Hello, and welcome to the Core & Main Q4 2024 Earnings Call. My name is Alex, and I'll be coordinating the call today [Operator Instructions]. I'll now hand over to Robyn Bradbury, Senior Vice President of Finance and Investor Relations. Please go ahead.

Thank you. Good morning, everyone. This is Robyn Bradbury, Senior Vice President of Finance and Investor Relations for Core & Main. We are excited to have you join us this morning for our fiscal 2024 fourth quarter and full year earnings call. I'm joined today by Steve LeClair, our Chair and Chief Executive Officer; and Mark Witkowski, our Chief Financial Officer. Steve will begin today's call by discussing the executive changes we announced this morning. He will then provide an overview of our business and strategy, followed by an update on our fiscal 2024 accomplishments. Mark will then discuss our financial results and fiscal 2025 outlook, followed by a Q&A session. Our press release, presentation and the statements made during this call may include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures, which we believe are useful in assessing the operating results of our business. A reconciliation of these measures can be found in our earnings press release and in the appendix of our investor presentation. Thank you for your interest in Core & Main. I will now turn the call over to Chair and Chief Executive Officer, Steve LeClair.

Thanks, Robyn. Good morning, everyone. Thank you for joining us today for our fiscal 2024 fourth quarter and full year earnings call. I'll begin by discussing the executive leadership changes we announced this morning. After much thoughtful consideration and planning, I've decided that now is the right time for a smooth transition of leadership at Core & Main. At the end of the month, I will transition to the role of Executive Chair where I'll continue to lead the Board and serve as an adviser to the business to ensure a smooth transition. I'm pleased to share that Mark Witkowski, our CFO, will succeed me as CEO and Robyn Bradbury, our Senior Vice President of Finance and Investor Relations, will become CFO. Mark will also be joining our Board of Directors. Mark and Robyn know our business well and have been instrumental in the development and execution of our successful strategy. I have worked with both of them for over a decade and I have full confidence that they are the right people to lead Core & Main going forward. It has been the privilege of a lifetime to lead this great organization, and I am so proud of what we have accomplished together, including exceptional business performance, outstanding service for our customers and meaningful value creation for our shareholders. With this strong foundation in place now is the right time to transition the leadership of the company to Mark, Robyn and the rest of our talented executive team. I am confident in their ability to execute against our strategic priorities and take our organization to the next level. Now turning to our results. We were pleased to finish the year with strong momentum as we achieved 18% sales growth and solid gross margins in the fourth quarter. Our results…

Thank you, Steve. And thank you to everyone for being with us today. Steve, we have been so fortunate to have benefited from your tremendous leadership for over a decade at Core & Main. I know that I speak for the entire Core & Main family in thanking you for your dedication and commitment to excellence. You've been the architect behind much of our success to date and I'm honored to have been able to work side-by-side with you and now be selected to lead Core & Main in the next chapter alongside Robyn and the rest of our executive team. Having worked closely with Robyn for over a decade now, I know she is ideally suited to serve as our Chief Financial Officer. Robyn and I played an integral role in shaping Core & Main's current strategy, which will remain unchanged during this transition. Our focus remains on driving profitable growth, both organically and through acquisitions while generating strong cash flow and delivering value to shareholders. We will continue to provide the high level of service our customers expect from Core & Main while building on the strength of our supplier relationships that are essential in achieving our growth objectives. This is an incredible business with the best talent in the industry and I look forward to collaborating with our associates to build on the strong culture we have established. With that, I'll now turn to our financial performance. Fiscal 2024 was another record sales year for Core & Main. Since our separation seven years ago, we have grown net sales at an average annual rate of approximately 15% while significantly improving profitability. These results have been driven by our team's focus on operational excellence and delivering exceptional value to our customers. Starting with our fourth quarter results, we…

[Operator Instructions] Our first question for today comes from David Manthey of Baird.

First question this morning, probably not unsurprising, on pricing. Could you tell us what percentage of COGS is PVC today and what expectations are baked into the guidance you provided? And then if maybe you could comment on price expectations in any other category, whether it's commodity products or engineered products like valves, meters, fire protection, et cetera.

On pricing, I would tell you that municipal PVC pipe that's less than 15% of our COGS. We've seen over the course of this past year some of that come off at high levels that we saw in '22 and '23. So that's played into some of the slight headwind that we saw in 2024. I would tell you, as we go forward, as we're thinking about the price environment right now, we believe it's going to be an overall neutral environment. We're not going to necessarily guide to specific product categories but you can assume baked into that, that we expect to see some of the price increases that we've seen recently from suppliers stick in the market and we could have some other categories like we've seen pressure in steel piping throughout 2024 continue to be a headwind for us at the beginning of the year. But overall, we've been pleased with the resilience of municipal PVC pipe, which is another reason why we think overall that price environment is going to be neutral into 2025.

Second, is there any way you could provide some insight into first quarter trends so far? I mean there's been a little bit of weather early in the year, and any other factors that are influencing the current environment? It doesn't sound like you're expecting conditions to improve too much through 2025 in your outlook. I just wanted to reconfirm that. And then relative to that also, unannounced acquisitions, there's nothing in guidance for deals you haven't done yet, correct?

Yes, that's correct, Dave. Nothing in the guidance for deals that aren't announced. But we do have about 2 points of carryover from the acquisitions that we did complete in 2024. As it relates to the start of 2025, I'd say we're very pleased with how things have gotten off here early in the year. I'd say we're kind of right in line with expectations. There was a little bit of weather in January as kind of we finished up the fourth quarter that we experienced there but it wasn't necessarily unexpected given the time of year. So good to see some of the momentum. Our bidding activity is strong, backlog is looking good and really pleased with how things are starting off in the first part of this year.

Our next question comes from Matthew Bouley of Barclays.

[Indiscernible] on for Matt today. So first off, I just want to talk about the end market outlook. I'd assume resi flat, non-res flat, muni low single digit. I'm wondering between resi and non-res where you guys see more upside to taking into account some of the choppier market trends today?

You're right on the end markets. The way we're thinking about them right now just given a lot of the uncertainty that we've been seeing and hearing about in the market, some of the commentary from the homebuilders has been a little mixed. So we're going into 2025 kind of assuming we see continued steady construction on the private side, both resi and nonresidential. We have seen though, I would say, mortgage rates start to creep down a little bit. If we start to see a little bit more relief there, I think on the mortgage side, you'll see a good release of a lot of the pent-up demand that we experience on the lot development side. There's been -- we exited '25 with a little momentum there but we're definitely going to be cautious on that as we get out into the early part of '25 until we see some of those rates start to tick down. Nonresidential, I would say we've got a lot of still good stability in that end market for us with a lot of the road, bridge work continues to be solid. There's a lot of good mega projects that we're involved with that are going strong and expect that momentum to continue and help kind of buffer any softness on more of the commercial side, which tends to follow the residential release after 12 or 18 months or so. So there's upside, I'd say, on both. If we see some of the residential release, you'll start to see the commercial side of that nonresidential tick up as well. And then from a municipal standpoint, it's been really strong. Exited the year in '24 with really good activity. We continue to make really strong investments in that part of the business and expect that to be very steady and resilient all throughout 2025.

And then on your expectation for gross margin expansion through fiscal '25, I'm wondering on the key levers driving this growth, you have private label, sourcing, pricing, if you guys can just bucket that in terms of what's driving it the most. And then should we assume the cadence is similar to historic or if there's any differences to consider on that margin expansion through the year?

From a gross margin expansion standpoint, I would say private label continues to be one of our best levers for expansion there. We made a lot of really good progress on that in 2024. We increased our penetration of private label from 2% to 4% of revenue and really pleased with the continued investments we've made there and the margin that that's producing. Sourcing optimization I'd probably categorize as second, really good progress in 2024 as we build scale, especially with some of the acquisitions that we did. And then still pretty early innings on price optimization but we got some really good results in 2024 that really helped to offset some of the gross margin normalization that we expected and we were able to outperform that.

Our next question comes from Joe Ritchie of Goldman Sachs.

Just my first question, I guess, would be just on margins and thinking through this guidance of zero to up 30 relative to the long term expectations and what you had previously stated at Investor Day, I think you guys had historically been planning for 30 to 50 basis points. Just wondering like whether anything has kind of changed on the margin regarding your ability to expand margins in this environment?

So I would tell you, nothing has really changed in terms of our expectations and the ability to expand margins through these cycles. I would say, obviously, the ability to get some additional productivity out of SG&A in a relatively soft end market is probably the bigger component that's going into our 2025 guide. As we get closer to the kind of the mid single digit expectations on revenue, allows us to be much more productive an SG&A standpoint. And we continue to make investments to grow revenue and be more productive but we'll start seeing those pay off as we get into a little bit better market environment.

And then I guess maybe just sticking with the SG&A piece, thanks for laying out how much SG&A was actually up. I think you said 1% year-over-year when you excluded the impact from the 53rd week and acquisitions. I guess just in terms of the acquisitions and your ability to get after some of that SG&A, can you just maybe just give us some -- contextualize like what the opportunity is here in 2025 from the recently announced M&A?

Joe, as I mentioned, yes, when you exclude the 53rd week and the acquisitions, SG&A was up only about 1% for the full year and that really reflects a lot of continued investments that we've made in the business. In addition, there's been a lot of inflation flowing through a lot of the cost categories and then we were able to offset a lot of those costs with some other cost-out actions. I would say on the M&A side, we're typically going to work to scale those businesses as we integrate them. The integration of those businesses from a cost standpoint can take a little bit longer and generally 12 to 18 months to really start driving more of the revenue synergy to scale those. And if it turns out that we need to take some cost out actions to rightsize some of that we'll certainly do that as part of the integration process. But I do expect that to be some potential upside as we go into 2025 to get some additional productivity.

Our next question comes from Nigel Coe of Wolfe Research.

Steve, maybe we could start with you. I think you've been very involved in the M&A process for Core & Main. Just wondering how that cultivation process changes as you sort of move on to the next steps.

Obviously, we've had a really successful M&A year this last year in '24. It was kind of lumpy, honestly. We had a lot of deals that just came to fruition. Some of that is just typical of the way deals flow and when sellers are ready to go. So we continue to see a really strong pipeline of deals that are out there. As I transitioned into this role, one of the things I've offered to help with Mark is any type of relationships that we have from an M&A standpoint. I'll continue to be here as an Executive Chair and continue to support that, continue to work with them along those lines as he wants engagement for me on those. And I'll continue to help in that facility.

And then just want to dig into the large project pipeline. I think your large competitor talked about acceleration, especially in some of the larger projects. So just wondering what you're seeing in both non-res but also in municipal in terms of larger projects, especially with some of this IIJA funding that's going to come through? And I'm wondering, on the larger projects, does the margin profile change at all versus MRO?

What we've seen and I'll talk a little bit about some of the larger municipal projects out there, we're starting to see a lot of -- some of the slow down coming through from the IIJA funds, about half of them allocated into the states and we're seeing about 10% of those now being allocated into specific projects. Those tend to be bigger, long term projects. They tend to be water and wastewater treatment projects. Those fit right into our strike zone and the ability to leverage not only our local presence but our national scale on that. The bidding activity when we get involved with these, particularly when we get involved right up front in the design build applications, we tend to have a lot of a lot of opportunity there to help set some of the specifications, help coordinate some of the activity. And margins can be real positive for us in those and can have a long tail of additional work that leans on the tails of those projects as well too when we get into some of the line work with those municipalities as well. So we're really encouraged by that and we're seeing some good traction in some of the large mega projects, a lot of the data center projects out there, particularly with the land development that's happening that involves a lot of storm drainage material, a lot of water, wastewater material as well too. And so really well positioned for those as well.

Our next question comes from Patrick Baumann of JPMorgan.

I guess I just wanted to drill down a little bit with Steve. Maybe if you could give any additional color on what made the timing right for this change? Obviously, I don't want to intrude too much but curious if you can give any other color.

So I've been with the business 20 years and leading it for the last decade and, obviously, I have a real passion for the business and the industry. And as I've gone through all the changes that we've gone through here, I'm just really proud of what the business has accomplished during that time frame. And I look at all of the accomplishments we've had, the thing I'm really most proud of is really the talent that we've developed here. We've got a special culture. I want to see that culture nurtured. I want to see it continue to evolve. And when I look at where we're positioned right now with the runway ahead of us, and I look at Mark and Robyn and our entire leadership team that we've had, just a real passion for the business and it's the right time to make a transition for me and it's the right time for this business. And I wanted somebody that was really going to have the same level of passion for the industry, the passion for the associates and really the drive to take it to that next level. And I see that clearly with Mark, with Robyn and our executive team. You've seen some of the changes that we made even last year going in to position our business for long term success with some of the additions that we made into our executive leadership team. And this is all part of a real planned, successful succession plan and real proud to be able to do that at this time.

A couple of other quick ones, one on commodity product pricing outside of PVC. Are you seeing any suppliers reacting to recent moves in underlying commodities for those products? Maybe any color on that. And then separately on the SG&A side, any color -- I mean, I guess I could try to do the math but the SG&A growth for '25, how are you thinking about that relative to the 2% to 5% sales growth you're guiding?

First, on the commodity product side, I would say for us that's primarily the steel pipe used in the fire protection product line portion of the business and then copper pipe that we distribute into some -- goes into some of the service lines that we that we sell to. I would say on both of those categories, we're seeing more positive announcements. We've seen some good, positive movement more recently in those categories. So viewing those as some potential upside for us. And like you said, on the non-commodity side we continue to see some price increases come through as well here early into 2025. So I would say on really all those fronts, it's been mostly positive in terms of the recent movements.

What about ductile iron pipe…

Ductile iron pipe, so that's municipal that we sell. Similar to municipal PVC pipe, I would say on ductile iron pipe, we've seen good increases throughout 2024 and we expect that to be a very resilient product category moving forward. You asked too on the SG&A -- I'll answer Pat's question on SG&A for 2025. As we think about the 15 basis points of EBITDA margin expansion kind of at the midpoint, I'd say most of that we expect to come from the gross margin investments and initiatives that we have and guiding to a relatively, I'd say, flat SG&A for 2025.

Our next question comes from Mike Dahl of RBC.

[Technical Difficulty] Chris on for Mike. Just going back to the pricing outlook for this year, what's specifically being assumed for noncommodity price inflation? And when you're thinking about tariffs, the conversations you're having with suppliers, is there any sense, is there any quantification you can provide on potential magnitude of tariff price increases we could see this year and timing of that implementation?

Yes, I would tell you for noncommodity and the commodity buckets that we sell, overall, we're expecting neutral. I mean that's what we're going to provide in terms of the outlook. Overall, you can assume there's going to be puts and takes into some of those categories as we go forward. I'd say from a tariff standpoint, we've been closely monitoring that. We're in regular discussions with all of our suppliers about how they are being impacted. But overall, I would say the import product in the sector is still relatively small. I'd say it's less than kind of 15% of the product category. So while there can be some impact related to related to tariffs where there are some import alternatives, we generally expect the overall impact there to be neutral to maybe slightly positive as we work through a lot of those dynamics. But as you know, that's evolving daily. And all we're focused on right now is close collaboration with our suppliers and then early communication with our customers to make sure they're as clear as can be and that we're being as transparent as we can on the potential impacts as we see them come in.

Is there any change in the competitive dynamics you're seeing in your markets? How would you characterize any changes you've seen year-to-date with the broader macro uncertainty?

Really no changes that we've seen going into '25. I mean everything that we've seen, we continue to gain share through this. There's still a ton of opportunity out there for us in so many different markets. So really nothing that's disrupted or changed the competitive environment.

Our next question comes from Brian Biros of Thompson Research Group.

I guess further on the end market, kind of your market outperformance and share gain expectations for this year. Does that differ by end market at all? Maybe it's easier to take share in a slower market for resi or easier in a good market like municipal. I guess just wondering if there's any divergence there or difference that have been historical trends given the outlook where we are today?

I would tell you in terms of the outperformance, we do expect -- we outperformed the market by a couple of hundred basis points in 2024. I'd say it's generally similar across those end markets that we participate in. If I was going to weigh it a little bit, I'd say we probably took a little bit more share on the municipal side just given the strength of our smart meter performance and some of the success that we've had there. And then additionally, we saw some really good strength and growth by servicing treatment plants much better in 2024. So I'd probably weigh it a little bit more on the municipal side. But overall, really good above market performance across each of those end markets.

And then maybe on the municipal side or I guess really across the entire business, are you seeing any differences from the new administration on the ease of getting permitting or maybe just new projects going? I know rates aren't really helping on the financial part of the equation, but we have heard some things are getting easier or quicker out there when it comes to regulation type things, I guess. So just curious if you've seen any of that across your business.

Brian, we're hearing the potential for that, particularly easing of some of the regulatory requirements for permitting. But I can't tell you I've got some real specific examples where that's happening just yet. So it's probably a little early to tell. But it does seem encouraging that we could see some acceleration of that in terms of the regulatory ease of getting some of the -- particularly the nonresidential construction up and running.

Thank you. I'll now hand it back to Mark Witkowski for any further remarks.

Thank you again for joining us today. We are pleased to achieve another record sales year for Core & Main, marking our 15th consecutive year of growth. The long term underlying trends of our end markets are strong and our products and services play a critical role in advancing reliable infrastructure. We expect to continue outperforming our end markets even as the broader economic environment evolves. Our business is well positioned to capitalize on opportunities for growth. And we remain committed to building on our track record of delivering exceptional value to our shareholders. Thank you for your interest in Core & Main. Operator, that concludes our call.

Thank you all for joining today's call. You may now disconnect your lines.