Core & Main(CNM) - 2024 Q4 - Annual Results

Executive Summary & Highlights Core & Main's executive summary highlights Q4 and full fiscal year 2023 financial performance, strategic achievements, and management's forward-looking commentary Fourth Quarter Fiscal 2023 Highlights Core & Main reported increased net sales and gross profit margin for Q4 FY2023, alongside a decrease in Adjusted EBITDA and significant share repurchases | Metric | Q4 FY2023 | Change YoY | | :-------------------------- | :-------- | :--------- | | Net sales | $1,440M | +4.8% | | Adjusted EBITDA (Non-GAAP) | $160M | -2.4% | | Gross profit margin | 27.1% | +10 bps | | Adjusted EBITDA margin (Non-GAAP) | 13.6% | -50 bps | - Deployed $1.3 billion of capital to repurchase and retire 45 million shares at an average price of approximately $30 per share[1] Full Year Fiscal 2023 Highlights Core & Main achieved record net sales and operating cash flow for FY2023, alongside strategic acquisitions, new locations, and substantial share repurchases | Metric | FY2023 | Change YoY | | :-------------------------------- | :------- | :--------- | | Net sales | $6,702M | +0.8% | | Diluted earnings per share | $2.15 | +0.9% | | Adjusted EBITDA (Non-GAAP) | $910M | -2.7% | | Net cash provided by operating activities | $1,069M | +$668M | | Net Debt Leverage (Non-GAAP) | 2.1x | +0.7x | - Opened 4 new locations in underserved markets and closed 10 acquisitions during and after the year, investing $780 million[15][51] - Deployed approximately $1.3 billion of capital to repurchase and retire 45 million shares[1][51] Management Commentary Management highlighted strong fiscal 2023 performance, strategic growth initiatives, and a positive outlook for fiscal 2024, anticipating improved market volumes and M&A-driven sales growth - The company has generated significant momentum through acquisitions, internal investments, and value returned to shareholders, positioning it well to compete and execute its strategy for market share and long-term profitable growth[2] - Fiscal 2023 was an exceptional year, delivering strong financial performance including over $6.7 billion in net sales, $910 million in Adjusted EBITDA, and record operating cash flow of approximately $1.1 billion, enabling significant investments in organic and inorganic growth and capital returns[15][51] - For fiscal 2024, management expects end market volumes to improve, driving market share gains through product, customer, and geographic expansion, with M&A projected to contribute 6% to 7% of sales growth, net sales ranging from $7.4 to $7.6 billion and Adjusted EBITDA from $925 to $975 million[42] Financial Results - Fourth Quarter Fiscal 2023 This section provides a detailed analysis of Core & Main's financial performance for the fourth quarter of fiscal year 2023 across key metrics Net Sales Net sales for the fourth quarter of fiscal 2023 increased by $66 million, or 4.8%, to $1,440 million, primarily driven by volume growth and acquisitions across various product categories | Metric | Q4 FY2024 | Q4 FY2023 | Change ($M) | Change (%) | | :------- | :-------- | :-------- | :---------- | :--------- | | Net sales | $1,440 | $1,374 | $66 | 4.8% | - Net sales growth was primarily due to volume growth and acquisitions, benefiting pipes, valves & fittings, storm drainage, fire protection, and meter products[16] Gross Profit Gross profit for the fourth quarter increased by $11 million, or 2.9%, to $384 million, though the gross profit margin decreased by 40 basis points to 26.7% due to inventory normalization | Metric | Q4 FY2024 | Q4 FY2023 | Change ($M) | Change (%) | | :-------------------- | :-------- | :-------- | :---------- | :--------- | | Gross profit | $384 | $373 | $11 | 2.9% | | Gross profit margin | 26.7% | 27.1% | -0.4% | -40 bps | - The decline in gross profit margin was primarily attributable to normalization of larger prior year benefits from strategic inventory investments during an inflationary environment, partially offset by the execution of gross margin initiatives[52] Selling, General and Administrative (SG&A) Expenses SG&A expenses for the fourth quarter rose by $17 million, or 8.0%, to $230 million, primarily due to higher personnel, facility, and distribution costs, increasing to 16.0% of net sales | Metric | Q4 FY2024 | Q4 FY2023 | Change ($M) | Change (%) | | :-------------------- | :-------- | :-------- | :---------- | :--------- | | SG&A expenses | $230 | $213 | $17 | 8.0% | | SG&A as % of net sales | 16.0% | 15.5% | +0.5% | +50 bps | - The increase in SG&A was primarily attributable to a $10 million increase in personnel expenses, along with higher facility and distribution costs related to inflation and acquisitions, and investments to support growth[3] Net Income Net income for the fourth quarter decreased by $8 million, or 9.5%, to $76 million, mainly due to higher SG&A and increased interest expense on variable-rate debt | Metric | Q4 FY2024 | Q4 FY2023 | Change ($M) | Change (%) | | :--------- | :-------- | :-------- | :---------- | :--------- | | Net income | $76 | $84 | -$8 | -9.5% | - The decrease in net income was primarily attributable to higher SG&A expenses and higher interest expense due to an increase in interest rates on variable-rate debt[38] Earnings Per Share (EPS) Basic EPS for the fourth quarter increased by $0.04 to $0.35, and diluted EPS rose by $0.03 to $0.34, primarily driven by lower share counts from repurchases despite a net income decline | Metric | Q4 FY2024 | Q4 FY2023 | Change ($) | Change (%) | | :----------- | :-------- | :-------- | :--------- | :--------- | | Basic EPS | $0.35 | $0.31 | +$0.04 | 12.9% | | Diluted EPS | $0.34 | $0.31 | +$0.03 | 9.7% | - Diluted EPS increased due to lower share counts following share repurchase transactions executed throughout fiscal 2023, partially offset by a decline in net income[17] Adjusted EBITDA Adjusted EBITDA for the fourth quarter decreased by $4 million, or 2.4%, to $160 million, primarily due to higher SG&A expenses, resulting in an 80 basis point margin decline | Metric | Q4 FY2024 | Q4 FY2023 | Change ($M) | Change (%) | | :-------------------- | :-------- | :-------- | :---------- | :--------- | | Adjusted EBITDA | $160 | $164 | -$4 | -2.4% | | Adjusted EBITDA margin | 11.1% | 11.9% | -0.8% | -80 bps | - The decrease in Adjusted EBITDA was primarily attributable to higher SG&A expenses[53] Financial Results - Full Year Fiscal 2023 This section provides a comprehensive overview of Core & Main's financial performance for the full fiscal year 2023 across key operational and liquidity metrics Net Sales Net sales for fiscal year 2023 increased by $51 million, or 0.8%, to $6,702 million. This growth was primarily driven by higher selling prices and acquisitions, partially offset by a reduction in volume from comparably lower end-market volumes | Metric | FY2023 | FY2022 | Change ($M) | Change (%) | | :------- | :------- | :------- | :---------- | :--------- | | Net sales | $6,702 | $6,651 | $51 | 0.8% | - The increase in net sales was primarily attributable to higher selling prices and acquisitions, partially offset by a reduction in volume from comparably lower end-market volumes[39] Gross Profit Gross profit for fiscal year 2023 increased by $23 million, or 1.3%, to $1,818 million. The gross profit as a percentage of net sales slightly increased by 10 basis points to 27.1%, driven by net sales growth and gross margin initiatives, partially offset by the normalization of prior year inventory benefits | Metric | FY2023 | FY2022 | Change ($M) | Change (%) | | :-------------------- | :------- | :------- | :---------- | :--------- | | Gross profit | $1,818 | $1,795 | $23 | 1.3% | | Gross profit margin | 27.1% | 27.0% | +0.1% | +10 bps | - The overall increase in gross profit as a percentage of net sales was primarily attributable to execution of gross margin initiatives, partially offset by normalization of larger prior year benefits from strategic inventory investments during an inflationary environment[18] Selling, General and Administrative (SG&A) Expenses SG&A expenses for fiscal year 2023 increased by $51 million, or 5.8%, to $931 million. This rise was mainly due to a $23 million increase in personnel expenses, along with higher facility and distribution costs related to inflation and acquisitions. SG&A as a percentage of net sales increased to 13.9% from 13.2% | Metric | FY2023 | FY2022 | Change ($M) | Change (%) | | :-------------------- | :------- | :------- | :---------- | :--------- | | SG&A expenses | $931 | $880 | $51 | 5.8% | | SG&A as % of net sales | 13.9% | 13.2% | +0.7% | +70 bps | - The increase was primarily attributable to an increase of $23 million in personnel expenses along with higher facility and distribution costs related to inflation and acquisitions, and investments to support growth[54] Net Income Net income for fiscal year 2023 decreased by $50 million, or 8.6%, to $531 million. This decline was primarily attributed to higher SG&A expenses and increased interest expense resulting from higher interest rates on variable-rate debt | Metric | FY2023 | FY2022 | Change ($M) | Change (%) | | :--------- | :------- | :------- | :---------- | :--------- | | Net income | $531 | $581 | -$50 | -8.6% | - The decrease in net income was primarily attributable to higher SG&A expense and higher interest expense due to an increase in interest rates on variable-rate debt[5] Earnings Per Share (EPS) Basic EPS for fiscal year 2023 slightly decreased to $2.15, while diluted EPS increased to $2.15, primarily due to lower share counts from repurchases despite a net income decline | Metric | FY2023 | FY2022 | Change ($) | Change (%) | | :----------- | :------- | :------- | :--------- | :--------- | | Basic EPS | $2.15 | $2.16 | -$0.01 | -0.5% | | Diluted EPS | $2.15 | $2.13 | +$0.02 | 0.9% | - Diluted earnings per share increased due to lower share counts following share repurchase transactions executed throughout fiscal 2023, partially offset by a decline in net income[40] Adjusted EBITDA Adjusted EBITDA for fiscal year 2023 decreased by $25 million, or 2.7%, to $910 million, primarily due to higher SG&A expenses, partially offset by higher gross profit. The Adjusted EBITDA margin decreased by 50 basis points to 13.6% | Metric | FY2023 | FY2022 | Change ($M) | Change (%) | | :-------------------- | :------- | :------- | :---------- | :--------- | | Adjusted EBITDA | $910 | $935 | -$25 | -2.7% | | Adjusted EBITDA margin | 13.6% | 14.1% | -0.5% | -50 bps | - The decrease in Adjusted EBITDA was primarily attributable to higher SG&A expenses partially offset by higher gross profit[19] Net Cash Provided by Operating Activities Net cash provided by operating activities for fiscal year 2023 significantly improved by $668 million, reaching $1,069 million. This improvement was primarily driven by inventory optimization efforts, partially offset by lower operating income and an increase in interest payments | Metric | FY2023 | FY2022 | Change ($M) | | :-------------------------------- | :------- | :------- | :---------- | | Net cash provided by operating activities | $1,069 | $401 | +$668 | - The $668 million improvement in operating cash flow was primarily driven by inventory optimization efforts in fiscal 2023, partially offset by lower operating income and an increase in interest payments[6] Net Debt and Leverage As of January 28, 2024, net debt stood at $1,892 million, resulting in a Net Debt Leverage ratio of 2.1x, an increase of 0.7x from the prior year. This increase was primarily due to higher borrowings under the Senior ABL Credit Facility to fund investments in organic growth, acquisitions, and share repurchases | Metric | As of Jan 28, 2024 | | :-------------------- | :----------------- | | Net debt | $1,892M | | Net Debt Leverage | 2.1x | - The increase in Net Debt Leverage was primarily attributable to higher borrowings under the Senior ABL Credit Facility to fund investments in organic growth, acquisitions, and share repurchases throughout fiscal 2023[41] Liquidity and Capital Resources This section details Core & Main's debt facilities, available liquidity, and strategies for managing interest rate exposure to support capital resources Debt Facilities As of January 28, 2024, Core & Main had $430 million outstanding borrowings on its Senior ABL Credit Facility, with approximately $804 million available for borrowing. Additionally, on February 9, 2024, the company entered into a new $750 million incremental seven-year term loan, the 2031 Senior Term Loan, maturing on February 9, 2031, with quarterly principal payments | Facility | Outstanding (Jan 28, 2024) | Available (Jan 28, 2024) | Total Capacity | | :-------------------------- | :------------------------- | :----------------------- | :------------- | | Senior ABL Credit Facility | $430M | $804M | $1,250M | - Entered into a $750 million incremental seven-year term loan (2031 Senior Term Loan) on February 9, 2024, maturing on February 9, 2031, with quarterly principal payments[56] Interest Rate Management To mitigate exposure to variable interest rates, Core & Main entered into an interest rate swap on February 12, 2024. This swap involves making fixed payments at 3.913% and receiving payments based on the one-month Term SOFR rate, with a notional amount starting at $750 million and increasing to $1,500 million by July 2026, maturing in July 2028 - Entered into an interest rate swap on February 12, 2024, to reduce exposure to variable interest rates under the 2031 Senior Term Loan[7] - The swap involves making payments at a fixed interest rate of 3.913% and receiving payments based on the one-month Term SOFR rate[7] - The interest rate swap has a starting notional amount of $750 million, increasing to $1,500 million on July 27, 2026, through its maturity on July 27, 2028[7] Fiscal Year 2024 Outlook Core & Main projects improved end market volumes and M&A-driven sales growth for fiscal 2024, with net sales between $7.4 billion and $7.6 billion and Adjusted EBITDA between $925 million and $975 million | Metric | FY2024 Outlook Range | | :-------------------------- | :------------------- | | Net sales | $7,400M - $7,600M | | Adjusted EBITDA (Non-GAAP) | $925M - $975M | | Adjusted EBITDA margin (Non-GAAP) | 12.5% - 12.8% | | Operating Cash Flow Conversion (Non-GAAP) | 60% - 70% of Adjusted EBITDA | - Expect end market volumes to improve, providing a foundation to gain market share through product, customer, and geographic expansion initiatives[42] - M&A completed during and after the year is expected to contribute 6% to 7% of sales growth, with price contribution roughly flat for the year[42] Non-GAAP Financial Measures This section defines Core & Main's non-GAAP financial measures, explains their purpose and limitations, and provides reconciliation to comparable GAAP measures Definitions and Purpose Core & Main uses non-GAAP measures like EBITDA and Adjusted EBITDA to assess operational performance, acknowledging their limitations as they do not fully reflect GAAP financial performance or liquidity - EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Operating Cash Flow Conversion, and Net Debt Leverage are non-GAAP financial measures used to assess operating results and business effectiveness[11][46] - These measures are not considered measures of financial performance or liquidity under GAAP and should not be considered in isolation or as alternatives to GAAP measures[11][47] - Limitations include not reflecting cash requirements for depreciation, amortization, interest expense, or income taxes[12][25][61] Reconciliation to GAAP The report provides a reconciliation of net income to EBITDA and Adjusted EBITDA, along with a calculation of Adjusted EBITDA margin for the presented periods. A separate table also details the calculation of Net Debt Leverage. However, no reconciliation for the estimated range of fiscal 2024 Adjusted EBITDA, Adjusted EBITDA margin, or Operating Cash Flow Conversion is included due to the high variability and difficulty in predicting certain excluded items Reconciliation of Net Income to EBITDA and Adjusted EBITDA (Amounts in millions) | Metric | Q4 FY2024 | Q4 FY2023 | FY2024 | FY2023 | | :----------------------------------------- | :-------- | :-------- | :------- | :------- | | Net income attributable to Core & Main, Inc. | $63 | $54 | $371 | $366 | | Plus: net income attributable to non-controlling interests | $13 | $30 | $160 | $215 | | Net income | $76 | $84 | $531 | $581 | | Depreciation and amortization | $38 | $36 | $149 | $143 | | Provision for income taxes | $18 | $20 | $128 | $128 | | Interest expense | $22 | $20 | $81 | $66 | | EBITDA | $154 | $160 | $889 | $918 | | Equity-based compensation | $2 | $2 | $10 | $11 | | Acquisition expenses | $2 | $2 | $6 | $5 | | Offering expenses | $2 | — | $5 | $1 | | Adjusted EBITDA | $160 | $164 | $910 | $935 | | Net Sales | $1,440 | $1,374 | $6,702 | $6,651 | | Adjusted EBITDA Margin | 11.1% | 11.9% | 13.6% | 14.1% | Net Debt Leverage Calculation (Amounts in millions) | Metric | As of Jan 28, 2024 | As of Jan 29, 2023 | | :-------------------------- | :----------------- | :----------------- | | Senior ABL Credit Facility due July 2026 | $430 | $0 | | Senior Term Loan due July 2028 | $1,478 | $1,478 | | Total Debt | $1,908 | $1,478 | | Less: Cash & Cash Equivalents | ($1) | ($177) | | Net Debt | $1,907 | $1,301 | | Twelve Months Ended Adjusted EBITDA | $910 | $935 | | Net Debt Leverage | 2.1x | 1.4x | - No reconciliation of the estimated range for Adjusted EBITDA, Adjusted EBITDA margin or Operating Cash Flow Conversion for fiscal 2024 is included due to the high variability and difficulty to predict certain excluded items[26] Consolidated Financial Statements This section presents Core & Main's Consolidated Statements of Operations, Balance Sheets, and Cash Flows for the reported fiscal periods Consolidated Statements of Operations The Consolidated Statements of Operations detail Core & Main's financial performance, including net sales, gross profit, operating expenses, and net income for the reported periods Consolidated Statements of Operations (Amounts in millions, except per share data) | Metric | Three Months Ended Jan 28, 2024 | Three Months Ended Jan 29, 2023 | Fiscal Years Ended Jan 28, 2024 | Fiscal Years Ended Jan 29, 2023 | | :----------------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Net sales | $1,440 | $1,374 | $6,702 | $6,651 | | Cost of sales | 1,056 | 1,001 | 4,884 | 4,856 | | Gross profit | 384 | 373 | 1,818 | 1,795 | | Operating expenses: | | | | | | Selling, general and administrative | 230 | 213 | 931 | 880 | | Depreciation and amortization | 38 | 36 | 147 | 140 | | Total operating expenses | 268 | 249 | 1,078 | 1,020 | | Operating income | 116 | 124 | 740 | 775 | | Interest expense | 22 | 20 | 81 | 66 | | Income before provision for income taxes | 94 | 104 | 659 | 709 | | Provision for income taxes | 18 | 20 | 128 | 128 | | Net income | 76 | 84 | 531 | 581 | | Net income attributable to Core & Main, Inc. | $63 | $54 | $371 | $366 | | Earnings per share - Basic | $0.35 | $0.31 | $2.15 | $2.16 | | Earnings per share - Diluted | $0.34 | $0.31 | $2.15 | $2.13 | Consolidated Balance Sheets The Consolidated Balance Sheets present the company's financial position as of January 28, 2024, and January 29, 2023, detailing assets (current and non-current), liabilities (current and long-term), and stockholders' equity Consolidated Balance Sheets (Amounts in millions) | Asset/Liability/Equity | January 28, 2024 | January 29, 2023 | | :----------------------------------------- | :--------------- | :--------------- | | ASSETS | | | | Cash and cash equivalents | $1 | $177 | | Receivables, net | 973 | 955 | | Inventories | 766 | 1,047 | | Total current assets | 1,773 | 2,211 | | Property, plant and equipment, net | 151 | 105 | | Goodwill | 1,561 | 1,535 | | Total assets | $5,069 | $4,909 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current maturities of long-term debt | $15 | $15 | | Accounts payable | 504 | 479 | | Total current liabilities | 774 | 726 | | Long-term debt | 1,863 | 1,444 | | Tax receivable agreement liabilities | 706 | 180 | | Total liabilities | 3,545 | 2,499 | | Total stockholders' equity attributable to Core & Main, Inc. | 1,451 | 1,747 | | Non-controlling interests | 73 | 663 | | Total stockholders' equity | 1,524 | 2,410 | | Total liabilities and stockholders' equity | $5,069 | $4,909 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows detail the cash inflows and outflows from operating, investing, and financing activities for the fiscal years ended January 28, 2024, and January 29, 2023, highlighting the significant increase in net cash provided by operating activities Consolidated Statements of Cash Flows (Amounts in millions) | Cash Flow Activity | FY2023 | FY2022 | | :----------------------------------------- | :------- | :------- | | Net cash provided by operating activities | $1,069 | $401 | | Net cash used in investing activities | ($270) | ($152) | | Net cash used in financing activities | ($975) | ($73) | | (Decrease) increase in cash and cash equivalents | ($176) | $176 | | Cash and cash equivalents at the end of the period | $1 | $177 | - Net cash provided by operating activities for fiscal 2023 was $1,069 million, a $668 million improvement from fiscal 2022, primarily driven by inventory optimization efforts[6][24] - Significant cash usage in financing activities for FY2023 was primarily due to repurchase and retirement of partnership interests ($1,344 million)[24] Company Information & Forward-Looking Statements This section provides an overview of Core & Main, outlines cautionary notes regarding forward-looking statements, and lists investor relations contact information About Core & Main Core & Main is a leading specialized distributor of water, wastewater, storm drainage, and fire protection products and services across approximately 335 U.S. locations - Core & Main is a leader in advancing reliable infrastructure, specializing in water, wastewater, storm drainage, and fire protection products and services[43] - Serves municipalities, private water companies, and professional contractors across municipal, non-residential, and residential end markets[43] - Operates approximately 335 locations across the U.S. with 5,000 associates, providing local expertise backed by a national supply chain[43] Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to various known and unknown risks and uncertainties that could materially alter actual results, with no obligation to update them - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those projected[9][58] - Key risk factors include declines in U.S. construction markets, slowdowns in municipal spending, price fluctuations, acquisition risks, competitive markets, personnel retention, supply chain disruptions, and increases in interest rates[9] - The company undertakes no obligation to update or revise publicly any forward-looking statements, except as required by law[44] Investor Relations Contact For investor relations inquiries, individuals can contact Robyn Bradbury via phone or email - Investor Relations Contact: Robyn Bradbury, 314-995-9116, InvestorRelations@CoreandMain.com[23]