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Edited Transcript of AMWD earnings conference call or presentation 27-Aug-18 3:00pm GMT

Q1 2019 American Woodmark Corp Earnings Call

Winchester Sep 10, 2018 (Thomson StreetEvents) -- Edited Transcript of American Woodmark Corp earnings conference call or presentation Monday, August 27, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* M. Scott Culbreth

American Woodmark Corporation - CFO, Senior VP & Corporate Secretary

* S. Cary Dunston

American Woodmark Corporation - Chairman, CEO & President

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Conference Call Participants

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* Jeffrey Stevenson

* Justin A. Speer

Zelman & Associates LLC - MD of Research

* Steven Ramsey

Thompson Research Group, LLC - Associate Research Analyst

* Timothy Ronald Wojs

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Truman Andrew Patterson

Wells Fargo Securities, LLC, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the American Woodmark Corporation First Quarter 2019 Conference Call. Today's call is being recorded.

During this call, the company may discuss certain non-GAAP financial measures included in our earnings release, such as adjusted EBITDA, adjusted EBITDA margin, free cash flow and adjusted EPS per diluted share. The earnings release, which can be found on our website, www.americanwoodmark.com, includes definitions of each of these non-GAAP financial measures, the company's rationale for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures.

We will begin the call by reading the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders. The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

I would now like to turn the call over to Scott Culbreth, Senior Vice President and CFO. Please go ahead, sir.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [2]

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Good morning, ladies and gentlemen. Welcome to American Woodmark's first fiscal quarter conference call. Thank you for taking time to participate. Joining me today is Cary Dunston, Chairman and CEO. Cary will begin with a review of the quarter, and I'll add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions. Cary?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [3]

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Thank you, Scott, and good morning to you all. We have a very solid start to our new fiscal year. We continued to display our ability to execute within our markets as well as with the integration of RSI Home Products. We experienced growth in every channel and delivered on our adjusted EBITDA margin. Net sales were up 55% for the first quarter, driven by the inclusion of RSI. Excluding the acquisition, our core growth was 8% over-indexing the market and our competition.

Looking at our revenue by channel. Within new construction, we grew our business 20% over prior year with our core growing a very healthy 9%. Despite indications of slowing in single-family starts, our team continues to perform and gain market share. Our direct-to-builder platform delivers a level of service that creates a clear competitive advantage in our markets. As I commented last quarter, we have a tremendous initiative to grow our business at a lower price point with our new platform. However, we remain confident in our ability to continue to grow our core new construction business at the higher price point. We certainly displayed our ability to deliver on this.

We also experienced very solid growth in our PCS direct business in Southern California. This business has served with our new frameless line added through the acquisition. With an opening price point, although we remain in the early stages, our strategy to leverage our low-cost product across our service platform is progressing as planned, and we remain confident in our ability to deliver on synergy commitments. We continue to see growth in demand by first-time homebuyers; however, supply remains a significant challenge, both in new and existing homes. Recent data indicated inventory of existing entry-level homes is at a historical low of only 4 months.

On the new construction side, although some builders are serving this market effectively, it is a challenge, given the rising cost of material and labor. Combined with the impact of existing and future potential tariffs and continued labor constraints, our nation's top builders are facing tough headwinds. A key question is how consumer confidence is being affected. Opinions vary greatly on the impact to America and our industry growth rate. As I mentioned previously, housing starts have shown signs of slowing in the past couple of months. As of now, we remain confident in our demand going into the fall; however, we are keeping a close eye on numerous leading indicators.

We certainly know how unpredictable our industry has been coming out of the recession. And with the current environment, it is not getting any easier. With all the uncertainties in our economy, we could see variation in demand in the shorter term; however, my confidence in continued long-term growth remains strong. With seasonally adjusted single-family housing starts sitting at around 860,000, most would agree we still have strong growth remaining.

It has been over 11 years since single-family starts were near what most would consider a minimum steady-state level of 1.1 million to 1.2 million starts per year to sustain our population growth. Although rentals account for a higher percentage of the mix, it's hard to believe that pent-up demand does not exist, particularly given the very low existing home inventory levels and the rising first-time homebuyer. As I've stated before, our industry is very efficient. And in the long run, when there is demand, builders and lenders will find a way to meet it.

Taking a look at our remodel channel, which includes our home center and dealer distributor business, revenues increased 91%, or 9% excluding the impact of the acquisition. Although we classify this all under remodel, it is important to know that there is a mix between remodel and new construction within this channel, particularly when considering the pro consumer.

With regards to our dealer distributor channel, excluding the acquisition, we grew the business by just under 6%. We have consolidated our dealer and distributor business under one organization, given the synergies, and we will be reporting as a consolidated number going forward. Although our dealer business has been the stronger of the 2 with the growth of the pro business within larger distributors and our new low-cost platform, it offers a strong growth opportunity for us.

Within home center, we grew our core special order business by a very healthy 10% for the quarter. We have been stating for well over 2 years that if promotional levels were more at parity, we would quickly restore our share. Our performance in the quarter certainly reflects this. Although we remain optimistic about the future, it remains very dependent upon the overall promotional environment.

Within our home center kitchen and bath in-stock category, we had mixed results. On the positive, our in-stock kitchen business performed very well for the quarter with strong year-over-year comps. With our strong home center partner and the focus on the pro consumer, we expect this business to continue to perform.

With regards to bath, which includes standalone vanities, standalone tops and combo units, which are vanities sold with a marble top, we had some challenges in the quarter. We recently went through a significant reset with one of our home center partners, and unfortunately, execution has been challenging. We continue to work closely with our partner to get the resets completed and our new product displayed and inventoried. In addition, recent promotional and pricing activity by the home center themselves is favoring higher-end competitive product.

One thing we have learned within the bath space is that volume is much more volatile. To minimize this impact, we are challenging ourselves to establish a differentiated competitive advantage within this space as well as explore additional bath vanity revenue within our other channels.

Overall, on revenue, we are very pleased with our strong growth. As I mentioned previously, we remain optimistic as we head into the fall. However, as we all know, there are a great many variables in play right now that could impact our industry and the economy as a whole. Speaking specifically to the tariffs and the potential impact on our industry, under the $200 billion proposed China Section 301 tariffs, there are a number of items listed that would impact our industry and our company. The hearing process is underway now, and it is very difficult to access the -- assess the exact impact. However, we are much less dependent upon China than many within our industry and, therefore, are less susceptible to tariffs. In addition, we are working diligently to help to offset some of the impact through sourcing changes. While we cannot offset internally, we will plan to pass-through via price.

Moving on to our gross margin. We finished the quarter at 22.3% versus 20.1% prior year. Despite 2 significant headwinds in logistics costs and material inflation, favorability was driven by stronger product mix as well as higher sales that generate overhead leverage. Operationally, our teams continued to perform well. I will also say that it's been extremely impressive watching our organizations come together as one team as part of the integration. They are aggressively working together and capturing cost synergies within our operations and remain confident in our commitments.

Looking at our adjusted EBITDA margin. We finished the quarter at a very solid 15.9%, up from 13.5% in prior year. We had communicated that we were targeting between 15.5% and 16% adjusted EBITDA margin, and I'm very pleased with our continued performance. I feel this as a testament to the strength of our consolidated team of employees and how successfully we are executing on the integration. On adjusted net income, we generated $36 million in the quarter, up from $22.3 million in the prior year.

In summary, a very solid start to our new fiscal year. Tremendous uncertainty exists within our industry, particularly related to tariffs. Although Chinese product has captured noticeable share in America, American Woodmark has been much less impacted than much of our competition due to our service platform.

With our integration work, we continue to be focused on execution and ensuring we offer a competitive answer to this competition. We have always believed that we can successfully invest in America and have shown it by remaining one of the few vertically integrated cabinet companies. We still purchase green lumber from the Appalachian Mountains and dry it in our kilns here in Virginia and in Kentucky.

With our growth rates coming out of the recession, we have clearly proven the industry-leading capability of our core special order manufacturing and service platform. By merging the capability of the special order platform with RSI's highly efficient low-cost platform, we firmly believe we have the most competitive supply chain in the industry. When combined with the best team in the industry, we have the ability to develop the right strategy to execute on this strategy and the flexibility to efficiently respond when faced with our forever changing and challenging environment.

With that, I will turn it over to Scott for the financial details.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [4]

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The financial headlines for the quarter. Net sales are $429 million, representing an increase of 55% over the same period last year. Excluding the impact of the RSI acquisition, net sales for the first fiscal quarter increased 8% to $299 million. Adjusted net income was $36 million or $2.04 per diluted share in the current fiscal year versus $22.3 million or $1.36 per diluted share last year.

Net income was positively impacted by additional sales volumes, and mix was partially offset by higher transportation costs and raw material inflation. Adjusted EBITDA was $68.1 million or 15.9% of net sales compared to $37.4 million or 13.5% of net sales for the same quarter of the prior fiscal year. The increase during the first fiscal quarter is primarily due to additional sales growth in the quarter and the inclusion of 3 months of results for RSI.

The new construction market continues to perform well. Recognizing a 60- to 90-day lag between start and cabinet installation, the overall market activity in single-family homes was up 11.2% for the financial first quarter. Single-family starts during March, April and May of the prior period averaged 816,000 units. Starts over the same time period from the current year averaged 908,000 units. Completions over that same time period grew 6.8%. Our direct new construction base revenue increased 20% for the quarter, and core growth was 9%.

The remodel business continues to be challenging. On the positive side, unemployment continues to improve. The July U3 unemployment rate was 3.9%, U6 was 7.5%, both measures were lower than July 2017 reported figures. Consumer sentiment increased to 97.9 in July versus the 93.4 recorded July 2017.

From a negative side, existing home sales decreased slightly during the second calendar quarter of 2018. Between April and June 2017, existing home sales averaged 5.55 million units. That same period for 2018, averaged 5.41 million units, a decrease of 2.4%. The median existing home price rose 5.2% to $276,900 for June, impacting our consumers' affordability index.

Interest rates increased in the quarter with a 30-year fixed-rate mortgage at 4.53% in July, an increase of approximately 56 basis points versus last year. All cash purchases in June were 22%, up from 18% last year.

Residential investment, as a percentage of GDP for the second calendar quarter of 2018 declined to 3.3% versus the prior year. Home ownership rates remained low versus historical averages. The percent of Americans who own their home in the second calendar quarter was 64.3%, which increased slightly from last year's rate of 63.7%. This year, first-time buyers declined. The June reported rate was 31% versus 32% in the prior year. Keep in mind, the share remains well below the historical norm of 40%.

Our combined home center and dealer distributor channel revenues were up 91% for the quarter, with home centers increasing 126% and dealer distributor growing 20%. Core growth within home center and dealer distributor was 9% for the quarter.

The company's gross profit margin for the first quarter of fiscal year 2019 was 22.3% of net sales versus 21.1% recorded in the same quarter of last year. Gross margin in the first quarter was favorably impacted by higher sales volumes, mix and overhead cost leverage due to higher volumes. These favorable impacts were partially offset by higher transportation cost and raw material inflation.

Total operating expenses increased from 10% of net sales in the first quarter of the prior year to 12.3% this fiscal year. Selling and marketing expenses were 5.3% of net sales in the first quarter of fiscal 2019 compared with 6.6% of net sales for the same period in fiscal 2018. The decrease in the ratio is a result of leverage from higher sales and timing of the advertising cost.

General and administrative expenses were 7% of net sales in the first quarter of fiscal 2019 compared with 3.4% of net sales for the same period of fiscal 2018. The increase in the ratio was driven by $12.3 million of intangible amortization or approximately 285 basis points and higher incentive compensation cost.

Free cash flow totaled $41.4 million for the current fiscal year compared to $14.9 million in the prior year. The increase is primarily due to additional net income generated in the period excluding noncash items and decreases in customer receivables and income taxes receivable.

Pro forma net leverage was just under 2.75x adjusted EBITDA at the end of the first fiscal quarter, and the company paid down $63 million of its term loan facility during the quarter.

On August 23, 2018, the company's Board of Directors reinstated the company's previously suspended stock repurchase program, subject to the approval of certain changes to the company's existing credit facility currently being negotiated with lenders. Approximately $36 million remains available under the program for repurchases.

In closing, we are pleased with our performance during the quarter. As Cary noted, our integration efforts are going well, and we are on track regarding synergy capture. The company expects that it will grow core sales in the mid- to high single-digit rate in fiscal 2019, with total sales growth of approximately 35%. This growth rate is very dependent upon overall industry and economic growth. Margins will be challenged with increases in labor cost, raw materials, fuel and transportation rates. The company continues to expect adjusted EBITDA margins for fiscal 2019 of 15.5% to 16%, depending upon synergy timing, execution and the significance of the inflation rate increases.

This concludes our prepared remarks. We'd be happy to answer any questions you have at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go first to Kathryn Thompson with Thompson Research Group.

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Steven Ramsey, Thompson Research Group, LLC - Associate Research Analyst [2]

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This is Steven Ramsey on for Kathryn. I have a question on the promotional environment in retail. Just thinking out if it stays highly promotional over the next year or 2 or stays around similar levels, do you see that as being a real risk to achieving sales or cash flows that are reasonable to you?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [3]

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Steven, this is Cary. The answer would be no. I don't see it as a big risk. Right now, the way the industry has kind of, I'll say, leveled out is we've gotten to a level that, I think, most and us and our competitors included will probably say is about as high as we want from a sustainable level. I really don't see it going much higher. This would not make sense. So we have taken ours up to match, and we are running -- I'll say, we're definitely running higher than we would like. Right now it makes financial sense for us, particularly if we get the restoration of our share in that mix. But overall, the industry is at a higher level. But right now, that is in our assumption, that's in our forecast. Obviously, there's always unpredictability there if a vendor were to come out -- or if a competitor were to come out and do something that we don't predict, but right now, I would not say it's a major risk.

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Steven Ramsey, Thompson Research Group, LLC - Associate Research Analyst [4]

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Okay, great. And then thinking about inflationary impacts on the materials side, a couple of questions here. Is there a way to think about the inflationary impact in the different segments of your business? Is it hitting a certain channel or region or product type or end market more than another? And with lumber prices retreating, is that helping to offset these inflationary pressures? And are you seeing any benefit of that yet?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [5]

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Yes. I mean as far as the channel by channel, the only difference is what we've kind of talked about in the past with regards to the -- really the efficiency of the timing is within the dealer distributor where we can much more quickly take pricing changes to the market within our new construction market. Probably second in line we can take it to the market. Some cases, we are under a longer-term contract that has -- I am going to call indexes, that has opportunity to take pricing. It just takes a little bit longer. And then within our home center world, we can definitely take it, but it's a little bit longer process. So we're in those processes today. We passed some price increases through. But we're continuing to -- it's one of those things, you don't want to pull the trigger too quickly. But we are kind of at the level now where we're starting to pass some of those on, just given the inflationary pressure. With regards to your comment on lumber, there obviously is some lag in there. [You realize that] (inaudible) when they talk about lumber prices, is it high-grade lumber, is it low-grade lumber and so forth and the impact of the tariffs. And so we are starting to see a little of impact, but it's really too early to tell what the potential benefit would be from that.

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Operator [6]

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Next we'll go to Tim Wojs with Baird.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [7]

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Just a follow-up on the last question. So has pricing not really been an impact on a like-for-like basis here in the first quarter? And is the assumption that, that would be a bigger benefit to growth and profitability as you move through the year?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [8]

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I think it's probably a good way to put it, Tim, is -- as we move forward, you'll start to see more pricing action.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

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Okay, okay, great. And then could you just talk a little bit about the reset challenges that you had in the quarter? I guess, were there any costs associated with that? And from a time frame perspective, what type of time frame would you expect to kind of getting down on a run rate or a fully operational basis?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [10]

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Yes, from a cost perspective, most of the cost we incurred on the reset were actually this past spring. So now it's really just a matter of working with our retailer and getting the inventory aligned with our actual displays and so forth. So truly coming down to the layout out in the store itself. So we're hoping to get all that completed early in the next quarter. And the promotional piece is hard to predict. That's obviously having a major impact as well. As far as getting our inventory aligned with our actual displays and the resets and the layout set, we should be -- hopefully get that all set up in the next 60 days or so.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [11]

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Okay. So is it relative to RSI? I mean, how would you characterize its performance in the quarter relative to your expectations?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [12]

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That's kind of the mix. When I want to talk about the in-stock, that's really RSI. So as you -- as I think you know our big bucket in there is our in-stock kitchen business with one of the retailers that did very, very well, very strong comp, but unfortunately, we had the reversal on bath. So it's -- we also are working on lower year-over-year. We discontinued medicine cabinets a year ago prior to the acquisition RSI did that we're still lapping. So there's some impact to that in there as well as some impact from couple of the countertops that were discontinued -- stopped carrying them last year. So we still have to lap that as well. So there's a little bit of mix in there. But really, it's -- the kitchen business is doing great, and right now the bath business is a challenge.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [13]

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Okay. And then just on the debt paydown and some of the interest renegotiations or the negotiations with your credit facilities. I think before you kind of kind of quoted maybe $38 million or so of interest expense this year, but you're also paying down debt. So I'm wondering if there is an updated number at all and kind of what we can expect to maybe end the year at in terms of leverage.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [14]

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Yes, I don't have a projection for you yet on where the year will end. And part of that, Tim, depends on the update we just made with regards to stock repurchases. So we've got the authorization from the board, but we need to work through the credit agreement modifications. Once we've done that, we've got the opportunity to spend some of the free cash flow, of course, on that. So that will be an option for us through rest of the year. That will impact what the overall leverage calc will be at year-end. With respect to interest rates, rates have moved up certainly on the variable portion of our debt that we've paid down faster. We still think the number's probably in that $37 million, $38 million range unless we lean in and pay a bit more down the second half.

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Operator [15]

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Our next question will come from Justin Speer with Zelman & Associates.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [16]

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Just a couple of questions from me. You mentioned in terms of the -- maybe the portending of slowing in new construction with starts and absorptions having slowed a little bit here end of July, just thinking, and I guess, characterizing your guidance for mid-single digit core. Do you feel like you have enough cushion in that guidance to accommodate or may be a slowing or deceleration of growth from that part of the channel?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [17]

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When we talk about that -- kind of that forward-looking, that is based on our current forecast of the new construction business. So pending any major changes based on what we see today, and yes, we are looking at current growth rates, and obviously, we are very focused on picking up business within the opening price point. We're still very early in the stages so that -- the revenue we have in that space is very small right now, but growing. So really that growth that you saw when we talk about core, that truly is our growth at the higher price point. So we clearly picked up some market share again. And we'll see how it goes. Remaining -- I use the term pessimistically optimistic. It's one of those. It's a little hard to predict, but we -- if you think about a year ago, we had the hurricanes and everything. So we're hoping that what builders are telling us is they have seen some softening right now, but they're planning on picking it up this fall and having some strong close to their fiscal year, which most of them obviously are towards the end of this year, so calendar year. So we -- right now, we're remaining somewhat optimistic on this fall. We will just have to keep a close eye on it.

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Justin A. Speer, Zelman & Associates LLC - MD of Research [18]

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And secondly, just kind of tethered to the first question and thinking about your comment about the ability to get price to the channel in your full year guidance for margins, I think, in the 15.5%, 16% range. Do you have what you need in hand with that channel, with the homebuilder channel? And do those pricing negotiations, how do they in a slowing environment -- I don't think it'll get easier, but I guess I want to make sure that you have that in hand -- what you need in hand based on the current cost trends today?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [19]

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Yes. For the most part. I mean, it's really the way that business works. You still have the elasticity curve. So we can absolutely pass price through. It is a bidding process when you go subdivision to subdivision in some cases. Obviously, with our relationships with the national builders and our service platform, it's not all about price. So that's a good thing. Builders are very well aware of what's going on out there, and they've already saw or had seen quite a bit of inflationary pressure through various industries that supply them. So I think we've actually done quite well. We have passed some on, but we've also been very focused on this movement towards opening price point. So to me the bigger question is, as this demand grows, and you see this ship downward or -- and I'll say as builders come back and start to put pricing pressure on you with regards to the just demand elasticity, it's going to require a lower price product. And we are now obviously following the acquisition, well positioned to serve that. So it's not just about going out and putting price through. We certainly expect to maintain our margins on our existing product that we sell through Timberlake. And we also have the ability now to sell a lower price product as this elasticity curve drives demand down to a lower price point. So yes, we feel comfortable with our future forecast on margins.

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Operator [20]

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The next question will come from Garik Shmois with Longbow Research.

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Jeffrey Stevenson, [21]

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This is Jeff Stevenson on for Garik. Just a couple of questions. First, you mentioned with the potential China tariffs, you're looking at different options for sourcing and also passing through price. I'm just wondering if you can give any other examples of some of the things that you're doing to prepare for this potentially happening.

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [22]

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And we -- for the most part, when we talk about resourcing is we do have our low-cost platform that we acquired through the acquisition, and that obviously gives us a lot of opportunity to move some things to North America here versus through China. Can't cover all of it, but we definitely have that opportunity. So most of the resourcing we talked about, it's not chasing this to other countries per se. It's really more about bringing it internal to our low-cost platform, down to Mexico. So the percentage of that, it really all depends, and you have various parties out there that are really trying to argue, can you get exclusionary things on certain items that you just can't produce in America. Some things are only produced in China within our industry. So the tariffs are really more of a -- I'll say more of a negative impact on American companies just because of the fact that they're importing a Chinese product. And by taxing or by tariffing the component side, it hurts American companies as well. But we're watching that closely. If something happens to go through that does not impact, like the plywood one that went through, the [CBD] that went through probably a year ago now, that actually damaged American companies more than it damaged China just because it had no impact on the imported RTA cabinetry or the imported fully assembled cabinetry coming into America. So when we talk about the market share gain, that's really happening primarily in the dealer channel and in the multifamily channel. So it was obviously the 2 channels that we compete. In dealer that's certainly a much lower percentage of our mix. We don't compete in the multifamily today. But that's really where the Chinese have kind of gotten their share from. So right now until something's done to really get those prices up or in our case where we actually now have the product to compete against it, we feel pretty comfortable. But there's no way we can cover nor can any other companies cover it all with any type of resourcing. It's going to have to come through price, which obviously is a concern just from elasticity perspective and inflationary pressure in America. You can only take price up so much. So it's something, I think, every industry is paying attention to and just watching what the overall impact on America is going to be from an inflationary perspective.

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Jeffrey Stevenson, [23]

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Great, very helpful. And then just on home centers, you guys did a great job going over the areas of strength and some challenges you're having during the quarter. But just wondering with your outlook, especially moving into the busy holiday season coming up, are you very comfortable with your position right now? And just any more color on kind of what you're seeing in that environment.

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [24]

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Yes, we're very comfortable. In fact, I think everybody would say that we just -- our business partnerships with our 2 key home center partners is extremely strong. And we really, really look at it strategically, and we are having even, I'll say, deeper level, more strategic conversations with them post-acquisition just because our position grew significantly within both retailers. So yes, we feel very comfortable with it. We're talking very proactively about the upcoming holiday season and Black Friday sales and so forth. So we've got strong positions, and we feel good about our current forecast.

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Operator [25]

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(Operator Instructions) And we'll go next to Truman Patterson with Wells Fargo.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [26]

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So first question just over margin performance. I know that you guys aren't breaking it out, EBITDA margin performance by legacy American Woodmark and RSI businesses. But could you give us an idea of what pro forma or combined EBITDA margins were last year, similar 3-month period? And then looking at the past couple of years on a core basis, the first quarter has been a high-water mark for the year. Should we think about on a pro forma basis, that EBITDA margins follow a similar part that 1Q is kind of a high-water mark?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [27]

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Yes. So to your first question, there'll be a pro forma release inside the Q when it comes out. [You will be able to] look back. The actual EBITDA margins are comparable though, when you do the year-over-year if you were to include RSI. So it's within the same ballpark from an overall perspective. And consistent with the outlook and guidance we've given going forward. With respect to seasonality, it was a bit more seasonal when you looked at the core business historically. You tended to have Q1 and Q4 be the stronger revenue periods overall and then that's the -- typically the stronger margin performance. What clouds that a bit is inflation. So even though volume might be strong in those 2 particular periods, what's the coming bigger variable is when does inflation come through, when does pricing happen. So now we've already got inflationary impacts, pricing starts to maybe pick up in the Q2, Q3 time frame. So that can distort and move down the overall -- move up or down the overall EBITDA margins period-to-period.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [28]

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Okay. As we think about the back half of '18, you guys are expecting pricing to at least offset the inflationary pressures? Is that a fair way to think about it with your EBITDA margin guidance?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [29]

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That's correct.

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [30]

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Yes, it's correct.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [31]

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Okay, okay. And then I didn't hear -- I believe on your core revenue growth you guys give mid- to high single-digit revenue growth guidance. Is your total revenue growth guidance, does it still remain at a 35% level?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [32]

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Yes.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [33]

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Okay, okay. So kind of total revenue growth remains unchanged as of now. And whenever I'm looking at RSI sales of about $130 million, how does that really compare to last year's metric at this time? And how should we kind of think about RSI sales going forward, legacy RSI sales now that we've anniversaried the 2 regional home center losses?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [34]

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I think we've kind of addressed this a couple of times. Our intention is not to have segment reporting or historical reporting specific to just the RSI versus the core business. But in Cary's remarks and comments, he really addressed the 2 largest portions of that business. And our in-stock kitchen business performed very well in the period. It was up double digit, which is consistent with what the retailer spoke about. However, we did have some challenges in the bath space overall. We think that's likely to continue at least for the next quarter as we unwind and work through some of the challenges on the bath space. And then the overall guidance includes what we think that will apply for the second half of the year.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [35]

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Okay. Was the bath space issues, was that kind of more self-inflicted? Or was that actually market dynamics? Because I know your largest competitor is restructuring some of their assets to target more the in-stock and kind of stock channel. Could you just discuss that, how does it change the industry and maybe what you guys would be watching to see if it's actually impacting your business?

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [36]

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Yes. No, it had nothing to do with our key competitor. This is really more just when it comes down to the resets in the store and execution, part of it's on the store and part of it's on us. So nothing related to the actual resets. So nothing related to competition. So it's just came out of the store, we're making sure we -- launch new product, when you walk down that aisle with that -- new product that you're launching, it is actually on display. So it's proper management of the inventory levels and making sure what's underneath that display matches what's actually on display. So all those things are in the process of being worked through now and being corrected. And then like I said, we're basically -- in this case, home centers themselves is tending to drive via promotional activity, trying to drive some higher-margin vanities type stuff off shelf which we don't play in that space with our current product offering. So that has tended to favor a different competitor, not necessarily the one that you spoke of.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [37]

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Okay, okay. Got you. Is there anybody else in the queue right now?

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Operator [38]

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We have no one in the queue at this time.

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Truman Andrew Patterson, Wells Fargo Securities, LLC, Research Division - Associate Analyst [39]

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Okay. I'll just ask my last question then. You guys offer as your share repurchase program. How should we think about share repo compared to your debt paydown in -- is -- the share repo, is it just really to offset dilution? Or would it be maybe something more aggressive?

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [40]

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It's really about opportunistic. Overall, we believe the stock is undervalued, so we wanted make sure we had the option to do something, if that trend was to continue. So it's going to be opportunistic for us. And if we think it's the right time to buy, then we'll go ahead and repurchase some. But we'll significantly be able to continue to focus on debt paydown for the remainder of the year as well.

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S. Cary Dunston, American Woodmark Corporation - Chairman, CEO & President [41]

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Yes. Our debt is the #1 priority. But obviously with our recent cash generation and expected future cash generation, we want to take advantage of the opportunity to do the share repurchase with a positive...

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Operator [42]

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And as I do not see there's anyone else waiting to ask a question, I would like to turn the line over to Mr. Culbreth for any closing remarks. Please go ahead.

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M. Scott Culbreth, American Woodmark Corporation - CFO, Senior VP & Corporate Secretary [43]

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Since there are no additional questions, this concludes our call. Thank you for taking time to participate.

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Operator [44]

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And that will conclude today's conference call. Thank you, everyone, for your participation. You may now disconnect.