MasterBrand, Inc.

Welcome to Masterbrand's first quarter 2024 earnings conference call. 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 Pollock, Vice President of Investor Relations and Corporate Communications.

Thank you. Good afternoon. We appreciate you joining us for 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 first four 2024 financial results. If you do not have this document, it is available on the investor section of our website at masterbrand.com. I would like to remind you that this call will include forward-looking statements. in 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 risks can be found in our filings with the Securities and Exchange Commission including under the heading Risk Factors in our full year 2023 Form 10-K and updated as necessary in our subsequent 2024 Form 10-Qs, which will be available once filed at sec.gov and at 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 sec.gov and at masterbrand.com. Our prepared remarks today will include a business update from Dave, followed by a discussion of our first quarter 2024 financial results, along with our 2024 financial outlook from Andy. Finally, Dave will make some closing remarks before we host a question and answer session. With that, let me turn the call over to Dave. Thanks, Farron. It's good to be speaking with you all on our first quarter 2024 earnings conference call. I'm pleased to say that MasterBrand delivered a solid quarter to start the year. Net sales in the first quarter of 2024 were $638 million, a 6% decline over the same period last year. This mid-single-digit decline was in line with our expectations as we experienced the continued impact of anticipated trade downs and our return to normal promotional activity through the first quarter. Volume was roughly flat on a year-over-year basis as we saw growth with our customers servicing the new construction market, offset by declines with our customers servicing the repair and remodel market. Again, this was in line with our 2024 end market demand assumptions laid out on the last call, which I'll revisit shortly. Operationally, the company continued to perform exceptionally well. We delivered adjusted EBITDA of $79 million in the first quarter and a related margin of 12.4%. 40 basis points higher than the same period last year. Our margin expansion was again driven by cost savings from our strategic initiatives and continuous improvement efforts, which more than offset the negative impact of lower average selling price. Our first quarter performance followed our trend of delivering year-over-year margin expansion despite market softness. This is a testament to two things. One, our associates' dedication to the master brand way, our business system. And two, the success of our strategic initiatives, Align to Grow, Lead Through Lean, and Tech Enable. When we first introduced the master brand way, our focus was on deploying foundational lean tools and improving operations. During this early period, our executive team, myself included, spent a great deal of time training and coaching all levels of associates on how to use these tools. More importantly, our time spent on the plant floor was about fostering a culture of continuous improvement. and driving the mindset of problem solving at all levels of the organization. As this culture took hold, we saw our operational efficiency improve, as well as our financial performance. Fast forward to today, lean as a way of working is just part of what we do. Our associates, along with a core team of CI professionals, are driving daily operational improvements, utilizing our toolkit, and we continue to see the benefit of their work in our adjusted EBITDA margin performance this quarter. This quarter, we also continue to benefit from our strategic initiatives, specifically significant cost savings from our quality process initiatives and carryover savings from our prior year supply chain work. I'll provide a deeper update on our strategic initiatives shortly. Our continued discipline around working capital management allowed us to deliver free cash flow of $12 million in the quarter. Prior to last year, MasterBrand has historically been a consumer of cash in the first quarter. So this relatively strong performance is an encouraging trend to see. Now let me provide more detail on the end market demand we saw during the first quarter. Similar to our financial and operational performance, end market demand was in line with our expectations. For our customers servicing the U.S. single-family new construction market, we saw demand increase year-over-year high single digits in the first quarter. Demand trends improved across multiple regions, with large production builders continuing to outperform other segments of the market. Large production builders, both public and private, remain the best suited to address pent-up demand for housing, and we are benefiting from our close relationships with them. We serve these builders through a combination of direct sales and sales through our distribution partners. Given the positive tone from builders and the new product and channel-specific offerings we continue to introduce for them, we remain optimistic about this portion of the market. This optimism is tempered with our view that land and labor constraints, along with potential for some supply chain disruptions in certain categories, could limit growth. We continue to believe this market will grow year-over-year mid-single digits with relatively normal sequential seasonality and moderating year-over-year growth rates later in the year due to more challenging comparables. As for our dealer and retail customers who primarily service the repair and remodel market, demand continued at a similar pace to the fourth quarter of 2023. On a year-over-year basis, we saw demand decline high single digits in both our retail and dealer channels, as customers continued to note lighter-than-usual foot traffic and extended decision lead times. This was in line with our expectations for this portion of the market, as consumers remained hesitant to make large-ticket purchases given general macroeconomic uncertainty. Those who are willing to commit to larger purchases are being more thoughtful about total project costs and choosing fewer features in their order. Accordingly, our outlook for the U.S. repair and remodel market for cabinets remains unchanged. We still expect to see mid-single-digit declines for 2024, with year-over-year declines easing as we progress through the year and annualize these impacts, which we've already seen occur from the fourth quarter of 2023 to the first quarter of 2024. In Canada, both the new construction and repair and remodel markets remain slow year-over-year as expected, but we've seen signs of stabilizations. We were pleased to even see areas of sequential improvement in order intake in new construction and repair and remodel markets, which appear to be signaling a bottoming out. This and the steps that the Canadian government is taking to improve housing affordability for existing and new home buyers are favorable signs for the Canadian housing market. While these are encouraging developments, we still expect to see soft end market demand continue, with year-over-year high single-digit declines 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. End market demand was in line with our expectations for new construction and repair and remodel markets across North America, and we see relatively no change to our underlying assumptions. Therefore, we're reiterating our overall market demand expectation of down low single digits year over year in 2024. Our assumptions originally factored in a moderate reduction in interest rates later in the year. While there's been a lot of press around the timing of potential rate cuts, this remains a dynamic situation. We feel that we have a balanced approach related to Fed actions, and our outlook does not depend on rate reductions occurring on any timetable. Our outlook was more predicated on rate stability rather than on future rate reductions. With this backdrop in mind, we still expect a gradual improvement in existing housing turnover, along with a solidifying of demand levels for new construction as the year progresses. Our assumptions also anticipated little improvement in larger ticket R&R spending within 2024, as consumer R&R spending would mostly be on smaller ticket items to start. So as you can see, we believe our end markets are largely progressing as anticipated and will continue to do so. Given 2024 looks to remain a transitory year from an end market demand standpoint, We remain focused on operating efficiency, serving our customers, and continuing to execute on our strategic initiatives. Now I'd like to share some recent successes and updates from across these three initiatives. I briefly mentioned the new product and channel-specific packages launched for our large builder partners servicing the new construction market. This is a good example of how our Align to Grow initiative is driving growth for MasterBrand. Through our close relationships with these large builders, we work to match our offering to their needs. We've seen excellent results from this approach, with many of these top builders awarding us new business through the fourth quarter of 2023 and into the first quarter of 2024. It does take a while for these projects to go into production, but we are already seeing the benefit from the work we've done over the past year. We believe this is how 80-20 and the Align to Grow initiative will produce the growth we need to achieve our long-term financial targets. Moving to our Lead Through Lean initiative, this initiative is the furthest along in its journey, and we continue to make great strides here too. As I mentioned earlier, this is really about our culture of problem solving at every level of the organization. While this culture has taken hold, as MasterBrand looks to grow, we need to further equip our associates to lead and address problems closest to the work. To help with this, we've introduced True Leader, our program designed to ensure that frontline supervisors are skilled in leading others and coaching them for success. We've also taken steps to help associates know what success looks like through our newly introduced success model. This model focuses on the behaviors that truly differentiate great performance in master brand and those that will be rewarded. We believe that enhanced training, clear expectations, and related financial incentives will help our associates continue to deliver operational excellence and sustained growth. Now, let me touch on our tech-enabled initiative and specifically our work on quality processes. On our last call, I mentioned that our digital infrastructure team continued to make progress on cloud migration efforts and delivering near real-time data. Our quality team is already benefiting from this improved information, with better data and insights as to where and when quality issues are occurring. As a result, we've been able to address these issues with more precision and are already seeing the financial and operational benefits. These insights, coupled with the technology we're implementing to inspect product, should continue to drive our cost of quality lower. Lastly, we continue to make progress on rolling out the Master Brand Connect portal to our dealers and distributors. The rollout of this portal is well underway, and we're continuing to build more functionality into the application. Reducing friction for our customers is a top priority, and we will have more exciting features to share later this year. With the end market demand progressing as anticipated and our associates executing on our continuous improvement plans and strategic initiatives as expected, we're pleased to reiterate our full year 2024 outlook. 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.