MasterBrand, Inc.

the call over to Farron Pollack, Vice President of Investor Relations, Treasurer, and Corporate Communications. Please go ahead, sir.

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 fourth quarter and full year 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, and you are prepared remarks or the associated question and answer session. These forward-looking statements are based on current expectations and market outlook and are 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, including under the heading Risk Factors in our full year 2023 Form 10-K and updated as necessary in our subsequent 2024 Form 10-K, 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 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 2024 financial results from Andy, along with our initial 2025 financial outlook. 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. Good afternoon, everyone. We appreciate you joining us today for our fourth quarter and full year 2024 earnings conference call. We released our fourth quarter and full year financial performance earlier today and reported net sales of $668 million in the fourth quarter, a decrease of 1% compared to the same period last year. This unexpected decline was due to increased choppiness in our repair and remodel business during the latter part of the fourth quarter. After our third quarter earnings call, we saw the swings in this portion of our business increase. Following Thanksgiving in the U.S. and continuing through the remainder of the holidays, our repair and remodel business was very slow, resulting in a year-over-year volume decline of 6% in our legacy business. These volume declines also exacerbated our existing average selling price headwinds. Our made-to-order offering, which is a higher price point product, was disproportionately impacted by the volume declines compared to the rest of our product portfolio, causing a mix shift we had not seen earlier in the year. This negative mix was the primary driver of the 4% year-over-year net ASP decline in our legacy business during the quarter. The volume decline, along with softer end-market demand, also impacted our ability to realize previously implemented price. While slower price realization doesn't negatively affect our fourth quarter year-over-year performance, it was part of the reason we missed our stated outlook. Price increases are implemented and realized quickest within our dealer partners, who service the repair and remodel market. The missed to our volume expectations in this portion of the market resulted in price coming in slower than expected. Additionally, other channels have taken longer to implement price, particularly in the lower price point products. although we have made some progress here since December. While we remain committed to realizing price, we are facing challenges given the current soft-end market conditions. Our core net sales decline was partially offset by continued growth from our acquisition of Supreme cabinetry brands, which contributed a 9% year-over-year increase to net sales. I'm pleased to say Supreme continues to perform well and in line with our expectations. We delivered adjusted EBITDA of $75 million in the fourth quarter and a related margin of 11.2%, 150 basis points lower than the same period last year. This margin contraction was due to the previously mentioned pressure on net ASP, volume declines, and continued investments in the business. If you recall, we announced price increases in the second quarter because of sequential inflation we were seeing. This inflation has not subsided and our slower price realization, as discussed, caused us to remain in a negative price-cost relationship during the fourth quarter. Additionally, while volume is normally low over the holidays, the unusually rapid decline this year impacted our ability to flex manufacturing quickly enough to preserve margins. This, along with more plant shutdown days, continued investment in our strategic initiatives, and a $4 million benefit in the fourth quarter of the prior year that did not repeat all put pressure on our year-over-year adjusted EBITDA margin performance. During the fourth quarter and subsequent to year-end, the organization has thoroughly reviewed and prioritized future spending, including spending related to our strategic initiatives and identified cost reductions. I'll provide a little more detail on this shortly. Looking at cash generation, we delivered another strong quarter of free cash flow at $69 million, bringing our full year of 2024 total to $211 million. I'm pleased to say that this is in line with our stated goal of free cash flow in excess of net income, despite increased capital expenditures in the year. The organization's continued focus on cash management and exceptional performance in this area allowed us to improve on all measures of our cash conversion cycle. It's worth noting that in the last two years as a public company, we've delivered exceptional free cash flow for our investors, totaling over $550 million. Now, given the soft fourth quarter market demand, I'd like to provide more detail on what we experienced in the quarter and the market conditions we expect in 2025. The market remained choppy throughout the fourth quarter, with those customers servicing the U.S. single-family new construction market being the most stable. We estimate the U.S. single-family market was slightly up year-over-year in the fourth quarter, as we lacked increasingly strong comparables from the prior year. Ultimately, we believe this market was up mid single digits for the full year 2024. Trends we discussed earlier in the year now appear to be impacting demand in this portion of the market. During the fourth quarter, spec home inventory reached its highest level in over a decade, causing builders to hold single family starts at reduced levels. Coupled with completions outpacing starts in the third and fourth quarter, we believe we will now see a pocket of soft demand in the early part of 2025. As builders work through existing spec home inventory and demand improves, we anticipate this end market will strengthen as the year progresses. In total, we expect new construction and market demand to be flat to down low single digits for the full year 2025. I've already addressed the conditions we saw in the repair and remodel market serviced by our dealer and retail customers during the fourth quarter. Given the deterioration we saw in the last two months of 2024, We believe the repair and remodel market performs slightly worse than our expectations for the full year, finishing the year down mid to high single digits. This may sound greater than others' comments on R&R performance, but keep in mind our market reflects the additional impact from being a large ticket item. Coming out of the holidays, we saw similar demand patterns continue into January. In February, we're seeing a demand environment more like the early part of the fourth quarter and prior periods. Based on what we're experiencing and what we hear from our dealer and retail partners, we expect to see continued choppiness through at least the first half of 2025, with demand improving modestly in the back half of the year, as we begin to anniversary easier comparables from 2024. In total, we expect to see the repair and remodel market down mid to low single digits for the full year of 2025. Shifting to Canada, we saw some year-over-year improvements in the repair and remodel market during the fourth quarter, albeit off low levels. The new construction market remains soft as housing affordability continues to be a challenge. In total, we saw the Canadian market down low single digits across both the new construction market and repair and remodel markets. We're encouraged by the trends we saw in the repair and remodel market in the fourth quarter and expect less risk in the new construction market. Accordingly, we expect Canadian new construction and repair and remodel end markets demand to be flat year over year in 2025. Given our mix of business, we believe our overall end market demand will be down low single digits. We recognize 2025 is shaping up to be another transitory year from a demand standpoint. Accordingly, we have thoroughly reviewed and prioritized future spending, including investments related to our strategic initiatives, and we are moving forward with both operational and commercial cost reductions. I would like to walk you through some of the previously and recently planned cost actions and provide an update on where we expect to preserve growth investments. Operationally, the team continues to focus on increasing the flexibility and efficiency of our manufacturing footprint. Since our last earnings call, we have announced several changes designed to enable both. In the fourth quarter of 2024, we announced the consolidation of three facilities in North Carolina. As part of our supreme integration, we identified their newest facility in Statesville as one that could be consolidated into our existing network. As part of the same analysis, we determined that we could also consolidate one of our legacy master brand premium facilities located in Liberty into the same site. Leveraging unused space in our Kinston facility, along with an investment in new equipment, will result in one consolidated site that we believe has the scale, breadth, and capabilities to meet our future capacity needs and at a lower cost. continue to review where our manufacturing network resides from a strategy and external cost standpoint as well. We believe service and delivery will help us continue to win new business in the future, so positioning our facilities to best serve our customers at the lowest cost is critical. Accordingly, we announced just this month plans to relocate our Colton, California facility to North Las Vegas, Nevada. The newly built facility will allow us to continue servicing California but also position us to better serve faster growing states like Arizona, New Mexico, Colorado, parts of Texas, and Nevada itself. We believe the western and southern states will remain some of the fastest growing parts of the United States, and this facility is ideally situated to service this area while doing so at a lower cost. Given the 2025 end market demand outlook and our desire to preserve growth investments, we have identified cost savings opportunities and areas to limit spending. We've already announced some internal reorganizations that have resulted in targeted headcount reductions and reduced discretionary spending. These cost actions are on top of our planned incremental continuous improvement, or CI, savings of $50 million in 2025. Through disciplined spending and further cost savings from CI, we plan to reduce the impact our continued growth investments will have on our near-term financial performance. Now I'd like to talk a little more about the areas we're continuing to invest in and why continuity of investment is important. As you might recall, we have three strategic initiatives we believe will position the company for outsized future growth. They are aligned to grow, lead through lean, and tech enabled. All have produced benefits to date, but some are earlier in their investment cycle, specifically tech enabled. This time last year, I mentioned that given the early success of our tech enabled initiative, we planned incremental investment for 2024. I'm pleased to say that we made meaningful progress on this initiative throughout the year. We've seen further contributions that give us the confidence in our plans to invest an incremental $15 million in 2025. To date, these successes have largely been on the plant floor and in the back office. Throughout the year, we continue to make progress on cloud migration efforts and delivering near real-time data. This improved data has allowed teams like our quality group to have greater insights into our operations and get to the root cause of issues with increased fidelity and speed. Similarly, our CI teams can now gather data for a Kaizen event in hours, which might have taken days before. Tangible incremental savings in quality and CI this year give us the confidence to continue investing in this initiative. As I mentioned on last quarter's earnings call, we are continuing to venture further outside our four walls with our tech enabled initiative. Initially, we introduced MasterBrand Connect, our new customer portal, to focus on improving our connection with our channel partners. Through our incremental investments in 2025, we will get closer to the end consumer than ever before, with the expressed goal of providing actionable insights directly to our channel partners and stimulating demand. While we realize these investments will create a headwind for the organization's near-term financial performance, we believe it will drive superior financial results in the long term. Furthermore, we feel compelled to act on these investments, despite the softer macro environment. as we believe our scale and breadth of product uniquely positions us to take advantage of this opportunity and further differentiate ourselves against our competitors. Now, with that, let me turn the call over to Andy for a deeper look at the fourth quarter and full year 2024 results, as well as our outlook for 2025.