Good morning. My name is Jean Louis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atkore Third Quarter Fiscal Year 2023 Earnings Conference Call. All lines have been placed in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, John Deitzer, Vice President of Treasury and Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. I’m joined today by Bill Waltz, President and CEO, as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David. I would like to remind everyone that during this call, we may make projections or forward-looking Statements regarding future events or financial performance of the Company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings in today’s press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA, and any reference to EPS or adjusted EPS, means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today’s presentation. With that, I’ll turn it over to Bill.

Thanks, John, and good morning, everyone. Before we discuss the quarter, I want to briefly address an incident that occurred at one of our HDPE pipe facilities. On Sunday, there was a fire in the exterior yard of our United Poly Systems facility in Albuquerque, New Mexico, where finished goods are stored. The health and safety of our employees and the local community is always our primary concern. I want to publicly thank the incredible efforts of our local fire officials and our Atkore team on the ground. The fire has been contained and no one was injured. In terms of stakeholder impact at this time, we do not expect this incident to impact our 2023 financial outlook. With seven HDPE facilities nationwide, we are confident in our ability to meet the majority of our customer orders and redirect production as needed. Now, starting on Slide 3 and our results for the third quarter. We delivered better than expected earnings performance in Q3. Volume in the quarter was up 2%, which is in line with our expectation for mid-single digit volume growth for the full year, as we anticipate volumes will ramp up higher in Q4. Our quarterly results compare to the all-time record highs of the last year and reflect the pricing normalization we planned for and have seen in 2023. Year-to-date cashflow remains very strong, enabling us to execute our capital employment strategy. During the third quarter, we repurchased $147 million in shares, bringing our year-to-date total share repurchases to $416 million. In June, we determined that we needed to change our accounting treatment of solar credits related to the Inflation Reduction Act, and David will cover details of the impact. We are encouraged by the performance in the first three quarters of fiscal year and have increased our full year outlook for adjusted EPS. The results released today reflect not only the strength and stability of our underlying business model, but the determination of our team to execute and deliver on our strategic growth initiatives. When I take a step back and compare our results from this quarter versus those of several years ago, we have structurally improved this business and we are demonstrating the sustainability of our earnings into the future. With that, I'll turn the call over to David.

Thank you, Bill, and good morning, everyone. Turning to Slide 4, I want to address the change in accounting treatment of solar credits related to the Inflation Reduction Act that Bill mentioned. Previously, we had assumed we could use the government grant accounting model, or GGAM, regarding the transferability for a majority of the solar credits to our customers. However, in June, we determined that due to our September 30th year-end for fiscal year 2023, we can no longer recognize these credits as a reduction of cost of sales. Instead, we'll recognize them as a benefit to our income tax provision. For FY’24 and beyond, we will be using the government grant accounting model to record the benefits from these credits as a reduction of cost of sales. Under the GGAM method, we would have reported net sales and adjusted EBITDA in Q3 of $924 million and $291 million, respectively. In addition, our tax rate would have been 24%, and our adjusted diluted EPS would have been $5.22. Regardless of the accounting framework, Q3 was a strong quarter that surpassed our expectations. Moving to our consolidated results on Slide 5. In the third quarter, net sales were $919 million, and adjusted EBITDA was $270 million. We were pleased with our margin performance in the quarter, with adjusted EBITDA margins of 29%. While this is down year-over-year versus previous record highs, it still reflects the strength and resiliency of our business model. As I mentioned on the previous slide, the change in our accounting treatment for the solar credits associated with the IRA have a tax benefit in the third quarter that lowered our effective tax rate to less than 9% since we recognized three quarters of the expected benefits in Q3. This lower tax rate helped contribute $0.50 to our…

Thanks David. We are pleased with how we've progressed through the year, and we're excited for what lies ahead as we prepare to close out fiscal 2023 and look towards the future. Moving to our outlook on Slide 9, the sales of our solar products and associated tax credits that we discussed earlier has caused some variation in our current year projections. Therefore, the midpoint of our current outlook for adjusted EBITDA in Q4 is $220 million. Without this change in accounting, we would've been in a position to slightly increase our projections for the full year adjusted EBITDA versus the outlook provided back in May. Turning to Slide 10, we've illustrated these changes by comparing against the outlook for both adjusted EBITDA and adjusted EPSs under the previous methodology. Taking a step back, despite this variation between quarters and expectations, we are still raising adjusted EPS for the year. I'm incredibly proud of the team, strategy, and processes we have in place. With the strength of our balance sheet, growth trajectory, and leadership position in the market, I'm excited as we look into the future and remain focused on achieving our long-term goals. With that, we'll turn it over to the operator to open the line for questions.

[Operator Instructions] Your first question comes from the line of Chris Dankert of Loop Capital Markets. Your line is open.

Hey, morning, guys. So, I guess first off, and forgive me if I'm a little slow on the accounting, but can you just walk me through, it seems like the GGAM is a benefit into the fourth quarter, but it was a hindrance in the third quarter in terms of EPS. I think I'm just misunderstanding how that - like why that is if we're using the same accounting in in both 3Q and 3Q. Can you just kind of like frame that up for me again?

Sure. I'll take this one Chris. So, basically when we switched the models, we had to make a year-to-date adjustment. So, therefore, we have three quarters worth of adjustment in Q3, and that's why you see the impact different in the actual Q3 numbers than the Q4 numbers. I think a couple of just quick points on this, because I'm sure that everyone's got some questions. Basically, the reason why we changed this was because of our fiscal year. If you read the bill and you realize that our fiscal year obviously ends in September, the credits that are generated from the IRA during this period of time for us are not transferable. They will be transferable in the future. They would have been a transferable if we would had a calendar year-end. We just have this unusual period of time here in our FY ‘23 due to our fiscal year where they're not. So, therefore, we had to go back and change the accounting, and you'll see a negative impact overall for the full year to EBITDA, a slight improvement to adjusted EPS. I think going forward into next year when we switch back to the other model because they will be transferable, I think it'll make a lot more sense because we'll have a slight benefit in adjusted EBITDA and almost no impact in our effective tax rate.

That's extremely helpful. Thank you so much for the quick breakdown. And just as a follow-up here, can you comment maybe on what you're seeing in the channel in terms of inventory and stocking levels? I mean, I think you were mentioning in the past things were looking pretty healthy to even lean in some cases. Is that still the case out there?

Yes, Chris, Bill here. Yes, I would say it's healthy to - healthy. It's lean. In other words, I don't expect anyone to buy ahead. So, that should be a good thing, even really as we get into the spring of next fiscal year because at this stage, us and quite frankly our competitors are shipping basically on time for our type of product line. So, therefore, there's no need in the channel, but any type of inventory adjustments I think are behind us. So, we're shipping well, and as we mentioned during the call, we expect mid-single digits for the full year and that means a really healthy volume in Q4 coming up here.

Thank you. Your next question comes from the line of Deane Dray of RBC. The line is open.

Thank you. Good morning, everyone. Hey, I really appreciate all the bridges that you've provided to kind of keep it on an apples-to-apples basis, especially page nine, kind of giving us what the midpoint would've been for 4Q and for the year. So, appreciate that. Just in the spirit of transparency, can you - and I know you're not ready to give ‘24 guidance, but any color on COGS into ‘24 because of the GGAM model? It would be helpful for us to start having a framework for that accounting change for next year as well.

Yes, so basically what I would suggest is, if you look at our year-to-date through the first two quarters, we had a little bit of solar tax impact into COGS. So, going into next year, it will be slightly favorable to that because we will have one slight more credit because we have the new plant online, so on so forth. And then we'll be switching back to the GTM model, which will be a little bit more consistent with what it would've been if you would add Q1 and Q2 together. I mean, probably offsetting some of that will be some pricing and all these sort of things that we'll give more clarity on in November.

Yes, and then Deane, I know not - I’ll defer financial questions, but throughout all of this, at the end of the day we're raising EPS for the year, and we're still comfortable with 2025 and the $18 plus EPS. So, we are running ahead throughout this changing in accounting methods through a fire that's already been contained, and we're going to be up in that facility we anticipate in a couple of days. So, the Atkore business system and leadership are moving straight ahead no matter what.

All right, appreciate all that. So, then we can set aside the accounting noise and talk about some of the fundamentals in the quarter, if we could. I'm really interested in hearing more specifics around pricing normalization, because that's probably been the biggest area of inbound calls that we get. So, Bill, just frame for us end market demand in the quarter, any changes on the competition side, including geographic, and how this - any input costs and how those factored into pricing, which ended up being better than what we thought it would - what we had estimated. Thanks.

Yes, so Deane, I think to your last part of your question statement, it was better than we anticipated. We're still going to face some headwinds as we go forward, but it's better than anticipated. I think David covered in the prepared remarks, if you pull out PVC, even in this quarter, we were up 7%. So, I want to emphasize, compliment David, the management team here. We predicted exactly how this is going to play out for the last year or two. We're on track still probably some price normalization with products like PVC over the next year, but well within everything we've anticipated, A, we're doing better than we anticipated. You see that - again, I'm talking before all this accounting stuff. I'm talking directional here, so anybody correct if I'm off. But where we guided 250 and we delivered 290 before the accounting changes. So, we had a really strong quarter, up 7% when you pull out the PVC. Pricing is doing better anticipated. And even with all those things, we're going to have a really strong Q4 volume. Now, that I think is more attributable to us. The markets are good, but it is everything from the solar mill coming up in the quarter to other initiatives playing out. So, we are definitely doing our self-help in addition to reasonable markets. So, I'm excited as I have ever been, Deane, for the future.

Thank you. Your next question comes from the line of Andy Kaplowitz of Citigroup. Your line is open.

Hey, good morning, everyone. Bill, so you mentioned you haven't seen destocking but other, let's call it loose peers, have. So, maybe if you could remind us sort of what's differentiating you in the marketplace and how would you characterize res versus non-res volumes? And then I do think you modestly lowered your outlook for ‘23 sales to eight to 10 down from five to 10. What is that? I know there's a small impact from GGAM in there.

Yes, so great question, Andy. With regards to others, you have to then part - like look at their volume in regards to their products. In other words, Andy, we, if you went back a year ago or something, or nine months ago, I forgot precise time, would've talked about destocking, but I think again, that's behind us and our product lines. So, we're good there. Residential is weaker than the other markets. The infrastructure and so forth is obviously going really well. Manufacturing's going well and I think the best is yet to come as we go forward. So, again, all within what we expected or anticipated with our own self-help there. And then regards to revenue, I'll kind of turn over to David, but if you separate …

Yes, Andy, if you look at the volume, it's in line with exactly what we've been saying. It's just if you see a little topline difference, that's going to be just the commodity impact of what we had expected versus kind of where it's ending up. So, to me, focusing on that volume number is really important and it's right in line what we've been predicting.

And that's helpful, guys. And maybe to that end, could you give us a little more color into electrical adjusted EBITDA margin performance? You talked about it a little bit, guys, but your margin slash sequentially just hasn't degraded really at all in the last couple of quarters despite increasing pricing pressure. So, is it simply costs are dropping just as fast for Atkore, and how much is increased productivity helping so that maybe you sustain margins here well into the 30s moving forward?

Yes, I think Andy, maybe we're conservative there, but everything you said is yes, we are driving productivity in different ways. Obviously, we're having inflation in our facilities with the operators and so forth, but the team's doing good there. Commodity costs have dropped and not as much as pricing. So, that's doing well. I think the mid-30s is probably too high as you go into next year, but we really haven't set guidance yet. But I would say is through all that to earlier statements, I think I made when Deane was asking a question, it's going to be a good year here. We just raised our guidance for the year and we're still comfortable with the 2025 outlook, and we really do look forward to November talking about, but I'm not going to foreshadow next fiscal year at this moment. So, hopefully your follow-up Andy, but we're in a good spot.

Yes, no, helpful, Bill. And then one more for me, just color and safety and infrastructure volume moving forward. Volume was still good. Volume growth is still good. Maybe decelerated a little bit. And I thought your solar capacity is starting to ramp in Q3. So, what do you see moving forward in that segment?

Yes, that will be a stronger of the two divisions because of the self-help. We have other things happening in the electrical division from a growth perspective that just will probably hit more in fiscal year ‘24. But the solar mill literally just started making shipments here like in the last month. And as you could expect, there's both a ramp up from one shift to two shifts to three shifts and things like that. But that will help drive when hopefully you guys get a sense that I and the management team are bullish on volume in Q4. Some of that will be our self-help, including solar.

Very helpful, guys.

Thank you. Your next question comes from the line of Chris Moore of CJS Securities. Your line is open.

Hey, good morning, guys. Thanks for taking a couple of questions. Just, we're hearing from some people that 5G CapEx spending slowing a little bit at carriers. I'm just curious if you're seeing that and maybe how would you characterize the advancements in HDPE over the last 12 to 18 months? Any kind of negatives or positive surprises there?

Yes, very optimistic for the future. Right now, a little bit slower. How much - what I feel one of the big things is, we have, and I go back - every number you - at least I hear seems to be different, but directionally, part of the Inflation Reduction Act was $65 billion. So, if someone sees 62 versus 65 with what's called the bead, broadband access and so forth. Unlike other infrastructure where the government and the States already have a way to allocate that money, this is the first time that the US government has had to deal with allocating out funds in regards to how do you do fiber optic to the home. So, that money hitting the States is a little bit delayed than what they expect, the infamous trouble ready we've all experienced over the last decade. The good news to that in my mind, Chris, is again, I keep going back and saying, we just raised guidance, and to your point, HDPE isn't as strong as we anticipated at this stage, but it's still coming. So, it's just a question of halfway through next fiscal year, you add what we performed this year, you add that on top of it, and that starts to get where the management team's confident in where we look out to fiscal year ‘25. So, again, we're cranking full cylinders. We're investing, great cash flow, and you are right, short-term HDPE, we would expect of the year ago to be slightly stronger.

Got it. Very helpful. And my next one, I know we're not giving guidance here, we'll do that in November. I was - maybe just big picture, you look at calendar ‘24 versus ‘23, are there things that might concern you a little more in ‘24 or things that actually might be better in ‘24 versus ‘23?

I think I'm slightly more optimistic for ‘24 for two reasons. One reason is a lot of the markets like residential are supposed to at least coordinated Dodge bounce back. I'm looking at Dodge forecast that had the markets down 10% for this year and start getting single 6%, I mean the level of false precision here, and up to like 10% in ‘25. So, we get those markets starting to come back as interest rates drop, those type of things. Now, you can debate those. And then the biggest thing for Atkore, I keep going back to is our own, I'll use the word self-help, but we have deployed, if you go back over the last two years, a lot of capital into growth initiatives, our one order, one delivery, one invoice. We have a lot of key customers that love that service model. So, as we go forward, both from our ability to charge a higher premium for that service, our delivery, other initiatives like solar and more things to come, we're optimistic for everything we're doing here, and I think that's what gives us confidence for the future.

Very helpful. I will leave it there. Thanks, guys.

Thank you. We have another follow-up question from the line of Deane Dray of RBC. The line is open.

Great, thank you. A question for David, just to kind of take us through cash flow for the quarter, some of the dynamics. I know CapEx is higher. Is there anything else in working capital you'd want to call out? It was seasonally lower conversion than what we typically see, but the CapEx can certainly swing that.

Yes, I would say that the CapEx swung it, and I would also say that we had some buildup of inventory, as you can imagine, Deane, going into the startup of our new solar plant. So, we had several weeks of inventory ahead of that startup, and you really haven't seen the increase in volume yet. So, that was probably the two things I would point to Q3.

Got it. And then for Bill, some commentary if you could about July, as well as what are the indicators on kind of tracking to mid-single digit volume growth? And if you could highlight what verticals are driving that. Thanks.

Yes, so without getting too specific into this quarter, average Deane, good quarter or good month without any more specific, but enough as we're sitting here on August, whatever the date is, that kind of our unprepared remarks are that we're still very comfortable with the overall Atkore mid-single digit. And if you did the weighted math on that through three quarters, that means a pretty strong Q4 here. So, to earlier questions, I think inventory's been worked through in the quarters before us, and distributors and contractors are buying as needed. So, good there. And then the verticals that are really strong, I think I mentioned earlier, but anything regarding infrastructure. So, therefore, even manufacturing companies, and again, we don't have - I'll be very transparent as always with everybody, we sell to distributors that sell to manufacturers. So, we have a good feel, but some of it I just rely like you would on Dodge and looking going - manufacturing's up 12%, at least according to Dodge here in this calendar year. So, things like that. Institutional spend still from the stimulus monies are strong. And obviously, things around utilities and so forth are really strong. And then there's a lot of things I think we'll talk about more in the future as we work with what we call kind of global mega projects, but just imagine chip manufacturers and things like that across the globe. We have a really good relationship with some of those customers.

Deane, the other thing I would add is, in this market right now, it does seem like week to week there's more variability than typical. So, it just - I don't know why that is. It just - I don't know if it's the labor constraint or the supply chain issues and other pieces of the electrical market, but July was, as Bill mentioned, good, and we expect a strong Q4.

Got it. Just last one for me on capital allocation, like seeing the buybacks, you still have plenty of authorization left. Where and how might M&A fit into the equation over the next couple of quarters? And what’s that pipeline?

Yes, the pipeline's good. If I was to rank, there's not - we have a great capital allocation, had a great board discussion on that here just last week. It's a mixture of four or five things, Deane. So, obviously, internal investment where we're still looking at $200 million, give or take on CapEx for new organic growth and productivity. We have a pipeline that's very active. I will say we have deals that are - I won't get too specific here, but numerous deals under confidentiality agreements. We have an active group mining other things here that are all strategic without in any way having any type of deal fever, because again, our performances we've shown last November, it's been phenomenal in deals. And then we'll continue to do, as you mentioned, stock buyback, and we will get into a much more in-depth conversation in November around capital allocation.

Great. Thank you.

This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.

As we conclude, let me summarize my key takeaways from today's discussion. First, we still expect mid-single digit volume growth for the full year as we are expecting a ramp up in volume in Q4. Second, we are increasing our expectations for full-year adjusted EPSs. Third, we're pleased with the strength of our cash flow and balance sheet, which are enabling us to continue to invest in our business. Our solid financial position and capital deployment plan are the foundation of our future growth and remain confident in our long-term outlook. Before we end the call, there is one final item that I'd like to share. Last month, I celebrated my 10-year anniversary with the company, and David will be celebrating his five-year anniversary with Atkore next week. As a management team, we are truly humbled by the hard work and dedication of all of our employees, and are in awe of their accomplishments. It's because of their commitment to our values that we believe the best is yet to come for Atkore. With that, thank you for your support and interest in Atkore, and we look forward to speaking with you during our next quarterly call. This concludes the call for today.

This concludes today's conference call. You may now all disconnect.