Masonite International Corporation

Greetings. Welcome to Masonite's third 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. Please go ahead.

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 Tejima, Executive Vice President and Chief Financial Officer. Also joining us today for Q&A is Chris Ball, our President of Global Residential. We issued a press release and earnings presentation yesterday reporting our third quarter 2022 financial results. These documents are available on our website at masonite.com. Before I 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 sec.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 presentation 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 third quarter results from Russ, And then Howard will provide some closing remarks and we'll begin the question and answer session. And with that, let me turn the call over to Howard.

Thanks, Rich. Good morning and welcome, everyone. Starting on page four, I'm pleased to report that Masonite continued to deliver strong year-over-year growth in the third quarter, with net sales up 12% and adjusted EBITDA up 7%. Adjusted earnings per share increased 27% due to our higher earnings and a lower share count. Results in our North American residential segment for the quarter were outstanding. Net sales for the segment grew 19% year-over-year and adjusted EBITDA grew 26% due to a disciplined focus on price and cost management and strong execution of our Doors That Do More strategy. The segment also benefited from the diversity in our residential end markets as demand remained more resilient in the residential repair and remodel market during the quarter and help mitigate the impact of softening demand in new construction. In Europe, we experienced substantially greater headwinds than expected in the quarter from ongoing macroeconomic challenges, including consumer competence, energy costs, and exchange rates. Our leadership team has been systematically taking a number of actions to support margins but the rapid deterioration of the economic climate did result in uncharacteristically weak performance for this segment. The combined effect of the European results and slower than anticipated recovery in the architectural segment were a significant headwind to the overall results for the quarter, but we are pleased that strength in the core North American residential segment kept us largely on track in the quarter. Beyond these quarterly highlights, I am happy to also comment on the exciting M&A news occurring subsequent to quarter end during our normal quiet period. On November 3rd, we announced our intention to acquire Endura Products, a leading innovator and manufacturer of high performance residential door frames and door system components. We are extremely excited about the strategic fit of this acquisition and its potential to help accelerate growth for Masonite. Let's turn to slide five. Endura was founded in 1954 and has been a family-owned business for three generations. Over nearly 70 years, it has developed into a highly respected supplier of exterior door system components. The company has delivered net sales of approximately $270 million over the last 12 months, and their revenues have grown at a compound annual growth rate of 17% over the past three years. Their products are sold to distributors located throughout the United States and Canada, as well as direct to OEMs and online. Endura's product portfolio broadly consists of door frames, door sills, and other components, as well as engineered stiles and rails, all designed to improve the performance of exterior door systems. The team is in constant pursuit of insights that help drive innovation and make a door system perform better. Their research and development efforts have produced an intellectual property portfolio of over 100 active patents and dozens more that are currently pending. The company has four production facilities located in North Carolina, Texas, and Oregon and employs over 800 people. Endura has been a Masonite supplier for over 25 years, and the partnership has grown stronger recently as we have collaborated closely on several of our new exterior door systems. We have a great respect for the way they prioritize and demonstrate not only innovation, but quality, service, and integrity as well. We believe there is a great cultural fit between our companies and are delighted that Bruce Procton, Endura's current president, and his leadership team will be joining Masonite following the close of the transaction. Bruce has invested 30 years of his career into growing his family's business and is excited about the combination of Masonite and Endura, given our strong partnership to date. This was not an auction. This acquisition was the logical next step in the evolution of our partnership. Both the Masonite and Endura management teams see tremendous potential to accelerate future growth as part of a combined organization. We have put a cross-functional integration team in place to ensure a smooth transition and deliver on the synergies already identified during due diligence. We expect to close the transaction near year end pending receipt of regulatory approval and satisfaction of customary closing conditions. Turning to slide six. Our Doors That Do More strategy drives how we run our existing business as well as our inorganic growth roadmap. Since developing this strategy, we have taken a more targeted approach to M&A that includes a clear framework of strategic growth opportunities and a list of potential targets. Endura has long been at the top of that list. Beyond the attractive product portfolio, intellectual property, valuable brand, excellent manufacturing capabilities, great customer relationships, and an outstanding team that Endura brings, The long-term strategic value of this transaction comes from the ability to accelerate innovation across the complete door system and unlock the value of fully integrated products. This product integration opportunity came to light shortly after I joined the company. Our consumer-centric research uncovered unmet needs around the home for comfort, privacy, security, style, and convenience. As a result of the pandemic, the homeowner's needs have only become more acute. But to make a door operate seamlessly and to solve life and living problems, to make it more soundproof or weatherproof or secure, you need more than just the door slab. You also need the frame and all the other components to be tightly integrated and work in concert. This is what makes it a door system and gives it maximum value. It is also why Masonite and Endura being together makes so much sense. Many of our down-channel customers already buy both Masonite doors and Endura products to use them together in creating entry door systems. A great example is the Masonite Performance Door System, which we launched earlier this year. As you may recall, this product combines high-quality Masonite exterior fiberglass doors with high-performance Endura frames, self-adjusting sills, weather sealing, and more to form a highly engineered, complete door system that is 64% better at keeping air and water out than the leading competitor. We also partnered with Endura to design and supply components for our M-Power smart door solution. These are just a few examples of the types of performance benefits that come from design and engineering across the entire door system, and we are eager to further these efforts. By fully integrating and aligning our resources, we can move even faster to deliver doors that do more. In addition to the incremental growth potential from product integration, we anticipate other tangible benefits from this transaction. Upon closing, Enduro will provide incremental access to new markets, new product categories, and new distribution channels. Together, we will be expanding our total addressable markets. and further building on the value of both of our brands. For all these reasons, I'm thrilled to welcome the Endura team into the Masonite family as we continue to unlock the value of our doors that do more strategy by delivering door solutions that solve life and living problems for homeowners and delivering greater value to our partners and shareholders. With that, I'll turn the call over to Russ to provide more details on our financials for the quarter. Russ?