Welcome to MasterBrand's First Quarter 2024 earnings conference call. [Operator Instructions] Please note that this conference call is being recorded. I would now like to turn the call over to Farand Pawlak, Vice President of Investor Relations and Corporate Communications.

Thank you. 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 Andi Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our first quarter 2024 financial results. If you do not have this document, it is available on the Investors section of our website at masterbrand.com. I would like to remind you that this call will include forward-looking statements in either our prepared remarks or the associated question-and-answer session. Each forward-looking statement contained in this call is based on current expectations and market outlook and is 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 2023 Form 10-K and updated as necessary in our subsequent 2024 Form 10-Qs, 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 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 2024 financial results along with our 2024 financial outlook from Andi. 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, Farand. It's good to be speaking with you all on our first quarter 2024 earnings conference call. I'm pleased to say that MasterBrand delivered a solid quarter to start the year. Net sales in the first quarter of 2024 were $638 million, a 6% decline over the same period last year. This mid-single-digit decline was in line with our expectations as we experienced the continued impact of anticipated trade downs and our return to normal promotional activity through the first quarter. Volume was roughly flat on a year-over-year basis as we saw growth with our customers servicing the new construction market offset by declines with our customers servicing the repair and remodel market. Again, this was in line with our 2024 end market demand assumptions laid out on the last call, which I'll revisit shortly. Operationally, the company continued to perform exceptionally well. We delivered adjusted EBITDA of $79 million in the first quarter and a related margin of 12.4%, 40 basis points higher than the same period last year. Our margin expansion was again driven by cost savings from our strategic initiatives and continuous improvement efforts, which more than offset the negative impact of lower average selling price. Our first quarter performance followed our trend of delivering year-over-year margin expansion despite market softness. This is a testament to 2 things: one, our associates' dedication to The MasterBrand Way, our business system. And two, the success of our strategic initiatives, Align to Grow, Lead Through Lean and Tech Enabled. When we first introduced The MasterBrand Way, our focus was on deploying foundational lean tools and improving operations. During this early period, our executive team, myself included, spent a great deal of time training and coaching all levels of associates on how to use these tools. More importantly, our time…

Thanks, Dave. I'll begin with an overview of our first quarter financial results then I'll provide our thoughts around the remainder of 2024 and our full year outlook. First quarter net sales were $638.1 million, a 5.7% decline compared to $676.7 million in the same period last year. Our top line performance was primarily the result of year-over-year growth from our customers serving the new construction market offset by anticipated volume declines in the repair and remodel market as well as a softening in our net ASP, largely due to continued trade down activity and our reintroduction of customary targeted promotions. Gross profit was $204.7 million in the first quarter, roughly flat with $204.6 million in the same period last year. Gross profit margin expanded 190 basis points year-over-year from 30.2% to 32.1%. This year-over-year margin expansion was driven by cost savings from consistent execution on MasterBrand strategic initiatives, specifically our quality processes and carryover from last year's supply chain work and our continuous improvement efforts which more than offset the negative impact of lower ASP and personnel inflation. Selling, general and administrative expenses were $137.8 million, a 1.8% increase compared to the same period last year, primarily driven by personnel and personnel-related inflation and higher investments in our tech-enabled initiative. Net income was $37.5 million in the first quarter, a 7.1% year-over-year increase compared to $35 million in the same period last year. This increase was primarily driven by lower interest expense of $14.1 million in the first quarter compared to $17.4 million in the same period last year and a lower income tax expense of $11.5 million or a 23.5% effective tax rate in the quarter compared to $12.9 million or a 26.9% rate in the first quarter of 2023. Diluted earnings per share were $0.29 in the…

Thanks, Andi. We're pleased with our solid start to the year with continued year-over-year adjusted EBITDA margin expansion and better-than-anticipated first quarter free cash flow. We are reiterating our full year 2024 outlook and are on a trajectory to achieve our long-term financial targets. Beyond the financial performance, I'm proud of the culture and associate engagement we're cultivating. We recently had our semiannual employee satisfaction survey, and we continue to exceed manufacturing industry benchmarks and see sequential improvement across the organization. I want to thank our associates once again for their continued support, as we work on building great experiences together. Now with that, I'll open the call up to Q&A.

[Operator Instructions] The first question we have is from Adam Baumgarten of Zelman & Associates.

Question on top line. I think you said volumes were flat, so that would imply price was down around mid-single digits. Can you walk us through how much of that was trade down versus like-for-like price reductions?

Yes. I think most of it is trade down, Adam, similar pattern to what we saw through the second part of last year. If you remember back, it sort of started in the late part of Q2 into Q3 last year, and the impact was roughly similar. So it's mostly that. Because straight down is -- it occurs both in -- primarily in new construction because you have large customers there where you're kind of talking about large developments. But we're seeing the consumer also trade down inside the dealer network as well. So you see a lot of it there. And then there's -- like we've highlighted before, there's -- the cabinet market has a normal customary promotional cadence to it, and you're seeing some of that there. And that's less of an impact in the total picture. So it's mostly the trade-down effect.

Okay. Got it. And then just on input costs. Any change to how you're thinking about that for the year?

Yes. I think input costs are behaving in -- there's a lot of things I'd characterize this way in the current environment. It's sort of the normal pace. I'd say in a normal environment, you have some ups and downs. We're seeing some commodities increase in material. It's sort of similar to the way it was prior to COVID. You have, what I'd call, some normal inflation in certain categories. And obviously, we still have labor inflation that has not changed. And so we're reacting to that the way we normally do, which is evaluating our pricing every quarter to adjust to factor in if anything moves outside the boundaries of what we can overcome through productivity and other things. So it's not -- nothing that I would call outside of a normal pattern. But it's -- we're seeing a little bit of firmingness, I guess, I would say, in some of the commodities.

Okay. Got it. And then just last for me. Just to the extent you have any and if you could size it just multifamily exposure?

Very little if any. It's -- we might have some through some of our distribution partners. We don't always see what they're bidding on, but it's very limited, de minimis.

The next question we have is from Garik Shmois of Loop Capital Markets.

Just first on pricing. It sounds like you're expecting the pricing comps to ease in the back half of the year, just given the timing of when you're starting to see the trade-down effect in some of the normalized promotions back in 2023. But just kind of curious, a big ticket repair and remodel continues to lag as you expect. What gives you some of the confidence that promotions will be at normal levels in the second half of the year, you're not going to have to see another kind of step down in that activity.

Yes, it's a good question. I think it's the pace that we've seen. It really hasn't changed much and we're now 9 months past the point where price sort of stopped growing. And so I think that we're able to see can a consumer absorb the current price environment and we're seeing that. It's -- I wouldn't say that we're disappointed with volume. I think volume is kind of coming in exactly where we thought. And so there's really no impetus one way or the other on price in the way the consumer is behaving through the dealer network. So that's -- I mean that's the best you can do. You have to feel the market for price. And it feels like this is the normal environment. So that's -- just gives us comfort that based on the way the things have progressed, there's been some choppiness in the interest rate category, but that hasn't really changed behavior in a way that affects our outlook. So I think we're -- again, we see the sort of normal steady pace with it. And you watch the business and it performs in a normal cyclical -- or excuse me, a normal seasonal pattern that gives you confidence that the rest of the year will follow that same pattern. And just to reiterate for us, we start seeing that business pick up in the second quarter. Third quarter is typically the strongest because the orders are coming in, in the second quarter, and they're delivered in the third and then the fourth quarter sort of tempers down from that. So that's our normal pattern, and we're seeing the order patterns are following that. It feels very much like we're in a normal year and so that's what gives us that confidence.

Okay. Follow-up question is just on some of the tech-enabled initiatives that you're accelerating, any way to size that? Is there maybe an outsized impact on costs or SG&A or CapEx over the next several quarters? Are you pulling from future years because you see opportunities right now. So just a little bit more color on what you're doing there and maybe some of the financial impact.

Sure. Yes, it fits within the construct of the guidance we've given, both on capital as well as in expenses and EBITDA. I will say that it can be a little lumpy in some cases. To some extent, there's a number of discrete projects we're working on. So it's not just 1 big lump of money. It's -- there are a number of discrete projects, each with their own value and each evaluated on their merits. We will probably see a bit more of that activity in Q2 than -- certainly than we did in Q1 and year-over-year, certainly more. So Q2 will have a little higher spend rate on some of these, and that's purely a function of you do a project, you plan it and then once you hit the ground with the implementation of it, that's when you really start spending. There's a little spending in the planning portion, but on a lot of these, there's a lot of implementation costs and some of that's capital, but in most cases, it's SG&A-type costs. So I would expect to see a little bit more than the average in Q2 this year within that sort of tapering off towards the end of the year, which is a little different than last year in terms of the flow of that cost. So it's -- the unfortunate part is it's a little lumpy, but all the benefits come sooner if you do it quicker. So that's partly our impetus to -- we've planned out a lot of these and feel we have the bandwidth to execute on them. So why not do it quickly.

The next question we have is from Tom Mahoney of Cleveland Research.

I was wondering if you could call out any differences in demand by region of the country, if anything sticks out in the trends you're seeing so far year-to-date?

Yes. I think the thing that stands out the most so far this year is it's a little bit of the opposite of last year, where the strength through -- I'll start with new construction, let's go there. The new construction last year in the early part of the year was weak in a lot of places, but there was still some strength in the Southeast and that's flipped a little bit as other regions have come back, a lot of the larger builders have -- either they built ahead to keep the business going last year in that region. And so they've backed off a little bit or there's maybe a tougher comp, if you will, for them in those regions because, I mean, if you look at the overall building activity across the country it's grown year-over-year nicely. But sequentially, it's sort of steady and so I think that there's been a buildup of activity in other parts of the country. The Southwest is an example. That part of the country was pretty slow last year this time, and it's much better this time -- this year. Northeast and Midwest are typically -- obviously, they're not building as much in the winter, the weather was a little more favorable, I think. So we did see some activity in those regions through the months, which we don't normally see. But the pace there is, again, steady and normal from what we would expect. So on the R&R side, it's -- I'd say there's -- it's pretty even across. We tend to obviously have more presence in larger metropolitan areas. So you tend to see more remodel going on in the New York area, for example, or Miami or places like that. So that tends to follow where people are moving and where people are sitting. And so that's always -- over the past couple of years, it's been stronger in the South than it has been in the North, but we're pretty happy with how the North is behaving right now and then particularly the Northeast. So I wouldn't call out any particular region as being higher. Well I mean it's not -- to be fair, Tom, it's not a super robust market. Don't get us wrong. We're saying steady and normal, but it's still not. There's no inflection here where all of a sudden people are piling into remodel. It's sort of steady along as we go here -- yes, at that pace.

Understood. And you talked a little about the SG&A cadence and some of the investments that come through the year. I was interested if corresponding, if there are any gross margin -- is there any cadence to the productivity savings as they come through on gross margin we should make sure to consider as you move through the year? And then was 1Q better than you guys expected to be on gross margin or kind of right in line? How do you think about that?

Yes. I mean I'll answer and then maybe Andi can fill in some more details. I think gross margin is something we can try to keep as steady as we can. It's -- and when you're in a steady-state environment, you should be able to do that. Obviously, that's where certain inflationary things might pop up, labor is a big component of our cog. So you'll see some in there. But I think generally, where we're sitting is where we project forward. And then the continuous improvement either overcomes any inflation that you have or it adds productivity. And so generally, you tend to see a little bit of improvement as the year goes on, but I think we're kind of in a pretty good spot there. Andi, do you want to add anything?

Yes. So I mean, the big part of that gross margin improvement overcoming that personnel inflation is the current CI and SD, but it's also that carried over of our supply chain initiatives last year because that really started coming through mid-second quarter last year. So we got some carryover effect of the supply chain initiatives in the Q1 that helped build that gross margin. And then from an SG&A perspective, that tech investment is all in SG&A. So you won't see that in the gross margin.

Got it. Got it. And then just the last one, if I could squeeze it in. Any key variables that you're looking at between the low end versus the high end of the range? Is it just demand related and revenue related? Are there any other moving pieces that you're thinking about?

Yes. I think the big -- the big thing we're looking at is that we highlighted it a bit in our prepared remarks is this what might limit builders from being able to grow more than what's in our forecast. And that's -- we think demand is there, but we think there's some constraints that builders may face. And frankly, some of those constraints may be that demand slows, but I don't think that we don't need to have an acceleration in demand to achieve our forecast. So I think the -- if some of these constraints still come to fruition, and I mean -- what I mean by that is land availability, labor availability, those kinds of things, perhaps some other commodity challenges that they may face. If those don't come to fruition, we may see that the higher end of the range. I think at this point, our -- we think R&R will be fairly steady throughout the year, and we're not looking for an inflection there. So certainly, if that happens, great, but we're not planning on that to achieve the high end of the range if we were to get there. So it's really mostly around new construction. And I think that we're pretty well balanced for what we're seeing in the market right now.

There are no further questions at this time. And with that, I would like to hand the call back to Farand Pawlak for any closing remarks.

Thank you, operator, and thank you, everyone, for joining us. We appreciate your interest and your continued support. We look forward to updating you on our future calls. This concludes our call for today.