ST. LOUIS, Sept. 14, 2021 — Core & Main, Inc. (NYSE: CNM) ("Core & Main"), a leading specialized distributor of water, wastewater, storm drainage and fire protection products, and related services, today announced unaudited financial results for the second fiscal quarter and six months ended August 1, 2021.
Fiscal 2021 Second Quarter Highlights (Compared with Fiscal 2020 Second Quarter)
- Net sales increased 35.7% to $1,297.6 million
- Gross profit margin increased 100 basis points to 25.1%
- Net income decreased 47.5% to $9.5 million
- Adjusted EBITDA (Non-GAAP) increased 56.8% to $155.2 million
- Adjusted EBITDA margin (Non-GAAP) increased 160 basis points to 12.0%
- Net Debt Leverage (Non-GAAP) (using Adjusted EBITDA on a trailing twelve-month basis) decreased to 3.3x as of August 1, 2021 compared with 5.2x as of May 2, 2021
- Closed two acquisitions subsequent to the quarter: L & M Bag & Supply Company, Inc. and Pacific Pipe Company, Inc.
“Core & Main delivered exceptionally strong performance in the second quarter, achieving record net sales with nearly 36% growth compared with the prior year, all while operating in a very dynamic environment,” said Steve LeClair, Chief Executive Officer of Core & Main.
“We benefited from strong end market demand attributable to continued growth in municipal water infrastructure spending and robust housing demand. This materialized into strong volume gains as well as improved pricing, in part due to the inflationary trends across many of our product lines. The market momentum and rising material costs put pressure on the industry’s supply chain and our internal resources, and I am very proud of how our team has managed these challenging conditions to provide consistent, reliable products and services to our customers. As a result of this execution and continued traction against our defined growth initiatives, we believe we outperformed our end markets and delivered core market share gains in the quarter.”
“During and subsequent to the second quarter, we successfully completed our initial public offering of approximately 40 million shares of Class A common stock, inclusive of the full exercise of the underwriters’ over-allotment option, generating gross proceeds of approximately $802 million. We used proceeds from the offering to deleverage the balance sheet, positioning us with greater flexibility to pursue our growth strategies.”
LeClair concluded, “We remained active in M&A during the quarter, announcing the acquisitions of L & M Bag & Supply Company and Pacific Pipe Company, both of which closed subsequent to the quarter. We also continued to pursue and expand our acquisition pipeline, positioning us for future growth. The outlook for our end markets remains positive, and we are confident in our ability to deliver above market results for our stakeholders in 2021 and beyond.”
Three Months Ended August 1, 2021
Net sales for the three months ended August 1, 2021 increased $341.7 million, or 35.7%, to $1,297.6 million compared with $955.9 million in the prior year period. The increase in net sales was primarily attributable to strong volume growth and price inflation, with price inflation representing approximately half of the net sales increase, which helped drive growth in all product lines.
Gross profit for the three months ended August 1, 2021 increased $94.6 million, or 41.0%, to $325.2 million compared with $230.6 million in the prior year period. Gross profit as a percentage of net sales for the three months ended August 1, 2021 was 25.1% compared with 24.1% in the prior year period, an improvement of 100 basis points. The overall increase in gross profit as a percentage of net sales was primarily attributable to sourcing and pricing improvements.
Selling, general and administrative (“SG&A”) expenses for the three months ended August 1, 2021 increased $55.0 million, or 40.2%, to $191.8 million compared with $136.8 million in the prior year period. The increase was primarily attributable to an increase in personnel expenses, which was primarily driven by higher variable compensation costs resulting from higher sales volume and increased headcount due to furloughs and headcount reductions in response to COVID-19 in the prior year period, and lower discretionary spending in response to COVID-19 in the prior year period. In addition, SG&A expenses increased by $17.2 million related to higher equity-based compensation expense due to accounting for equity awards in the second quarter of fiscal 2021 and $1.3 million related to costs in connection with Core & Main’s initial public offering (the “IPO Transaction”).
Net income for the three months ended August 1, 2021 decreased $8.6 million, or 47.5%, to $9.5 million compared with $18.1 million in the prior year period. The decrease in net income was primarily attributable to a $50.4 million loss on debt modification and extinguishment and a $17.2 million incremental equity-based compensation charge, partially offset by higher operating income.
Adjusted EBITDA (Non-GAAP) for the three months ended August 1, 2021 increased $56.2 million, or 56.8%, to $155.2 million compared with $99.0 million in the prior year period. Growth in Adjusted EBITDA was primarily attributable to higher net sales and improved gross profit, partially offset by higher SG&A expenses, primarily attributable to higher variable compensation costs during the period and lower SG&A expenses in the prior year period due to COVID-19-related decreases in headcount and discretionary spending. Adjusted EBITDA margin increased 160 basis points to 12.0% from 10.4% in the prior year period.
Six Months Ended August 1, 2021
Net sales for the six months ended August 1, 2021 increased $554.7 million, or 30.9%, to $2,352.7 million compared with $1,798.0 million in the prior year period. The increase in net sales was primarily attributable to strong volume growth and price inflation, which helped drive growth in all product lines. Net sales also benefited from the acquisition of R&B Co. in March 2020.
Gross profit for the six months ended August 1, 2021 increased $152.2 million, or 35.4%, to $582.0 million compared with $429.8 million in the prior year period. Gross profit as a percentage of net sales for the six months ended August 1, 2021 was 24.7% compared with 23.9% in the prior year period, an improvement of 80 basis points. The overall increase in gross profit as a percentage of net sales was primarily attributable to sourcing and pricing improvements.
SG&A expenses for the six months ended August 1, 2021 increased $71.9 million, or 26.3%, to $345.7 million compared with $273.8 million in the prior year period. The increase was primarily attributable to an increase in personnel expenses, which was primarily driven by higher variable compensation costs resulting from higher sales volume and increased headcount due to furloughs and headcount reductions in response to COVID-19 in the prior year period, lower discretionary spending in response to COVID-19 in the prior year period, and incremental costs from acquisitions. In addition, SG&A expenses increased by $17.2 million related to higher equity-based compensation expense due to accounting for equity awards during the six months ended August 1, 2021 and $3.6 million related to costs in connection with the IPO Transaction.
Net income for the six months ended August 1, 2021 increased $22.0 million to $36.9 million compared with $14.9 million in the prior year period. The increase in net income was primarily attributable to higher net sales and improved gross profit, partially offset by higher variable SG&A expenses, the $50.4 million loss on debt modification and extinguishment and a $17.2 million incremental equity-based compensation charge.
Adjusted EBITDA (Non-GAAP) for the six months ended August 1, 2021 increased $96.6 million, or 57.6%, to $264.3 million compared with $167.7 million in the prior year period. Growth in Adjusted EBITDA was primarily attributable to higher net sales and improved gross profit, partially offset by higher SG&A expenses, primarily attributable to higher variable compensation costs and costs from acquisitions during the period and lower SG&A expenses in the prior year period due to COVID-19-related decreases in headcount and discretionary spending. Adjusted EBITDA margin increased 190 basis points to 11.2% from 9.3% in the prior year period.
Balance Sheet and Liquidity
Net debt, calculated as gross consolidated debt net of cash and cash equivalents, as of August 1, 2021 was $1,433.4 million. At the end of the quarter, Net Debt Leverage (defined as the ratio of net debt to Adjusted EBITDA for the last twelve months) was 3.3x, an improvement of 1.9x from 5.2x as of May 2, 2021. The improvement was primarily attributable to the net proceeds generated from the IPO Transaction, the subsequent refinancing transactions and an increase in Adjusted EBITDA.
As of August 1, 2021, Core & Main had total liquidity of $907.5 million, consisting of $66.6 million of cash and cash equivalents and approximately $840.9 million of excess availability under our asset-based revolving credit facility, which is net of approximately $9.1 million of outstanding letters of credit.
Fiscal 2021 Outlook
“We expect the demand and pricing trends we experienced in the first half of the fiscal year to continue into the second half, though tempered against tougher prior year comps and anticipated supply chain constraints,” LeClair continued. “Each of our end markets appears poised for continued growth based on bidding activity and order flow, and the execution of our growth initiatives is expected to continue driving core market share gains. As a result, we expect full year fiscal 2021 Adjusted EBITDA to be in the range of $470 million to $510 million, representing a year-over-year increase of 37% to 49%.”
Conference Call & Webcast Information
Core & Main management will host a conference call and webcast on September 14, 2021 at 8:30 a.m. EDT to discuss Core & Main’s financial results. The live webcast will be accessible via the Events Calendar at https://ir.coreandmain.com. The conference call also may be accessed by dialing (844) 200-6205 or +44 208 0682 558 (international). The passcode for the live call is 211964. To ensure participants are connected for the full call, please dial-in at least 10 minutes prior to the start of the call. An archived version of the webcast will be available following the call. A slide presentation highlighting Core & Main’s results and key performance indicators will also be made available on the Investor Relations section of Core & Main’s website prior to the call.
About Core & Main
Based in St. Louis, Core & Main is a leading specialized distributor of water, wastewater, storm drainage and fire protection products, and related services, to municipalities, private water companies and professional contractors across municipal, non-residential and residential end markets nationwide. With more than 285 locations, the company provides its customers local expertise backed by a national supply chain. Core & Main’s 3,700 associates are committed to helping their communities thrive with safe and sustainable infrastructure. Visit https://coreandmain.com to learn more.
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this press release include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include information concerning Core & Main’s financial and operating outlook, as well as any other statement that does not directly relate to any historical or current fact. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “forecasts,” “expects,” “intends,” “plans,” “anticipates,” “projects,” “outlook,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “preliminary,” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance these expectations will prove to have been correct. These forward-looking statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements.
Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation, declines, volatility and cyclicality in the U.S. residential and non-residential construction markets; slowdowns in municipal infrastructure spending and delays in appropriations of federal funds; price fluctuations in our product costs, particularly with respect to the commodity-based products that we sell; the spread of, and response to, COVID-19, and the inability to predict the ultimate impact on us; general business and economic conditions; risks involved with acquisitions and other strategic transactions, including our ability to identify, acquire, close or integrate acquisition targets successfully; the impact of seasonality and weather-related impacts, including natural disasters or similar extreme weather events; the fragmented and highly competitive markets in which we compete and consolidation within our industry; our ability to competitively bid for municipal contracts; the development of alternatives to distributors of our products in the supply chain; our ability to hire, engage and retain key personnel, including sales representatives, qualified branch, district and region managers and senior management; our ability to identify, develop and maintain relationships with a sufficient number of qualified suppliers and the potential that our exclusive or restrictive supplier distribution rights are terminated; the availability and cost of freight and energy, such as fuel; the ability of our customers to make payments on credit sales; our ability to identify and introduce new products and product lines effectively; our ability to manage our inventory effectively; costs and potential liabilities or obligations imposed by environmental, health and safety laws and requirements; regulatory change and the costs of compliance with regulation; exposure to product liability, construction defect and warranty claims and other litigation and legal proceedings; potential harm to our reputation; difficulties with or interruptions of our fabrication services; safety and labor risks associated with the distribution of our products as well as work stoppages and other disruptions due to labor disputes; impairment in the carrying value of goodwill, intangible assets or other long-lived assets; the domestic and international political environment with regard to trade relationships and tariffs, as well as difficulty sourcing products as a result of import constraints; our ability to operate our business consistently through highly dispersed locations across the United States; interruptions in the proper functioning of our IT systems, including from cybersecurity threats; risks associated with raising capital; our ability to continue our customer relationships with short-term contracts; changes in vendor rebates or other terms of our vendor agreements; risks associated with exporting our products internationally; our ability to renew or replace our existing leases on favorable terms or at all; our ability to maintain effective internal controls over financial reporting and remediate any material weaknesses; our substantial indebtedness and the potential that we may incur additional indebtedness; the limitations and restrictions in the agreements governing our indebtedness, the Second Amended and Restated Agreement of Limited Partnership of Core & Main Holdings, LP and the Tax Receivable Agreements (as defined in the prospectus (File No. 333-256382), dated July 22, 2021, filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on July 26, 2021 (the “Prospectus”)); increases in interest rates and the impact of transitioning from the London Interbank Offered Rate as the benchmark rate in contracts; changes in our credit ratings and outlook; our ability to generate the significant amount of cash needed to service our indebtedness; our organizational structure, including our payment obligations under the Tax Receivable Agreements, which may be significant; the significant influence that Clayton, Dubilier & Rice, LLC (“CD&R”) has over us and potential conflicts between the interests of CD&R and other stockholders; and risks related to other factors discussed under “Risk Factors” in the Prospectus.
Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
VP, Investor Relations and FP&A