MasterBrand, Inc.

During the company's prepared remarks, all participants will be in a listen-only mode. Following management's closing remarks, callers 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 Farron Pawlik, Vice President of Investor Relations and Corporate Communications.

Thank you, and good afternoon. We appreciate you joining us on today's call. With me on the call today are Dave Banyard, President and Chief Executive Officer, and Andy Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our fourth quarter and full year 2023 financial results. If you do not have this document, it is available on the investor section of our website at masterbrand.com. I'd like to remind you that this call will include forward-looking statements and either our prepared remarks or the associated question and answer session. Each forward looking statement contained in this call is based on current expectations and market outlook and is subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. Additional information regarding these factors appears in the section entitled forward looking statements in the press release we issued today. More information about risk can be found in our filings with the Securities and Exchange Commission under the heading risk factors. in our full year 2022 Form 10-K and updated as necessary in our subsequent 2023 Form 10-Qs, which are available at scc.gov and masterbrand.com. The forward-looking statements in this call speak only as of today, and the company does not undertake any obligation to update or revise any of these statements, except as required by law. Today's discussion includes certain non-GAAP financial measures. Please refer to the reconciliation tables, which are in the press release issued earlier this afternoon, and are also available at scc.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our fourth quarter and full year 2023 financial results from Andy, along with our initial 2024 financial outlook. Finally, Dave will make some closing remarks before we host a question and answer session. Now with that, let me turn the call over to Dave.

Thanks, Farron. Good afternoon, everyone. We appreciate you joining us here today for our fourth quarter and full year 2023 earnings conference call. This call marks not only the end of our 2023 fiscal year, but the end of our first year as a standalone public company. And I'm pleased to say we finished the fourth quarter and full year stronger than anticipated. Net sales in the fourth quarter were $677 million, a 14% decline over the same period last year. This decline was at the favorable end of our expected range due to the relative strength of our customers servicing the new construction markets. Despite this favorable performance against internal expectations, the year-over-year net sales decline was driven by lower volume due to continued overall softer end market demand. From an operational standpoint, the company continued to perform well. We delivered adjusted EBITDA of $86 million in the fourth quarter and a related margin of 12.7%, 20 basis points higher than the same period last year. Our ability to deliver another quarter of margin expansion, despite lower net sales on a year-over-year basis, was due to the continued disciplined use of our business system, the master brand way. Cost savings from continuous improvement efforts and strategic initiatives more than offset the negative impact of lower volumes and lower average selling price from trade downs and the return of normal seasonal promotional activity. Our strategic initiatives of Align to Grow and Lead Through Lean continue to deliver strong year-over-year savings, specifically in the areas of supply chain, productivity, and quality management processes. I'll provide you with more details on this shortly. Our focus on working capital improvements helped us deliver another quarter of better than expected free cash flow of $33 million. Further inventory reductions driven by our supply chain team and common box efforts, as well as improved collection systems and processes drove this improvement. Our strong free cash flow performance in the fourth quarter was despite our decision to accelerate certain capital expenditures and benefit from discount opportunities. We were able to pull forward this spending due to the continued strength of operations and our constant readiness to execute on future capital projects. In total, full year 2023 free cash flow was $348 million, 191% of net income, surpassing our goal of delivering annual free cash flow in excess of net income. In addition to these impressive operating results, we continue to improve on our already strong safety record. I'm proud to say that in 2023, we achieved an OSHA recordable rate of 0.84, a 19% improvement year over year. While we're proud of this industry-leading rate, our goal remains zero. Keeping our associates safe is core to our culture. As you can see, a strong finish to an exceptional first year, none of which would have been possible without our dedicated associates, so I'd like to take a moment to recognize them. Their efforts, coupled with the tools of the Master Brand Way, have helped drive engagement and a culture of problem solving at all levels of the organization. This culture allows associates closest to the work to best understand the challenges to bring those forward and address them. This can be in the form of a formal Kaizen event or simply using the proven tools in our toolkit. In 2023, we once again saw the impact of this approach on our financial performance with roughly $50 million of continuous improvement savings in the year. In addition to these savings, our associates continue to unlock hidden capacity at our facilities. This capacity and further advances in our common box initiative allow us to flex operations and align our manufacturing network with end market demand in 2023, which helps support our strong decremental adjusted EBITDA margin performance. Beyond financial and operational benefits, we look at lean as the ultimate engagement tool. When associates are leading change within their own plants and they see their decisions in action, They feel empowered, which drives higher engagement. And our engagement score reflects this. On a semiannual basis, we complete an employee satisfaction survey, and our satisfaction score continues to improve and outperform the manufacturing benchmark. While we're proud of these results in 2023, we believe we can deliver greater CI savings and become an even better place to work in the coming year. On that note, I'd like to speak about our plans for 2024. Specifically, how end markets served by our customers finished last year and the demand environment we expect for 2024, along with the opportunities we have to invest in growth and drive operational efficiencies to achieve the long-term financial targets we introduced at our 2022 Investor Day. U.S. single-family new construction was a bright spot in the fourth quarter of 2023, with relative strength compared to normal seasonality. we saw improving demand within some segments and regions throughout the fourth quarter, specifically large production builders, so much so that we kept a few facilities online for our anticipated two-week holiday shutdown. Declining mortgage rates and less interest rate volatility, along with a solid inventory of spec homes, has helped drive demand in the single-family new construction market. Large production builders in particular were able to capitalize on this pent-up demand for housing, and we've seen this strength continue into the first quarter of 2024. We expect to see this strength continue through the year, resulting in mid-single-digit year-over-year growth in 2024 in the new construction market, with large and medium builders performing the best. The demand these customers are seeing points to the fact that there is an underlying need for housing, even in the current interest rate environment. While there could be upside to this demand forecast, we are also cognizant that builders may see constraints in land and labor, along with potential for some supply chain disruptions in certain categories. We think our view of the market and single family new construction is balanced between the potential demand and the potential constraints. Overall, we're optimistic about new construction as we saw momentum develop at the end of 2023 and carry forward into 2024. We think recent indicators validate the underlying demand in the housing market from years of underbuilding, which bodes well for our current and long-term outlook. As for our dealer and retail customers, who primarily service the repair and remodel market, performance followed a similar trajectory to prior quarters, with demand down in the mid-teens year over year. This demand environment showed up in both our retail and dealer channels. While the fourth quarter is usually the softest quarter for repair and remodel due to normal seasonality, we believe this market remains down as consumers are prioritizing other spending and being more thoughtful of large ticket items in general. We continue to see consumers look to lower their total project costs, extend decision lead time, and choose fewer features in their orders. Accordingly, we expect to see this portion of the market remain softer in the near term as we annualize these impacts, particularly in the first quarter of 2024. In total, we expect the U.S. repair and remodel market for cabinets to be down mid-single digits for 2024, with more significant year-over-year declines early in the year, as consumers remain cautious about spending, particularly on larger ticket items. In Canada, both the new construction and repair and remodel markets remained weak through the fourth quarter and experienced double-digit declines. We currently expect to see soft end-market demand continue in Canada, with the market being down high single digits year-over-year in 2024. This outlook is based on new housing starts being meaningfully lower and repair and remodel activity being down mid single digits year over year. Taking into account the dynamics we're seeing in new construction and repair and remodel markets across North America, we would expect our overall market demand to be down low single digits year over year in 2024. Andy will provide more color on our expected performance relative to this demand environment later in the call. Our assumptions factor in a moderate reduction in interest rates later in the year, which based on recent Federal Reserve commentary appears probable. The key factors for us in our modeling are rate stability, which we are seeing today, and future rate reductions, which we have modeled in a similar fashion to the Fed commentary. With that environment, we expect a gradual improvement in existing housing turnover, along with a solidifying of demand levels for new construction as the year progresses. We also expect to experience a lag effect as smaller ticket R&R products will pick up sooner than our larger ticket products. While 2024 looks to be a transitionary year from a demand standpoint overall, we think the current rate trajectory coupled with the long-term gap in housing supply will bode well for our end markets as we move through 2024 and beyond. Given this market outlook, We are looking to build on the momentum we've created in 2023 with our strategic initiatives and position ourselves for long-term future demand. For those of you that attended our 2022 Investor Day or watched the replay, you've heard me speak about the positive flywheel effect of our tools and culture and the competitive advantage it provides us. The financial and operational performance we exhibited in 2023 is evidence that this algorithm is working and we're ahead of schedule on our long-term targets. Our operations continue to mature with a strong pipeline of continuous improvement initiatives for 2024. As we improve operations and drive costs out of the organization, we have more bandwidth to focus our toolkit on growth and reinvesting in the business. Now I'd like to provide a little more detail on both these areas and the opportunity to present in 2024 and beyond. As I discussed in our last earnings call, Masterbrand's common box initiative and more standard work across the plants is allowing us to improve efficiency in many areas. The newest area of opportunity being our quality processes. As part of our tech enabled initiative, we're implementing technology to inspect product quicker and with a higher degree of accuracy. Since our last call, we've already launched some pilot programs. The technology being deployed provides both preventative and detective quality control. helping reduce quality issues and identifying them should they occur. Today, maintaining our quality standards requires significant human decision-making. Once fully implemented, we believe these enhanced processes will automate many of these decisions, allowing for even greater productivity within our operations. Similar to our RFID deployment, this is another example of how our tech-enabled initiatives can use proven technology and continue to drive efficiency and better outcomes in the organization. Utilizing these savings, we're increasing our investment in the business for growth. As part of our tech-enabled initiative, our digital and technology team rolled out a new customer portal in the fourth quarter designed to improve the connection between us and our channel. The new MasterBrand Connect was built on industry-leading software, and it will provide our sales team with a comprehensive customer view, including orders, cases, and more. For our customers, it will ensure accurate order tracking, invoice access, and a marketing material repository, fostering a seamless buying experience. The rollout of this portal is well underway and we're making good progress on getting our dealer and distributors on this application. At the same time, our digital infrastructure team continues to make progress on cloud migration efforts. Implementing modern tools in this arena further expands the capabilities of any overlaying platform. providing near real-time data across multiple metrics both to our team and to our customers. In 2023, we made significant progress in delivering that near real-time data internally, which has allowed our teams to shorten the timeline for continuous improvement projects, both in the planning phase and the execution phase. In the past, we had to dig through various systems to find the data we needed to solve a problem, which often took weeks. Today, we can find the same answers in hours and, in many cases, minutes. As we continue to improve the functionality of our portal, we believe the improved experience will ultimately make Masterbrand easier to do business with and enable our customers and ourselves to gain share and outgrow the market. The additional investments we made in 2023 in our tech-enabled initiative have increased the pace of change across our organization. As we absorb that change culturally, we want to keep driving forward. Given our outlook for the market and our internal outlook on performance, which Andy will go into detail on in a moment, we've decided to continue the higher pace of reinvestment in our business from 2024. We have great momentum and want to stay ahead of the eventual improvements in demand by making these additional investments now. Now I'll turn the call over to Andy for a more in-depth discussion of our financial results and additional details on our 2024 outlook. Thanks, Dave.