- Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen, welcome to the Core & Main Q3 2022 Earnings Call. My name is Glenn and I will be the moderator for today’s call. [Operator Instructions] I will now hand you over to the host, Robyn Bradbury, Vice President of Finance and Investor Relations to begin. Robyn, please go ahead.

Robyn Bradbury

Thank you. everyone. morning, Good Bradbury, for Robyn of and Finance This & Vice Main. Relations Core Investor is President I today Officer. and Mark am Executive Witkowski, Chief joined our by Steve Chief Financial our LeClair, Officer; business Steve today’s our acquisitions. will an call a recent lead overview update with of and will discussion of we on of end sustainable an the help we serve, example the markets. resources resilience for communities highlight followed then build He how water by a our a full then discuss quarter year our outlook Q&A. and by will Mark financial followed third results

the this conclude closing to We posted will of Steve’s We call quarter remarks. section presentation issued with third our XXXX earnings a website. the Relations our morning fiscal Investor press release and

presentation cause expectations and As differ press to are and include release made and the our subject statements the call actual materially Exchange our set and from risks with These earnings Such a the release, in during that Securities uncertainties results factors statements reminder, forth filings risks our to Commission. could and uncertainties and include press projections. this forward-looking in statements. our

over and Chief quarter in we you we which non-GAAP call press for measures business. be reconciliation now Executive fiscal Core will these in discuss your Officer, LeClair. & are useful XXXX appendix to our operating investor certain the the turn interest of financial A of measures, of assess release our our Steve third in will earnings found can results to presentation. Additionally, the Thank Main. believe I

Steve LeClair

for Thanks, today. Robyn. us joining you Good everyone. Thank morning,

report is achieving net realization. our consecutive growth initiatives, with due period with I eighth marks our X investor performance continued last to growth year. are healthy achieved sales as will following on same I This adjusted price am another a our sales double-digit sales double-digit the Page momentum, considering expectations we quarter business growth across sales impressive you net and EBITDA. our on with continue accomplishment demand, brief both our an to update. third XX% build market quarter strong in This and presentation, If along growth, pleased we to net exceeding the quarter end robust in of begin

continue teams share activity strong the initiatives. and to third execution growth gains customers, quarter, in the suppliers was business We our support repair high product, a communities. geographic grow at level strong. and expansion from to market volume combination end a and customer and driven Our and growth execute achieved replacement of our the of Municipal by

of year continue We expect in them it end the infrastructure. water healthy the Municipalities to and benefit their beyond. budgets, to allowing improvements from remain through positive invest to aging to

through Infrastructure Bill Additionally, the start municipalities the to some point we flow in funding believe available to XXXX. will at

demand drainage which residential XX XXXX to has lagged the We During development development the in quarter, residential due non-residential we for strengthen roughly to strengthen communities growth are experienced and we in by currently believe seeing housing construction we late and non-residential construction XXXX. the as suburban products. activity XX months. protection non-residential our Historically, increases waterworks, fire storm expand, saw construction activity

We resilience for quarter. end municipal both continued projects expect residential non-residential our healthy the most strength from and and of throughout markets. were Shipments

areas, areas housing and assess very both comparing size the economic bidding of remain quarter, in strong Many shrinking starts. the environment as reduction scopes the at in and sequentially. the across the volumes country. but project against varies developers positive, However, began recent end year-over-year activity some are we Residential evolving in

has made many a products. that long to remains developing or that continue which optimize believe will we our of growth times have difficult constrained multiyear inventory Supply residential Certain homebuilders home times our in the lack drive it continue long-term, to for Over lead lots will continue the over lead supply of and to are market fully period. inconsistent levels. products

availability. our industry PVC quarter, to and saw during progressed, but price to monitoring fourth impact of in for to has the the believe demand to product the lead slowing and availability of and product lead volatility, including certain our remained quarter specificity products, provided the despite products times against improve improving and We availability As assess elevated closely are see resilience improvement PVC we the normal pipe we seasonality. times We pipe. due quarter began prices stabilize

more no we the became longer customers. inventory as products, began As reduce levels such inventory improved predictable as cases, progressed. to carry to for to we service need those products maintain much and product availability lead our levels times for quarter certain In with

We chains improve expect next supply levels categories. continue as in optimizing inventory fourth for into the year and to product other quarter

M&A new & welcomed front, lines, Core our talent, during subsequent to M&A. Main our to four while and quarter, the companies On the geographic and through highlighting drive sustainable we to growth product footprint strengthening ability

in annualized to our independent sales net from are an continue talent combined acquisitions in enhance Acquisitions million becoming since We of XXXX. key a position grow. as source we expertise company have $XXX they and historical now competitive new surpassed and

Our continued pipeline growth remains robust with through significant M&A. opportunity for

XXXX and October. Northern more opened every in expertise in Fort report building in issued We Collins, region to location an & Colorado commitment and our and business. make Core is serve. We location Colorado, new This of new our sustainability element our our product At social extends integral governance Main, this waterworks year. in a accessible our Southern offerings second also environmental, products we greenfield our and in ESG Wyoming,

long-term stakeholders. value We are while nation’s focused critical supporting our on our needs, water infrastructure to delivering

holistic Our our we customers, communities. meaningfully approach core how suppliers, shareholders and that our to policies strategy engage with principles vision to and ESG associates, our spans from is to

us now full toward impact detail, Inland ESG be to report, Supply branch and water will Water I accomplishments continue wastewater goals specializes single drainage XX achieve will serve share products progress the market to our experienced each fittings, years. pipes, highly Inland label Trumbull will service the its This coming to is with team. of out Trumbull offerings. a greater choice distributor strategic acquisition additional With we and make for of operates am combined space to of and capabilities allow second serving the of base in municipal Works to and Page and Main’s meter attention pleased of work label our local and significantly has a better personal a storm is discuss is & products valves As brand their demonstrates service expand ESG Southern this on private our alongside products that markets. priorities, of a products we and which industrial customer and in passionate private one itself water our acquisitions two repair in end well-known locations, important the and the of in three and which which of Water and years. a accessory throughout distribution are maintenance strive using our infrastructure for facilities I in proven to products facilities. focus tools and in kits distributor California. industry Works of Trumbull detail supplier trusted on X. Core

and Distributors, network fire scale, Trumbull our distribution offering to processes, new in existing with protection for expand full-service Inc. of quality We systems categories. its of maintenance new is as Operating Distributors, grow products fabricator brand out sourcing purchasing contractors located protection fire footprint and products protection of internal product Honolulu, a and distributor the and we repair will the into Inc. facility fire services in systems. leverage our Hawaii. provides and

new this market. protection year these a issue as offer the clean lines to operating building Our key key transporting specialized force our while City a to locations in back full-service Each how of Distributors, Waukesha, time. approximately sales. we line They million serve. building resources Florida Wisconsin treated. of after of leading out now combined align infrastructure of a annualized would was fire waterworks bring Hawaii an of the address decades in used of studies we After communities offering Lake and distributor a build talent Page water sustainable specialty X thorough drinking This sustainable and distributor in adding address of we local Inc. strategy, our their of through the relies needed growing sandstone well serve population. first capabilities position task adds across depth complete then of more example water sustainable for passed businesses and our is in to water, a city than its water the Southeast. The recent and selected Pacific needs It for to community X, a of the with an supply Georgia. last we water, addition products from due the distributor storm it spent continue to City the this of challenge. municipal market, offering help excited wastewater, this water Pipe that the the residents. acquisition new were the acquisition expanded meter involved The Michigan and water net in four Waukesha as in of acquisition the highlight expands of The and On product knowledge drainage offering $XXX products was core our have but water of levels the Linear a leading supplying on water they expertise to as find a our to reputation the community’s talent primarily to solution dwindling The strengthens for a us Core to region. access product transporting and offer product to a long-term. a for in Main completed time solution clean M&A aquifer geographies, formed expansion area new and XX,XXX underserved & are

to led project pipe, new valves, and to training fittings miles all XX-inch Michigan XX experts iron Waukesha. from including supplied on Our a partners and local educate build ductile potential accessories Lake of the pipeline to solutions necessary

lead complete combined approach expertise, solution. an all-encompassing the Our a and contractor, developing provided effective product environmentally infrastructure water to with

communities, solutions the access systems. be droughts to and a services safety do water, are to communities. We from proud believe protection impact the provided fire supporting by our to the efforts, reduce to work products water make We or clean drinking of impacts our and whether it positive support people, through flooding local we that conservation

our end resilient Now, products for turning I’d spend Page and minutes markets and our to the demand services. X, to discussing a like few

between repair We end maintain a municipal, and nationwide. between balanced and new development We replacement construction residential mix non-residential exposure diversified market markets have projects. and

and and our water the end infrastructure. critical repair long-term demand makes need which to due of repair growth XX% sales, municipal up of primarily market, projects Municipal to consists the has replacement aged over consistent replace Our replacement roughly infrastructure. existing net stable to exhibited and

an and estimated capital pace water. for of trillion over for increased investment, water the upgrades in over nation’s water access XX is and last utility close necessity investment required However, $X.X need and next recent our years, growing gap. the water the lagged rates years especially infrastructure decade to municipal repairs investment increased to of in has the the In infrastructure

strengthen in XXXX We infrastructure expect Jobs and in and funding beyond. from Infrastructure water Act investments the Investment municipal to

The spending are point, awarded will and state they these first distributed and we the whether tranche of on into municipalities funding At are has them qualify. and projects. evaluating revolving new allocated, funds of municipalities applying budgets. that building the funds their in projects fiscal begin begin been will their funds process expect to Once

along our replacement fire from Our projects. to roughly which everything between of retrofit protection encompasses also of regulations our of non-residential cyclical and up the projects, installation mix market most with end a redesigns. existing net with new protection to and balanced systems market, fire industrial rehabilitation sales, our the drainage of XX% development This less storm comply road consists bridge and product and and projects, including buildings, development It commercial new lines. changing or includes benefits which repair makes systems of

the the to building for drainage land community. not Our to were developers market, previously contractors purchase consists Land of development roughly of installing which to development our makes net We supporting for connected residential water, XX% support primarily sewer up sites. and the infrastructure infrastructure. of supply our residential the large utility sales, products underground end tracks storm lot products often that new

undersupply to our I service. proud how thank the growth Over associates for long-term, will and dedication continue want to team market. our and want new drive commitment we customer lack lots continued end our homes continually our their for the also to believe the of partnership. developed executes and and am their customers suppliers thank of in residential I of to

now foundation year We execute strategies, Financial to third I Witkowski, on Mark. our outlook. Go quarter continue turn our ahead, advantage profitable Chief results Officer, competitive financial will discuss our our growth. building across and to growth full call Mark the and of to deepening key long-term our over

Mark Witkowski

a will growth an our share of reported X our acquisitions. material product, our with single-digit volume Thanks, of to strong XX% and of price prior by on initiatives. Steve. quarter sales increase highlights our from our points gains due with of due begin mid outperformed We the percentage expansion growth, end inflation rising net driven and geographic contribution share increase of compared The Page in year gained customer period. I quarter third results. XX to across the customers, execution and was costs $X.X and billion, passing approximately We markets end market combination along from to partly

product in many of across We the to continue quarter. costs rising experience our third material lines

incentive fourth price the moderate Gross increased third and for increased increase our XXX costs in XX% and prices inventory, quarter. of third anniversary sales improve from benefit. chains in $XXX margin by municipal pipe today, in category. we in XX% higher million million margin primarily hold contribution notably supply approximately increased quarter increases a are as most increase our are utilization we the general compensation personnel to to favorable to which basis and costs year profit see cost profitability. products, profit where an to a was Selling, beginning due the steady was $XXX we initiatives, driven from expense mix in acquisitions, margin price from the by stabilize, accretive quarter, expect higher to If those XX.X%. points Gross expenses, gross certain The impacted was positively to administrative PVC and they lower enhancement As ago.

in – The fixed of the cost basis our addition, $XX inflation. our due to percent XX increased was interest points sales. on was third costs ability our senior sales credit the to The a in improved $XX in increase our In borrowings SG&A the XX.X%. facility was of due and higher quarter expense an Interest distribution and our improvement to volume as increase due increase short-term the facility net net to portion rates loan. compared senior and unhedged in million million on with year. prior on the ABL to term leverage

of secondary in reduction quarter permanent of third the entities XX.X% fixed was with as to the The percentage tax by prior a percentage that XXXX. certain to decreasing pre-tax in completed were rate offset September year. of tax compared and XX.X% differences in income, effective January Our the reflects taxable higher offerings partially expenses a income attributable due and

quarter, Dubilier the Class completed, public the & largest new common receive sale. was the We in million secondary shares shares issue not any not any Rice. of offering we Clayton, third our of stock a During did offering did from A and proceeds current shareholder, XX

the million prior million and third higher compared with CD&R income with in Adjusted approximately in interest in partially The taxes. preparing exclude to recorded growth, million ownership the interest We offering, $XXX as of margin income manage net due and year. strong business offset XX% gross leverage the compared as of income, year. roughly increase In Following SG&A cost improvement prior we $XXX effects was quarter improvement expense adjusted in increased whole. sales our decreased evaluate million a & net $XXX we Core the to to and XX%. affiliates by adjusted EBITDA in non-controlling Main $XXX the an the

to points Our our increase margin and cost leveraging to and our strong gross growth, net the XXX XX.X% sales structure basis sales. adjusted EBITDA in margin net due improvement improved

higher balance cash activities generated offset flow and with provide Now, took primarily higher XX. actions partially cash inventory, profitability Page operating on the improvement the an by compared sheet from The period. Net to million a I’d $XXX was update million, to during optimize was $XXX brief we taxes. quarter year improvement on like and to of due cash prior

to stronger last consisting generate our had X.Xx billion our operating addition ABL reflects quarter liquidity debt leverage excess over of our of under in in decrease normal due Net at debt fourth working seasonal under a end improve. of quarter Net The the a At ABL was quarter, billion. of our improvement the from from facility. in capital credit inventory senior debt prior to end facility. increase borrowings X.Xx, year in net we chains availability in million if flow optimization the the period at continue an quarter adjusted EBITDA. was the expect the the nearly We of $X.X $XX credit $X.X reduction to the quarter from supply unwind efforts cash end to

XX, our capital Turning highlight Page we allocation to priorities.

Over significant continued Historically, available we have liquidity operations simultaneously have maintaining net a we as of leverage our generated Xx. significant organic initiatives well and cash in make long-term, balance been had levels investments from as while envision and the target growth to Xx of sheet. operational we a to deleveraging able sheet balance acquisitions, debt with flow and

to keep top our deploying expect growth inorganic We cash. priorities as organic for and

expect to these returning opportunities, continuously share our through we addition to In value evaluate capital to repurchases. opportunities, deployment shareholders including

our our relative utilized initial While such share path. of float likely with sales wrap make from likely monetize market. purchases time is the year. XX current our Page negotiated it its a often time, discussion with will that repurchase consider would ownership modest in to position the Considering sense directly or rest them repurchase outlook a I time, maybe of capitalization from concurrent on our share and not for conjunction to up programs may and be to situations, is are market to which directly the open in our secondary market largest to over CD&R current shareholder is

Municipal than roughly to new construction backlogs. makes despite our seasons, results XX% through This strong proven impressive indicators strong activity, markets durable and fall remain repair quarter. busy positive and which momentum positive more to with sales, prior summer has year for it and selling fourth market up and continues great our comparing and customers grow. we are remain sustained in municipal have non-residential of against. Demand the our end delivering growth replacement we net the our expect to be remain We

backlogs Non-residential communities the our through positive of We we construction activity as for suburban many are remain activity demand bidding seeing and end an of expect increases products. year. the both which acceleration to demand the positive non-residential expand, of and are

As beginning in the Steve against indicated strong starts and year single-family have quarter earlier, we comp recent residential housing last are months. volumes of to weaken continued in to fourth

will quarter. lack continue Despite the that by on We believing market are near-term we our lots these pressure, of the continue the potential during growth Based expecting residential this in remain our and the developing gauging residential over homebuilders supply available in we are and developed having bidding market lots health field the and by drive activity positive pressure home discussions teams. for and long-term, with will fourth assessing of customers factors, market. the to

up reminder, expansion foundation end customer XX% above-market total, As our to geographic of expect while continue residential our lot initiatives, roughly for development provide execution to a solid a the value tremendous makes product, our net delivering of and growth customers. us our from we sales. to driving markets In

has anniversary challenges elevated of demand price could down of pricing better and If lower persist year many price prices for than see of resulted we certain for we through continue cost it to remainder the we anticipated. third be the contribution in a As experienced chain a demand which have improve possible in chains products, the is year, supply softens, the continued through quarter, from sequentially our ago. expect come environment strong XXXX. of a though and supply This result start products increases to the as we will to longer

we mix result certain product them are fourth likely with will as strong see is future to accordingly. in rate respect continue However, temporary. driven increases potential inventory work categories, supplier was quarter, the a of a we on gross based With portion in the pass cost to a inflation margin, some of Potential commodity-based decline on catch that and we product many on quarter by our products. market to deflation indications, in these to our up mix which benefit returns current demand to We prices could and for lines sequential delivered normal. and offset expect likely the cost another margin

now basis Given the XXX fully XXX nature from supply temporary the inventory recent benefits and chains roughly in year-to-date normalize. could maybe gross continued once costs reset favorable environment and pricing our estimate of and our we investments, our that points benefit, margins mix to

offset However, from margin our gross we expect label accretive continued including reset private and margin synergies which would enhancement help and initiatives, gross from acquisitions potential rate. margin this

expectations ‘XX for be of Taken sales the $XXX we fiscal EBITDA of net to in year, altogether, due and this million year, we the in we a in adjusted selling be of are since weather. raising with included $XXX range growth unusually to beginning season fourth which the sales the net normal growth our shared to XX% anticipate expectations Consistent XX% quarter last the to range had moderate year. quarter We have fourth the longer to seasonality million. XX%

cash normal saw inventory and in flow in efforts. the quarter from operating flow, to in the operating we we addition cash anticipate seasonal stronger third Regarding capital optimization quarter unwind fourth improvement steady our working

leadership to adjusted quickly from capable the a end XX% flow to cash changes model operating year of EBITDA. resilient We team XX% have adjusting the closing, In and expect market. to business with in conversion a we

to it strategically positioned level open sustainable for remain growth a delivering we questions. and I’d suppliers, to At focused up this customers, shareholders. our executing value time, communities are We at of and on paths high like with and multiple

Operator

Instructions] is now that Matthew, first question Matthew Barclays. our from [Operator comes line have Bouley from open. you. We Thank your

Matthew Bouley

lines. remarks question and for everyone. morning to of ask of the Thanks around in on versus – you I other some the results. product wanted good prepared a commodities taking pricing questions congrats the your Hey, on mentioned kind

around for lines I that are and categories. I you deflation product in you that other if of curious I just mentioned line of new you where increases could PVC, any year Thank of deflation expecting increases? on commodity into kind both know those kind around you but heard what commodity-based expect product seeing a lot could of just of and offset you. specifics kind expand I level can then you cost we am offsetting think many those? the say are

Mark Witkowski

In and saw despite get Matthew, for those that question. there. third on those that the nice side, a was we saw some supply lot passed We momentum cost had we commodity were non-commodity increases able Thanks, suppliers Yes. say some really quarter, the fairly chain are nice on products. I’d stable indicated the improvements customers. the to of were some to quarter in along working come and through, to our our which they the prices for

say, So we forward as and development us that into we for positive, was XXXX. what I’d a look as happen get could

could happen those cost increases work there, forward. expecting But some to additional We the see we still the coming is saw what as areas in we any in we third quarter products could commodity say the early as we and of and those the will if out potential I and still declines quarter to are momentum through, think too there. go help on there products non-commodity fourth mentioned,

Matthew Bouley

number suggest which to basis your guess those XXX the of we that should XX% margin And expand levels? side, after see have about on do I that. initiatives been of normalized. helpful. say temporary you. you level, secondly, points achieved one, you potentially have that how organically margin reach the XXX would I year-to-date, margin How which that be margin sort of to I of as you I margins heard that? of That’s guess, think think we should been number that for think working you gross would that Thank baseline as now think we shifting you Thank then high mid all And quickly reach from kind to may view two, Alright. you normal could new that kind level?

Mark Witkowski

Matthew. Thanks, Yes.

XXX from On the side, expectation gross we XX XXX – did to increase to margin yes, to that now. XXX to

you to there kind XX XX up So is the from reasonable baseline of I a mid at. looking think at baseline look XX.X to are –

the we a on inventory In We see lot some low-cost does terms continue of the non-commodity of of, ultimately I’d if a have a other some we that, in on depend categories see say, price and opportunity. lot bit of product it timing still of what these products. to

if those help So, of into maybe prices keep market defer will rising XXXX. that that some

keep supply chain of is So that but we still going that, on to will say, depend an the how eye up. I’d timing it, on frees

Matthew Bouley

luck. Thanks Wonderful. Alright. Good guys.

Steve LeClair

Thank you.

Operator

Thank you, Matthew.

We have comes our question, line open. Manthey next from now David David, is from your Baird.

David Manthey

Good you. everyone. morning, Thank

distributors relative how is what your would probably in you us normal comp are you elevated variable consider by to for now? question comp flagging of expenses right First much Mark. A variable environment. the lot approximately days elevated inflationary Could these terms, talk to in dollar

Mark Witkowski

can I we gross – And how about you that talk higher as Dave, commission product that’s Yes, how margins our reps. that and works. to we’re generate we sales

those than well. then And which margin gross profitability sales on in similarly, expand see rate had. of higher expansion would and plans typically got other and volume structures investment, based through margins performed see, types in the return on we’ve you a very have had variable bonuses all as at both like you place So expansion, we’ve that for we’ve

uncertainty some that seen or out in economic or – margins, see costs at if incentive then any that we the line very well. happen kind top have flowing we of of reductions elevated to were SG&A through cost compensation comes kind and So same as time, are quickly

It’s and But nice to leverage EBITDA given able the there. overall through increase. have flowing that some SG&A. still seen performance, some So been we elevation really we’ve deliver percentage

David Manthey

assume up can finer follow of could on tens that’s I way there you also? any dollars. we put slightly And thanks. of a Is millions or that point Yes,

Mark Witkowski

way Yes, XX% about think say up component which SG&A of our a It’s good Dave, expenses, compensation. of our it. to that about and It’s those chunk at reasonable levels. is that’s a makes larger definitely personnel I’d variable our a of

David Manthey

bit little then, financial a about Obviously, the crisis very talked the experience current downturn time? you are we’re to overbuilt development. leads in and you’re lot that but there saw of great Could you residential gives that second, you discuss seeing situation then seeing? some And Okay. a relative the and was the lags that that, it insights at you any trends

Steve LeClair

Number is – geared things About during that residential. during at our really couple Recession. business a we there The positioned new very that well, time our David, back saw and business as that of of development too. differently was XX% was Great lot one, towards

upon more that were So much sector. we dependent

with during The really that development other is lot thing recession I’d to time you the happen after share appeared. period, continued

to And lot degree. to its see anticipating ready builders ‘XX, some trying the housing year through new need are a I go to because undeveloped for development took think it’s also see in the continue that, lots now to in get so they some in expansion point, hey, these lots years to through hand-to-hand vacant way work are this going housing or again And starts are of needs ahead development. different next that. entire we’re to work that they to a the finally at that sector network. whether long-term permeated And spot that is of of with lot we almost

our So were Recession. out Great a business, lot much profile that of for than have particularly of it’s where different it’s – a much situation coming we is, that we a development where The housing different and

David Manthey

you. Robyn. Thank Mark, Alright. Thanks, Steve,

Steve LeClair

Thanks, David.

Operator

you, David. Thank

Group. from now your next is have We from Research open. our line Kathryn, Thompson Thompson Kathryn question, comes

Kathryn Thompson

my for questions thank Hi, today. you taking

you given. a just from – the volume of what in from Just your today, you’ve embedded and look But into cleanup terms next guidance all your And then year, one or of either the what price your are high-level for that question expectations is first the calendar contribution or I ‘XX assumptions QX? as guidance appreciate for fiscal balance the versus going of is color volume? balanced

Mark Witkowski

it’s one. Kathryn, Yes, I’ll Mark. that take

of mid-to-high for kind of really we primarily got down difficult I terms say, the the of what comps again, quarter, is would due there, we’ve embedded volume in to digits. single fourth In the last had guide year. kind And

northern teens, the the ‘XX, in unusually – really, volume you we in season back – to in I’d and for had in our particular If say, of go strong climate. was weather up QX

tough quarter capping we’re So against there. a

I look part softness in anticipating the as on recognize our guidance starts, as in I’d mix. in some the interest believe but of we Say are in release, is correlates a the single-family near-term softness But lot that of what’s the think QX just softness. mentioned to markets end we our in the extent is XX% there prepared in do lot going plan say, as of early forward, volume. market, we into you it’s issue tell developments. the we really resi to slowdown given too about some that likely of in remarks, which

that continue non-resi resi. the construction benefit market and to and is side, us strong On lagging end activity seen relative to should have a certainly we

to do a positive I continue. an been non-residential contributor, So then steady we that’s from standpoint, watching would a expect be are but And area that pretty municipal expect we that’s closely. and very

by pretty I we to continue market I’d go to together, from XXX to we’ve results those you kind our historical do sets us points market, growth of we of XXXX there. XXX organic in to take strong – the deliver as similar again a standpoint. as expect our points. XXX seen continue of And the And excess that that’s to volume grow foundation a think the result on. acquisitions the then for beyond initiatives really to say, XXX we into that basis basis And another up So that

Kathryn Thompson

That’s helpful.

substitution. bigger on and is widespread a and there picture shortage critical really drainage for a of is concrete. concrete material and And just component bit which a second instead cement, of plastic with allowing a is The obviously more is PBC question Texas

& for the concrete, greater unique your Texas to paves benefit this does use of benefits way that & Really, how you event is business? this material And a for that versus are as Core products this is Main? for do you or Thank change Main? you. – about opportunities push So how just the how think there broadly Core a substitution are states? for what line and And of other you –

Steve LeClair

to of example the the specifications is good change. concrete drainage where of storm a of is starting heavy systems see through in additional along have products and lines, can with you’ve polyethylene need. water of alternative areas of seen benefits particularly And install, easier to and and for that, be many some retention corrugated, storm work a Texas that pipe drainage one the for those use Kathryn, some high-density They cases, characteristics Yes. we’re their reinforced to those flow were easier there.

specifications couple and So think a states on opportunity the seeing suppliers to getting has where of test key medium-term, it. we able part working of these product a for modified we’re specifications example us, those been great our with to has and short-term allow to of entire some what large we’re team be and changed on seeing has at long-term. been closely is that is this relook Texas in a scale what it with, great

Kathryn Thompson

are any where other there you trend? identify would similar And where Great. seeing states a you’re

Steve LeClair

as the of a you number that a bigger then there states there municipalities of there users some look level, good drive southeast. into some And on to a have introduce how at help and effective RCP of get can more as as specs it utilized south ways we product number Certainly, that been those the on be understand in level, state in at heavy them is you alternative. a to and refined that are the continue local areas, a to and product still the

Kathryn Thompson

Okay, great. Thank much. you very

Steve LeClair

Thanks, Kathryn.

Operator

Thank you, Kathryn.

open. Markets. question, next is Mike, now Mike your Dahl comes from our line have Capital We from RBC

Mike Dahl

in just chain, seen the on work you and levels? in categories taking of down allowing in broaden and is to there the first already could your right in you’ve for supply some that sounds and So to been inventory fourth Good take to allowing you on, around out like where color Could products start quarter management terms seems elaborate you down just a the strategically the My is It normalize if chain. in some give again, which maybe morning. some of and it evolving Thanks kind my to little like what inventories sounded bit. direction can which question it be you questions. supply inventory a levels? might improvement inventory you of is progress those

Steve LeClair

pretty some lead for multiple categories, across saw times many pockets in we good there of some and lead and out areas. of although reduction availability areas where are progress products are extended Mike, these time Yes, still

availability. saw of more gotten we associated the traditional typical and really through So with that. firm has normalization on has there PVC lead getting bread-and-butter-type and product with and diameters certainly, lead the times production many times pre-COVID-type flow back core remained lead the of quarter a into of of the back that times Prices and to near products end

So that. we’re pleased see to

be going We’re to one closely. that watching

particularly The our into sector, other areas hydrants, we that specific get we get ductile iron that real to when pipe. are valves,

with is Some extended meet capacity are of still to lead constrained dealing as still these demand. times,

but in a So supply, to just see we your increases in still other where not only a coming categories, norm. see just things we of specialty valves, have specialty regularities inconsistencies and lines And large different are become couple the those product And very lead price some fittings, from times continuing those that short some lead those diameter-type lot work, with on times. like long along we’re then categories. extended have of product

supply, be to where our product. and stocked our we’re consistent to real able access we’re more items active that appropriately had in be the able inventory manage to still times to here that and we’ve getting approach where customers. seeing take making serve a best lead to optimize then our levels inventory gotten to have that short sure balance So And

Mike Dahl

for budgets see That’s in infrastructure why approach is maybe why better my that some to that you little a to traction at – until wouldn’t fairly on question, initial are resetting some you funds kind on know municipal maintenance a hitting color. of you I improvement but follow-up, the then we municipal Mark, in that actually about remains that more potentially kind steady. timing see very of explained or bit, And year? or in Kathryn’s municipal a funds just flowing little the some the we color just conservative next see maybe as wouldn’t we then that point, is I there offsets issue? think response When you think expectation thank helpful, mentioned and lag

Mark Witkowski

Mike. is muni point Yes, Thanks, clarify, Yes. that the expectation infrastructure and at I spending for we would has growth to potential some XXXX. just incremental definitely for the steady during what see some say

any on experienced would we’ve that be municipal of definitely historically. the kind steady upside – So that growth

we’re forward. how as that’s it thinking about move So we

Mike Dahl

Got it.

Okay, thank you.

Mark Witkowski

Yes. Thanks.

Operator

Mike. you, Thank

Hughes your from is Keith, our have Securities. open. We from Truist Keith next now line question, comes

Keith Hughes

Thank you. Question.

in prices dealing some year-over-year be down. quarter the PVC still PVC a you some the some going with and or Is made basis? comments inflation year-over-year are down latent on of fourth You just coming to are on

Steve LeClair

said elevated we quarter pricing the that third at Keith, through and Hey, remained normalized levels. really

a decrease So we haven’t in seen price PVC.

seasonality watching third not and affects and dealing how deflation end particularly We’re the see availability of the seen we it closely to quarter. PVC how we’re through price have in but lead it times, improved with a

Keith Hughes

guess, I business. Okay. the municipal over to switching And

time of infrastructure some about ‘XX talked sort projects? there in. spending You at the coming start hit Is what clarity of municipality that any of would to really

Steve LeClair

the to scoped. lot that difficult for set of a have budgets of It’s the been tell. Yes. projects Most been have

expansion seeing utilizing plant projects be going have we’ve just a treatment some fact, trickle and to some have seen couple a in. projects now But that that’s those popped we’re seen handful we’ve funds that are early bidding of the So that And in been of far. really that funds so activity. that

watching is still there we’re that So – still closely.

bid in. We’re activity the looking at coming that’s

point, But We’re to funds as activity spring into have bidding budgets into the and start projects a scoping. of we been looking the this like see we up how get said, types handful getting we see starts at think, of picture, real and get to the clear how that project a utilizing those will that those I flowing. allocated funds. I

Keith Hughes

Okay, thank you.

Steve LeClair

Yes.

Operator

Keith. you, Thank

Goldman Joe Joe, your have from is next comes Sachs. Ritchie question, from our We open. line

Vivek Srivastava

Joe wanted on I Srivastava play the dynamics Thanks. to This for understand here. at Ritchie. Maybe Vivek share is market

bidding share last happened gained as provide on label market see time? products much you’ve just to priced maybe some color then front? activity is the stand more can on or share of you private what you some lower that more to market got If the year-to-date aggressive? downturn, where And how follow-up same market just residential question market either And your trade a during the and the during kind down share did

Steve LeClair

Hi, Steve. Vivek, this is

certainly, what far so seen lot against far share, of and access certainly out product, we’ve we’ve access have that gain quantify us in some been there competitors folks. able that get so our say and good given lot scale, what a lines, to difficult amounts market that the I’d and but to along smaller preferential of have size So regional smaller gains, a with our that’s – the is to we allowed exactly competitors with we’ve those experienced terms of it’s limited been share of to

the downturn little a the different dynamic we questions that XX% about differently. talk during last were At as about bit what residential. experienced in through one was then our Very time, we of positioned the earlier You much recession? and I back business shared

almost Now non-res you look at municipal, XX% we’re residential. just XX% it, about XX% over and

enhance categories municipal product We built the to lot opportunities sales. a different. more very sales was exposure help and our and So sustainable that that non-residential

on particularly So the Certainly, got our its shortage while back – through seeing things competitive what that once more for and feet were as frame. that XXXX business were a in is – But area. was real XXXX-’XX that in different environment downturn, lots in it that housing the time those way very than to took get residential then. Right back we over lots. again we’re that developed be a was to replenished through much – a just diversified is now, than started

years different of the in build seen strong, lot development deep and we for and years ago. see So a the creates we’ve recession XX starts demand to bit believe, what pause, than as little we a that and even ago, going past as that long-term environment housing out happened little started is in remain still medium- that to XX to a

Vivek Srivastava

my next that Any your quarter on what focused investment should benefit driver? more aspect two in And about mix then you mix question next super a on And of you. Thank helpful. this more maybe side, was buckets? quarter. the strategic Maybe inventory provide think forward, specifically maybe business we on mix and those medium-term? going mix how really more bit quantification the That’s can

Mark Witkowski

we Yes. of we’ve lot inventory increases the I’d the made, as of that probably these products where inventory to work a bought to optimize $XXX on will of quarter into more that $XXX bracket price million recently more say, the million these fourth get to I’d through that of somewhere in some non-commodity-type XXXX. investments on ahead Vivek, and we’ve continue

those saw at probably the basis we a of I’d mix in points. look XX about terms that the benefit, the margins up you give gross – In I’d QX, as mix say benefit sequentially lot of we QX you from that to picked from quarter. came

we As quarter the right point. to at fourth we of XXX some that of that will probably we more back get point is back happen expect XXXX, through basis kind XXX normal, which see into to part mix that return reset to

Vivek Srivastava

Perfect. you. Thank

Mark Witkowski

Thanks. Alright.

Operator

you, Thank Joe.

your have question, We our line is from Patrick, open. Baumann next JPMorgan. now Patrick from comes

Patrick Baumann

out the next see just Hi, on you the the prior see was give could something free since hoping update perspective? inventory free how you’re I is conversion that that come flow dollar-wise the you it to that quarter normalize you in of thank number $XXX how could talking then but to is as else? you to million we if taken said think what for what Nice year could into question maybe should about level guide think you’ve $XXX down positive, And about on response the morning. that, I see company? think light year, you’re the or to in from to inventory you much normalized Good things? million throughout you. us if wanted to in conversion do the cash an color cash And some

Mark Witkowski

the for Thanks Patrick. Yes, question.

about that of nice operating $XXX should get inventory it that there we EBITDA as XX% say cash expect operating chain some QX. I’d to probably will able of As million and cash yes, as normally you QX, some – $XXX expand opportunity saw, point. look into we to more we to into the is flow. that say, to we to supply way we’d an in convert on be we get I’d think think normalized environments we had million conversion at our XX% our the is back into to to release flow

forward, we XXXX. think if So can capture should of to that conversion there inventory, some as you of that into some upside kind be going rate

Patrick Baumann

one Makes of just question sense. a discussion. And allocation the then last is around capital kind mechanical

a repurchases on the go share evaluating largest owner about members remains how also you board? as share from holder curious that and Just the potential

Mark Witkowski

got as independent Obviously, part of our we’ve we’ve governance, Yes, got independent committee. Patrick. audit directors,

there. go look but So like that, understand appropriate and apply yes, we’d question, a the the look that’s I potential through would transaction to we we transaction how extent the any obviously governance at that. But at to

Patrick Baumann

Understood.

luck. of Best lot. a thanks Okay,

Steve LeClair

Thank you. Yes.

Operator

you, Thank Patrick.

next from from line our Obin your Bank now is Andrew, have We America. Andrew of open. comes question,

David Ridley-Lane

potential bit else on little here, and the starts Index it Architectural XXXX. is non-resi a to Is market for decline morning. – think gaining Do is below benefiting something the non-resi indicators Andrew. This wanted David a that for in like strength non-residential, forecasting see Good Ridley-Lane non-res? regional to on future I from did go ConstructConnect Billings revenue in to explain weakness the some strengthening. in fell We mix non XX you’re you share? suggesting you’re

Steve LeClair

Coast, been Midwest in gains is some we’ve Sun really West Coast for that several areas over couple a there in think position in quarters. pressure us. last paid the strengthened I in our share we’ve think that’s off the some position and our I David, Belt, seen East the in And certainly Yes, while the what is of strengthened

of we We’re which too, work continuing well, drainage a bucketed to see a world. as the storm lot in non-residential

of shared a lot products. of RCP there. a lead specs from earlier into effort areas growth to continuing been other see some in conversion that of are and helping So We’ve we to storm drainage polyethylene the prolonged about little bit

bag products non-residential there fire us a a able good of protection some lot and So accelerate some real storm of gain been different for been we’ve with where and drainage to has mixed areas growth share. products,

David Ridley-Lane

thinking? are transact? of days? ahead weakness thinking residential the these them how are How macro Is change to does potential making And of backdrop more sellers sellers them sort Got way willing it. the

Steve LeClair

pipeline. Well, a from I just healthy had seen pipeline, in quarter, think an M&A as we’ve certainly we’ve you’ve seen last this

It us a to We We’ve getting waterworks years through to challenge over and great last been been everything as a what whole through continue on protection in opportunities the the a Sellers the businesses, a our could of just acquirer almost see to from else you at just pipeline several and for chain encouraged that. very that’s and continues robust been to front. the potential spectrum to and able now and tuck-in space, M&A choice with to strengths between happen the fire of look plays worried from quite supply do distributor many we healthy pipeline. some have COVID this about a bit residential. distributors, are well robust continue between – it be across us

David Ridley-Lane

much. very you Thank

Steve LeClair

David. you, Thank

Operator

Thank David. you,

line your Anthony, from now is We Citi. have open. comes from our next Anthony question, Pettinari

Asher Sohnen

Sohnen Anthony. my Asher Thanks is from for this Hi, on taking questions.

Just question following-up a around on previous share.

do than availability As bit of in seed other and expect a or your of that normalizes, share sticky little kind PVC to of products to that? competitors more of kind some back portion a share you

Steve LeClair

go generally one category as product into different a another certainly, that each series are what we we at categories types Well, look execute project. the availability, with we and that with of see product of projects

So imagine, there there fittings, – is name if is is valves can pipe hydrants, it. you there you

full right have, gain say, doing strength the to the we lines. be competitive project and projects a those is So a provide. And what having complete to advantage I’d still really access by along share that now able to significant we pretty complete ability

for on us. category lot new customers see much still obviously advantage an and as lead that times basis. now proposition to go to go-forward availability back our with may beyond opportunity share couple We through or have with And business and products all their product a the that, while to to here normal. working more see So limited win of we we these one continue continue we’re to value get a have of times available in a our become lead extended specialty right

Asher Sohnen

that Yes, sort then specifically lot of question sense. of is markets. next the a residential makes And my on just Right. end

and Do buoy from is maybe As of demand prices maybe or prices public end your – markets – market for markets end kind of across slowed? you will that to the that slipping try there set kind the see pricing? across

Steve LeClair

we of what space essentially is lot anticipate a well, Yes. too. that used that new into go the development for as lot Certainly, the are in municipal products

to build think not we’re funds sector and So infrastructure the closely flowing. tend I start how swayed be or prices to another. those one watching see by this And

So residential would that there of – help start see some get ability if like that infrastructure funds on up those to as reallocated flow. pick we support we municipal and those the into municipal is seeing bill for budgets the to that some soft, as does be see volume world will may could we increase that

Asher Sohnen

Thanks. That’s over. will I it very helpful. turn

Steve LeClair

you. Thank

Operator

you. Thank

the remarks. further more closing back line. questions for have no We I Steve to will on now pass

Steve LeClair

Core your us all you Main. & today and in interest thank joining Well, again for

our our of to operating We very drive flow. growth are ability performance and proud quarter and third cash profitable

will our remainder our water demand to robust XXXX with our & infrastructure and that confident growth Operator Thank you sustainable key the that are of paired call. in your interest Core in investment growth pipeline M&A achieve beyond. for impending and initiatives the trends and Main. underlying We concludes for U.S. position us

Operator

for concludes and this today’s Ladies you. call. you Thank Thank gentlemen, joining.

disconnect your may You lines. now

Core & Main (CNM) 13 Dec 222022 Q3 Earnings call transcript