Welcome back to MasterBrand's Second Quarter 2024 Earnings Conference Call. We appreciate your patience this afternoon following a brief severe weather delay due to a tornado warning in the Cleveland area. We will begin the conference call with the company’s prepared remarks. During the company’s prepared remarks, all participants will be in a listen only mode. Following management’s closing remarks, callers are invited to participate in a question-and-answer session. Please note this conference call is being recorded. I would now like to turn the conference over to Farand Pawlak, Vice President, Investor Relations, Treasury and Corporate Communications. Please go ahead.

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 Andi Simon, Executive Vice President and Chief Financial Officer. We issued a press release earlier this afternoon disclosing our second quarter 2024 financial results. If you do not have this document, it is available on the Investors section of our Web site at masterbrand.com. I'd 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 and 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 second 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. Good afternoon, everyone. We appreciate you joining us here today for our second quarter 2024 earnings conference call. We've had a productive several months since we last spoke. We delivered another solid quarter of financial performance and our associates continue to make meaningful strides across all of our strategic initiatives. We announced our acquisition of Supreme Cabinetry Brands, our first transaction as a stand-alone public company, which we will share more details on shortly. Lastly, in concert with the transaction, we restructured our debt. A busy period for the team but I'm proud of what we accomplished and our prospects for the remainder of the year as we continue to navigate choppy end market demand. Now let me provide a little more detail on each of these areas. Net sales in the second quarter of 2024 were $677 million, a 3% decline over the same period last year. This low single digit decline was in line with our expectations as year-over-year volume growth was offset by the continued impact of lower ASP due to anticipated trade downs and normal promotional activity. We saw healthy performance from our customers in the new construction market, driving our year-over-year volume growth with continued growth in both large and medium builders and small builders turning positive in the second quarter. We believe our strategic initiative work, specifically around Align to Grow, has allowed us to capitalize on this and to perform at or above the underlying market conditions. As I mentioned on prior calls, our Align to Grow initiative enables us to focus on the right parts of the market, the right customers with the right products at optimal service levels. We benefited from this last year as we launched new products and channel specific offerings, specifically targeting production builders, and our…

Thanks, Dave. I'll begin with an overview of our second quarter financial results, then I'll provide our thoughts around the back half of 2024 and our updated full year outlook that includes the acquisition of Supreme. Second quarter net sales were $676.5 million, a 2.7% decline compared to $695.1 million in the same period last year and in line with our expectations. Our top line performance was primarily the result of year-over-year growth from our customer servicing the new construction market, offset by continued softness in the repair and remodel market and pressure on our net ASP, largely due to continued yet stabilized trade down activity across the business. Gross profit was $231 million in the second quarter compared to $236.2 million in the same period last year. Gross profit margin was 34.1% compared to 34% in the second quarter of last year. We achieved 10 basis points of gross margin expansion despite lower sales as our strategic initiatives, notably around quality processes and other continuous improvement efforts more than offset the negative impact of lower ASP and personnel inflation. As a reminder, the second quarter of last year also included $2.2 million of nonrecurring insurance proceeds due to the tornado damage sustained at our Jackson, Georgia facility in the first quarter of 2023. Selling, general and administrative expenses were $146.7 million, a 3.5% increase compared to the same period last year, primarily driven by $4.4 million of acquisition related costs, higher investments in our Tech Enabled initiative and personnel related inflation, which was partially offset by lower distribution and commission costs as a result of the decrease in net sales. Net income was $45.3 million in the second quarter, an 11.5% year-over-year decrease compared to $51.2 million in the same period last year. This decline was primarily driven by…

Thank you, Andi. We're pleased with our results year-to-date and we're excited at the progress we've made to position our business for near and long term growth. While 2024 is shaping up to be more of a transitionary year from a demand standpoint, we think the fundamentals of the housing market, such as the gap in housing supply and an aging inventory of existing homes, bodes well for MasterBrand going forward. We believe continued execution on our stated strategy, investments for growth and acquisitions such as Supreme, will allow us to capitalize on these trends and create long term value for our shareholders. As always, we appreciate your support and look forward to updating you on future calls. Now with that, I will open up the call to Q&A.

[Operator Instructions] Our first question is from Garik Shmois with Loop Capital Markets.

Glad to hear everyone's safe now that the tornado has passed. First off, just in light of the choppier end market. Just wondering if you could speak to what actions you're taking on the manufacturing side to adjust to maybe a little bit slower organic demand?

I think it's been -- choppy, make that equation very difficult. So when we say choppy, you have some weeks where you have pretty good orders and some weeks where you don't have good orders. And so I think in general we're pretty good with where we're running from a capacity standpoint. And so there's maybe a little throttling down in a couple of areas but it's not necessarily material for the long range here, because, again, I don't think that the market hasn't inflected in any particular way. So we're kind of managing through that is probably the best way I can say it. And there's a little bit of choppiness that that brings to the P&L because of that. But I think it's prudent at this point until we see something materially change to kind of hold where we are on that front. So it's a little bit of just having to manage through the choppiness. Again, it's not material enough in terms of an inflection that I'd say in the market that it's really time to take any sort of significant action. So it's really more managed through it. And in the short term, that's the best we can do.

Second question is just on pricing. You talked about implementing price increases that's going to impact the second half of the year. But you have been seeing trade downs, which you spoke to as well. So just hoping you could expand on what will end up happening with the trade-down impact as prices end up moving higher? Do you anticipate that becoming even more exacerbated in this macro environment or are you actually seeing some stabilization on the trade down impact?

I think the -- what we're seeing is -- that's been developing for quite some time now is kind of a separation of the high end of the market and the low end of the market. And so I think that the pricing impact is probably not going to affect that change. It's already occurred. So we haven't really seen any material change in the pattern. Very robust patterns in our lower end products, a lot of that trade down occurred there. And then decent pace in the premium side of the market as well. And so typically, those customers are already in the place where they want to be. And also, I'd say, the pricing action is not abnormal. It's sort of more what I'd call regular pricing action. It is the normal course prior COVID was the beginning of the year. This is a little bit different timing but I think it's in magnitude roughly similar to what we would do in the past. And so it's real -- and again, the inflation is kind of what I’d call normal as well. It's not something that's an inflection point that we see but it is going to stick for a bit. So we think that we need to take action price wise. So I think you've already seen that movement occur with the consumer to move into the kind of the book ends of our product portfolio and we haven't seen any material change from that with any of the changes we've made with price.

And then just my last question just on Supreme. I mean you did speak to seasonality in the second half of the year on the legacy business. But I was wondering if you could speak to any seasonality on Supreme and how we should think about that?

Yes, I think what you're seeing, part of this, the strangeness of this period is we didn't close right at the end of Q2. So there's a couple of weeks there where we did not own Supreme. So that -- but typically, they follow a similar pattern to us with seasonality. However, this year, it's probably going to be more equivalent because of missing that couple of weeks that we didn't own them in the early part of July. So they will normally see the same thing we see at the end of the year where shoppers turn to other products, which we expect to see again as well this year, but I think because of other programs we've put out. The other thing I'll say is that Supreme similar to us, has some new product launches and some new programs coming out that will hit in the fourth quarter as well. So we're kind of -- we're just kind of aligned on that. Nothing through expert planning here but it all kind of aligned that we're kind of following a similar pattern through the year. But I think, normally, you would expect Supreme to follow a similar trajectory through the year that we do. It's just this year is going to be different for both of us for a variety of reasons.

Our next question is from Adam Baumgarten with Zelman & Associates.

Question on Supreme. Give us what you expect the company to contribute from a revenue perspective. But within the updated adjusted EBITDA guidance for the year, what are you assuming for Supreme within that?

Adam, we're kind of covering the whole company as a whole in the EBITDA line. We were a single segment and so we're kind of reporting as a single segment moving forward. And that's as far as we're going to go on that. But I think the way to think about it is our -- the legacy company is kind of at the low end of the range of previous estimates from last quarter. So that kind of gives you an idea of where it all fits.

And then just on the pricing, you talked about raising pricing in dealer and I think builder direct. Not sure if you’re -- it doesn't sound like you're raising pricing in the retail channel. Is that just because it takes more time or you just don't need to or maybe you're not able to? Just curious on the pricing side.

Our retail pricing model is one that's ongoing. It's reviewed every quarter. So we didn't include it in that comment but we are always adjusting price with the retailer every quarter based on an index based pricing arrangement. So we don't take the same types of actions, we have different pricing mechanisms with the home centers. And so we would anticipate that as inflation comes into our P&L, it flows through to the retail channel as well. It just happens in a different mechanism.

Our next question is from Tom Mahoney with Cleveland Research.

It was quite a storm here in Cleveland…

Yes, you probably got it little worse than we [Multiple Speakers]…

And just about 10 minutes sooner. I'm interested in the nature of the costs that are moving higher. Is this related to ocean transportation or are there specific inputs that are moving higher? Just interested in those moving pieces?

Yes, I'd say -- I mean, certainly, ocean freight is a component of it and that's a market that if you follow, it's come up quite a bit. So that is a component of it. There are some other components, some of which -- there's just a general back to inflationary environment in a couple of materials, some of which are meaningful, I think, in general. Again, it's not -- none of this is an inflection of large increases but it's enough that it affects the overall P&L. So ocean freight is a big component of that but there are other costs in a variety of different areas.

And then back to the comment that you made about the cadence of demand in the quarter. Can you just go over that one more time? I think what you said is you started better than you had finished. I'm interested if there's any differences between the dealer and retail channel? And then lastly, any feedback on the size of jobs moving forward or any read on project leads and backlog activity at this point in time?

Tom, what's kind of informed our guidance is that, that order pattern and the backlog choppiness. And it's predominantly, if not all, in the R&R space, which covers both dealer and retail. And it's different in different categories. I think in retail, it's a little more in the stock category than in the make-to-order category. Now our -- at the home centers, our make-to-order product is almost off in a value oriented product as well. So we're seeing strength in that but it's -- the orders are not coming in at, what I'd call, a regular cadence. And so it just gives you a pause to say, there's a little bit of hesitancy on the consumer front. Again, not a major inflection point. It's -- you'll have a kind of a slower week and then a stronger week. Early July this year with the timing of where the holiday was, I think it was particularly slow. A couple of categories in late June were kind of slow. But you have to just manage the backlog back to the question that Garik asked earlier. I mean we have to keep our factories at kind of a steady pace. And we use the lean tools to make sure we can throw them up and down within that range, but it's -- we're sort of tuning them to a slightly lower level, just anticipating that this choppiness will continue. Again, I don't think it's a -- it doesn't feel like a big trajectory change. It's just a little slower than what we had expected.

We have reached the end of our question-and-answer session. I would like to turn it back over to Farand for some closing remarks.

Thank you, operator. And thank you all for the flexibility this afternoon. We appreciate your interest and support, and we look forward to speaking with you in the future. This concludes our call.

Thank you. This will conclude today's teleconference. We will have a replay available. To access the replay, you may dial in at (877) 660-6853 and the access ID code is 13747550. That will be available in approximately two to three hours and it will be replayed for the next two weeks. Thank you for your participation, and have a good evening.