Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) American Woodmark is a leading U.S. cabinet manufacturer serving remodeling and new home construction markets, with key customers Home Depot and Lowe's accounting for **48%** of fiscal 2022 net sales - The company is one of the largest cabinet manufacturers in the U.S., with over **10,000 employees** and more than a dozen brands[9](index=9&type=chunk) FY2022 Net Sales by Customer Channel | Customer Channel | Percentage of Net Sales | | :--- | :--- | | Home Centers (Home Depot & Lowe's) | ~48.0% | | Builders | ~39.3% | | Independent Dealers & Distributors | ~12.7% | - The company operates a nationwide network of **17 manufacturing facilities** in the U.S. and Mexico, along with eight primary service centers, enabling a "short supply chain" to its U.S. customers[17](index=17&type=chunk)[33](index=33&type=chunk) - Primary raw materials include hard maple, cherry, and beech lumber, with a portion of components sourced from Asia, introducing supply chain complexity and potential interruptions[19](index=19&type=chunk)[20](index=20&type=chunk) - As of April 30, 2022, the company employed over **10,000 full-time employees**, with an OSHA recordable incident rate of **1.40** during fiscal 2022[25](index=25&type=chunk)[30](index=30&type=chunk) [Item 1A. Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from customer concentration, cyclical housing market dependence, fluctuating costs, supply chain disruptions, ERP implementation, and debt levels - A high concentration of sales to Home Depot and Lowe's, approximately **48.0%** of total net sales in fiscal 2022, presents a significant risk[40](index=40&type=chunk) - The business is highly dependent on U.S. home improvement, remodeling, and new construction activity, sensitive to economic conditions, interest rates, and consumer confidence[42](index=42&type=chunk) - Fluctuating raw material and energy costs, which increased manufacturing costs in fiscal 2022, could materially impact results, with a typical **six to nine-month lag** before price increases can offset these costs[43](index=43&type=chunk)[44](index=44&type=chunk) - The COVID-19 pandemic has adversely affected the business through supply chain disruptions, rising material and logistics costs, and labor absenteeism, with its ultimate future impact remaining uncertain[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - The implementation of a new Enterprise Resource Planning (ERP) system, which went live in the second half of fiscal 2022, subjects the company to risks of business disruption, including impacts on order fulfillment and supply chains[71](index=71&type=chunk) - The company's debt level and the restrictive covenants in its credit agreement could limit its ability to fund operations, capitalize on business opportunities, and compete effectively[65](index=65&type=chunk)[67](index=67&type=chunk) [Item 1B. Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments were reported[83](index=83&type=chunk) [Item 2. Properties](index=16&type=section&id=Item%202.%20Properties) The company owns its corporate office and operates **17 manufacturing facilities**, service centers, and a distribution center across the U.S. and Mexico, through a mix of owned and leased properties - The company owns its corporate office and **eight manufacturing facilities**, while leasing **eight other manufacturing facilities**, one manufacturing/service center, and one distribution center in the U.S. and Mexico[83](index=83&type=chunk) [Item 3. Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, with the aggregate estimated loss from probable or reasonably possible claims deemed immaterial as of April 30, 2022 - The company believes the aggregate estimated loss from various probable or reasonably possible suits and claims was not material as of April 30, 2022[85](index=85&type=chunk) [Item 4. Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reports no mine safety disclosures - No mine safety disclosures were reported[87](index=87&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) American Woodmark's common stock trades on NASDAQ under "AMWD", with no current cash dividends, and has underperformed benchmark indices from 2017 to 2022 - The company's common stock is listed on The NASDAQ Global Select Market under the symbol **"AMWD"**[90](index=90&type=chunk) - The company does not currently pay cash dividends and has no intention to do so in the near future, with future decisions dependent on financial condition and other factors[91](index=91&type=chunk) Stock Performance Comparison (2017-2022) | Index | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | American Woodmark Corporation | $100.00 | $89.40 | $97.90 | $55.90 | $108.20 | $51.00 | | Russell 2000 Index | $100.00 | $111.50 | $116.70 | $97.60 | $170.60 | $141.90 | | S&P Household Durables Index | $100.00 | $92.80 | $85.30 | $80.10 | $157.50 | $120.10 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2022 saw net sales grow to **$1.86 billion**, but gross margin declined to **12.2%** and the company reported a **$29.7 million** net loss, largely due to a **$68.5 million** pension charge, with cash from operations significantly decreasing [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Fiscal 2022 net sales grew **6.5%** to **$1,857.2 million**, but gross margin sharply declined to **12.2%** due to inflation, resulting in a **$29.7 million** net loss, impacted by a **$68.5 million** pension charge Financial Performance Summary (in thousands) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,857,186 | $1,744,014 | 6.5% | | Gross Profit | $226,444 | $322,118 | (29.7)% | | Gross Margin | 12.2% | 18.5% | (6.3 p.p.) | | Net Income (Loss) | ($29,722) | $61,193 | N/A | - The decrease in gross margin was primarily driven by higher material and logistics costs, supply chain disruptions, and increases from wage and retention programs[104](index=104&type=chunk)[110](index=110&type=chunk) - General and administrative expenses decreased by **13.3%** in fiscal 2022, mainly due to controlled spending and reduced incentive costs[113](index=113&type=chunk) [Non-GAAP Financial Measures](index=22&type=section&id=Non-GAAP%20Financial%20Measures) Fiscal 2022 Adjusted EBITDA decreased to **$138.0 million** with a **7.4%** margin, Adjusted EPS fell to **$3.29**, and free cash flow was negative **$(27.1) million**, reflecting lower gross profit and a pension settlement charge Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net Income (Loss) (GAAP) | $(29,722) | $61,193 | $73,653 | | Pension Settlement, net | $68,473 | — | — | | Net loss on debt forgiveness | — | $13,792 | — | | **Adjusted EBITDA (Non-GAAP)** | **$137,957** | **$226,504** | **$234,409** | | **Adjusted EBITDA Margin** | **7.4%** | **13.0%** | **14.2%** | Adjusted EPS per Diluted Share | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Diluted EPS (GAAP) | $(1.79) | $3.59 | $4.34 | | **Adjusted EPS (Non-GAAP)** | **$3.29** | **$6.54** | **$6.52** | Free Cash Flow (in thousands) | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Cash provided by operating activities | $24,445 | $151,763 | $177,542 | | Less: Capital expenditures | $51,582 | $46,318 | $40,739 | | **Free Cash Flow** | **$(27,137)** | **$105,445** | **$136,803** | [Outlook for Fiscal 2023](index=26&type=section&id=Outlook%20for%20Fiscal%202023) For fiscal 2023, the company projects mid-to-high teens net sales growth and high single-digit to low double-digit adjusted EBITDA margin, driven by price increases and increased capital investments for system upgrades - Expects **mid-teens to high-teens** net sales growth rate for fiscal 2023 versus fiscal 2022[128](index=128&type=chunk) - Projects an adjusted EBITDA margin for fiscal 2023 to range from **high single-digits to low double-digits**, with margin expansion expected through the year as pricing actions are realized[128](index=128&type=chunk) - Capital investment will increase to a range of **3.0% to 3.5% of net sales** to support ERP implementation, digital investments, and manufacturing facility upgrades[129](index=129&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) As of April 30, 2022, cash and equivalents decreased to **$22.3 million**, total long-term debt was **$508.9 million**, and cash from operations significantly declined to **$24.4 million** Liquidity Position (as of April 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $22.3 million | $91.0 million | | Total long-term debt | $508.9 million | $521.7 million | | Long-term debt to total capital | 39.6% | 40.4% | - Cash provided by operating activities decreased to **$24.4 million** in fiscal 2022 from **$151.8 million** in fiscal 2021, primarily due to lower net income and unfavorable changes in working capital[136](index=136&type=chunk) - The company repurchased **$25.0 million** of its common stock during fiscal 2022 under a **$100 million** authorization[141](index=141&type=chunk) [Critical Accounting Policies and Estimates](index=29&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies include revenue recognition and annual goodwill impairment testing, with goodwill at risk due to economic volatility; the company also terminated its defined benefit pension plan in fiscal 2022 - Revenue recognition involves estimating when product control transfers to the customer, requiring a lag factor based on historical shipping and delivery data[145](index=145&type=chunk) - The company's defined benefit pension plan was terminated effective **December 31, 2020**, with benefits distributed on **December 2, 2021**[147](index=147&type=chunk) - Goodwill is tested for impairment annually, and management notes that economic volatility, supply chain issues, and stock price decline could put goodwill at risk of impairment in fiscal 2023 or beyond[149](index=149&type=chunk)[151](index=151&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from inflation, commodity prices, and interest rate changes, mitigating interest rate risk with swaps hedging **$200 million** of variable-rate debt - The company is subject to interest rate risk on its variable-rate debt; a hypothetical **100 basis point** increase would raise annual interest expense by approximately **$3.1 million**[155](index=155&type=chunk) - In **May 2021**, the company entered into interest rate swaps to hedge approximately **$200 million** of its variable interest rate debt[155](index=155&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=32&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for fiscal year 2022, including a change to FIFO inventory valuation, and an auditor's report with an unqualified opinion on financials but an adverse opinion on internal controls due to material weaknesses [Consolidated Financial Statements](index=32&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show total assets decreased to **$1.63 billion** in FY2022, with a net loss of **$29.7 million** and cash flow from operations significantly declining to **$24.4 million** Consolidated Balance Sheet Data (in thousands) | Account | April 30, 2022 | April 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $22,325 | $91,071 | | Total Current Assets | $428,657 | $409,965 | | Total Assets | $1,632,496 | $1,654,399 | | Total Current Liabilities | $216,228 | $220,447 | | Long-term debt, less current maturities | $506,732 | $513,450 | | Total Shareholders' Equity | $772,883 | $756,238 | Consolidated Statement of Operations Data (in thousands) | Account | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $1,857,186 | $1,744,014 | $1,650,333 | | Gross Profit | $226,444 | $322,118 | $326,562 | | Operating Income | $36,159 | $114,738 | $130,135 | | Net Income (Loss) | $(29,722) | $61,193 | $73,653 | | Diluted EPS | $(1.79) | $3.59 | $4.34 | Consolidated Statement of Cash Flows Data (in thousands) | Account | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $24,445 | $151,763 | $177,542 | | Net Cash Used by Investing Activities | $(51,572) | $(42,429) | $(38,916) | | Net Cash Used by Financing Activities | $(41,619) | $(115,322) | $(99,223) | | Net (Decrease) Increase in Cash | $(68,746) | $(5,988) | $39,403 | [Notes to Consolidated Financial Statements](index=37&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including a change to FIFO inventory valuation, debt structure with **$500 million** revolving and **$250 million** term loans, pension plan termination with a **$68.3 million** charge, and customer concentration - Effective **May 1, 2021**, the company changed its inventory valuation method from LIFO to FIFO, retrospectively adjusting all prior periods for a more uniform and reflective inventory value[180](index=180&type=chunk)[181](index=181&type=chunk) - As of **April 30, 2022**, the company had **$237.5 million** outstanding on its Term Loan Facility and **$263.0 million** outstanding on its Revolving Facility, with approximately **$225.3 million** in available capacity[227](index=227&type=chunk) - The company's pension plan was terminated effective **December 31, 2020**, with benefits distributed on **December 2, 2021**, resulting in a settlement charge of **$68.5 million** in fiscal 2022[254](index=254&type=chunk)[256](index=256&type=chunk) Net Sales by Channel (in thousands) | Channel | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Home center retailers | $890,554 | $848,898 | $768,043 | | Builders | $731,048 | $673,307 | $668,765 | | Independent dealers & distributors | $235,584 | $221,809 | $213,525 | | **Total Net Sales** | **$1,857,186** | **$1,744,014** | **$1,650,333** | [Report of Independent Registered Public Accounting Firm](index=60&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting due to material weaknesses in IT change management and ERP system implementation controls - The auditor issued an **unqualified opinion** on the consolidated financial statements[302](index=302&type=chunk) - The auditor issued an **ADVERSE opinion** on the effectiveness of the Company's internal control over financial reporting as of **April 30, 2022**[303](index=303&type=chunk)[312](index=312&type=chunk) - A material weakness was identified in general information technology controls (GITCs) related to IT change management for the Made to Order (MTO) business, where changes were not consistently tested and approved[315](index=315&type=chunk) - A second material weakness was identified in GITCs related to the new ERP system, stemming from ineffective risk assessment and monitoring during its implementation[316](index=316&type=chunk) [Item 9A. Controls and Procedures](index=65&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of April 30, 2022, due to two material weaknesses in IT change management and ERP system implementation controls, for which remediation plans are outlined - Management concluded that disclosure controls and procedures were not effective as of **April 30, 2022**, due to two material weaknesses in internal control over financial reporting[323](index=323&type=chunk) - Material Weakness 1: Ineffective IT change management controls within the Made to Order (MTO) business environment, including improper segregation of duties and lack of timely testing and approval of changes[327](index=327&type=chunk) - Material Weakness 2: Ineffective controls related to the new ERP system implementation, including inadequate user access controls and monitoring, stemming from ineffective risk assessment[328](index=328&type=chunk) - Remediation plans include deploying monitoring tools, removing developer access to production environments, enhancing review procedures, and conducting an organizational assessment for the ERP system[331](index=331&type=chunk)[332](index=332&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=66&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the Registrant's definitive Proxy Statement[334](index=334&type=chunk)[335](index=335&type=chunk) [Item 11. Executive Compensation](index=67&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and director compensation is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the Registrant's definitive Proxy Statement[336](index=336&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=67&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference, with **301,844** securities issuable from restricted stock units and **508,968** available for future issuance under equity plans as of April 30, 2022 Equity Compensation Plan Information as of April 30, 2022 | Plan Category | Securities to be Issued Upon Exercise (a) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 301,844 | 508,968 | | Equity compensation plans not approved by security holders | — | — | | **Total** | **301,844** | **508,968** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=68&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the Registrant's definitive Proxy Statement[340](index=340&type=chunk) [Item 14. Principal Accounting Fees and Services](index=68&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding fees paid to and services provided by the principal accounting firm is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the Registrant's definitive Proxy Statement[341](index=341&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=68&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including consolidated financial statements incorporated by reference from Item 8, and various governance and executive agreements - The consolidated financial statements of the company are incorporated by reference to Item 8 of the report[342](index=342&type=chunk) - Financial Statement Schedule II – Valuation and Qualifying Accounts for the three-year period ended **April 30, 2022**, is filed with this report[342](index=342&type=chunk) - Exhibits filed include governance documents, credit agreements, executive employment agreements, and certifications required by the Sarbanes-Oxley Act[343](index=343&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk)

American Woodmark Corporation (NASDAQ:AMWD) Q4 2022 Earnings Call Transcript May 26, 2022 11:00 AM ET Company Participants Scott Culbreth - President & CEO Paul Joachimczyk - VP & CFO Conference Call Participants Julio Romero - Sidoti & Company Garik Shmois - Loop Capital Steven Ramsey - Thompson Research Group Josh Chan - Baird Collin Verron - Jefferies McClaran Hayes - Zelman & Associates Operator Good day and welcome to the American Woodmark Corporation Fourth Fiscal Quarter 2022 Conference Call. Today's ...

American Woodmark Corporation (NASDAQ:AMWD) Q3 2022 Earnings Conference Call February 24, 2022 11:00 AM ET Company Participants Paul Joachimczyk - Vice President & Chief Financial Officer Scott Culbreth - President & Chief Executive Officer Conference Call Participants Adam Baumgarten - Zelman Julio Romero - Sidoti & Company Steven Ramsey - Thompson Research Group Josh Chan - Baird Operator Good day, everyone and welcome to the American Woodmark Corporation Third Fiscal Quarter 2022 Conference Call. Today's ...

Financial Performance - The Company's total net sales increased by 6.4% to $459.7 million in the third quarter of fiscal 2022 compared to the same period in fiscal 2021, and by 6.7% to $1,355.5 million for the first nine months of fiscal 2022 [99]. - Remodeling sales increased by 4.1% in the third quarter and 5.5% in the first nine months of fiscal 2022 compared to the prior year, with independent dealer and distributor channel sales up by 5.5% and home center channel sales up by 3.8% in the third quarter [96]. - New construction sales rose by 10.3% in the third quarter and 8.6% in the first nine months of fiscal 2022 compared to the same periods in fiscal 2021 [97]. - Adjusted EPS per diluted share for the third quarter of fiscal 2022 was $0.60, down from $1.57 in the same quarter of the prior fiscal year [113]. - Adjusted EBITDA for the third quarter of fiscal 2022 was $30.6 million, representing 6.6% of net sales, compared to $55.7 million or 12.9% of net sales for the same quarter of the prior fiscal year [110]. - Net income (loss) for Q3 fiscal 2022 was $(49.3) million compared to $18.4 million in Q3 fiscal 2021 [109]. - Net sales increased by 6.7% during the first nine months of fiscal 2022, totaling $1,355.5 million compared to $1,270.6 million in the same period of the prior year [109]. Expenses and Profitability - The Company incurred a net loss of $49.3 million in the third quarter of fiscal 2022, compared to a net income of $18.4 million in the same quarter of the prior year, and a net loss of $44.2 million for the first nine months of fiscal 2022 compared to a net income of $57.6 million in the prior year [98]. - Gross profit margin for the third quarter of fiscal 2022 was 11.3%, down from 17.9% in the same period of fiscal 2021, primarily due to higher material and logistics costs [100]. - General and administrative expenses decreased to 5.1% of net sales in the third quarter of fiscal 2022, compared to 6.1% in the same period of fiscal 2021, driven by higher sales leverage and lower employee incentive costs [101]. Market Conditions - The inflation rate increased to 7.5% as of January 2022, the highest since February 1982, compared to 1.4% in January 2021 [95]. - The unemployment rate decreased to 4.0% as of January 2022, down from 6.3% in January 2021 [94]. - The median price per existing home sold rose by 14.1% during the fourth calendar quarter of 2021 compared to the same period one year ago, while existing home sales decreased by 11.9% [94]. - The Company believes the cabinet remodeling market increased low double-digits during the third quarter of fiscal 2022 versus the prior year quarter [95]. Debt and Cash Management - The company had $0.9 million in cash on hand as of January 31, 2022, with access to an additional $227.0 million under its revolving credit facility [118]. - Total long-term debt was $508.7 million as of January 31, 2022, a decrease of $13.0 million from April 30, 2021 [118]. - The ratio of long-term debt to total capital was 40.3% as of January 31, 2022, compared to 40.4% at April 30, 2021 [118]. - Cash used by operating activities in the first nine months of fiscal 2022 was $13.1 million, a significant decrease from cash provided of $107.5 million in the same period of fiscal 2021 [123]. - Net cash used for investing activities was $35.8 million in the first nine months of fiscal 2022, compared to $29.4 million in the same period of fiscal 2021 [124]. - Net cash used by financing activities was $41.4 million in the first nine months of fiscal 2022, down from $83.4 million in the prior year [124]. - Cash flow from operations and accumulated cash are expected to be sufficient to support working capital requirements and service existing debt obligations for the remainder of fiscal 2022 [127]. Future Outlook - The company expects full year fiscal 2022 sales to grow in the mid-single digits compared to the prior year [114]. - The company plans to maintain its capital investment rate at approximately 2.7% of net sales for the full fiscal year [114]. - The company anticipates that pricing actions will deliver over $55 million in the fiscal fourth quarter to help offset inflationary costs [114]. - The company continues to monitor key metrics such as housing starts and consumer confidence as indicators of demand for its products [115]. Share Repurchase - The company repurchased a total of 299,781 common shares for an aggregate purchase price of $25.0 million during the first nine months of fiscal 2022 [126]. - As of January 31, 2021, $75.0 million remained available for stock repurchases authorized by the Board [126]. Accounting Policies - There have been no significant changes to the Company's critical accounting policies as disclosed in the Annual Report for the fiscal year ended April 30, 2021 [129].

American Woodmark Corporation (NASDAQ:AMWD) Q2 2022 Earnings Conference Call November 23, 2021 11:00 AM ET Company Participants Paul Joachimczyk - VP and CFO Scott Culbreth - President and CEO Conference Call Participants Garik Shmois - Loop Capital Steven Ramsey - Thompson Research Group Adam Baumgarten - Zelman Collin Verron - Jefferies Josh Chan - Baird Julio Romero - Sidoti and Company Operator Good day and welcome to the American Woodmark Corporation Second Fiscal Quarter 2022 Conference Call. Today's ...

Financial Data and Key Metrics Changes - Net sales for the first fiscal quarter were $443 million, representing a 13.5% increase year-over-year, including $3 million from price increases [16][18] - Adjusted EBITDA was $32.1 million, with EBITDA margins at 7.3%, down from 14.5% in the same quarter last year [19] - Net income decreased to $3 million or $0.18 per diluted share, compared to $16.1 million or $0.94 per diluted share in the prior year [18][19] - Gross profit margin was 12.1%, down from 20.4% year-over-year, impacted by increased healthcare costs and inflation in material and logistics [19][20] Business Line Data and Key Metrics Changes - New construction sales increased by 8.5% year-over-year, with Timberlake direct business showing positive growth in units [10][16] - The remodel business, including home center and independent dealer/distributor channels, saw revenue up 17.1%, with home centers increasing by 20.3% [11][16] - Backlog increased significantly due to labor traction and retention issues, impacting production capabilities [9][10] Market Data and Key Metrics Changes - The overall market for new construction saw single-family home starts up 47.6% year-over-year, while completions increased by 4.7% [17] - Demand in both remodel and new construction channels remains strong, particularly in the value segment [11][12] Company Strategy and Development Direction - The company plans to continue investing in production capabilities, outsourcing staffing additions, and productivity improvements to meet demand [9][12] - A focus on digital online capabilities and customer experience enhancements is part of the long-term strategy [15][44] - The company is executing a new cloud-based ERP system expected to go live in February 2022, aimed at improving operational efficiency [41][42] Management's Comments on Operating Environment and Future Outlook - Management noted that inflationary pressures from materials and logistics are expected to continue, with a lag in realizing price increases [12][18] - The company anticipates sequential margin improvement over the next three quarters, with the fourth quarter expected to show the highest margins of the fiscal year [22][59] - There is optimism regarding labor availability as stimulus payments end, potentially improving employment levels [37][40] Other Important Information - Free cash flow was negative at $8.1 million for the quarter, a decrease from positive free cash flows of $32.2 million in the prior year [21] - The company paid down $29.1 million of total debt during the quarter and repurchased $25 million worth of shares [21] Q&A Session Summary Question: Pricing secured in the quarter - Management acknowledged that the $3 million in pricing was below expectations due to an increasing backlog, impacting realization [26][27] Question: Sales expectations for the full year - Management indicated that pricing will be meaningful for the full year, with expectations for $25 million in price improvement in the second half [34][35] Question: Transportation costs and hardwood pricing - Management reported ongoing high transportation costs and no relief in hardwood prices, with significant increases in import transportation rates [30][31] Question: Backlogs by channel - Management noted that backlogs are elevated across all channels, with no significant differentiation impacting margins [50][51] Question: Sequential margin improvement - Management expects sequential margin improvement of 50 to 100 basis points in the next two quarters, with a more significant improvement in Q4 [59]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended July 31, 2021 [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instrument details, and other relevant disclosures for the period ended July 31, 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity as of July 31, 2021, and April 30, 2021 Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2021 | April 30, 2021 | | :---------------------------------- | :------------ | :------------- | | Total Current Assets | $355,420 | $409,965 | | Total Assets | $1,589,585 | $1,654,399 | | Total Current Liabilities | $198,817 | $220,447 | | Long-term Debt, less current maturities | $491,412 | $513,450 | | Total Shareholders' Equity | $737,101 | $756,238 | - Cash and cash equivalents decreased significantly from **$91,071 thousand** at April 30, 2021, to **$27,818 thousand** at July 31, 2021[6](index=6&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section presents the company's financial performance, including net sales, gross profit, operating income, and net income for the three months ended July 31, 2021 and 2020 Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 (As Adjusted) | | :---------------------------------- | :------------------------------- | :--------------------------------------------- | | Net Sales | $442,581 | $390,087 | | Gross Profit | $53,443 | $79,567 | | Operating Income | $6,456 | $26,226 | | Net Income | $2,981 | $16,059 | | Basic Net Earnings Per Share | $0.18 | $0.95 | - Net sales increased by **13.5%** year-over-year, while gross profit decreased by **32.8%** and net income decreased by **81.4%** for the three months ended July 31, 2021, compared to the same period in 2020[9](index=9&type=chunk)[104](index=104&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income items for the three months ended July 31, 2021 and 2020 Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 (As Adjusted) | | :---------------------------------- | :------------------------------- | :--------------------------------------------- | | Net Income | $2,981 | $16,059 | | Change in pension benefits, net of deferred taxes | $373 | $327 | | Change in cash flow hedges (swap) | $(573) | $— | | Total Comprehensive Income | $2,781 | $16,386 | [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section details changes in the company's shareholders' equity, including common stock, retained earnings, and accumulated other comprehensive loss Condensed Consolidated Statements of Shareholders' Equity (in thousands) | Metric | July 31, 2021 | April 30, 2021 | | :---------------------------------- | :------------ | :------------- | | Common Stock | $359,732 | $362,524 | | Retained Earnings | $432,137 | $448,282 | | Accumulated Other Comprehensive Loss | $(54,768) | $(54,568) | | Total Shareholders' Equity | $737,101 | $756,238 | - The company repurchased **299,781 common shares** for **$25.0 million** during the three months ended July 31, 2021, contributing to a decrease in total shareholders' equity[15](index=15&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended July 31, 2021 and 2020 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 (As Adjusted) | | :---------------------------------- | :------------------------------- | :--------------------------------------------- | | Net Cash Provided by Operating Activities | $6,588 | $40,000 | | Net Cash Used by Investing Activities | $(14,706) | $(7,836) | | Net Cash Used by Financing Activities | $(55,135) | $(1,168) | | Net Decrease in Cash and Cash Equivalents | $(63,253) | $30,996 | | Cash and Cash Equivalents, End of Period | $27,818 | $128,055 | - The significant increase in cash used by financing activities was primarily due to **$29.1 million** in long-term debt payments and **$25.0 million** in common stock repurchases during the first three months of fiscal 2022[125](index=125&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, financial instrument details, and other relevant disclosures supporting the condensed consolidated financial statements [Note A--Basis of Presentation](index=9&type=section&id=Note%20A--Basis%20of%20Presentation) This note outlines the basis of financial statement presentation, including the change in inventory valuation method and the impact of the COVID-19 pandemic - The company retrospectively changed its inventory valuation method from LIFO to FIFO effective May 1, 2021, to achieve uniformity, improve comparability, and better reflect current inventory value and physical flow[24](index=24&type=chunk)[26](index=26&type=chunk) Impact of LIFO to FIFO Accounting Change (Three Months Ended July 31, 2021, in thousands) | Metric | Computed under previous method | Effect of Change | Reported under FIFO | | :---------------------------------- | :----------------------------- | :--------------- | :------------------ | | Cost of Sales and Distribution | $391,342 | $(2,204) | $389,138 | | Net Income | $1,352 | $1,629 | $2,981 | | Basic Net Earnings Per Share | $0.08 | $0.10 | $0.18 | | Inventories (as of July 31, 2021) | $179,590 | $2,204 | $181,794 | | Retained Earnings (as of July 31, 2021) | $430,508 | $1,629 | $432,137 | - The COVID-19 pandemic continues to negatively impact the company through decreased demand, supply chain disruptions, material availability, transportation delays, and challenges in hiring and retaining employees[23](index=23&type=chunk)[99](index=99&type=chunk) [Note B--New Accounting Pronouncements](index=12&type=section&id=Note%20B--New%20Accounting%20Pronouncements) This note discusses the impact of recently adopted and issued accounting pronouncements on the company's financial statements - The company does not expect ASU 2020-04 (Reference Rate Reform) to materially impact its consolidated financial statements, despite identifying LIBOR-influenced financial instruments[42](index=42&type=chunk) - The adoption of ASU 2019-12 (Income Taxes) effective May 1, 2021, did not have an impact on the company's financial position or results of operations[43](index=43&type=chunk) [Note C--Net Earnings Per Share](index=12&type=section&id=Note%20C--Net%20Earnings%20Per%20Share) This note provides a detailed calculation of basic and diluted net earnings per share for the periods presented Net Earnings Per Share (in thousands, except per share amounts) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 (As Adjusted) | | :---------------------------------- | :------------------------------- | :--------------------------------------------- | | Net Income | $2,981 | $16,059 | | Denominator for Basic EPS (weighted-average shares) | 16,661 | 16,937 | | Denominator for Diluted EPS (weighted-average shares) | 16,716 | 17,013 | | Basic Net Earnings Per Share | $0.18 | $0.95 | | Diluted Net Earnings Per Share | $0.18 | $0.94 | [Note D--Stock-Based Compensation](index=13&type=section&id=Note%20D--Stock-Based%20Compensation) This note details the company's stock-based compensation plans, including RSU grants and recognized expenses - During the three months ended July 31, 2021, the company granted **57,476 performance-based RSUs** and **30,984 service-based RSUs** to key employees, all cliff-vesting three years from the grant date[46](index=46&type=chunk) Stock-Based Compensation Expense (in thousands) | Allocation | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Cost of Sales and Distribution | $349 | $300 | | Selling and Marketing Expenses | $319 | $252 | | General and Administrative Expenses | $509 | $409 | | Total Stock-Based Compensation Expense | $1,177 | $961 | - The company also granted cash-settled performance-based RSTUs (**5,794 units**) and service-based RSTUs (**3,096 units**) to junior-level employees, with a recognized expense of **$0.1 million** for the three months ended July 31, 2021[48](index=48&type=chunk)[49](index=49&type=chunk) [Note E--Customer Receivables](index=14&type=section&id=Note%20E--Customer%20Receivables) This note presents the breakdown of customer receivables, including allowances for doubtful accounts, returns, and discounts Customer Receivables (in thousands) | Component | July 31, 2021 | April 30, 2021 | | :---------------------------------- | :------------ | :------------- | | Gross Customer Receivables | $139,498 | $156,187 | | Less: Allowance for Doubtful Accounts | $(220) | $(331) | | Less: Allowance for Returns and Discounts | $(8,542) | $(8,990) | | Net Customer Receivables | $130,736 | $146,866 | [Note F--Inventories](index=14&type=section&id=Note%20F--Inventories) This note provides a detailed breakdown of inventory components, including raw materials, work-in-process, and finished goods Inventories (in thousands) | Component | July 31, 2021 | April 30, 2021 (As Adjusted) | | :---------------------------------- | :------------ | :--------------------------- | | Raw Materials | $80,700 | $63,384 | | Work-in-Process | $55,875 | $51,176 | | Finished Goods | $45,219 | $43,607 | | Total Inventories | $181,794 | $158,167 | - Total inventories increased by **$23.6 million** from April 30, 2021, to July 31, 2021, primarily driven by an increase in raw materials[51](index=51&type=chunk) [Note G--Property, Plant and Equipment](index=14&type=section&id=Note%20G--Property,%20Plant%20and%20Equipment) This note details the company's property, plant, and equipment, including depreciation and amortization expenses Property, Plant and Equipment (in thousands) | Component | July 31, 2021 | April 30, 2021 | | :---------------------------------- | :------------ | :------------- | | Land | $4,431 | $4,431 | | Buildings and Improvements | $116,851 | $116,103 | | Machinery and Equipment | $318,651 | $315,371 | | Construction in Progress | $30,150 | $22,669 | | Total (Net) | $206,932 | $204,002 | - Depreciation and amortization expense for property, plant and equipment was **$9.6 million** for the three months ended July 31, 2021, a decrease from **$11.6 million** in the prior year, which included accelerated depreciation from a plant closure[53](index=53&type=chunk) [Note H--Intangibles](index=15&type=section&id=Note%20H--Intangibles) This note outlines the company's customer relationship intangibles, including accumulated amortization and related expenses Customer Relationship Intangibles (in thousands) | Component | July 31, 2021 | April 30, 2021 | | :---------------------------------- | :------------ | :------------- | | Customer Relationship Intangibles | $274,000 | $274,000 | | Less Accumulated Amortization | $(163,639) | $(152,222) | | Total (Net) | $110,361 | $121,778 | - Amortization expense for customer relationship intangibles was **$11.4 million** for the three months ended July 31, 2021, amortized over an estimated useful life of six years[54](index=54&type=chunk) [Note I--Product Warranty](index=15&type=section&id=Note%20I--Product%20Warranty) This note describes the company's product warranty liability, including accruals and settlements based on historical claims Product Warranty Liability Reconciliation (in thousands) | Metric | Three Months Ended July 31, 2020 | | :---------------------------------- | :------------------------------- | | Beginning Balance at May 1 | $3,753 | | Accrual | $4,303 | | Settlements | $(4,138) | | Ending Balance at July 31 | $3,918 | - The company estimates warranty costs based on historical claims and revenues, with adjustments made for differences between actual and estimated experience[55](index=55&type=chunk) [Note J--Pension Benefits](index=15&type=section&id=Note%20J--Pension%20Benefits) This note details the company's pension plan, including termination plans, net periodic pension benefit costs, and expected contributions - The company filed an application to terminate its defined benefit pension plan effective December 31, 2020, expecting to incur approximately **$1.6 million** in termination costs[58](index=58&type=chunk) Net Periodic Pension Benefit Cost (in thousands) | Component | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Interest Cost | $1,349 | $1,165 | | Expected Return on Plan Assets | $(1,543) | $(2,107) | | Recognized Net Actuarial Loss | $499 | $440 | | Net Periodic Pension Benefit | $305 | $(502) | - The company expects to contribute **$2.5 million** to the Plan during the remainder of fiscal 2022, having made no contributions in the first three months of fiscal 2022 or in fiscal 2021[60](index=60&type=chunk) [Note K--Fair Value Measurements](index=16&type=section&id=Note%20K--Fair%20Value%20Measurements) This note explains the fair value measurement of financial instruments, categorizing them into Level 1, 2, and 3 inputs Fair Value of Assets and Liabilities (in thousands, as of July 31, 2021) | Instrument | Level 1 | Level 2 | Level 3 | | :---------------------------------- | :------ | :------ | :------ | | **Assets:** | | | | | Mutual Funds | $503 | $— | $— | | Foreign Exchange Forward Contracts | $— | $350 | $— | | **Liabilities:** | | | | | Interest Rate Swap Contracts | $— | $573 | $— | - The company classifies financial instruments into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs) for fair value measurement[61](index=61&type=chunk)[62](index=62&type=chunk) [Note L--Loans Payable and Long-Term Debt](index=17&type=section&id=Note%20L--Loans%20Payable%20and%20Long-Term%20Debt) This note details the company's credit agreement, outstanding debt, available capacity, and compliance with financial covenants - On April 22, 2021, the company amended and restated its credit agreement, establishing a **$500 million** revolving loan facility and a **$250 million** term loan facility, both maturing on April 22, 2026[67](index=67&type=chunk) Outstanding Debt and Available Capacity (as of July 31, 2021, in millions) | Facility | Outstanding Amount | Available Capacity | | :---------------------------------- | :----------------- | :----------------- | | Term Loan Facility | $237.5 | N/A | | Revolving Facility | $248 | $243 | | Total Long-Term Debt (including current maturities) | $493.5 | N/A | - The company was in compliance with all financial covenants of the A&R Credit Agreement as of July 31, 2021, which include maintaining a Consolidated Interest Coverage Ratio of no less than **2.00 to 1.00** and a Total Net Leverage Ratio of no greater than **4.00 to 1.00**[70](index=70&type=chunk)[71](index=71&type=chunk) [Note M--Derivative Financial Instruments](index=18&type=section&id=Note%20M--Derivative%20Financial%20Instruments) This note describes the company's use of interest rate swaps and foreign exchange forward contracts to manage market risks - On May 28, 2021, the company entered into four interest rate swaps with an aggregate notional amount of **$200 million** to hedge variable rate interest payments under the Term Loan Facility, converting a portion to a fixed rate of **0.5980%**[73](index=73&type=chunk) - During the quarter ended July 31, 2021, unrealized losses of **$0.6 million** were recorded in other comprehensive income, and **$0.2 million** of realized losses were reclassified to interest expense from these swaps[75](index=75&type=chunk) - As of July 31, 2021, the company held foreign exchange forward contracts to purchase **516.4 million Mexican pesos**, maturing from August 2021 to April 2022, to manage currency fluctuations[76](index=76&type=chunk) [Note N--Income Taxes](index=19&type=section&id=Note%20N--Income%20Taxes) This note provides information on the company's effective income tax rate and the factors influencing its changes Effective Income Tax Rate | Period | Effective Tax Rate | | :---------------------------------- | :----------------- | | Three Months Ended July 31, 2021 | 29.2% | | Three Months Ended July 31, 2020 | 26.6% | - The effective income tax rate increased to **29.2%** for the three months ended July 31, 2021, from **26.6%** in the prior year, primarily due to state income taxes and the impact of discrete items on lower pretax income[77](index=77&type=chunk) [Note O--Revenue Recognition](index=19&type=section&id=Note%20O--Revenue%20Recognition) This note details the company's net sales by major sales distribution channels for the periods presented Net Sales by Major Sales Distribution Channels (in thousands) | Channel | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Home Center Retailers | $209,324 | $173,995 | | Builders | $178,238 | $164,348 | | Independent Dealers and Distributors | $55,019 | $51,744 | | Total Net Sales | $442,581 | $390,087 | [Note P--Concentration of Risks](index=19&type=section&id=Note%20P--Concentration%20of%20Risks) This note identifies significant customer concentrations in gross customer receivables and net sales Customer Concentration (Percentage of Gross Customer Receivables) | Customer | July 31, 2021 | July 31, 2020 | | :---------------------------------- | :------------ | :------------ | | Customer A | 31.2% | 29.0% | | Customer B | 19.6% | 25.1% | Customer Concentration (Percentage of Net Sales) | Customer | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Customer A | 31.8% | 27.7% | | Customer B | 15.5% | 16.9% | [Note Q--Leases](index=19&type=section&id=Note%20Q--Leases) This note provides details on the company's lease costs, weighted-average lease terms, discount rates, and future lease payments Components of Lease Costs (in thousands) | Lease Type | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Finance Lease Cost (Reduction in ROU assets) | $287 | $98 | | Finance Lease Cost (Interest on lease liabilities) | $25 | $14 | | Operating Lease Cost | $6,955 | $6,706 | Weighted Average Lease Terms and Discount Rates (as of July 31, 2021) | Lease Type | Remaining Lease Term (Years) | Discount Rate | | :---------------------------------- | :--------------------------- | :------------ | | Finance Leases | 2.79 | 2.94% | | Operating Leases | 6.39 | 3.19% | Future Lease Payments (in thousands, Year Ending April 30) | Year | Operating Leases | Financing Leases | | :---------------------------------- | :--------------- | :--------------- | | 2022 | $17,969 | $1,745 | | 2023 | $23,805 | $1,962 | | 2024 | $21,817 | $1,579 | | 2025 | $18,529 | $377 | | 2026 | $18,296 | $102 | | Thereafter | $40,956 | $— | | Total Lease Liability | $127,552 | $5,544 | [Note R--Restructuring](index=21&type=section&id=Note%20R--Restructuring) This note outlines the restructuring charges incurred by the company, primarily related to plant closures and workforce reductions - The company recognized pre-tax restructuring charges of **$0.3 million** in the first quarter of fiscal 2022, related to the closure of its Humboldt, Tennessee manufacturing plant[91](index=91&type=chunk) - In the prior fiscal year, the company incurred **$1.7 million** in restructuring charges for workforce reductions and **$1.8 million** for the Humboldt plant closure[90](index=90&type=chunk)[91](index=91&type=chunk) [Note S--Other Information](index=21&type=section&id=Note%20S--Other%20Information) This note addresses routine legal suits and claims, confirming that the aggregate loss from probable claims is not material - The company is involved in routine legal suits and claims, but believes the aggregate range of loss from probable or reasonably possible claims was not material as of July 31, 2021[92](index=92&type=chunk)[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of the company's business, the impact of COVID-19, a financial overview including market trends and sales performance, detailed results of operations, and a discussion of non-GAAP financial measures, outlook, liquidity, capital resources, and critical accounting policies [Forward-Looking Statements](index=21&type=section&id=Forward-Looking%20Statements) This section highlights various risks and uncertainties that could impact future financial results, including macroeconomic factors and supply chain disruptions - The report contains forward-looking statements subject to various risks, including loss of key customers, negative macroeconomic factors (housing market, economy, unemployment), competition, raw material costs, and supply chain disruptions[94](index=94&type=chunk) - Other significant risks include the impact of COVID-19, inability to develop new products, manufacturing inefficiencies, goodwill impairment, information system interruptions, regulatory compliance costs, and labor developments[94](index=94&type=chunk) [Overview](index=22&type=section&id=Overview) This section provides a brief description of American Woodmark Corporation's business, products, and operational footprint - American Woodmark Corporation manufactures and distributes kitchen, bath, and home organization products for remodeling and new home construction markets, operating **17 manufacturing facilities** and **eight primary service centers**[97](index=97&type=chunk)[98](index=98&type=chunk) [COVID-19](index=23&type=section&id=COVID-19) This section discusses the ongoing negative impacts of the COVID-19 pandemic on the company's operations, demand, and supply chain - The COVID-19 pandemic negatively impacted the company's business operations and financial results, causing decreased product demand, supply chain disruptions, material availability issues, transportation delays, and challenges in hiring and retaining employees[99](index=99&type=chunk) [Financial Overview](index=23&type=section&id=Financial%20Overview) This section summarizes key macroeconomic trends and the company's overall sales performance and net income for the quarter Key Macroeconomic Trends (Q1 Fiscal 2022 vs. Prior Year) | Metric | July 2021 | July 2020 | Change | | :---------------------------------- | :-------- | :-------- | :----- | | Median Existing Home Price Increase | 21.9% | N/A | Up | | Existing Home Sales Increase | 33.0% | N/A | Up | | Unemployment Rate | 5.4% | 10.2% | Down | | 30-Year Fixed Mortgage Rate | 2.80% | ~2.99% | Down | | Consumer Sentiment (Thomson Reuters/U. Michigan) | 81.2 | 72.5 | Up | - Total net sales increased by **13.5%** in the first quarter of fiscal 2022, with remodeling sales up **17.1%** (home center up **20.3%**, independent dealer up **6.3%**) and new construction sales up **8.5%**[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk) - Net income for the first quarter of fiscal 2022 was **$3.0 million**, a significant decrease from **$16.1 million** in the comparable prior-year period[103](index=103&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of net sales, gross profit, and operating expenses, explaining period-over-period changes Key Financial Results (Three Months Ended July 31, in thousands) | Metric | 2021 | 2020 (As Adjusted) | Percent Change | | :---------------------------------- | :----- | :----------------- | :------------- | | Net Sales | $442,581 | $390,087 | 13.5% | | Gross Profit | $53,443 | $79,567 | (32.8)% | | Selling and Marketing Expenses | $22,987 | $19,898 | 15.5% | | General and Administrative Expenses | $23,687 | $29,983 | (21.0)% | - Gross profit margin decreased to **12.1%** from **20.4%** due to higher material and logistics costs and increased healthcare expenses, partially offset by higher sales[105](index=105&type=chunk) - General and administrative expenses as a percentage of net sales decreased to **5.4%** from **7.7%**, driven by leverage from higher sales, lower incentive costs, and absence of prior-year severance costs[106](index=106&type=chunk) [Non-GAAP Financial Measures](index=24&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles non-GAAP financial measures such as EBITDA, Adjusted EBITDA, and Adjusted EPS to their most directly comparable GAAP measures [EBITDA, Adjusted EBITDA and Adjusted EBITDA margin](index=24&type=section&id=EBITDA,%20Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20margin) This subsection provides a reconciliation of GAAP net income to non-GAAP EBITDA and Adjusted EBITDA, along with the Adjusted EBITDA margin Reconciliation of EBITDA and Adjusted EBITDA (in thousands) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 (As Adjusted) | | :---------------------------------- | :------------------------------- | :--------------------------------------------- | | Net Income (GAAP) | $2,981 | $16,059 | | EBITDA (Non-GAAP) | $30,825 | $53,123 | | Adjusted EBITDA (Non-GAAP) | $32,100 | $56,395 | | Net Sales | $442,581 | $390,087 | | Adjusted EBITDA Margin (Non-GAAP) | 7.3% | 14.5% | - Adjusted EBITDA decreased to **$32.1 million** (**7.3%** of net sales) for the first quarter of fiscal 2022, from **$56.4 million** (**14.5%** of net sales) in the prior year, primarily due to decreased net income from higher material and logistics costs and increased healthcare expenses[113](index=113&type=chunk)[115](index=115&type=chunk) [Adjusted EPS per diluted share](index=26&type=section&id=Adjusted%20EPS%20per%20diluted%20share) This subsection reconciles GAAP EPS to non-GAAP Adjusted EPS per diluted share, excluding specific non-recurring items Reconciliation of Net Income to Adjusted Net Income (in thousands, except share data) | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 (As Adjusted) | | :---------------------------------- | :------------------------------- | :--------------------------------------------- | | Net Income (GAAP) | $2,981 | $16,059 | | Adjusted Net Income (Non-GAAP) | $11,664 | $27,776 | | EPS per Diluted Share (GAAP) | $0.18 | $0.94 | | Adjusted EPS per Diluted Share (Non-GAAP) | $0.70 | $1.63 | - Adjusted EPS per diluted share is defined by excluding the per share impact of acquisition and restructuring expenses, non-recurring restructuring charges, amortization of customer relationship intangibles, and related tax benefits[111](index=111&type=chunk) [Outlook](index=27&type=section&id=Outlook) This section provides the company's expectations for fiscal 2022 sales growth, margin trends, and capital allocation plans - The company expects fiscal 2022 sales to achieve **mid to high single-digit growth** over the prior year[116](index=116&type=chunk) - Margins are expected to remain challenged for the next two quarters but are anticipated to improve sequentially throughout the remainder of the year as pricing actions are fully realized[116](index=116&type=chunk) - The company plans to increase its capital investment rate to approximately **3.5% of net sales** for the full fiscal year and may consider additional debt repayments and share repurchases[116](index=116&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, debt levels, operating cash flows, and financing activities Liquidity and Debt Metrics (in millions) | Metric | July 31, 2021 | April 30, 2021 | | :---------------------------------- | :------------ | :------------- | | Cash and Cash Equivalents | $27.8 | $91.1 | | Total Long-Term Debt (including current maturities) | $493.5 | $521.7 | | Long-Term Debt to Total Capital Ratio | 40.0% | 40.4% | | Available Capacity under Revolving Facility | $243.0 | $227.7 | - Net cash provided by operating activities decreased to **$6.6 million** in the first three months of fiscal 2022 from **$40.0 million** in the prior year, primarily due to lower net income and cash outflows from inventories and accrued expenses[124](index=124&type=chunk) - Net cash used by financing activities significantly increased to **$55.1 million**, driven by **$29.1 million** in debt payments and **$25.0 million** in share repurchases[125](index=125&type=chunk) [Seasonal and Inflationary Factors](index=29&type=section&id=Seasonal%20and%20Inflationary%20Factors) This section addresses the seasonal nature of the business and the company's approach to managing inflationary pressures and commodity price fluctuations - The company's business is subject to seasonal influences, with higher sales typically in the first and fourth fiscal quarters, though general economic forces have reduced these fluctuations[128](index=128&type=chunk) - The company generally recovers inflationary pressures and commodity price fluctuations through sales price increases[128](index=128&type=chunk) [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) This section confirms no significant changes to the company's critical accounting policies from the prior annual report - There have been no significant changes to the company's critical accounting policies as disclosed in its Annual Report on Form 10-K for the fiscal year ended April 30, 2021[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, including interest rate risk, foreign exchange risk, and commodity price risk, and the strategies employed to manage these exposures - A **100 basis point increase** in the variable interest rate component of the company's borrowings would increase annual interest expense by approximately **$2.9 million**[130](index=130&type=chunk) - The company uses foreign exchange forward contracts to offset currency fluctuations in transactions denominated in foreign currencies and entered into interest rate swaps in May 2021 to hedge approximately **$200 million** of its variable interest rate debt[131](index=131&type=chunk) - The company does not currently use commodity or similar financial instruments to manage its commodity price risks[131](index=131&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and states that there have been no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of July 31, 2021[131](index=131&type=chunk) - There has been no change in the company's internal control over financial reporting during the quarter ended July 31, 2021, that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[133](index=133&type=chunk) [PART II. OTHER INFORMATION](index=30&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, other corporate information, and a list of exhibits [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is involved in routine litigation incidental to its business but is not party to any material non-routine litigation - The company is not party to any material litigation that does not constitute ordinary, routine litigation incidental to its business[134](index=134&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors detailed in the company's Annual Report on Form 10-K and confirms no material changes to these risks - There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended April 30, 2021[135](index=135&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchase activities during the first quarter of fiscal 2022 under a Board-authorized program Share Repurchase Activity (First Quarter Fiscal 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining Under Programs (000) | | :---------------------------------- | :--------------------- | :--------------------------- | :------------------------------------------------------ | | May 1 - 31, 2021 | — | N/A | $100,000 | | June 1 - 30, 2021 | 299,781 | $83.36 | $75,000 | | July 1 - 31, 2021 | — | N/A | $75,000 | | Quarter ended July 31, 2021 | 299,781 | $83.36 | $75,000 | - The company repurchased **299,781 common shares** for an aggregate purchase price of **$25.0 million** during the first fiscal quarter of 2022, with **$75.0 million** remaining under the **$100 million** authorization[126](index=126&type=chunk)[137](index=137&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) This section reports the results of the Annual Meeting of Shareholders held on August 26, 2021, including the election of directors and the approval of key proposals - Shareholders approved the election of all nine nominated directors, the ratification of KPMG LLP as the independent registered public accounting firm, and the advisory vote to approve executive compensation at the Annual Meeting[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications, and interactive data files - Key exhibits include Articles of Incorporation, Bylaws, certifications from the CEO and CFO (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and Interactive Data Files (XBRL) for the financial statements[142](index=142&type=chunk) [SIGNATURES](index=32&type=section&id=SIGNATURES) This section contains the official signatures for the Form 10-Q, confirming its submission by authorized personnel - The report was signed by Paul Joachimczyk, Vice President and Chief Financial Officer, on behalf of American Woodmark Corporation on August 31, 2021[144](index=144&type=chunk)