 with a 560 basis point increase to 14%. We are expecting another step up this year based on steady improvement in profitability and a disciplined capital allocation process that focuses on the highest returning projects. Overall, I'm pleased with our progress so far and look forward to giving you more insights into our strategy and our results on future calls. Moving on to slide eight. Before I turn the call over to Russ, I want to highlight our latest annual environmental, social, and governance report that was published yesterday. This report outlines our ESG objectives for the remainder of this decade. I'm very proud of the team's progress on ESG in 2021, and I believe our 2030 ESG vision of renewed responsibility, with focus on caring for the environment, uplifting our employees and communities, and innovating sustainably, will help ensure we continue to do well by doing good. This is an important area of focus for the company and one with significant investor interest. I'd encourage all of you to visit our website to download a copy of the new report and to learn more about what we have been and will be doing as we move forward on our ESG journey. We have a lot of folks at our company doing some inspiring things, and we think you will find our report quite compelling. With that, I'll turn the call over to Russ to provide more details on our financials. Russ?