Q1 2025 Core & Main Inc Earnings Call
Operator: Good morning, everyone, and welcome to the Core & Main Q1 2024 earnings call. My name is Angela, and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by T. I will now hand you over to your host, Robyn Bradbury, Senior Vice President of Finance and Investor Relations, to begin.
Good morning, everyone and welcome to the Accordingly, Q1, 'twenty 'twenty four earnings call.
Operator: Go ahead. Thank you.
Angela: My name is Angela and I'll be coordinating your call today. During the presentation you kind of registered to ask a question by pressing star followed by one on your telephone keypad if.
Angela: Have you changed your mind. Please press star followed by T O.
Robyn Bradbury: Good morning, everyone. This is Robyn Bradbury, Senior Vice President of Finance and Investor Relations for Core & Main. We're excited to have you join us this morning for our fiscal 2024 first quarter earnings call. I am joined today by Steve LeClair, our Chairman and Chief Executive Officer, and Mark Witkowski, our Chief Financial Officer.
I will now hand, you have Richard our host Robyn Barbieri, Senior Vice President of Finance and Investor Relations to begin.
Angela: Please go ahead. Thank you. Good morning, everyone. This is Robin Bradbury senior Vice President of Finance and Investor Relations for Corn me.
Robyn Bradbury: We're excited to have you join us this morning for our fiscal 2024 first quarter earnings call.
Robyn Bradbury: I'm joined today by Steve Leclair, our chair and Chief Executive Officer, and Mark with Koski, Our Chief Financial Officer.
Robyn Bradbury: Steve will lead today's call with an overview of our first quarter execution highlights. Mark will then discuss our financial results and updated fiscal 2024 outlook, followed by a Q&A session. We will conclude the call with Steve's closing remarks.
Stephen O. LeClair: Steve will lead today's call with an overview of our first quarter execution highlights.
Speaker Change: Mark will then discuss our financial results and updated fiscal 2024 outlook followed by a Q&A session. We will conclude the call with Steve's closing remarks.
Robyn Bradbury: We issued our earnings press release this morning and posted a presentation in the investor relations section of our website. As a reminder, our press release, presentation, and the statements made during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission.
Stephen O. LeClair: We issued our earnings press release, this morning, and posted a presentation to the Investor Relations section of our website.
Stephen O. LeClair: As a reminder, our press release presentation and the statements made during this call include forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
Stephen O. LeClair: Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission.
Robyn Bradbury: We will also discuss certain non-GAAP financial measures, which we believe are useful in assessing the operating results of our business. A reconciliation of these measures can be found in our earnings press release and in the appendix of our investor presentation. Thank you for your interest in Core & Main. I will now turn the call over to Chairman and Chief Executive Officer Steve LeClair.
Stephen O. LeClair: We will also discuss certain non-GAAP financial measures, which we believe are useful in assessing the operating results of our business.
Stephen O. LeClair: A reconciliation of these measures can be found in our earnings press release and in the appendix of our Investor presentation.
Thank you for your interest in core main I will now turn the call over to chair and Chief Executive Officer people Claire.
Stephen O. LeClair: Thanks Robyn. Good morning everyone.
Stephen O. LeClair: Thanks, Robin and good morning, everyone. Thank you for joining us today.
Stephen O. LeClair: Thank you for joining us today. If you're following along with our investor presentation, I'll begin on page five with an overview of our market position. Core & Main is a leading specialty distributor of water, wastewater, storm drainage, and fire protection products serving municipalities, private water companies, and professional contractors across municipal, non-residential, and residential end markets nationwide. Our specialty products and services are used in the maintenance, repair, replacement, and construction of water and fire protection infrastructure.
Robyn Bradbury: If you're following along with our Investor presentation I'll begin on page five with an overview of our market position.
Robyn Bradbury: <unk> main is a leading specialty distributor of water wastewater storm drainage and fire protection products serving municipalities.
Robyn Bradbury: Private water companies.
Speaker Change: Professional contractors across municipal nonresidential and residential end markets nationwide.
Speaker Change: Our specialty products and services are used in the maintenance repair replacement and construction of water and fire protection infrastructure.
Stephen O. LeClair: Customers partner with Core & Main for our breadth of products and services, extensive industry knowledge, familiarity with local municipal specifications, convenient branch locations, and Project Management Capabilities. We serve both smaller, local customers and larger regional or national customers with relevant expertise. And our sales associates take a consultative approach to provide customer-specific solutions for projects on all sides. We are often involved in our customers' planning processes, all the way from project design to project completion. Our footprint consists of more than 350 branches across 49 states, which serves as a critical link between approximately 5,000 suppliers and a diverse base of over 60,000 customers.
Speaker Change: Customers partner with corn main for our breadth of products and services.
Speaker Change: Extensive industry knowledge familiarity with local municipal specifications.
Speaker Change: Branch locations and project management capabilities, we serve both smaller local customers and larger regional or national customers with relevant expertise.
Speaker Change: And our sales associates take a consultative approach to provide customer specific solutions for projects of all sizes.
Speaker Change: We are often involved in our customers' planning processes all the way from project design to project completion.
Speaker Change: Our footprint consists of more than 350 branches across 49 states, which serves as a critical link between approximately 5000 suppliers and a diverse base of over 60000 customers.
Stephen O. LeClair: We are an industry leader, yet we estimate we have only 17% of a fragmented $39 billion addressable market. Accordingly, our long-term growth opportunity is significant. Turning to page 6.
Speaker Change: We are an industry leader, yes, we estimate we have only 17% share of a fragmented $39 billion addressable market Accordingly, our long term growth opportunity is significant.
Speaker Change: Turning to page six we are pleased with our start to fiscal 2024.
Stephen O. LeClair: We are pleased with our start to fiscal 2024. Net sales grew 11% to a first quarter record of $1.74 billion. This performance was indicative of supportive end market volumes and an earlier start to the selling season in some northern geography. Residential lot development improved sequentially from the fourth quarter. This was the first quarter in more than a year that residential volumes improved on a year-over-year basis.
Speaker Change: Net sales grew 11% to a first quarter record of $1 $74 billion.
Speaker Change: This performance was indicative of supportive and market volumes.
Speaker Change: In an earlier start to the selling season and some northern geographies.
Speaker Change: Residential lot development improved sequentially from the fourth quarter.
Speaker Change: This was the first quarter and more than a year that residential volumes improved on a year over year basis, we are encouraged by our backlog and bidding activity across this market.
Stephen O. LeClair: We are encouraged by our backlog and bidding activity across this market. We're seeing solid activity across the non-residential construction landscape. While some verticals in this market remain soft, like office space and retail, others continue to be strong, such as highway and street projects, data centers, battery plants, and other large industrial manufacturing projects. We are seeing good momentum in municipal projects being bid on and coming online during an important part of the construction season.
Speaker Change: We're seeing solid activity across the nonresidential construction landscape well.
Speaker Change: While some verticals in this market remains soft like office space and retail other.
Speaker Change: There is continued to be strong such as highway and street projects data centers battery plants and other large industrial manufacturing projects.
Speaker Change: We are seeing good momentum in municipal projects being bid and coming online during an important part of the construction season.
Stephen O. LeClair: Though still relatively small in scope, we are also seeing projects funded by the Infrastructure Investment and Jobs Act make their way into our backlog and bidding activity in certain parts of the country. These projects are primarily related to new water treatment plant facilities and service line replacement. Where we're pleased to see projects utilizing federal funding, we've seen limited progress on major municipal repair and upgrade activity, and it does not appear we are seeing any incremental benefits so far this year.
Speaker Change: They'll still relatively small in scope. We are also seeing projects funded by the infrastructure investment and jobs Act make their way into our backlog and bidding activity in certain parts of the country.
Speaker Change: These projects are primarily related to new water treatment plant facilities and service line replacements.
Speaker Change: While we're pleased to see projects utilizing the federal funding, we've seen limited progress on major municipal repair and upgrade activity and it does not appear we are seeing any incremental benefit so far this year.
Stephen O. LeClair: Market volume growth in the quarter was supplemented by the execution of our product, customer, and geographic expansion initiatives to deliver above market growth. We achieved 31% growth in metering products this quarter, highlighting our ability to drive the adoption of new products and technologies throughout the industry. While this growth reflects some improvement in the supply chain for meters, we are pleased with the magnitude of new projects being bid on and awarded. Beyond Our Product initiative. Recent Greenfields are also performing well.
Speaker Change: Market volume growth in the quarter was supplemented by the execution of our product customer and geographic expansion initiatives to deliver above market growth.
Speaker Change: We achieved 31% growth in metering products this quarter, highlighting our ability to drive the adoption of new products and technologies throughout the industry.
Speaker Change: While this growth reflects some improvement in the supply chain for meters.
Speaker Change: We are pleased with the magnitude of new projects being bid and awarded.
Speaker Change: Beyond our product initiatives are recent Greenfields are also performing well.
Stephen O. LeClair: Every time we add a new branch, we add sales resources and reduce the average time it takes for us to reach our customers. This enhances our value proposition, giving us the opportunity to earn market share. Each of our greenfields continues to mature and offer additional growth opportunities. We are actively evaluating a pipeline of new locations to expand into.
Speaker Change: Every time, we added new branch, we had sales resources and reduced the average time it takes for us to reach our customers.
Speaker Change: This enhances our value proposition, giving us the opportunity to earn market share.
Speaker Change: Each of our Greenfields continues to mature and offer additional growth opportunities.
Speaker Change: We are actively evaluating a pipeline of new locations to expand into.
Stephen O. LeClair: Acquisitions are an important part of our long-term growth strategy, and our team continues to execute on an active pipeline of opportunities. During and after the quarter, we added five complementary businesses to the Core & Main team, one of which was our largest acquisition to date. These acquisitions offer expansion to new geographies, access to new product lines, and the addition of key talent. Gross margin came in at 26.9% versus 27.9% in the prior year.
Speaker Change: Acquisitions are an important part of our long term growth strategy and our team continues to execute on an active pipeline of opportunities.
Speaker Change: During and after the quarter, we added five complementary businesses to the core main team.
One of which was our largest acquisition to date.
Speaker Change: These acquisitions offer expansion to new geographies access to new product lines and the addition of key talent.
Speaker Change: Gross margin came in at 26, 9% versus 27, 9% in the prior year.
Stephen O. LeClair: Well, underlying product margins were impacted as expected. Gross margins, however, continue to be strong, supported by the robust performance of our private label and sourcing initiatives and benefits from M&A. Mark will walk you through the various components impacting margins later in his financial commentary.
Speaker Change: While underlying product margins were impacted as expected.
Speaker Change: Margins continue to be strong supported by the robust performance of our private label and sourcing initiatives.
Speaker Change: And benefits from M&A.
Speaker Change: Mark will walk you through the various components impacting margins later in his financial commentary.
Stephen O. LeClair: Turning to our cash flow and capital allocation priorities, we were pleased with the $78 million of operating cash flow achieved in the first quarter. Given the seasonal pattern of working capital needs for our business, we typically generate most of our cash in the second half of the year. Our cash generation this quarter reflects a lower-than-normal seasonal inventory build, resulting from our continued inventory optimization effort.
Mark Koski: Turning to our cash flow and capital allocation priorities. We were pleased with the $78 million of operating cash flow achieved in the first quarter.
Mark Koski: Given the seasonal pattern of working capital needs for our business.
Mark Koski: We typically generate most of our cash in the second half of the year.
Mark Koski: Our cash generation this quarter reflects a lower than normal seasonal inventory build resulting from our continued inventory optimization efforts.
Stephen O. LeClair: We continue to balance capital allocation between organic and inorganic growth opportunities, as well as returning capital to shareholders. During and after the first quarter, we deployed over $600 million to acquire five complementary businesses. We are also prioritizing organic investments in greenfields, in addition to upgrading our fleet, facilities, and technology tools that will benefit us in 2024 and beyond. Our ability to invest in organic growth and value-creating acquisitions is underpinned by our strong operating cash flow, balance sheet capacity, and liquidity.
Mark Koski: We continue to balanced capital allocation between organic and inorganic growth opportunities as well as returning capital to shareholders.
During and after the first quarter, we deployed over $600 million to acquire five complementary businesses.
Mark Koski: We are also prioritizing organic investments in Greenfields and.
Speaker Change: In addition to upgrading our fleet facilities and technology tools that will benefit us in 2024 and beyond.
Speaker Change: Our ability to invest in organic growth and value, creating acquisitions is underpinned by our strong operating cash flow balance sheet capacity and liquidity.
Stephen O. LeClair: On page 7, we highlight the exceptional businesses recently added to the Core & Main family. Eastern Supply is a distributor and fabricator of a wide variety of storm drainage products operating out of locations in Virginia and Pennsylvania. For close to 30 years, the team at Eastern Supplies provided drainage products and related services to contractors, engineers, and municipalities across the Northeast. Dana Kepner is a multi-region distributor of water, wastewater, and storm drainage products operating out of 21 locations in Arizona, Colorado, Nevada, Texas, Wyoming, and New England.
Speaker Change: On page seven we highlight the exceptional businesses recently added to the core and main family.
Speaker Change: Eastern supply the distributor and fabricator of a wide variety of storm drainage products operating out of locations in Virginia and Pennsylvania.
Speaker Change: For close to 30 years the team at eastern supplies provided drainage products and related services to contractors engineers and municipalities across the northeast.
Speaker Change: Dana Cabinet is a multi region distributor of water wastewater and storm drainage products operating out of 21 locations across Arizona, Colorado, Nevada, Texas, Wyoming, and New England.
Stephen O. LeClair: They are a highly credible partner in the waterworks industry, and their core values align with our own at Core & Main. Dana Kepner offers opportunities to generate synergies through our combined purchasing capabilities. Facility Optimization and Fixed Cost Leverage as we drive new revenue-generating opportunities by providing our customers with broader access to products and services. ACF West is a distributor of geosynthetics and erosion control products with six locations across Oregon, Washington, Idaho, and Utah.
Speaker Change: They are a highly credible partner in the waterworks industry and their core values align with our own at core in Maine.
Dana Kepner offers opportunities to generate synergies through our combined purchasing capabilities.
Speaker Change: Facility optimization and fixed cost leverage as we drive new revenue generating opportunities by providing our customers with broader access to products and services.
Speaker Change: ACF west as distributor of Geo synthetics and erosion control products with six locations across Oregon, Washington, Idaho, and Utah <unk>.
Stephen O. LeClair: For over three decades, the team at ACF West has offered their municipal and contractor customers solutions for geosynthetics, Erosion Control, Stormwater Management, and Terrain Stabilization. ACF West is a trusted distributor with a longstanding and loyal customer base. Their product and service offerings are an excellent complement to our business. EGW Utilities is a distributor of products and services to underground utility contractors and municipalities in Texas.
Speaker Change: Three decades the team at ACF, Wes has offered their municipal and contractor customers solutions for Geo synthetics.
Speaker Change: Erosion control storm water management and terrain stabilization.
ACF, Wes: ACF, Wes as a trusted distributor with a longstanding and loyal customer base and.
Speaker Change: And their product and service offerings are an excellent complement to our business.
Speaker Change: Agw utilities are the distributor of products and services to underground utility contractors and municipalities in Texas.
Stephen O. LeClair: The team at EGW Utilities has been providing underground infrastructure products and services since 2001. Their commitment to delivering value-added solutions and maintaining strong customer relationships has enabled them to provide customers with the resources and support needed to complete projects successfully. We are happy to have the EGW team a part of the Core & Main family, and we look forward to the additional private label capabilities and capacity this acquisition brings. Our most recent acquisition, Geothermal Supply Company, is a distributor and fabricator of high-density polyethylene pipe and other related products. They primarily serve the geothermal, water, and sewer industries from a single location in Kentucky.
GW utilities: The team at GW utilities has been providing underground infrastructure products and services since 2001.
GW utilities: Their commitment to delivering value added solutions and maintaining strong customer relationships has enabled them to provide customers with the resources and support needed to complete projects successfully.
Speaker Change: We are happy to have the GW team are part of the core and main family and we look forward to the additional private label capabilities and capacity this acquisition brings us.
Speaker Change: Our most recent acquisition geothermal supply company as a distributor and fabricator of high density polyethylene pipe and other related products.
Speaker Change: They primarily serve the geothermal water and sewer industries from a single location in Kentucky.
Stephen O. LeClair: Adding GSC to the Core & Main family will create exciting new opportunities for us in an important and expanding area of HDPE. Their expertise in the industry fits well with our existing fusible product offering. And we are confident this will be a positive partnership for both new and existing customers. The integration of these businesses is progressing according to plan, and our acquisition strategy continues to create tremendous value for Core & Main.
Speaker Change: Adding GSC to the corn main family will create exciting new opportunities for us and an important and expanding area of HDTV.
Speaker Change: Their expertise in the industry fits well with our existing fusible product offering and.
Speaker Change: And we are confident this will be a positive partnership for both new and existing customers.
Speaker Change: The integration of these businesses is progressing according to plan and our acquisition strategy continues to create tremendous value for core in Maine.
Stephen O. LeClair: We have a very active M&A pipeline and expect to continue adding value-creating businesses to the Core & Main family throughout 2024 and beyond. To wrap up my prepared remarks, we are pleased with our performance in the first quarter. We have generated significant momentum for the business in recent months, and we are well positioned to achieve our objectives by continuing to execute our growth strategies as we enter an important part of the construction season.
Speaker Change: We have a very active M&A pipeline and expect to continue adding value, creating businesses to the core and main family throughout 2024 and beyond.
Speaker Change: To wrap up my prepared remarks, we are pleased with our performance in the first quarter, we have generated significant momentum for the business in recent months and we are well positioned to achieve our objectives by continuing to execute our growth strategies as we enter an important part of the construction season.
Stephen O. LeClair: Thank you to our associates for advancing reliable infrastructure in the communities in which we live, work, and play. It is becoming more and more apparent that our communities need a partner to help repair and upgrade our nation's fragile water infrastructure, and I am proud that we are there and ready to answer the call. With that, I will now turn it over to Mark to discuss our first quarter financial results and fiscal 2024 outlook. Go ahead.
Speaker Change: Thank you to our associates for advancing the reliable infrastructure and the communities in which we live work and play.
Speaker Change: Is becoming more and more apparent that our communities need a partner to help repair and upgrade our nation's fragile water infrastructure named.
Speaker Change: And I am proud that we are there and ready to answer the call.
Speaker Change: With that I will now turn it over to Mark to discuss our first quarter financial results and fiscal 2024 outlook go ahead Mark.
Mark R. Witkowski: Thanks, Steve. And good morning, everyone.
Mark Koski: Thanks, Steve and good morning, everyone I'll begin on page nine with highlights of our first quarter results.
Mark R. Witkowski: I'll begin on page nine with highlights of our first quarter results. We achieved nearly 11% net sales growth in the first quarter, with organic sales growth of roughly 3% and approximately 8% added through acquisition. Organic sales volume grew mid-single digits as our teams continue to drive market share gains to supplement modest end-market growth. Pricing was a minor headwind for the quarter as we continue to experience deflation on certain products and our end markets have remained competitive.
Mark Koski: We achieved nearly 11% net sales growth in the first quarter with organic sales growth of roughly 3% and approximately 8% added through acquisitions.
Mark Koski: Organic sales volume grew mid single digits as our teams continue to drive market share gains to supplement modest end market growth.
Mark Koski: Pricing was a minor headwind for the quarter as we continue to experience deflation on certain products in our end markets that remain competitive.
Mark R. Witkowski: Our gross margin in the first quarter came in at 26.9% compared to a record 27.9% in the prior year. As expected, underlying product margins were impacted by a higher average cost to inventory in 2024 compared to 2023. This unfavorable impact was partially offset by strong private label performance, our sourcing optimization efforts, and benefits from M&A.
Mark Koski: Our gross margin in the first quarter came in at 26, 9% compared to a record 27, 9% in the prior year.
Speaker Change: As expected underlying product margins were impacted by a higher average cost of inventory in 2024 compared to 2023.
Speaker Change: This unfavorable impact was partially offset by strong private label performance, our sourcing optimization efforts and benefits from M&A.
Mark R. Witkowski: Selling general and administrative expenses increased approximately 15% in the first quarter to $257 million. Excluding acquisitions, SG&A increased mid-single digits, with most of that increase attributable to inflation and investments in personnel to support current volumes and future growth. Interest expense in the first quarter was $34 million compared with $17 million in the prior year period. The increase was primarily due to the addition of the incremental $750 million term loan that's due in 2031, higher borrowings under our senior ABL credit facility, and an increase in interest rates on our variable rate debt.
Speaker Change: Selling general and administrative expenses increased approximately 15% in the first quarter to $257 million exclude.
Speaker Change: Excluding acquisitions SG&A increased mid single digits with most of that increase attributable to inflation and investments in personnel to support current volumes and future growth.
Speaker Change: Interest expense in the first quarter was $34 million compared with $17 million in the prior year period.
Speaker Change: The increase was primarily due to the addition of the incremental $750 million term loan that's due in 2031 higher borrowings under our senior ABL credit facility and an increase in interest rates on our variable rate debt.
Mark R. Witkowski: The provision for income taxes in the first quarter was $33 million compared with $31 million in the prior year period. Our effective tax rates in the first quarter this year and last year were 24.6% and 18.9%, respectively.
Speaker Change: Provision for income taxes in the first quarter was $33 million compared with $31 million in the prior year period, our effective tax rates in the first quarter of this year and last year were 24, 6% and 18, 9% respectively.
Mark R. Witkowski: The increase in the effective tax rate was primarily due to the exchanges of partnership interests in conjunction with the secondary offerings and repurchase transactions we completed last year. We recorded $101 million in net income for the first quarter compared with $133 million in the prior year period. The decrease in that income was primarily due to lower operating income and an increase in interest expense. Diluted earnings per share in the first quarter decreased 2% to $0.49 compared with $0.50 in the prior year period.
Speaker Change: The increase in the effective tax rate was primarily due to the exchanges of partnership interests in conjunction with the secondary offerings and repurchase transactions, we completed last year.
Speaker Change: We recorded $101 million and net income for the first quarter compared with $133 million from the prior year period the.
Speaker Change: The decrease in net income was primarily due to lower operating income and an increase in interest expense.
Speaker Change: Diluted earnings per share in the first quarter decreased 2% to <unk> 49.
Speaker Change: Compared with 50 in the prior year period.
Mark R. Witkowski: Diluted earnings per share decreased primarily due to a decline in net income, partially offset by lower share counts following our repurchase of 45 million shares during fiscal 2023. Adjusted EBITDA in the first quarter decreased approximately 1% to $217 million, and adjusted EBITDA margin decreased 150 basis points to 12.5%. The decrease in adjusted EBITDA margin was primarily due to lower gross profit as a percentage of net sales and higher SG&A due to the impact of cost inflation and investments to drive growth.
Diluted earnings per share decreased primarily due to a decline in net income partially offset by a lower share count following our repurchase of 45 million shares during fiscal 2023.
Speaker Change: Adjusted EBITDA in the first quarter decreased approximately 1% to $217 million and adjusted EBITDA margin decreased 150 basis points to 12, 5%.
Speaker Change: The decrease in adjusted EBITDA margin was primarily due to lower gross profit as a percentage of net sales and higher SG&A due to the impact of cost inflation and investments to drive growth.
Mark R. Witkowski: Now, on page 10, I'd like to provide an update on our cash flow and balance sheet. Net cash provided by operating activities in the first quarter was $78 million. We were pleased with this level of cash flow in what has historically been a lower cash generation quarter. We experienced an inventory build this year, though less than typical as we continue to optimize inventory levels. We supplemented our operating cash flow with additional borrowings to make significant investments in the growth of the business, with over $600 million of cash spent on M&A during and after the quarter. We remain committed to the capital allocation priorities we previously laid out.
Speaker Change: Now I'd like to provide an update on our cash flow and balance sheet on page 10.
Speaker Change: Net cash provided by operating activities in the first quarter was $78 million we.
Speaker Change: We were pleased with this level of cash flow in what has historically been a lower cash generation quarter.
Speaker Change: We experienced an inventory build this year, though less than typical as we continue to optimize inventory levels.
Speaker Change: We supplemented our operating cash flow with additional borrowings to make significant investments in the growth of the business with over $600 million of cash spent on M&A during and after the quarter.
Speaker Change: We remain committed to the capital allocation priorities, we previously laid out.
Mark R. Witkowski: In the near term, we expect to generate additional cash flow from operations to fund our organic initiatives and M&A, while working to enhance our liquidity and reduce our net debt leverage. As we progress throughout the year, we expect to provide additional details on our plans for returning capital to shareholders, which may include additional share repurchases and the potential for a future dividend program. As a reminder, we deployed $1.3 billion in share repurchases during fiscal 2023. Additionally, we entered into a new $750 million term loan during the quarter to expand our capital structure.
Speaker Change: And then the near term, we expect to generate additional cash flow from operations to fund, our organic initiatives and M&A, while working to enhance our liquidity and reduce our net debt leverage.
Speaker Change: As we progress throughout the year, we expect to provide additional details on our plans for returning capital to shareholders, which may include additional share repurchases and the potential for a future dividend program.
Speaker Change: As a reminder, we deployed $1 $3 billion on share repurchases during fiscal 2023.
Speaker Change: We entered into a new $750 million term loan during the quarter to expand our capital structure. The new term loan matures in February 2031, and carries interest that term so far plus a margin of 225 basis points concur.
Mark R. Witkowski: The new term loan matures in February 2031 and carries interest at rates so far plus a margin of 225 basis points. Concurrent with the issuance of the term loan, we extended the maturity of our existing ABL facility to 2029, and we also entered into an interest rate swap with an all-in fixed rate of approximately 6.2%. The interest rate swap has a starting notional amount of $750 million that increases to $1.5 billion on July 27, 2026, through the instrument's maturity in 2028.
Speaker Change: Concurrent with the issuance of the term loan we extended the maturity of our existing ABL facility to 2029, and we also entered into an interest rate swap with an all in fixed rate of approximately six 2%.
Speaker Change: The interest rate swap has a starting notional amount of $750 million that increases to $1 5 billion on July 27th 2026 through the instruments maturity in 2028.
Mark R. Witkowski: Excluding the pro forma effects of acquisitions, net debt leverage at the end of the quarter was 2.7 times, and our current available liquidity is more than $1 billion. The year-over-year increase in net debt leverage was primarily due to higher borrowings to fund investments in organic growth, acquisitions, and share repurchases.
Speaker Change: Excluding the pro forma effects of acquisitions net debt leverage at the end of the quarter was two seven times and our current available liquidity is more than $1 billion.
Speaker Change: The year over year increase in net debt leverage was primarily due to higher borrowings to fund the investments in organic growth acquisitions and share repurchases.
Mark R. Witkowski: On May 21st, we closed on the refinancing of our senior term loan due 2028 and reduced our applicable margin rate from 260 basis points to 200 basis points, resulting in interest expense savings of approximately $9 million annually. There were no other changes to terms or maturity.
Speaker Change: On May 21, we closed on the refinancing of our senior term loan due 2028 and reduced our applicable margin rate from 260 basis points to 200 basis points.
Speaker Change: Resulting in interest expense savings of approximately $9 million annually.
Speaker Change: There were no other changes to terms or maturities.
Mark R. Witkowski: Before we head over to Q&A, I'll wrap up our updated outlook for fiscal 2024 on page 11. With one quarter of the year behind us, our outlook for low single-digit end market volume growth remains unchanged, and we expect to continue gaining market share through the execution of our product, customer, and geographic expansion initiatives. We continue to expect new residential construction to grow modestly in 2024. Our residential bidding activity and orders continue to show strength despite higher interest rates and the expectation that they will remain higher for the foreseeable future. We are pleased to hear optimism from public home builders and continue to believe there is a shortage of available homes, which supports multi-year tailwinds for our product.
Speaker Change: Before we head over to Q&A I'll wrap up our updated outlook for fiscal 2024 on page 11.
Speaker Change: With one quarter of the year behind us our outlook for low single digit end market volume growth remains unchanged and we expect to continue gaining market share through the execution of our product customer and geographic expansion initiatives.
Speaker Change: We continue to expect new residential construction to grow modestly in 2020 for our residential bidding activity and orders continued to show strength, despite higher interest rates and the expectation that they will remain higher for the foreseeable future. We are pleased to hear optimism from the public homebuilders and continue to believe there is a shortage of available homes.
Speaker Change: <unk>, which supports multiyear tailwind for our products.
Mark R. Witkowski: Non-residential construction has been solid thus far, and our bidding activity and order pace in this market continue to be positive. We expect to see continued strength in highway and street projects, data centers, battery plants, and other large manufacturing projects, with some continued softness in office space and retail construction. Overall, we expect the non-residential market to be flat to slightly up for the year. Municipal repair and replacement activity, which represents over 40% of our net sales, is resilient due to healthy municipal budgets and the critical need to upgrade aged water infrastructure.
Speaker Change: Nonresidential construction has been solid thus far in our bidding activity and order pace. In this market continues to be positive. We expect to see continued strength in highway and street projects Datacenters battery plants and other large manufacturing projects with some continued softness in office space and retail construction.
Speaker Change: Overall, we expect the nonresidential market to be flat to slightly up for the year.
Speaker Change: Municipal repair and replacement activity, which represents over 40% of our net sales is resilient due to healthy municipal budgets and the critical need to upgrade aging water infrastructure.
Mark R. Witkowski: We continue to believe the sun market will grow low single digits in 2024. Based on our visibility and the long-term length of projects funded by the Infrastructure Investment and Jobs Act, we are continuing to evaluate when we may see incremental volume from these investments. We expect sales volume to more than offset a slight headwind from pricing in fiscal 2024, yielding low single-digit average daily sales growth, excluding acquisitions. We expect the M&A we completed through today will contribute 7 to 8% of total sales growth in fiscal 2024.
We continue to believe this end market will grow low single digits in 2024.
Speaker Change: Based on our visibility in the long term length of projects funded by the infrastructure investment and jobs Act. We are continuing to evaluate when we may see incremental volume from these investments.
Speaker Change: We expect sales volume to more than offset a slight headwind from pricing in fiscal 2024, yielding a low single digit average daily sales growth excluding acquisitions.
Mark R. Witkowski: We maintain a strong pipeline of opportunities, and we expect to continue adding more high-quality businesses to the Core & Main family as we move through the year. Gross margins performed well in the first quarter, with the negative effect of normalizing inventory costs mostly behind us on a sequential basis. We've seen fairly stable market costs in recent quarters, which can increase the level of competitiveness on the projects we bid. We expect that these competitive pressures could impact gross margins for the balance of the year as we look to maintain and grow our market share, but not by more than what we guided to previously of 30 to 50 basis points.
Speaker Change: We expect the M&A, we completed through today will contribute 7% to 8% of total sales growth in fiscal 2024, we maintain a strong pipeline of opportunities and we expect to continue adding more high quality businesses to the corn main family as we move through the year.
Speaker Change: Gross margins performed well in the first quarter with a negative effect of normalizing inventory costs, mostly behind us on a sequential basis.
Speaker Change: We've seen fairly stable market costs in recent quarters, which can increase the level of competitiveness on the projects we bid.
Speaker Change: We expect that these competitive pressures could impact gross margins for the balance of the year as we look to maintain and grow our market share, but not by more than what we guided to previously of 30 to 50 basis points.
Speaker Change: We'll continue to work to offset any potential compression through the execution of our gross margin initiatives.
Mark R. Witkowski: We'll continue to work to offset any potential compression through the execution of our gross margin initiatives. Taken all together, we are narrowing and raising our annual outlook based on results to date and recent acquisitions. We now expect net sales to be in the range of $7.5 to $7.6 billion, reflecting year-over-year growth of 12 to 13 percent. We are also narrowing and raising our outlook for adjusted EBITDA to range from $935 to $975 million, reflecting year-over-year growth of 3 to 7 percent.
Speaker Change: Taken altogether, we are narrowing and raising our annual outlook based on results to date and recent acquisitions. We now expect net sales to be in the range of seven 5% to seven $6 billion, reflecting year over year growth of 12% to 13%.
Speaker Change: We are also narrowing and raising our outlook for adjusted EBITDA to range from $935 to $975 million, reflecting year over year growth of 3% to 7%.
Mark R. Witkowski: We are confident in our ability to continue delivering strong performance in 2024. Our unique business model, commitment to driving shareholder value, and ability to successfully navigate changes in the macro environment position us extremely well for the long term. At this time, I'd like to open it up to questions.
Speaker Change: We are confident in our ability to continue delivering strong performance in 2020 for our unique business model commitment to driving shareholder value and ability to successfully navigate changes in the macro environment position us extremely well for the long term.
Speaker Change: At this time I'd like to open it up for questions.
Operator: Thank you, Mark. Everyone, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by T. When preparing to ask your question, please ensure your device is unmuted locally. We'll pause here briefly as a question in the register. We have our first question from Matthew Bouley with Barclays. Your line is open.
Mark Koski: Thank you Mark everyone. If you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Have you changed your mind, Please press star followed by <unk>.
Speaker Change: When preparing to ask a question. Please ensure your device.
Speaker Change: We'll pause briefly ask a question.
Speaker Change: We have our first question from Matt Bouley with Barclays. Your line is open.
Matthew Adrien Bouley: Hey, good morning, everyone. Thanks for taking the questions. I wanted to pick up on that gross margin commentary. It sounds like you said the sort of effect of normalizing inventory cost is now behind you, but now you're speaking to some kind of potential competitive pressures. I just kind of wanted to clarify all of that. The 30 to 50 basis points, is that kind of the guide for the full year? I guess that's number one. And number two, just can you kind of put a little additional color on what you're seeing with these kind of competitive pressures and how that should affect your gross margin cadence through the year? Thank you.
Speaker Change: Hey, good morning, everyone and thanks for taking the questions.
Matthew Adrien Bouley: I wanted to pick up on that gross margin commentary. It sounded like you said that sort of affect of normalizing inventory cost is now behind you.
Speaker Change: But now you are speaking with some kind of potential competitive pressures.
Speaker Change: I just kind of wanted to clarify all of that the 30 to 50 basis points is that kind of the guide for the full year.
Speaker Change: I guess, that's number one and number two just can you kind of put a little.
Additional color on what Youre seeing with these kind of competitive pressures.
Speaker Change: That should affect your gross margin cadence through the year. Thank you.
Mark R. Witkowski: Yeah, thanks, Matt. It's Mark.
Mark Koski: Yes, Thanks, Matt It's Mark I appreciate the question.
Mark Koski: First just on the cadence of gross margins I would say that 30% to 50 basis points that we talked about last quarter I would think about that sequential kind of coming off of.
Mark Koski: Q1, so we might see that coming up in Q2, Q3, maybe a little bit in Q4. So as you think about where we are we've been I'd say pretty consistent indicating that we'd have some gross margin normalization and its come in largely as expected.
Mark R. Witkowski: Appreciate the question. First, just on the cadence of gross margins, I would say that 30 to 50 basis points that we talked about last quarter, I would think about that sequential kind of coming off of Q1. So we might see that, you know, coming up in Q2, Q3, maybe a little bit in Q4. So, you know, if you think about where we are, you know, we've been, I'd say, pretty consistent, indicating that we would have some gross margin normalization.
Mark Koski: Last year was a really.
Mark Koski: <unk> was a record quarter from a gross margin perspective. So we had indicated that we would see some pressure this quarter we did.
Mark Koski: Got most of that behind Us I would say the new piece.
We're looking at.
Mark Koski: Fact that market costs really and the industry have been pretty stable, which is a really good thing for us.
Mark Koski: It does happen and what tends to happen is on projects when costs are stable at the distributor level. They can get kind of competitive we've seen a little bit of that thats, not something thats new to us feel like that'll be more than overcome with filing room as we go after those projects, but that that competitiveness can SKU.
Mark Koski: <unk> margins a bit when market costs are stable, we tend to be able to expand margins pretty good when prices are kind of moving a little bit.
Mark Koski: <unk> been stable, which has been very good for us, but could see a little bit of that gross margin pressure in the next couple of quarters.
Mark Koski: Yes.
Speaker Change: Got it okay. That's helpful.
Speaker Change: And then secondly, I mean.
Speaker Change: I guess following up on.
Speaker Change: Deflation commentary I mean, you just said in a lot of areas it sounded like market pricing is stable.
Speaker Change: I think in the guide you spoke to sort of slight price deflation for the year and maybe that's a slight change from the last quarter. So I guess.
Speaker Change: Where are you seeing some deflationary headwinds it looked like in the quarter, there was a little bit in fire protection, but not to put words into your mouth.
Speaker Change: Where are you seeing a little bit of deflationary pressure and if there's any offsets on the inflationary side would be curious to hear that as well. Thank you.
Mark R. Witkowski: And it's come in kind of largely as expected. You know, last year was a really, you know, our record quarter from a gross margin perspective. So we, you know, it indicated that we'd see some pressure this quarter. And we did.
Speaker Change: Yes, Thanks, Matt as we've talked about it's really those more commodity based products and steel piping is certainly one of those that's been under pressure and you can see that in the in the fire protection results not really a surprise there we knew that was coming.
Speaker Change: Municipal Pvc's off of I would say the record highs we saw in 2022, but overall, it's been pretty stable here the last several months.
Mark R. Witkowski: We've got most of that behind us. I'd say that the new piece, you know, that we're looking at is the fact that market costs in the industry have been pretty stable, which is a really good thing for us. What does happen, and what tends to happen, is that on projects when costs are stable at the distributor level, they can get kind of competitive. We've seen a little bit of that. It's not something that's, you know, new to us.
Speaker Change: So again, nothing really new there but.
Speaker Change: That slight tweak that we made to the language just really coming off more of the basket of goods that we sell to win projects to those customers that are a little bit more price sensitive.
Subset of the customers, but given that stability of pricing, it's a little bit more.
Speaker Change: Just just something you've got to do to make sure you're holding on to share and we definitely are going to maintain and grow share in that put any of those types of projects at risk. So slight tweak to the language I wouldn't view it as any kind of significant item. It I'll hope it something that we wanted to point out that does impact the top line, just very slightly and could put a little slight pressure on the gross.
Mark R. Witkowski: I feel like that'll be more than overcome, you know, with volume as we go after those projects. But that competitiveness can squeeze margins a bit when market costs are stable. We tend to be able to expand margins pretty well when prices are kind of moving a little bit. They've been stable, which has been very good for us, but we could see a little bit of that gross margin pressure in the next couple of quarters.
Speaker Change: Margins now I think we've been pretty effective at offsetting all of those things one on the volume side with driving our.
Speaker Change: Strategic growth initiatives that we have and then on the gross margin side I think you've seen us do a pretty decent job of offsetting those impacts of the gross margin normalization that we expected by driving some really good private label growth.
Speaker Change: Sourcing optimization has come in really strong for the quarter. So we're going to continue to fight to hold on to those margins, but just wanted to indicate where we are seeing some of that pressure.
Speaker Change: Got it well thanks, Mark Thanks, Steve Good luck guys.
Matthew Adrien Bouley: Thanks, Matt.
Speaker Change: Thank you. The next question is from Nigel Coe with Wolfe Research. Your line is open.
Mark R. Witkowski: Got it. Okay, that's helpful. And then, secondly, I guess I'm following up on the deflation commentary. I mean, you just said that in a lot of areas, it sounds like market pricing is stable. But I think in the guide, you spoke of sort of slight price deflation for the year, and maybe that's a slight change from the last quarter. So I guess, you know, where are you seeing some deflationary headwinds? It looked like in the quarter there was a little bit of a decline in fire protection, but not to put words in your mouth. You know, where are you seeing a little bit of deflationary pressure? And if there's any offsets on the inflationary side, I would be curious to hear that as well. Thank you.
Nigel Edward Coe: Oh, great. Thanks, Thanks, very much for the question.
Nigel Edward Coe: So I just wanted to maybe pick up off that last question on the participation. It seems if you sort of plug in the numbers.
Nigel Edward Coe: It looks like price down maybe 1%.
Speaker Change: Also this quarter I'm, just wondering what kind of visibility you have as we get into the kind of the more meaningful quarters.
Speaker Change: And how would you gauge the risk of broader price deflationary pressures and perhaps.
Speaker Change: Modest deflation becoming.
A bit more severe.
Mark R. Witkowski: Yeah, thanks, Matt. As we've talked about, it's really those more commodity-based products, and steel piping is certainly one of those that's been under pressure. And you can see that in the fire protection results. Not really a surprise there. We knew that was coming.
Speaker Change: Yes, thanks Nigel.
Speaker Change: <unk> got pretty good visibility, obviously, a lot of discussions that take place.
Speaker Change: Our field teams with our supplier base.
Feel really good about kind of where the market costs have stabilized in the market. So really anything beyond that some minor tweaks just to remain competitive again on a small subset of customers that are a little bit more price sensitive. So don't view there as being any significant trend from that perspective, and if anything what we've seen is.
Mark R. Witkowski: You know, municipal PVCs, off of, I'd say, the record highs we saw in 2022. But overall, it's been pretty stable here the last several months. So, you know, again, nothing really new there. But, you know, that slight tweak that we made to the language, just really coming off more of the basket of goods that we sell to win projects to those customers that are a little bit more price sensitive.
Speaker Change: When you get a little bit of a squeeze there that really forces the field teams to really drive some of these margin initiatives, even harder and we saw some really good pull through in the quarter in particular with private label to really find some benefit on the cost side.
Speaker Change: Yes, just to add into that what we've seen is now as these supply chains have mostly stabilized and the prices have stabilized is that typically as expected start seeing more competitive nature on some of the larger projects that may involve a lot more of.
Mark R. Witkowski: It's a, you know, subset of customers. But given that stability of pricing, it's a little bit more, you know, just something you got to do to make sure you're holding on to share, and you know, we definitely are going to maintain and grow share and not put any of those types of projects at risk. So, slight tweak to the language.
Speaker Change: Standardized type of standard sizes, and that's kind of what we're seeing not unexpected.
Mark R. Witkowski: I wouldn't view it as any kind of, you know, significant item at all, but something that we wanted to point out that does impact the top line just very slightly and could put a little slight pressure on the gross margins. Now, I think, you know, we've been pretty effective at offsetting all of those things. One, on the volume side, driving our, you know, strategic growth initiatives that we have. And then on the gross margin side, I think you've seen us do a pretty decent job of offsetting those impacts of the gross margin normalization that we expected by driving some really good private label growth.
Speaker Change: And as Mark mentioned, our level of pull through that we've seen with private label has been accelerated and we're really confident about what we're seeing with the ability to drive even more volume through there and I think to offset a good portion of that.
Mark R. Witkowski: You know, our sourcing optimization has come in really strong for the quarter. So we're going to continue to fight to hold on to those margins, but just want to indicate where we're seeing some of that pressure.
Speaker Change: That's great color. Thank you and then on the on the margins and so Im just typically we see <unk> EBITDA margins picking up.
Speaker Change: Sequentially on the strong booking kind of leverage on SG&A, but given the sort of the inflationary pressures you're seeing on SG&A, mainly on investment spending just wondering how we should think about SG&A growth over the remainder of the year and do we still expect to get good SG&A leverage in <unk>.
Mark R. Witkowski: Got it. Well, thanks, Mark. Thanks, Steve. Good luck, guys.
Speaker Change: Yes, thanks, Nigel on the SG&A side I would keep in mind that really what youre seeing there and I highlighted this in the prepared remarks as you know a good portion of the.
Nigel Edward Coe: Increase in rate in the quarter was related to some of the M&A you can see about I'd say about two thirds of the dollars that we have is really acquired SG&A from from M&A. So there'll be some opportunities as we go forward. It takes a little longer to get the synergies out of SG&A.
Nigel Edward Coe: The M&A that we do we get some immediate benefits at the gross margin level and <unk> seen those benefits come through on.
Our gross margin line, so I'd say from a from a go forward.
Nigel Edward Coe: Third probably 30 to 50 basis points of SG&A rate pressure over the next couple of quarters as we work through some of that M&A and get some get some synergies there.
Speaker Change: Still making investments in the business.
Speaker Change: Made some good investments into some key talent in some of the initiative areas that we've got to drive growth.
Speaker Change: We've been investing in technology positions, the company well going forward for growth and productivity.
I wouldn't expect any significant leverage there until we get kind of later later in this year.
Mark: Okay. Thanks Mark.
Yes.
Mark R. Witkowski: Thanks, Matt. Thanks, Matt.
Thank you the.
Speaker Change: The next question is from Mike Dahl with RBC capital markets. Your line is open.
Nigel Edward Coe: Thank you. The next question is from Nigel Coe with World Research. Your line is open.
Michael Glaser Dahl: Good morning, Thanks for taking my questions.
Speaker Change: Sorry to harp on the gross margins here, but I.
Speaker Change: I guess I'm still not fully clear mark back to Matt's question, the 30 to 50 basis points.
Speaker Change: Is that.
Speaker Change: Our full year 2004 versus full year 2003 or is that Youll see 30 to 50 basis points down sequentially in Q2, and then hold stable from there.
Speaker Change: That's the first part of the question and the second part is is that a net number because obviously as you articulated.
Done a very good job of finding offsets.
Speaker Change: Your internal initiatives. So far so is that the net headwind do you expect.
Speaker Change: For margins or is that kind of the gross headwind.
Speaker Change: The net may be somewhat less than that.
Speaker Change: Yeah.
Nigel Edward Coe: That last question on price deflation. It seems if you sort of plug in the numbers, prices are down maybe 1% or so this quarter. I'm just wondering what kind of visibility you have as we get into the kind of more meaningful quarters and how do you gauge the risk of broader price deflationary pressures and perhaps that modest deflation becoming a bit more severe?
Speaker Change: Yeah. Thanks, Thanks, Mike getting used to the gross margin questions, but just to clarify the 30 to 50 basis points think of that is sequentially.
Speaker Change: <unk> in Q2.
Speaker Change: Yes.
Speaker Change: As it relates to the initiatives.
Speaker Change: We're going to continue to drive those we had a really good I'd say initiative quarter in Q1.
Speaker Change: Some of that can be a little choppy, but we think we're going to be able to build off of that and try to offset as much of that 30% to 50 as we can so I'd think about it is at the lower end lower end of that range. If we continue to drive those gross margin initiatives.
Speaker Change: And get that continued benefit in.
Speaker Change: If you have any other factors you can get some choppiness on various projects and certain things could be at the higher end of that but think about that a sequential coming off of Q1.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: And all else equal potentially stable or better from there.
Speaker Change: <unk>.
The customers, we're going to we're going to work.
Speaker Change: No worse than neutral.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Second question, just around kind of the M&A capital deployment leverage.
Mark R. Witkowski: Yeah, thanks, Nigel. We've got pretty good visibility, obviously, a lot of discussions that take place with our field teams, you know, with the supplier base, and feel really good about kind of where the market costs have stabilized in the market. So, you know, really anything beyond that, some minor tweaks just to remain competitive again with a small subset of customers that are a little bit more price sensitive.
Speaker Change: Obviously, you front loaded a lot of the buyback last last year and now you've spent a decent amount on M&A.
Speaker Change: So the first part on M&A.
Speaker Change: It seems like just back of the envelope. Another Dana kept their deal was was private equity competitive.
Speaker Change: Makes sense.
Speaker Change: Higher margin, but it seems like.
Speaker Change: Combined you might be speaking to a multiple on these recent deals thats more like in the 11% to 12 range, which would be kind of higher than what you have.
Speaker Change: Been doing on some of the smaller tuck ins. So maybe just speak to that and what youre seeing in the market for for multiples.
Speaker Change: What you can drive on kind of a post synergy basis as well and then with your leverage now in the high teens.
Speaker Change: It sounds like you're pivoting in the near term to kind of.
Speaker Change #100: Deemphasize the buyback and focus your capital mainly on M&A and ultimately deleveraging, but maybe just speak a little more towards how youre thinking about priorities for this year.
Mark R. Witkowski: So don't view that as being any significant trend, you know, from that perspective. And if anything, what we've seen is when you get that little bit of a squeeze there, it really forces the field teams to, you know, really drive some of these margin initiatives even harder. And we've seen some really good pull through in the quarter, in particular with private label, to really find some benefit on the cost side.
Michael Glaser Dahl: Yes, Mike I'll talk first about the M&A pipeline.
Speaker Change #101: We don't disclose the multiples I will share with you that certainly with Dana cabinet or being the size and magnitude that it was and in fact this feedback was at the high end of what we.
Speaker Change #101: Have traditionally paid in terms of a multiple.
Speaker Change #101: From a pre synergy standpoint, all the other acquisitions have all come in.
Speaker Change #102: At the low to medium range that we have typically done pre synergies so really not seeing any change there in terms of the overall multiples.
Stephen O. LeClair: Yeah, just to add to that, you know, what we've seen now as these supply chains have mostly stabilized and prices have stabilized, is that typically, as expected, we start seeing more competitive nature on some of the larger projects that may involve a lot more of, you know, standardized pipe of standard sizes. And that's kind of what we're seeing. Not unexpected. And as Mark mentioned, our level of pull-through that we've seen with private label has been accelerated, and we're really confident about what we're seeing with the ability to drive even more volume through there and, I think, offset a good portion of that.
Speaker Change #103: But certainly we felt really compelled with Dana kapner given its locations in the long term viability of a lot of those markets and the position that <unk> had that that was.
Speaker Change #104: That was worth.
Speaker Change #104: We're looking at at that level.
Speaker Change #104: So we will continue to do that our M&A pipeline continues to look strong.
Speaker Change #104: And Youll see that there is a balance of.
Speaker Change #104: Of deals that are in the <unk>.
Small to mid size in that in the range and in our pipeline and everything else. So we feel really confident that we've got a good active pipeline. These things tend to be a little lumpy and thats. What you saw a little bit in this quarter. It looks outsized in terms of that in terms of the M&A growth that we have traditionally done and thats not a bad thing. It's just it's just the size and magnitude.
Speaker Change #105: <unk> of Dana Kempner.
Speaker Change #105: And on the timing of the other deals falling in line with that and Mark do you want to talk a little bit more about capital allocation, yes, Mike I think in terms of the capital allocation priorities no real changes there I mean organic growth M&A or going to continue to be our top priority.
Nigel Edward Coe: And then on the margins, typically we see 2Q, 3Q EBITDA margins picking up sequentially on the strong volume leverage on SG&A. But given the inflationary pressures you're seeing on SG&A, mainly on investment spending, just wondering how we should think about SG&A growth over the remainder of the year, and do we still expect to get good SG&A leverage in 2Q, 3Q? Yeah, thanks.
Mark R. Witkowski: Yeah, thanks, Nigel. You know, on the SG&A side, I keep in mind that really what you're seeing there, and I highlighted this in the prepared remarks, is, you know, a good portion of the increase in rate in the quarter was related to some of the M&A. You know, I'd say about two-thirds of the dollars that we have was really acquired, you know, SG&A from M&A. So, you know, there'll be some opportunities as we go forward. It takes a little longer to get the synergies out of SG&A.
Mark R. Witkowski: With the M&A that we do, we get some immediate benefits at the gross margin level, and you've seen those benefits come through on our gross margin line. So, you know, I'd say from a go forward perspective, there are probably 30 to 50 basis points of SG&A rate pressure over the next couple of quarters as we work through some of that M&A and get some synergies there.
Mark R. Witkowski: We're still making investments in the business. You know, we've made some good investments in some key talent and some of the initiative areas that we've got to drive growth. We've been investing in technology, and positioned the company well, you know, going forward for growth and productivity. So, you know, I wouldn't expect, you know, any significant leverage there until we get kind of later into this year.
Michael Glaser Dahl: Thank you. The next question is from Mike Dahl with RBC Capital Markets. Your line is open.
Speaker Change #106: We'll continue to look at share repurchases and are considered dividends at some point, we think we can execute all of that with the level of cash that we generate and expect to have that excess capital and return it back to.
Speaker Change #107: Shareholders I think that was just highlighting that we did complete a lot of share repurchases in 2023, So I wouldn't expect it at that level you would expect that.
Speaker Change #107: The allocation to be a little bit more balanced as we move forward.
Michael Glaser Dahl: Morning, thanks for taking my questions. Sorry to harp on the gross margin here, but I guess I'm still not fully clear, Mark. Back to Matt's question, the 30 to 50 basis points. Is that a full year 24 versus full year 23?
Speaker Change #107: That makes sense very helpful. Thanks, Steve.
Speaker Change #108: Okay. Thanks.
Speaker Change #109: Got it.
Michael Glaser Dahl: Or is it that you'll see 30 to 50 basis points down sequentially in 2Q and then hold stable from there? That's the first part of the question. And the second part is, is that a net number? Because obviously, as you articulated, you've done a very good job of finding offsets through your internal initiatives so far. So is that the net headwind you expect for margins? Or is that kind of a gross headwind, and the net may be somewhat less than that?
Speaker Change #109: Thank you. The next question is from Anthony Pettinari with Citigroup. Your line is open.
Mark R. Witkowski: Yeah, thanks. Thanks, Mike.
Speaker Change #110: Hi, this is assets on and on for Anthony Thanks for taking my question. It sounded like there was some maybe price pressure from a kind of a mixed down for more price sensitive customers. If I understood. Your comments correctly and so can you just talk about maybe what's driving that trend is it sort of just the increased number of large projects that you called out.
Do you expect maybe competitive intensity to worsen over time as more large projects come online with Iga.
Mark R. Witkowski: I'm getting used to the gross margin questions. But just to clarify, the 30 to 50 basis points, think of that as sequentially starting in Q2. You know, as it relates to the initiatives, we're going to continue to drive those. We had a really good, I'd say, initiative quarter in Q1. You know, some of that can be a little choppy, but we think we're going to be able to build off of that and try to offset as much of that 30 to 50 as we can.
Speaker Change #110: Sure that what we're seeing here.
Mark R. Witkowski: So I think about it as the lower end of that range if we continue to drive those gross margin initiatives and get that continued benefit. And, you know, if we have any other, you know, effects, you can get some choppiness on, you know, various projects and certain things, it could be at the higher end of that. But think about that as sequential coming off.
Speaker Change #111: Really kind of as expected in terms of the competitive nature of the normalizing of the supply chain and the pricing structure, we had been indicating this really for about the last year and it's taken.
Speaker Change #111: Thinking about that time too.
Speaker Change #112: It really formulate and I'd just remind everybody. We go back to first quarter of last year, where we had some pretty significant comps in terms of margins that we were.
Up against.
Speaker Change #112: So this is pretty standard for what we're seeing right now in the industry, We're certainly seeing.
Speaker Change #112: The competitive nature of the business is now.
Speaker Change #113: As we traditionally have seen our ability to offset a lot of this with private label and some of our other pricing initiatives continues to be strong and we'll continue to see a lot of upside there to offset some of that but.
Speaker Change #113: There are definitely a lot of projects out there we're seeing we're seeing some really good bid activity you mentioned II JA.
Speaker Change #113: One of the things that we're encouraged about is we're starting to see more bidding volume coming in over this last quarter from Iga funded.
Speaker Change #113: <unk>. Many of these projects are what I would call longer term.
Speaker Change #113: Treatment plant projects selling.
Speaker Change #113: So in many cases, what we're evaluating there is.
Speaker Change #113: Likely material flow and these things will be until late back half of this year into certainly 25 in terms of timing and we're evaluating how much of that will be incremental as we go forward, but we are starting to be encouraged by at least seeing the bidding activity accelerate.
Speaker Change #113: Accelerate in the first first quarter of this year.
Michael Glaser Dahl: Got it. And I'll sequel potentially stable or better from there. The best we're going to work for is no worse than neutral. Okay, second question: kind of the M&A capital deployment leverage. You know, obviously, you frontloaded a lot of the buyback last year, and now you've spent a decent amount on M&A. So the first part on M&A, it seems like just the back of the envelope. I know the Dana Kempner deal was private equity competitive.
Speaker Change #113: Got it.
Speaker Change #114: Switching gears now you called out that an earlier start to the season in some of your northern geography made a minute sales tailwind.
Speaker Change #114: Looking at the balance of the year can you walk through any notable weather comps and maybe facing maybe regionally.
Michael Glaser Dahl: So it makes sense that that would be a higher margin, but it seems like, you know, combined, you might be speaking to a multiple on these recent deals that's more like in the 11 to 12 range, which would be kind of higher than what you've been doing on some of the smaller tuck-ins. So maybe just speak to that and what you're seeing in the market for multiples, and what you can drive on kind of a post synergy basis as well.
Speaker Change #115: Yeah sure as we got into the first quarter of this year, particularly areas in the upper Midwest that are really softer winter and we're able to accelerate some of that early season to kick in.
Speaker Change #115: We're definitely dealing with some choppy weather.
We saw in May with a lot of wet weather and for our business.
Speaker Change #115: There is not really conducive to digging and putting in pipe and valves and fittings. So we're watching that one closely we figure that there's probably going to depending how the season pans out over the next.
Michael Glaser Dahl: And then with your leverage now in the high twos, it sounds like you're pivoting in the near term to kind of de-emphasize the buyback and focus your capital mainly on M&A and ultimately deleveraging. But maybe just, you know, speak a little more about how you're thinking about priorities for this year.
Speaker Change #115: The next month to get a better feel for how weather may impact it but.
Speaker Change #115: Its always choppy and winter it can be very dicey in spring the start of the season can be delayed with with rain and wet.
Speaker Change #115: In wet conditions. So we'll continue to monitor that and usually that leveled out over the quarter.
Stephen O. LeClair: Yeah, Mike. I'll talk first about the M&A pipeline. And, you know, while we don't disclose the multiples, I'll share with you that certainly with Dana Kepner being the size and magnitude that it was, and the fact that PBAC was at the high end of what we have traditionally paid in terms of a multiple from a pre-synergy standpoint, all the other acquisitions have all come in at the low to medium range that we have typically done pre-synergy So I am not really seeing any change there in terms of the overall multiples.
Speaker Change #116: Alright, great that's very helpful I'll turn it over.
Speaker Change #116: Thanks.
Stephen O. LeClair: But certainly, we felt really compelled with Dana Kepner, given its locations and the long-term viability of a lot of those markets and the position that they've had, that that was, you know, worth looking at at that level. So we'll continue to do that. Our M&A pipeline continues to look strong. And you'll see that there is a, you know, a balance of deals that are in the, you know, small to mid-size range in that range and our pipeline and everything else.
Speaker Change #117: Thank you. The next question is from Kathryn Thompson with Thompson Research Group. Your line is correct.
Stephen O. LeClair: So we feel really confident that we've got a good active pipeline. These things tend to be a little lumpy, and that's what you saw a little bit in this quarter. It looks outsized in terms of that, in terms of the M&A growth that we have traditionally done. And that's not a bad thing. It's just, it's just the size and magnitude of Dana Kepner and, you know, and the timing of the other deals falling in line with that. Mark, do you want to talk a little bit more about capital allocation? Yeah, Mike, I think in terms of
Kathryn Ingram Thompson: Hi, Thanks, just a few clarification based on your commentary and in the Q&A for guidance.
Mark R. Witkowski: Yeah, Mike, I think in terms of the capital allocation priorities, you know, no real changes there. I mean, organic growth and M&A are going to continue to be our top priorities. And, you know, we'll continue to look at share repurchases and, you know, consider dividends at some point. We think we can do all of that with the level of cash that we generate. And, you know, expect to have that excess capital returned to you.
Kathryn Ingram Thompson: On the municipal side, you said that some steady low single digit growth in that end market and implied in guidance, but could you just clarify again on the non res and the residential end market <unk> license can be flattish.
Mark R. Witkowski: Shareholders, I think it was just highlighting that, you know, we did complete a lot of share repurchases in 2023. So I wouldn't expect it at that level; you'd expect that allocation to be a little bit more balanced as we move forward.
Speaker Change #119: And he had said low single digit mid single digit growth, but any updates on those two end markets for guidance.
Michael Glaser Dahl: That makes sense. Very helpful. Thanks, Steve. Thanks, Mark.
Speaker Change #119: Yeah. Thanks, Catherine you got that got that right in terms of the prepared commentary I would say muni can continue.
Speaker Change #119: <unk> to be very steady kind of low single digit.
Speaker Change #119: Non resi, we're watching early kind of started the year definitely some different pockets going on there, but we've seen some really good strength in some of the highway work allowed us storm drainage.
Speaker Change #119: <unk> as you can see in our breakout of storm drainage, we had a really good quarter there.
Speaker Change #119: That gave us a little bit more confidence that we would see maybe a tick up on the nonresidential side and then from a residential perspective, we were kind of thinking in the mid single digit range. The first quarter was really strong.
Anthony James Pettinari: Thank you. The next question is from Anthony Pettinari with Citigroup. Your line is open.
Speaker Change #119: We're kind of thinking that for the rest of the year, maybe slightly under that but kind of low single to mid single digit for resi, primarily due to the fact that we still are seeing these interest rates stay up a little higher so just being a little bit more cautious on the resi side, but overall still feel good about the overall kind of low single digit volume growth for the.
Speaker Change #119: The end markets.
Speaker Change #120: Okay, and then on annualized revenue contribution from acquisitions, you gave the percentage range, but could you be could you frame the acquisition contributions more from a revenue standpoint and.
Speaker Change #121: Clarify just a little bit more.
Speaker Change #121: Can you split simply better margins, but.
Speaker Change #121: Help us think about.
Speaker Change #121: A final.
Speaker Change #121: Final point on that.
Pat: Pat from margins more on annualized basis.
Pat: These acquisition.
Asher Melech Sohnen: Hi, this is Asher Sohnen on for Anthony. Thanks for taking my question. It sounded like there was some maybe price pressure from a kind of mixed down, some more price sensitive customers, if I understood your comments correctly. And so can you just talk about maybe what's driving that trend? Is it sort of just the increased number of large projects that you called out? And then do you expect maybe competitive intensity to worsen over time as more large projects come online with IIJA?
Catherine: Yeah. Thanks, Catherine from a from a contribution standpoint, as we've talked about in the remarks, it's about a seven to eight points of growth for the year.
Stephen O. LeClair: You know, I'd share what we're seeing here with As expected in terms of the competitive nature and the normalizing of the supply chain and the pricing structure. We've been indicating this for about the last year, and it's taken about that time to really formulate and just remind everybody.
Catherine: I would say $450 million range for the top line so good.
Speaker Change #124: Good revenue growth coming from the acquisitions and very pleased with how those are being integrated at this point, we're seeing a lot of good.
Speaker Change #124: A lot of good progress from the acquisitions that we've been working through.
Stephen O. LeClair: We go back to the first quarter of last year, where we had some pretty significant comps in terms of margins that we were going up against. So this is pretty standard for what we're seeing right now in the industry. We're certainly seeing, you know, the competitive nature of the business now. But, as we traditionally have seen, our ability to offset a lot of this with private label and some of our other pricing initiatives continues to be strong, and we'll continue to see a lot of upside there to offset some of that.
Speaker Change #124: In terms of the EBITDA contribution I would think about those kind of at the company average kind of neutral from that perspective, we've seen a little better contribution at the gross margin level, but a little higher SG&A rate, but some of this acquisition. So it's coming out just about neutral from a from an EBIT standpoint.
Speaker Change #125: Okay, Great and then just.
Speaker Change #126: Another clarification on your fire protection.
Speaker Change #126: It's not declined due to lower selling prices.
Speaker Change #126: Offset somewhat by acquisitions.
Stephen O. LeClair: But there are definitely a lot of projects out there. We're seeing some really good bid activity, as you mentioned IIJA. So one of the things that we are encouraged about is we're starting to see more bidding volume coming in from IIJA funded projects. Many of these projects are what I would call longer-term treatment plant projects. So in many cases, what we're evaluating there is, you know, likely material flow on these things will be late back half of this year into certainly the first quarter of next year in terms of timing, and we're evaluating how much of that will be incremental as we go forward, but we're starting to be encouraged by at least seeing the bidding activity accelerate in the first quarter of this year.
Speaker Change #127: What are you seeing in terms of just.
Speaker Change #128: Volume is really the decline in that segment more.
Speaker Change #128: Due to pricing are you seeing any.
Speaker Change #129: Changes in volumes.
Asher Melech Sohnen: Got it. And then, you know, switching gears, you called out that an earlier start to the season and some of your northern geographies may have been a sales tailwind. So just looking at, you know, the balance of the year, can you walk through any notable weather comps you may be facing, maybe regionally?
Speaker Change #130: Yes on the fire protection product line, a couple of different moving pieces. There obviously the steel pipe deflation that we've talked about has been a big driver of the topline there we've offset some of that with some some good M&A on the fire protection side. So from a I would say organic volume side.
Speaker Change #131: It's been down a little bit and it really represents more of that completion work on some of the traditional facilities that are out there in that non resi space at the total company level.
Stephen O. LeClair: Yeah, you know, I'd share as we got into the first quarter of this year, particularly areas in the upper Midwest that are really soft winters, and we're able to accelerate some of that early season to kick in. You know, we're definitely dealing with some choppy weather, as we saw in May, with a lot of wet weather. And for our business, you know, wet weather is not really conducive to digging and putting in pipe and valves and fittings.
Speaker Change #131: Non resi has been stronger due to more of the like I said the Street highway work that gets a lot of the storm drainage and then some other work going around around the mega projects in some other areas. So I'd say, it's been a little little soft there, but again nothing that was.
Speaker Change #131: Kind of coming in as expected.
Speaker Change #131: That's going to be.
Speaker Change #132: Good growth category for us going forward, there's still a lot of good opportunity for expansion in that fire protection space and we're going to continue to try to drive that above the market.
Speaker Change #132: Sure.
Speaker Change #133: Okay any update on just private label percentage of next fiscal 2010 15.
Speaker Change #133: We continue.
Speaker Change #133: 2% any any update there.
Speaker Change #134: Yes, we had a good good quarter from a private label pull through perspective, we were kind of hovering around kind of low 2% of Cogs in that ticked up.
Speaker Change #134: Ticked up in the quarter, we got into more of a normalized let's say buying pattern from an inventory perspective that was something that was hampering our private label growth a little bit in 2023, since we've been able to clear out a lot of that inventory has allowed us to replenish a lot of that with our private label product.
Stephen O. LeClair: So we're watching that one closely; we figure that there's probably going to, depending on how the season pans out over the next, the next month or two, get a better feel for how weather may impact it. But, it's always choppy, you know, in winter, it can be very dicey. And in spring, the start of the season can be delayed by rain and wet conditions. So we'll continue to monitor that. And usually, that levels out over the quarter.
We're very pleased with the results we had in the first quarter and expect we'll be able to continue driving some more growth there throughout the rest of this year.
Asher Melech Sohnen: All right, great. That's very helpful. I'll turn it over.
Speaker Change #135: Okay, great. Thanks, so much.
Speaker Change #136: Yes. Thanks.
Kathryn Ingram Thompson: Thank you. The next question is from Kathryn Thompson with Thompson Research Group. Your line is open.
Speaker Change #136: Thank you. The next question is from Joe Ritchie with Goldman Sachs. Your line is open.
Kathryn Ingram Thompson: Hi, thanks. Just a few clarifications based on your prepared commentary and in the Q&A, just for guidance. On the municipal side, you had said to expect some steady, low single-digit growth from that end market implied in guidance, but could you just clarify again on the non-res and the residential end market? Previously, you said non-res was going to be flattish, and Rezi had set low single-digit to missing digital growth, but any updates on those two end markets for guidance?
Joseph Alfred Ritchie: Hi, Thanks, good morning, everyone.
Mark R. Witkowski: Yeah, thanks, Kathryn. You got that right in terms of the prepared commentary. I would say, you know, Muni continues to be very steady, kind of a low single-digit. Non-RESI, we were watching at the early kind of start of the year, definitely some different pockets going on there. But we've seen some really good strength in some of the highway work, a lot of storm drainage products. As you can see, in our breakout of storm drainage, we had a really good quarter there.
Joseph Alfred Ritchie: And so.
Speaker Change #138: I won't ask the gross margin question.
Good morning.
Maybe just going back to the deflation for a second.
Speaker Change #139: So I'm just curious there's been some.
Speaker Change #140: Some talk of by and.
Speaker Change #140: Large municipal pipe expansion from from companies like Westlake.
Speaker Change #140: I'm just wondering is that is that having any kind of impact on the on the deflationary comments that you guys are making or do you expect it to have an impact going forward.
Mark R. Witkowski: That gave us a little bit more confidence that we'd see maybe a tick up on the non-RESI side. And then from a residential perspective, you know, we were kind of thinking in the mid-single digit range. The first quarter was really strong. You know, we're kind of thinking that for the rest of the year, maybe slightly under that, but kind of low single-to mid-single digit for RESI, primarily due to the fact that we still are seeing these interest rates stay up a little higher. So just being a little bit more cautious on the RESI side, but overall, still feel good about the overall low single-digit volume growth for the end markets.
Speaker Change #140: Yes, Joe this is Dave, but really no impact right now and I think it would be a while before any type of capacity comes online for that.
Speaker Change #141: And yes, there's been a lot of talk about other expansion into plastic pipe that can sometimes be confused with what's happening really in our end markets and the municipal piece. So a number of the expansions that have been.
Speaker Change #141: <unk>.
Speaker Change #141: Noted out there are areas like in polyethylene pipe in.
Speaker Change #141: Corrugated thermal plastic pipe and some of these areas in plumbing et cetera that really arent related necessarily to our end markets. So we're not seeing any real impact at all from any new capacity coming onboard and don't anticipate that to be an issue in the near or medium term.
Kathryn Ingram Thompson: Okay, and then on annualized revenue contribution from acquisitions, you gave the percentage range, but could you frame the acquisition contributions more from a revenue standpoint? And clarify just a little bit more, you know, you said descriptively that it's better margins, but help us think about a finer point on what to expect from margins more than on an annualized basis from these acquisitions.
Okay great.
Speaker Change #142: Good to hear and then I just wanted to circle back on the <unk>.
Speaker Change #143: The M&A commentary and also the and how it relates to the guidance increased.
Speaker Change #144: I guess, we were roughly thinking that the new acquisitions were roughly about $100 million of sell in revenue. So even if it's kind of below company wide margins.
Speaker Change #145: Probably higher EBITDA contribution than the $5 million increase that you have at the midpoint just want to understand like how the how M&A like contributed to the guidance and then whether my numbers are close to correct.
Mark R. Witkowski: Yeah, thanks, Kathryn. You know, from a contribution standpoint, as we talked about in the remarks, it's about 7 to 8 points of growth for the year. That's in the, I'd say, $450 million range for the top line, so good revenue growth coming from the acquisitions, and very pleased with how those are being integrated at this point. We're seeing a lot of good progress from the acquisitions that we've been working through.
Speaker Change #145: Yes, Jeff Thanks for that yes, youre pretty spot on with the figures I would say.
Speaker Change #146: Really no significant changes to how we were thinking about guidance. We did look at the low end and given the M&A contribution we felt very confident to take the low end of the range up.
Speaker Change #146: Consistent kind of with the acquisition of <unk>.
Speaker Change #147: Tribute <unk> and.
That was really the rationale there.
Speaker Change #148: Still watch and it's still early in the year, we were very pleased I'd say with how the quarter came in very pleased with the bidding activity and the backlogs that are building. So a lot of good momentum in the quarter.
Mark R. Witkowski: You know, in terms of the EBITDA contribution, I would think about that kind of at the company average, kind of neutral. From that perspective, we've seen a little better contribution at the gross margin level, but a little higher SG&A rate with some of those acquisitions, so it's coming out just about neutral from an EBITDA standpoint.
Kathryn Ingram Thompson: Okay, great. And then, just another clarification on your fire protection.
Speaker Change #148: As Steve mentioned, there was a little little.
Steve: Whether in severe storms in may so we really wanted to see that kind of play out before we consider taking the guidance up anymore, but that was really the rationale is felt very confident in taking the low end and very pleased with the quarter and how biddings coming on.
Speaker Change #150: Okay got it thank you.
Speaker Change #151: Thank you we currently have no further questions.
Hi.
Steve: This is Steve with Glenn for closing remarks.
Kathryn Ingram Thompson: I saw a decline due to lower selling prices, offset somewhat by acquisitions. What are you seeing in terms of just volumes? Is really the decline in that segment more... Due to pricing, or are you seeing any? Changes in Volume.
Speaker Change #152: Alright. Thank you all again for joining US today. It was a pleasure to have you on the call are consistent execution quarter after quarter as a result of the hard work of our branches and functional support teams our focus on operational excellence.
Mark R. Witkowski: Yeah, you know, on the fire protection product line, there are a couple different moving pieces there. Obviously, the steel pipe deflation that we've talked about has been a big driver of the top line there. We've offset some of that with some good M&A on the fire protection side. So from a, I'd say, organic volume side, it's been down a little bit, and it really represents, you know, more of that, you know, completion work on some of the, I'd say, traditional, you know, facilities that are out there and that non-resi space. At the total company level, we've, you know, non-resi has been stronger due to more of the, you know, So I'd say it's been a little, little soft here. But again, nothing that was, you know, kind of coming in as expected.
Kathryn Ingram Thompson: And, you know, that's going to be a good growth category for us going forward. There's still a lot of good opportunity for expansion in that fire protection space. And, you know, we're going to continue to try to drive that above the market.
Mark R. Witkowski: Okay, any update on just the private labels percentage of MECs? You know, the goal is to grow to 10 to 15, and it was previously around 2%. Any, any update there?
Mark R. Witkowski: Yeah, you know, we had a good, good quarter from a private label pull through perspective; we were kind of hovering around, you know, kind of low to 2% of cogs, and that ticked up, ticked up in the quarter. We got into more of a normalized, I'd say buying pattern from an inventory perspective, which was something that was hampering our private label growth a little bit in 2023. Since we've been able to clear out a lot of that, inventory allowed us to replenish a lot of that with our private label product. And we were very pleased with the results we had in the first quarter and expect we'll be able to continue driving some more growth there throughout the rest of this year.
Kathryn Ingram Thompson: Okay, great. Thanks so much.
Glenn: And the diversity of our products and end markets. We are confident in our ability to drive ongoing value creation as we continue to execute our growth strategy and deliver on our capital allocation priorities.
Joseph Alfred Ritchie: Thank you. The next question is from Joe Ritchie with Goldman Sachs. Your line is open.
Joseph Alfred Ritchie: Hi, thanks. Good morning, everyone. And so I won't ask the gross margin question. Yeah, good morning.
Stephen O. LeClair: Maybe just going back to deflation for a second. So I'm just curious, there's been some talk about large municipal pipe expansion from companies like Westlake. I'm just wondering, is that having any kind of impact on the, you know, the deflationary comments that you guys are making? Or do you expect it to have an impact going forward?
Stephen O. LeClair: Yeah, Joe, this is Steve, but really, no impact right now. And I think it'll be a while before any type of capacity comes online for that. And, you know, there's been a lot of talk about other expansion into plastic pipe that can sometimes be confused with what's happening really in our end markets in the municipal piece. So a number of the expansions that have been kind of noted out there are areas like polyethylene pipe and corrugated thermoplastic pipe and some of these areas.
Stephen O. LeClair: And plumbing, et cetera, that really aren't related necessarily to our end markets. So we're not seeing any real impact at all from any new capacity coming on board and don't anticipate that to be an issue in the near or medium term.
Joseph Alfred Ritchie: Okay, great. That's, that's, that's good to hear.
Joseph Alfred Ritchie: And then, and then I just want to circle back on the M&A, the M&A commentary, and also how it relates to the guidance increase. I guess we were roughly thinking that the new acquisitions were roughly about $100 million or so in revenue. So even if it's, you know, kind of below, you know, company-wide margins, probably a higher EBITDA contribution than the $5 million, you know, increase that you have at the midpoint. Just want to understand, like, how M&A, like, contributed to the guidance and then whether my numbers are close to correct.
Mark R. Witkowski: Yeah, Joe, thanks for that. Yeah, you're pretty spot on with the figures. I would say, you know, really no significant changes to how we were thinking about guidance. We did look at the low end, and given the M&A contribution, we felt very confident to take the low end of the range up, that was consistent kind of with the acquisition contribution. And, you know, that was really the rationale there.
Mark R. Witkowski: You know, still watching, still early in the year; we were very pleased with how the quarter came in, very pleased with the bidding activity and the backlogs that are building. So a lot of good momentum in the quarter. As Steve mentioned, there was a little, little, you know, weather and severe storms in May. So we really wanted to see that kind of play out before we, you know, consider taking the guidance up anymore. But that was really the rationale. I felt very confident taking the low end and very pleased with the quarter and how bidding was coming in.
Joseph Alfred Ritchie: Okay, I got it. Thank you.
Stephen O. LeClair: Our consistent execution quarter after quarter as a result of the hard work of our branches and functional support teams, our focus on operational excellence, and the diversity of our products and end markets. We are confident in our ability to drive ongoing value creation as we continue to execute our growth strategy and deliver on our capital allocation priority. We have many levers for driving growth and profitability. The Cash Flow Generation to capitalize on it, and the team to execute it. So, thank you for your interest in Core & Main. Operator, that concludes our call.
Stephen O. LeClair: Thank you. We currently have no further questions, so I'll hand the microphone back over to Mrs. Steve LeClair for closing remarks.
Glenn: We have many levers for driving growth and profitability.
Stephen O. LeClair: All right, thank you all again for joining us today. It was a pleasure to have you on the call.
Glenn: The cash flow generation to capitalize it.
Speaker Change #154: And the team to execute it so thank you for your interest in core main operator that concludes our call.
Operator: Thank you, Steve. This concludes today's call. Thank you for joining us. You may now disconnect your line.
Speaker Change #154: Thank you Steve. This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change #154: Yeah.
Speaker Change #154: Yes.
Speaker Change #154: Yes.
Speaker Change #154: Sure.
Speaker Change #154: Yes.
Speaker Change #154: Sure.
Speaker Change #154: Okay.