Good day, and welcome to the American Woodmark Corporation Fourth Fiscal Quarter 2024 Conference Call. Today's call is being recorded, May 23, 2024. During this call, the company may discuss certain non-GAAP financial measures included in our earnings release such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage and adjusted EPS per diluted share. The earnings release, which can be found on our website, americanwoodmark.com, includes definitions of each of these non-GAAP financial measures, the company's rationale for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. We also use our website to publish other information that may be important to investors such as investor presentations. We will begin the call by reading the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders. The company does not undertake to publicly update or revise any forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. I would now like to turn the call over to Paul Joachimczyk, Senior Vice President and CFO. Please go ahead, sir.

Good afternoon, and welcome to American Woodmark's Fourth Fiscal Quarter Conference Call. Thank you for taking the time today to participate. Joining me is Scott Culbreth, President and CEO. Scott will begin with a review of the quarter, and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions. Scott?

Thank you, Paul, and thanks to everyone for joining us today for our fourth fiscal quarter earnings call. Our teams delivered net sales of $453.3 million, representing a decline of 5.8% versus the prior year. This was better than the range provided during last quarter's call. Within new construction, our net sales declined 1.5% versus prior year. We continue to see improving demand with our customers, consistent with year-over-year growth in single-family housing starts. We remain strategically aligned with 19 of the top 20 national builders, key regional builders with our best-in-class direct service model, we plan to continue to grow our share with new and existing customers and benefit from the share gains our partners are realizing in the marketplace. We see momentum in all markets as builders' confidence is increasing and their strategy to buy down rates is driving demand. Looking at remodel, which includes our home center and independent dealer and distributor businesses, revenue declined 8.6% versus the prior year. Within this, our home center business was down 10% versus the prior year. Demand trends remain under pressure due to lower in-store traffic rates and consumers choosing smaller-sized projects. With regards to our dealer distributor business, we were down 5% versus the prior year. Our adjusted EBITDA results were $54.7 million or 12.1% for the quarter. Reported EPS was $1.69 and adjusted EPS was $1.70. Operational excellence efforts continue to drive progress across the enterprise, but were offset in the quarter by onetime costs associated with the start-up of our Monterrey and Hamlet facilities. Our cash balance was $87.4 million at the end of the fourth fiscal quarter, and the company has access to an additional $322.9 million under its revolving credit facility. Leverage was at 1.14 times adjusted EBITDA, and the company repurchased 171,000 shares in…

Thank you, Scott. I will first talk about our fourth quarter fiscal results and then transition to our full year performance and finally close out with our outlook for fiscal year '25. Net sales were $453.3 million, representing a decrease of $27.8 million or 5.8% versus prior year. Remodel net sales, which combines home centers and independent dealer and distributors decreased 8.6% for the fourth quarter versus prior year, with both home centers and dealer distributors decreasing 10% and 5%, respectively. New construction net sales decreased 1.5% for the quarter compared to last year. Our gross profit margin for the fourth quarter of fiscal year 2024 decreased 150 basis points to 18.6% of net sales versus 20.1% reported in the same period last year. Gross margin was impacted by the onetime startup costs for our Monterrey and Hamlet locations partially offset by our operational improvements in our manufacturing facilities, combined with the stability in our supply chain. Total operating expenses, excluding any restructuring charges for the fourth quarter of fiscal year 2024 were 10.1% of net sales versus 11.8% for the same period last year. The 170-basis point decrease is due to our deal cost -- amortization costs ending in December 2023, offset by increases in our incentives and profit sharing for all of our employees, combined with our lower sales. Adjusted net income was $26.9 million or $1.70 per diluted share in the fourth quarter of fiscal year 2024 versus $37.1 million or $2.21 per diluted share last year. Adjusted EBITDA for the first quarter of fiscal year 2024 was $54.7 million or 12.1% of net sales versus $65.3 million or 13.6% of net sales reported in the same period last year, representing a 150-basis point decline year-over-year. Our full year performance, net sales were $1.8 billion, representing a…

[Operator Instructions]. Today's first question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Good morning. This is actually Brian Biros on for Steven. Thank you for taking my questions. Maybe to start with on the revenue guidance. Can you just help us with the kind of expected cadence through the fourth quarters going forward, kind of given the comps that are out there and how you see the different channels kind of ramping throughout the year?

So, we don't really want to get into a situation where we're providing quarterly guidance. We stopped doing that several years ago. So, our focus is on the full-year outlook that Paul and I have already previously shared. I would tell you that the second half, we do expect to be stronger than the first half, which I think is pretty consistent with what you've seen from our customer base as well as our peer set.

That's helpful, at least, directionally. And maybe at a higher level, I guess, can you maybe touch on how your outlook has changed over the past few months, even internally kind of just in regards to new construction, R&R activity, kind of given where rates are, how builders are reacting. You mentioned buying down rates and all industry influx and changing almost every day. So, I guess just how you're currently seeing it versus maybe how you're thinking about 3 months ago would help kind of directionally gauge wherever we're going. Thank you.

Sure. To your point, you can't get too caught up in the day-to-day data points and swing to too far in one direction versus the other. We started our budget process back in the January, February timeframe, ultimately try to wrap that up in the April timeframe and take it to our Board of Directors in May for approval. I would tell you that our outlook from a sales perspective and our expectations from a channel view really haven't altered inside that same timeframe. It's held pretty consistently our viewpoint on each. We think we'll see stronger growth in new construction. That's been pretty consistent as a message and the theme. Repair remodel has certainly been softer, and we expect that to perform a little bit better in the back half of the year.

The next question comes from Garik Shmois with Loop Capital. Please go ahead.

Good afternoon. It's actually Zack Pacheco on for Garik. Thanks for taking my question. I guess to start on the full-year guide, you guys are talking a lower EBITDA margin despite low single-digit sales growth. So, I was wondering, could you provide any more color on this decrease in the margin. I know you mentioned the tech and digital initiatives. So, I guess, really how much of these costs impacting fiscal '25.

Sure. We can go into a little bit more depth there. So just taking a step back, looking at fiscal year 2024, what's recognized, we did experience a sales decline of almost $220 million. Yes, we did grow EBITDA in that fiscal year by 5%, almost $253 million. I'll pause there and say I am proud of this team's execution and delivering on that result when it was such a difficult demand environment. As we start to look in '25, we've, of course, said that we expect to grow in each channel. Despite doing that, we don't think there's a significant impact overall on our profitability. Now why would that be? That's due to choices we're actively making to continue to invest in the future of our business. A couple of examples of that. We've certainly added capacity on the East Coast for our stock, bath and kitchen business. And our commercial teams are out there working to gain that share back and utilize the capacity. That, of course, takes time, and we'll have to bear those incremental fixed costs for that capacity until it's utilized. We're also making a choice to implement ERP in our West Coast operations. There's costs clearly that are associated with such a decision. There will be some inefficiencies after go live, we'll have hyper care as well to be able to manage any issues that come our way. We view those costs as investments, right, to get our company on one operating platform. We also chose to invest in engineering resources to help us drive our automation efforts across our facilities, which is going to help reduce the demand for labor in future periods. So those are main contributors. I guess the final thought I would share is the prior question around uncertainty. There's still a lot of uncertainty in the marketplace day-to-day at times. There's also an impending election, which may have an impact on our economy. That election occurs in the middle of our fiscal year as opposed to many other calendar year companies. So, all those variables together led us to the outlook guide around EBITDA.

Awesome. That's great color. I really appreciate it. And then maybe one more on just pricing and promotion. Any change you're seeing here that you can speak on?

Yes. No real change in that space, which has been a positive. So promotional activity and cadence repair remodel was pretty consistent for us year-over-year.

[Operator Instructions]. The next question comes from Collin Verron with Jefferies.

Thank you for taking my questions. I guess just wanted sort you called out that the demand environment is beginning to improve. Can you just provide a little bit more color and perspective on what you saw within the quarter that drives that optimism? Did you see sales trends sort of pick up within the quarter ahead of what you would normally see seasonally? And any comment as to like how those continued into May?

Yes. The bulk of that comment is going to be tied to new construction, Collin, as you look back and think about the starts activity that began to pick up year-on-year even at the end of the calendar year continuing into the first part of this year, recognizing the delay for us as to when the cabinets actually go into the home as opposed to the actual start. We would typically expect to see a strong summer coming out of that spring selling season. So, we've seen that activity pick up. You see it in the starts data as translating to order demand in our new construction business.

That's helpful color. And then I think you talked about some expected wins in the stock category. Have you seen those wins already? Or is that something you're expecting because of your product introductions? Just curious as to what was driving that comment?

Yes, I would go back over the last couple of years coming into the COVID cycle where demand was so high and we were limited in our ability to actually be able to achieve all of the demand in the marketplace, whether it was a function of supplier challenges or labor challenges, et cetera, we wanted to get past that and add some capacity to our networks. So that's what led to the project last year to put that capacity in play. Until we had that, we were not very aggressive in the marketplace on trying to take share. Now that we have the capacity, we're being much more aggressive, and our commercial teams are out there working to gain share in both of those categories for our business.

Great. It's really helpful color. And I guess my last one, there was a transaction in the [indiscernible] that was recently announced. Can you just talk about your gross appetite for M&A? I know you didn't list on your capital allocation priorities. So, I guess, just any commentary on M&A for American Woodmark.

Sure. It's a great question. Our strategic focus over the last few years has been certainly focused around organic growth. And that continues throughout the strategic plan and cycle that we've even got out in our higher deck over the next 5 years. I'll tell you, acquisitions are not a priority. But with that said, we're going to look at assets as they become available. In a particular case, you're mentioning we didn't see a strategic fit primarily around the product line. The dealer channel aspect of that business was interesting, but the price points are well outside the range in which we participate and just not a fit overall.

The next question is from Tim Wojs with Baird. Please go ahead.

Maybe just start, Scott, on the ERP piece. Is that -- once you get that live out West, is everything kind of on one system after that? I guess is this kind of the last piece or there's kind of more conversions that we can do.

That's a fantastic question, Tim. So, I would tell you this is the start from a manufacturing standpoint. If you were to go back a couple of years ago when we first started down this journey, we turned on finance and procurement. So that was the first area that we tackled. Now we're moving into the manufacturing footprint. We had a great opportunity with the opening of our facility in Monterrey to treat that basically as a pilot, so we went live on the solution in Monterrey. It was much lower risk. Our team has been in the planning phase all of this calendar year, it will continue as we go forward, and we'll hit those West Coast operations next. We will then have a sequence beyond that and beyond that to cycle through the remaining operations, and it's a multiyear journey. So, we're at the start as opposed to the end when it comes to that effort.

Okay. I got you. And then I guess from a long-term perspective, like what would the benefits be that you guys don't have today? Is it just the ability to kind of seamlessly push off between plants?

I would actually say that it should be efficiencies in every aspect of our business because of the complexities we have on still having multiple platforms across different businesses post-acquisition. So, allowing us to get all of those systems onto one integrated system, having those be up to date, better reporting, better information should lead to better decision-making. You could translate that into margin. You can translate that into labor efficiency, et cetera. Those are the types of areas we expect to see benefits inclusive of balance sheet. When it comes to forecasting and SIOP and how much inventory we're holding in the network, we would expect some cash flow working capital benefits as well.

Okay. Great. And then I guess, explicitly, it doesn't sound like it's much of an impact. But how are you guys kind of thinking about price and kind of raw material costs in fiscal '25?

Yes. Really no change from our message over the last couple of quarters. Most of our actions in that space were tied to inflation in indices. And if we've seen things move down and it's appropriate and justified, we'll have conversations with accounts around that. But it's got to be in check and in balance with inflation.

Okay. And then, I guess, the last one just, we've heard instances across the space about mix down, especially in bigger ticket categories. I guess just given kind of your price points and kind of position in the marketplace. I guess, first, do you see mix down? And then second, could that technically be a benefit for you guys if that's happening?

So, I'll start with the end conclusion. There should be a benefit because that's rotation down into the value price points in which we participate. So, we've not seen the level of mix degradation that you're highlighting perhaps from other players in building products. Within our business, though, what I would call out specifically, you think about our new construction business overall and what we offer there. We have our Timberlake brand, and then we have an Origins by Timberlake brand as well. We do see builders making choices to move out of Timberlake into Origins. That was part of the acquisition strategy that we put in place over 6 years ago. So, we expected that to come. So, we're seeing some of that. What is the result? Well, the cabinet price per box will be lower but the margin percentage should be acceptable or better. So, we are seeing a little bit of that impact top-line equation for us. And also, the other one I'd mention is even inside our new construction business, there is a good, better, best strategy. Most of that business has always been in the middle and the better. We had a little bit sitting on top in the best category. We've seen that start to move down a little bit as builders are making choice around price points of their offering. So, a little bit in new construction, but we really haven't seen much in repair remodel when it comes to mixed acquisition.

Okay. I'll add as one more. Just on content. I mean, have you seen with smaller homes or smaller jobs -- I mean, have you seen a big impact on like the number of cabinets or the content per job? Or has cabinet -- have cabinets been kind of, I don't know if spare is the right word, but have -- has that kind of been not a big deal for you guys?

Yes, that's not really been a big deal for us. Even though the homes are going smaller, we're still okay with cabinet count. Typically, builders as well as consumers are trying to protect that kitchen space. So, they're still looking for a nice area and plenty of storage. Even if the kitchen was to shrink, what we're also seeing is a lot of consumers are maybe wanting a small house but feature-rich. So now you may have cabinets that are showing up in the laundry room, you may have them in a drop room when you come in off the garage. So, we've still been pretty comfortable with the overall cabinet count per home.

[Operator Instructions]. As I do not see anyone else in line to ask a question, I would like to turn the call back over to Mr. Joachimczyk for closing remarks.

Since there are no additional questions, this concludes our call. Thank you all for taking the time to participate.

The conference has now concluded. Thank you for your participation. You may now disconnect your lines.