American Woodmark (AMWD) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes for the periods ended January 31, 2024 and 2023 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $97,829 | $41,732 | | Customer receivables, net | $113,073 | $119,163 | | Inventories | $163,382 | $190,699 | | Total current assets | $402,130 | $368,255 | | Property, plant and equipment, net | $252,168 | $219,415 | | Total Assets | $1,573,837 | $1,518,798 | | Total current liabilities | $188,281 | $178,124 | | Long-term debt, less current maturities | $371,307 | $369,396 | | Total shareholders' equity | $896,910 | $873,788 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $1,573,837 | $1,518,798 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2024 | Nine Months Ended Jan 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $422,102 | $480,713 | $1,394,224 | $1,585,105 | | Gross Profit | $80,940 | $75,340 | $293,708 | $260,821 | | Operating Income | $27,879 | $23,818 | $123,170 | $96,601 | | Net Income | $21,227 | $14,728 | $89,418 | $63,582 | | Basic Net earnings per share | $1.33 | $0.89 | $5.50 | $3.83 | | Diluted Net earnings per share | $1.32 | $0.88 | $5.46 | $3.82 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2024 | Nine Months Ended Jan 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income | $21,227 | $14,728 | $89,418 | $63,582 | | Change in Cash flow hedges (swap), net of deferred taxes | $(2,807) | $(2,627) | $(2,879) | $1,360 | | Total Comprehensive Income | $18,420 | $12,101 | $86,539 | $64,942 | Condensed Consolidated Statements of Shareholders' Equity Changes in Shareholders' Equity (in thousands, except share data) | Metric | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Common Stock (Shares) | 15,812,027 | 16,635,295 | | Common Stock (Amount) | $360,354 | $370,259 | | Retained Earnings | $529,063 | $493,157 | | Accumulated Other Comprehensive Income | $7,493 | $10,372 | | Total Shareholders' Equity | $896,910 | $873,788 | Key Activities (Nine Months Ended January 31, 2024) * Net income: $89,418 * Stock repurchases: $(19,828) (215,629 shares) * Stock-based compensation: $7,186 Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Nine Months Ended Jan 31, 2024 | Nine Months Ended Jan 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $187,433 | $110,803 | | Net cash used by investing activities | $(55,713) | $(19,260) | | Net cash used by financing activities | $(75,623) | $(68,051) | | Net increase in cash and cash equivalents | $56,097 | $23,492 | | Cash and cash equivalents, end of period | $97,829 | $45,817 | Notes to Condensed Consolidated Financial Statements Note A--Basis of Presentation This note outlines the preparation basis for the unaudited financial statements and key accounting policies for goodwill and derivatives - No impairment charges related to goodwill or intangible assets were recorded for the three- and nine-month periods ended January 31, 2024 and 2023[29][30] - The Company uses interest rate swap contracts to manage interest rate exposures and foreign exchange forward contracts to manage foreign exchange rate risks[31][32] Note B--New Accounting Pronouncements This note discusses the upcoming FASB standard on income tax disclosures and the Company's evaluation of its impact - FASB issued ASU No 2023-09 "Improvements to Income Tax Disclosures" in December 2023[34] - The standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted[35] Note C--Net Earnings Per Share This note details the computation of basic and diluted net earnings per share, showing an increase from the prior year Net Earnings Per Share (except per share amounts) | Metric | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2024 | Nine Months Ended Jan 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income | $21,227 | $14,728 | $89,418 | $63,582 | | Denominator for diluted net earnings per common share - weighted-average shares and assumed conversions | 16,124 | 16,696 | 16,381 | 16,661 | | Diluted Net earnings per share | $1.32 | $0.88 | $5.46 | $3.82 | Note D--Stock-Based Compensation This note describes the Company's stock-based compensation plans and the allocation of related expenses, which increased year-over-year Stock-Based Compensation Grants (Nine Months Ended Jan 31, 2024, in thousands) | Type | Amount | | :--- | :--- | | Service-based RSUs | 79,778 | | Performance-based RSUs | 155,062 | | Non-statutory stock options | 92,340 | Stock-Based Compensation Expense (in thousands) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended Jan 31 | $2,784 | $1,860 | | Nine Months Ended Jan 31 | $7,186 | $5,249 | Note E--Customer Receivables This note details the components of customer receivables, which decreased to $113.1 million as of January 31, 2024 Customer Receivables (in thousands) | Metric | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Gross customer receivables | $123,126 | $130,655 | | Less: Allowance for credit losses | $(545) | $(449) | | Less: Allowance for returns and discounts | $(9,508) | $(11,043) | | Net customer receivables | $113,073 | $119,163 | Note F--Inventories This note provides a breakdown of inventory components, which decreased to $163.4 million as of January 31, 2024 Inventories (in thousands) | Metric | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Raw materials | $65,185 | $80,953 | | Work-in-process | $45,725 | $49,064 | | Finished goods | $52,472 | $60,682 | | Total inventories | $163,382 | $190,699 | Note G--Property, Plant and Equipment This note details the Company's property, plant, and equipment, whose net value increased to $252.2 million Property, Plant and Equipment, Net (in thousands) | Metric | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Total property, plant and equipment | $628,137 | $573,589 | | Less accumulated amortization and depreciation | $(375,969) | $(354,174) | | Property, plant and equipment, net | $252,168 | $219,415 | - Depreciation and amortization expense on property, plant and equipment amounted to $30.0 million for the nine-months ended January 31, 2024, compared to $28.7 million in the prior year[46] Note H--Intangibles This note focuses on customer relationship intangibles, which were fully amortized as of January 31, 2024 Customer Relationship Intangibles (in thousands) | Metric | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Customer relationship intangibles | $274,000 | $274,000 | | Less accumulated amortization | $(274,000) | $(243,556) | | Total | $0 | $30,444 | - Amortization expense for customer relationship intangibles was $30.4 million for the nine-month period ended January 31, 2024, compared to $34.2 million in the prior year[47] Note I--Product Warranty This note explains the reconciliation of product warranty costs, showing a decrease in the warranty liability to $5.8 million Product Warranty Liability (in thousands) | Metric | January 31, 2024 | January 31, 2023 | | :--- | :--- | :--- | | Beginning balance at May 1 | $8,014 | $6,878 | | Accrual | $14,934 | $26,566 | | Settlements | $(17,175) | $(25,777) | | Ending balance at January 31 | $5,773 | $7,667 | Note J--Fair Value Measurements This note outlines the Company's fair value hierarchy and summarizes assets measured at fair value on a recurring basis Assets at Fair Value (in thousands) | Metric | January 31, 2024 (Level 1) | January 31, 2024 (Level 2) | April 30, 2023 (Level 1) | April 30, 2023 (Level 2) | | :--- | :--- | :--- | :--- | :--- | | Mutual funds | $176 | — | $191 | — | | Interest rate swap contracts | — | $10,044 | — | $13,885 | | Foreign exchange forward contracts | — | $241 | — | — | | Total assets at fair value | $176 | $10,285 | $191 | $13,885 | - The Company has no Level 3 assets or liabilities measured on a recurring basis[51] Note K--Loans Payable and Long-Term Debt This note details the Company's A&R Credit Agreement, interest rate mechanisms, and compliance with financial covenants - The A&R Credit Agreement provides for a $500 million revolving loan facility and a $250 million term loan facility, both maturing on April 22, 2026[55] - As of January 31, 2024, the Company was in compliance with all covenants included in the A&R Credit Agreement[59] Outstanding Debt (in millions) | Facility | January 31, 2024 | April 30, 2023 | | :--- | :--- | :--- | | Term Loan Facility | $206.3 | $206.3 | | Revolving Facility | $163.8 | $163.8 | | Available capacity under Revolving Facility | $322.9 | N/A | Note L--Derivative Financial Instruments This note describes the use of derivatives to manage interest rate and foreign exchange risks and their impact on earnings - The Company uses interest rate swap contracts with an aggregate notional amount of $200 million to hedge variable rate interest payments, converting a portion of variable rate debt to a fixed rate of 0.53%[60] - For the nine-month period ended January 31, 2024, $5.6 million of realized gains, net of deferred taxes, were reclassified from accumulated other comprehensive income to interest expense, net[62] - As of January 31, 2024, the Company anticipates reclassifying approximately $8.1 million of net hedging gains from accumulated other comprehensive income into earnings during the next 12 months[62] Note M--Income Taxes This note reports the effective income tax rates, which were higher than the U.S. statutory rate primarily due to state income taxes Effective Income Tax Rates | Period | January 31, 2024 | January 31, 2023 | | :--- | :--- | :--- | | Three Months Ended | 25.4% | 25.0% | | Nine Months Ended | 23.8% | 25.1% | - The effective rates were higher than the 21.0% U.S. statutory rate primarily due to state income taxes[64] Note N--Revenue Recognition This note disaggregates consolidated revenue by major sales distribution channels, showing a decrease across all channels Net Sales by Distribution Channel (in thousands) | Channel | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2024 | Nine Months Ended Jan 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Home center retailers | $174,270 | $202,881 | $578,602 | $681,631 | | Builders | $181,747 | $204,170 | $592,705 | $654,861 | | Independent dealers and distributors | $66,085 | $73,662 | $222,917 | $248,613 | | Net Sales | $422,102 | $480,713 | $1,394,224 | $1,585,105 | Note O--Concentration of Risks This note addresses the Company's concentration of risks, highlighting significant dependence on two major customers - Customers A and B represented 33.5% and 18.6% of the Company's gross customer receivables, respectively, as of January 31, 2024[68] Percentage of Net Sales Attributable to Largest Customers | Customer | Three Months Ended Jan 31, 2024 | Three Months Ended Jan 31, 2023 | Nine Months Ended Jan 31, 2024 | Nine Months Ended Jan 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Customer A | 29.1% | 29.5% | 28.4% | 29.5% | | Customer B | 12.2% | 12.8% | 13.1% | 13.5% | Note P--Other Information This note details a significant legal matter concerning an antidumping and countervailing duties investigation - The Company recorded a $4.9 million pre-tax loss ($3.7 million net of tax) in the first quarter of fiscal 2024 due to antidumping and countervailing duties on hardwood plywood imports from Vietnam[73] - The Company intends to vigorously appeal the Final Determination regarding these duties[73] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and future outlook, covering operations, liquidity, and key trends Forward-Looking Statements - The report contains forward-looking statements, and actual results may differ materially due to various risk factors[75] - Key risk factors include macroeconomic conditions (U.S. housing market, mortgage rates, economy), raw material and energy costs, labor developments, competition, and regulatory changes[75] - The Company undertakes no obligation to publicly update or revise any forward-looking statements[78] Overview - American Woodmark Corporation manufactures and distributes kitchen, bath, and home organization products for remodeling and new home construction markets[79] - The Company operates 18 manufacturing facilities in the United States and Mexico, eight primary service centers, and one distribution center[79] Financial Overview - Macroeconomic trends impacting Q3 fiscal 2024 include a 3.9% increase in median existing home prices, a 9.5% decrease in existing home sales, and a rise in mortgage interest rates to approximately 6.7%[80] - Consumer sentiment increased from 64.9 in January 2023 to 79.0 in January 2024, while the inflation rate decreased to 3.1% from 6.4% year-over-year[80] Net Income (in millions) | Period | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | | Third Quarter | $21.2 (5.0% of net sales) | $14.7 (3.1% of net sales) | | First Nine Months | $89.4 (6.4% of net sales) | $63.6 (4.0% of net sales) | Results of Operations Net Sales Net sales decreased for the third quarter and first nine months of fiscal 2024 across both remodeling and builder channels Net Sales (in thousands) | Period | 2024 | 2023 | Percent Change | | :--- | :--- | :--- | :--- | | Three Months Ended Jan 31 | $422,102 | $480,713 | (12.2)% | | Nine Months Ended Jan 31 | $1,394,224 | $1,585,105 | (12.0)% | - Remodeling sales decreased 13.1% during the third quarter and 13.8% during the first nine months of fiscal 2024[82] - Builder sales decreased 11.0% in the third quarter and 9.5% during the first nine months of fiscal 2024[83] Gross Profit Gross profit margin significantly improved due to favorable product mix, effective pricing, and operational enhancements Gross Profit Margin | Period | 2024 | 2023 | Basis Point Change | | :--- | :--- | :--- | :--- | | Third Quarter | 19.2% | 15.7% | +350 bps | | First Nine Months | 21.1% | 16.5% | +460 bps | - Gross profit margin was positively impacted by favorable product mix, pricing matching inflationary cost impacts, operational improvements in manufacturing facilities, and stability in the supply chain[84] Selling and Marketing Expenses Selling and marketing expenses increased as a percentage of net sales due to higher incentive costs and lower overall sales Selling and Marketing Expenses (in thousands) | Period | 2024 | 2023 | Percent Change | | :--- | :--- | :--- | :--- | | Three Months Ended Jan 31 | $21,945 | $21,364 | 2.7% | | Nine Months Ended Jan 31 | $68,990 | $71,781 | (3.9)% | Selling and Marketing Expenses as % of Net Sales | Period | 2024 | 2023 | | :--- | :--- | :--- | | Third Quarter | 5.2% | 4.4% | | First Nine Months | 4.9% | 4.5% | General and Administrative Expenses General and administrative expenses increased, driven mainly by higher incentive and profit-sharing costs for employees General and Administrative Expenses (in thousands) | Period | 2024 | 2023 | Percent Change | | :--- | :--- | :--- | :--- | | Three Months Ended Jan 31 | $31,116 | $28,848 | 7.9% | | Nine Months Ended Jan 31 | $101,746 | $91,129 | 11.7% | General and Administrative Expenses as % of Net Sales | Period | 2024 | 2023 | | :--- | :--- | :--- | | Third Quarter | 7.4% | 6.0% | | First Nine Months | 7.3% | 5.7% | Effective Income Tax Rates The effective income tax rates were higher than the U.S. statutory rate primarily due to state income taxes Effective Income Tax Rates | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended Jan 31 | 25.4% | 25.0% | | Nine Months Ended Jan 31 | 23.8% | 25.1% | Non-GAAP Financial Measures EBITDA, Adjusted EBITDA and Adjusted EBITDA margin This section reconciles non-GAAP measures, showing stable Adjusted EBITDA in Q3 and growth for the nine-month period Adjusted EBITDA (in thousands) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended Jan 31 | $50,615 | $50,990 | | Nine Months Ended Jan 31 | $198,095 | $175,105 | Adjusted EBITDA Margin | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended Jan 31 | 12.0% | 10.6% | | Nine Months Ended Jan 31 | 14.2% | 11.0% | - The increase in Adjusted EBITDA for the first nine months of fiscal 2024 is primarily due to increased net income from pricing, product mix, and improved manufacturing efficiencies, partially offset by a $4.9 million pre-tax charge related to the plywood case[97] Adjusted EPS per diluted share This section presents the calculation of Adjusted EPS, which increased for both the third quarter and nine-month periods Adjusted EPS per diluted share | Period | 2024 | 2023 | | :--- | :--- | :--- | | Three Months Ended Jan 31 | $1.66 | $1.46 | | Nine Months Ended Jan 31 | $6.83 | $5.40 | Outlook - The Company expects low-double digit declines in net sales for fiscal year 2024, with high single-digit declines in the fourth fiscal quarter[100] - Adjusted EBITDA expectation for the full fiscal year 2024 is increased and narrowed to a range of $247 million to $253 million, driven by strong operational performance[100] - New facility ramp-up expenses in Hamlet, North Carolina, and Monterrey, Mexico, are expected to negatively impact fiscal 2024 results by approximately $8.0 million to $9.0 million[100] - The Company is prioritizing investments in property, plant and equipment ($54.9 million in first nine months) and share repurchases ($71.8 million in first nine months) over debt repayments[101] Liquidity and Capital Resources - Cash and cash equivalents totaled $97.8 million at January 31, 2024, a $56.1 million increase from April 30, 2023, primarily due to $187.4 million cash provided by operations[103] - Total long-term debt (including current maturities) was $373.4 million at January 31, 2024, with a long-term debt to total capital ratio of 29.3%[103] - Approximately $322.9 million was available under the Revolving Facility as of January 31, 2024[106] - The Board authorized a new $125 million stock repurchase program on November 29, 2023, with $105.4 million remaining as of January 31, 2024[110] Seasonal and Inflationary Factors - The business has historically experienced higher sales in the first and fourth fiscal quarters, though seasonal fluctuations have been reduced[112] - The Company generally recovers the effects of inflation and commodity price fluctuations through sales price increases[112] Critical Accounting Policies - 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, 2023[113] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks including inflation, interest rates, and foreign exchange - The Company is subject to inflationary pressures and commodity price fluctuations, which are generally recovered through sales price increases[114] - A 100 basis point increase in the variable interest rate component of borrowings would increase annual interest expense by approximately $1.7 million[114] - The Company uses interest rate swaps to hedge approximately $200 million of its variable interest rate debt and foreign exchange forward contracts to offset currency fluctuations[114][115] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and notes no material changes to internal controls - The Company's disclosure controls and procedures were effective as of January 31, 2024[115] - No material changes in internal control over financial reporting occurred during the quarter ended January 31, 2024[116] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section discloses the Company's involvement in routine litigation and references Note P for details on a specific duties investigation - The Company is involved in ordinary, routine litigation incidental to its business[117] - Further discussion of the antidumping and countervailing duties investigation is provided in Note P[117] Item 1A. Risk Factors This section confirms no material changes to previously disclosed risk factors from the most recent Annual Report on Form 10-K - 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, 2023[118] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on share repurchase activities during the third quarter, detailing the number of shares and remaining authorization Share Repurchases (Third Quarter Fiscal 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining Under Programs (000) | | :--- | :--- | :--- | :--- | | January 1 - 31, 2024 | 215,629 | $91.16 | $105,367 | - The Board of Directors authorized a stock repurchase program of up to $125 million on November 29, 2023[120] - As of January 31, 2024, $105.4 million of funds remained available from the authorized amount to repurchase common stock[120] Item 5. Other Information This section confirms no adoption, termination, or modification of Rule 10b5-1 trading plans by directors or officers during the quarter - None of the Company's directors or executive officers adopted, terminated, or modified a "Rule 10b5-1 trading agreement" or a "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended January 31, 2024[121] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, certifications, and interactive data files - Exhibits include Articles of Incorporation, Bylaws, Certifications of the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350), and Interactive Data Files (Inline XBRL) for the financial statements[123]