Core & Main(CNM) - 2023 Q1 - Quarterly Report

Financial Performance - Net sales for the three months ended May 1, 2022, were $1,598 million, a 51.6% increase from $1,055 million for the same period in 2021[18] - Gross profit for the same period was $421 million, representing a gross margin of 26.3%, compared to $257 million and a gross margin of 24.4% in the prior year[18] - Operating income increased to $180 million, up from $69 million year-over-year, reflecting a significant improvement in operational efficiency[18] - Net income attributable to Core & Main, Inc. was $86 million, compared to $27 million in the same quarter last year, marking a 218.5% increase[18] - Adjusted EBITDA for the three months ended May 1, 2022 increased by $110 million, or 100.9%, to $219 million compared to $109 million for the same period in 2021[127] - EBITDA for the three months ended May 1, 2022, was $216 million, up from $104 million for the same period in 2021[143] - Net income for the three months ended May 1, 2022 increased by $110 million to $137 million compared to $27 million for the same period in 2021[123] - Selling, general and administrative expenses for the three months ended May 1, 2022 increased by $52 million, or 33.8%, to $206 million compared to $154 million for the same period in 2021[118] Assets and Equity - Total assets as of May 1, 2022, were $4,894 million, up from $4,434 million at the end of January 30, 2022, indicating strong asset growth[15] - Total stockholders' equity increased to $2,006 million from $1,831 million, reflecting a growth of 9.6%[15] - The gross goodwill as of May 1, 2022, was $1,517 million, reflecting an increase of $2 million during the three months ended May 1, 2022[55] - The company reported intangible assets valued at $1,354 million as of May 1, 2022, with accumulated amortization of $510 million[57] Cash Flow and Debt - Cash and cash equivalents remained stable at $1 million, with net cash used in operating activities of $37 million for the quarter[28] - The company reported a net interest rate swap gain of $37 million, contributing to total comprehensive income of $174 million for the quarter[21] - The Senior Term Loan Facility has a principal amount of $1,531 million due July 2028, with a weighted average interest rate of 3.57%[61] - The Senior ABL Credit Facility has a borrowing capacity of up to $850 million, with $57 million outstanding as of May 1, 2022, at a weighted average interest rate of 2.49%[62] - As of May 1, 2022, Core & Main had $1,546 million of outstanding variable-rate debt, with efforts to mitigate interest rate risk through interest rate swaps[100] Acquisitions and Growth Strategies - The company made acquisitions of businesses totaling $6 million during the quarter, reflecting ongoing growth strategies[28] - The company completed the acquisition of L&M Bag & Supply Co., Inc. for up to $60 million on August 30, 2021, funded with cash on hand[45] - Core & Main acquired Pacific Pipe Company, Inc. for up to $103 million on August 9, 2021, also funded with cash on hand[46] - The company completed additional acquisitions valued at $7 million during the three months ended May 1, 2022, with a significant portion allocated to customer relationships and goodwill[47] - The total assets acquired from the L&M Acquisition amounted to $67 million, while the Pacific Pipe Acquisition totaled $140 million[50] Operational Metrics - The company disaggregated net sales by product category, with pipes, valves, and fittings products generating $1,110 million, storm drainage products $209 million, and fire protection products $172 million for the three months ended May 1, 2022[44] - Core & Main operates approximately 300 branches across 48 states, serving municipalities and contractors in various markets[1] - The company has integrated smart meter systems and fusible HDPE piping solutions into its product offerings to enhance its service capabilities[1] Tax and Legal Matters - The effective tax rate for the three months ended May 1, 2022, was 18.0%, slightly down from 18.2% for the same period in 2021[69] - The company expects to recognize a deferred tax asset of approximately $644 million under the Continuing Limited Partners Tax Receivable Agreement, with a corresponding liability of approximately $548 million[69] - The company does not expect any existing claims or legal proceedings to have a material adverse effect on its business or financial condition[157] Market and Economic Factors - The company expects increased federal infrastructure investment, particularly from the $55 billion allocated for water infrastructure under the Infrastructure Investment and Jobs Act, to positively impact its business[96] - Approximately 32% of net sales in fiscal 2021 were from commodity-based products, which are subject to price fluctuations due to various economic factors[98] - The company anticipates that recent year-over-year growth rates will moderate in the second half of fiscal 2022 due to inflation effects from fiscal 2021[98] - Adverse winter weather historically reduces construction activity, leading to lower net sales in the first and fourth fiscal quarters[97] Internal Controls and Reporting - There were no changes in internal control over financial reporting that materially affected the company's financial reporting during the fiscal quarter[153] - The management believes that the disclosure controls and procedures are effective at a reasonable assurance level, but acknowledges inherent limitations that may prevent detection of all errors and fraud[154] - The management emphasizes that control systems can only provide reasonable, not absolute, assurance of achieving their objectives[154]