Core & Main (CNM) Q1 2026 Earnings Call June 10, 2025 08:30 AM ET Speaker0 Hello, and welcome to the Core and Main Q1 twenty twenty five Earnings Call. My name is Alex, and I'll be coordinating the call today. I'll now hand it over to Glenn Floyd, Director of Investor Relations. Please go ahead. Speaker1 Thank you. Good morning, everyone. This is Glenn Floyd, Director of Investor Relations for Core and Main. We are excited to have you join us this morning for our fiscal twenty twenty five first quarter earn ...

Use of Non-GAAP Financial Measures In addition to providing results that are determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we present EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Net Debt, all of which are non-GAAP financial measures. These measures are not considered measures of financial performance or liquidity under GAAP and the items excluded therefrom are significant components in understanding and assessing our financial perfor ...

Financial Data and Key Metrics Changes - Adjusted EPS grew over 22% to $1.43, supported by solid year-over-year margin expansion [7][21] - Adjusted net revenue rose over 3% in Q2, with adjusted EBITDA for Q2 at $287 million, representing an 8% year-over-year increase [11][20] - Backlog grew 20% to more than $22 billion, a new record [7][21] Business Line Data and Key Metrics Changes - PA Consulting's revenue growth inflected positively, reaching mid-single digits and driving double-digit operating profit growth [7] - Adjusted net revenue growth for Water and Environmental was 2% in Q2, with expectations for mid to high single-digit growth in the second half [22] - Life Sciences and Advanced Manufacturing adjusted net revenue grew approximately 6% in Q2, with strong demand in both sectors [23] Market Data and Key Metrics Changes - Approximately 9% of total revenue comes from U.S. Federal infrastructure and related services, primarily tied to Department of Defense engagements [10] - The Middle East saw strong growth, continuing at double digits [45] - FX was a headwind in Q2, but if rates remain stable, it could become a tailwind in Q3 [46] Company Strategy and Development Direction - The core pillar of the strategy is to redefine the asset lifecycle for clients, focusing on high-growth markets [13][18] - The company aims to deliver sustainable, profitable growth by providing differentiated, digitally enabled solutions [18] - Continued investment in PA Consulting is being considered to strengthen the partnership and capitalize on growth opportunities [90][91] Management's Comments on Operating Environment and Future Outlook - The geopolitical backdrop remains stable, with infrastructure and consulting services in high demand [9] - The company anticipates sequential revenue growth from Q2 to Q3, with Q3 net revenue expected to grow 5% to 7% year-on-year [31] - Management expressed confidence in the backlog and its ability to absorb impacts from legal reserves and FX challenges [39][40] Other Important Information - The company returned a record amount of capital to shareholders during Q2, with $351 million in share repurchases [28] - A dividend of $0.32 per share was declared, representing a 10% year-over-year growth [29] - The company is on track to potentially return more than 100% of adjusted free cash flow in fiscal year 2025, excluding the distribution of Momentum shares [30] Q&A Session Summary Question: Can you quantify the reserve for the JV matter and discuss customer spending visibility? - Management indicated that while the procurement cycle is extending, there are no broad cancellations or delays in execution [37] Question: What are the regional dynamics, particularly in PA and the UK? - PA is experiencing strong growth, particularly in defense and security, while the UK business is rebounding with solid performance in transportation and water [41][42] Question: How is the company addressing rising construction costs? - The company is working with clients on supply chain scenario planning and value engineering opportunities due to rising costs [66][68] Question: Is there potential for stimulus spending from government customers? - Some programs that were paused are now resuming, particularly in federal infrastructure [72] Question: What is the outlook for margins and utilization rates? - Utilization rates have improved and are on par with previous years, with expectations for margin improvements in Q3 and Q4 [55][107]

Financial Data and Key Metrics Changes - Adjusted EPS grew over 22% to $1.43, supported by solid year-over-year margin expansion [6][20] - Adjusted net revenue rose over 3% in Q2, with adjusted EBITDA for Q2 at $287 million, representing an 8% year-over-year increase [10][19] - Backlog grew 20% to more than $22 billion, a new record [6][20] Business Line Data and Key Metrics Changes - PA Consulting's revenue growth reached mid-single digits, driving double-digit operating profit growth [6] - Adjusted net revenue growth for Water and Environmental was 2% in Q2, with expectations for mid to high single-digit growth in the second half [21] - Life Sciences and Advanced Manufacturing adjusted net revenue grew approximately 6% in Q2, with continued favorable demand [22] Market Data and Key Metrics Changes - Approximately 9% of total revenue comes from U.S. Federal infrastructure and related services, primarily tied to DoD engagements [9] - The Middle East saw strong growth, continuing at double digits [43] - FX was a headwind in Q2, but a potential tailwind is anticipated for Q3 if rates remain stable [44] Company Strategy and Development Direction - The company aims to redefine the asset lifecycle for clients, focusing on high-growth markets such as water and environmental services [12][16] - Continued investment in PA Consulting is being considered to enhance the partnership and capitalize on growth opportunities [85] - The company is focused on delivering sustainable, profitable growth through differentiated, digitally enabled solutions [16] Management's Comments on Operating Environment and Future Outlook - The geopolitical backdrop remains stable, with infrastructure and consulting services in high demand [8] - The company anticipates sequential revenue growth from Q2 to Q3, with Q3 net revenue expected to grow 5% to 7% year-over-year [29][30] - Management expressed confidence in achieving full-year guidance metrics despite macroeconomic uncertainties [29][114] Other Important Information - The company returned a record amount of capital to shareholders during Q2, with $351 million in share repurchases [26] - A final distribution of Momentum shares to shareholders is expected, representing approximately $159 million in incremental capital returns [27] Q&A Session Summary Question: Can you quantify the reserve for the JV matter and discuss customer spending? - Management indicated that while the procurement cycle is extending, there are no broad cancellations or delays in execution [36] Question: What are the regional dynamics, particularly in PA and the UK? - PA is experiencing strong growth, particularly in defense and security, while the UK business is rebounding with solid growth in transportation and water [40][42] Question: How do you expect free cash flow to convert this year? - Management expects a substantial step up in Q3 cash flow, not just back-end loaded in Q4, supporting the forecast of over 100% free cash flow conversion [50] Question: What are the expectations for profit margins in the third quarter? - The company anticipates significant margin improvement in Infrastructure and Advanced Facilities, with a target of close to 14% adjusted EBITDA margin [100] Question: How is the backlog growth related to project duration? - The company maintains a balanced approach to project sizes, focusing on both longer-duration projects and quicker-turnaround jobs [101][103]