MasterBrand, Inc.

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 your host, Farron Pollack, Vice President of Investor Relations, Treasury, and Corporate Communications. Thank you. You may begin.

Thank you, and 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 quarter 2025 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. 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 risks can be found in our filings with the Securities and Exchange Commission, including under the heading Risk Factors in our full year 2024 Form 10-K and updated as necessary in our subsequent 2025 Form 10-Qs, which will be available once filed at scc.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 table, 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 2025 financial results from Andy, along with our updated 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, Barron. Good afternoon, everyone. We appreciate you joining us today for our first quarter 2025 earnings conference call. Well, it's only been a couple of months since we last spoke. It's been a dynamic period. We released our first quarter financial performance today and reported net sales of $660 million in the quarter, an increase of 3% compared to the same period last year. This increase was driven by 10% growth from our Supreme acquisition and 2% growth from net ASP increases in our legacy business as we continued to see benefits of previous price actions. These increases were partially offset by market volume declines of 9% in our base business. specifically with customers that service the repair and remodel market. Despite year-over-year declines in the new construction market, our builder direct sales increased by over 4% compared to the prior year, as we continue to benefit from previously discussed new business wins and steady new housing completions. We delivered adjusted EBITDA of $67 million in the first quarter and an adjusted EBITDA margin of 10.2%, 220 basis points lower than the same period last year. This expected margin contraction was due to lower volumes and the related impact on fixed cost leverage as we continue to work on aligning our production to the current demand environment. Similar to last quarter, pockets of softness impacted our ability to flex manufacturing quickly enough to preserve margins. While our Supreme integration and other facility consolidations are progressing as planned, we continue to run with greater capacity and related costs than current conditions require. We anticipate this will continue to be the case through the second quarter of 2025 as we finalize our manufacturing network realignment. Ultimately, expecting to return to more normal decrementals in the second half this year. As expected, we were users of cash in the first quarter with negative pre-cash flow of $41 million compared to positive $12 million in the same period last year. Lower net income coupled with higher inventory because of choppy demand and bond interest payments, which will repeat in July, drove this year-over-year decline in the quarter. Absent some of these first quarter specific items, along with higher net income, we expect to deliver positive cash flow in the second quarter and throughout the remainder of the year. Additionally, we believe we will still deliver full-year free cash flow in excess of net income. Given the soft demand in the first quarter, coupled with macroeconomic indicators pointing towards lower demand than anticipated for the remainder of the year, I would like to briefly share our perspective on year-to-date market demand and our updated expectations for 2025. We saw year-over-year market volume declines in the first quarter across all channels and end markets. On our last Journeys call, we mentioned that we saw similar demand patterns from the holiday season continue through January, but February's demand environment was more like the early part of the fourth quarter and prior periods of 2024. That choppy demand environment continued through February and into March and negatively impacted the spring selling season for our customers servicing the new construction and the repair and remodel markets. For those customers servicing the U.S. single family new construction market, we saw the market decline low single digit as we lacked relatively strong comparables from the prior year. While single family completions were flat to up modestly in the first quarter, many of these homes were built over an elongated period after builders slowed production due to record high spec home inventory in the fourth quarter. This, combined with year over year softer starts in the first quarter, resulted in the new construction portion of the market softening greater than anticipated. While we had anticipated a pocket of soft demand in the early part of 2025, The softer starts, coupled with commentary from builders on foot traffic in the latter part of the first quarter, suggest demand will continue to be weaker for the remainder of the year. Large production builders public commentary suggests that tariffs and their impact on consumer confidence have kept potential buyers on the sidelines. Several of these builders have lowered expectations for the remainder of the year, and we see this trend occurring with our midsize and smaller builders as well. Accordingly, We now expect new construction and market demand to be down mid-single digits for the full year 2025. Shifting to the repair and remodel market, serviced by our dealer and retail customers, we saw continued choppiness and demand weakening as general economic uncertainty kept consumers away from large ticket purchases. This quarter, the weakness was more pronounced in our lower price point products, specifically the stock categories at our retail partners. while premium products continue to be more resilient. Given the fluctuations we saw throughout the quarter, we believe the repair and remodel market performed at the low end of our expectations for the quarter and was down mid-single digits. We continue to closely monitor order patterns with our dealer network and point of sales data from our retail partners. These orders continue to be choppy, fluctuating up and down. We believe recent fluctuations up may be consumers pulling orders forward to avoid the impact of tariffs and are not indicative of stronger future demand, rather another example of how consumers are being impacted by tariffs and the uncertainty they bring. Due to this data, coupled with other headwinds to large home project purchases, such as record low consumer confidence and declines in existing home turnover, we expect the repair and remodel market to perform below our original expectations. We now estimate this market will be down high to mid-single digits for the full year 2025, with the back half of the year performing slightly better from a year-over-year standpoint on easier comparables, albeit still down. Shifting to Canada, the first quarter was directionally in line with our expectations, but year-over-year declines in the repair and remodel and new construction market were greater than anticipated. Despite five rate cuts, housing affordability remains a challenge in Canada. and the new construction market has remained soft. In total, we saw the Canadian market down high single digits across both the new construction market and the repair and remodel market. While we continue to expect the market to improve as the year progresses, we believe the Canadian new construction and repair and remodel end market demand will be down mid-single digits year-over-year in 2025. Broadly speaking, the general economic uncertainty caused by tariffs and what that could mean for consumers has shaken their confidence and willingness to make large purchases. Given this shift in consumer sentiment and our mix of business, we believe our overall end market demand will now be down high to mid single digits in 2025. This is compared to our previous market outlook of down mid to low single digits for the full year 2025, as discussed in our last earnings call. With 2025 shaping up to be another year of soft demand, we're taking action designed to preserve margins and maintain a strong balance sheet, while continuing to invest in targeted areas for growth. Now, I'd like to walk you through some of those cost actions and provide an update on our growth initiatives. As I mentioned earlier, and we first discussed last quarter, we have two larger facility consolidations underway. One in North Carolina, where we're currently in the process of combining a Supreme facility and a legacy master brand premium facility into a third existing master brand location. Leveraging unused space in our Kinston, North Carolina plant, along with investment in new equipment, we plan to consolidate three facilities located within 200 miles of each other into one combined site that can meet our production needs and lower costs. On the West Coast, we are currently working on our previously announced plans to relocate our Colton, California facility to North Las Vegas, Nevada. We believe this newly built site will allow us to continue growing our business in the western and southwestern states through improved service and at a lower cost. Given the current demand environment, we may look to temper the pace of the facility's production ramp to mirror that of the market. These manufacturing network changes are designed to both reduce costs and improve service, but those benefits will not be realized for some time. The result, as I mentioned earlier, is that we expect to continue to see pressure on our margins while these projects are in flight. We expect to see the financial benefit of these begin to materialize in the third quarter of this year. Beyond these structural changes, we've also taken a variety of actions aimed to right-size the business in the near term. We are reducing operations by nearly 500 production positions. Similarly, in corporate and administrative functions, we are reducing staff size and eliminating open roles. Additionally, we have reviewed and reduced discretionary expenses across the organization. Lastly, we further reviewed planned investments and are slowing 2025 spending in selected areas. We believe these actions, coupled with our incremental continuous improvement savings of $50 million expected in 2025, should allow us to preserve margins and near-term financial performance. while we continue to invest for the future. Now let me provide a brief update on how our strategic initiatives are progressing and why we believe continuity of investment is so important. Our three strategic initiatives designed to position the company for outsized future growth are Align to Grow, Lead Through Lean, and Tech Enabled. Despite the choppy environment, our associates have done an exceptional job of continuing to make progress across each area. We further benefited from our previous Align to Grow work this quarter as our builder direct business outperformed the market, continuing to grow despite the market contracting. As I mentioned in prior calls, our Align to Grow initiative and our broad product portfolio enable us to focus on the right parts of the market and the right customers with the right product solutions at optimal service levels. We are now expanding the Align to Grow efforts to focus on other channel customer needs, We believe our offering of on-trend products has never been greater, and with innovations around new materials designed to improve performance and aesthetics and labor-saving solutions for installers, we believe Masterbrand has further positioned itself to address customers' needs and to gain share across all channels in the future. Progress in our Align to Grow initiative wouldn't be possible without our 13,000-plus associates. Their dedication and skill are vital to our efforts, which is why investing in our Lead Through Lean initiative is so important. You might recall that at this time last year, I discussed our newly introduced True Leader program. This training is designed to ensure that frontline supervisors are skilled in leading others and coaching them for success. Since the introduction, 97% of frontline supervisors have completed all four modules of the program. We believe that better equipping our associates to lead teams, develop solutions to fluid challenges, and then subsequently execute on those plans should allow us to outperform the market in any condition. Lastly is our tech-enabled initiative. Given the continued successes we saw from this initiative in 2024, we initially planned to invest an incremental $15 million in 2025. However, given the current economic environment, we've reduced this goal by about 20%. Through this incremental investment, we plan to get closer to consumers than ever before with the hope of easing the buying process, unlocking pent-up demand, and making their dream kitchens a reality. Our goal in building a closer relationship with the end consumer is to provide actionable insights directly into our channel partners and stimulate demand. As the largest manufacturer of residential cabinets in North America, we believe our scale and breadth of product uniquely positions us to take advantage of this digital opportunity. We believe this initiative will further differentiate MasterBrand against our competitors and allow us to outperform the underlying market. Though we have lowered spending on these investments in 2025, we expect they will continue to create year-over-year headwinds for the organization's near-term financial performance. However, we believe these investments will drive superior financial results in the long term. Now, with that, let me turn the call over to Andy for a deeper look at the first quarter results and our updated full-year 2025 outlook.