MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto of Core & Main, Inc. for the fiscal year ended February 2, 2025 included in our 2024Annual Report on Form 10-K. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed below and elsewhere in this Quarterly Report on Form 10-Q for a number of important factors, particularly those described under the caption "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in Part I, Item 1A of the 2024 Annual Report on Form 10-K.
Overview
Core & Main, Inc. ("Core & Main" and collectively with its subsidiaries, the "Company") is a leading specialty distributor dedicated to advancing reliable infrastructure with local service, nationwide. With a focus on water, wastewater, storm drainage and fire protection products, and related services, we provide solutions to municipalities, private water companies and professional contractors across municipal, non-residential and residential end markets, nationwide. Our specialty products and services are used primarily in the maintenance, repair, replacement and new construction of water, wastewater, storm drainage and fire protection infrastructure. We reach customers through a network of over 370 branches across 49 United States ("U.S.") states. Our products include pipes, valves, fittings, storm drainage products, fire protection products, meter products and other products. We complement our core products through additional offerings, including fusible high-density polyethylene ("fusible HDPE ") piping solutions, specifically engineered treatment plant products, geosynthetics and erosion control products.
Basis of Presentation
The Company is a holding company and its primary material assets are its direct and indirect ownership interest in Core & Main Holdings, LP, a Delaware limited partnership ("Holdings") and deferred tax assets associated with this ownership. Holdings has no operations and no material assets of its own other than its indirect ownership interest in Core & Main LP, a Florida limited partnership, the legal entity that conducts the operations of Core & Main. The condensed consolidated financial information of Core & Main, within this Quarterly Report on Form 10-Q, includes the consolidated financial information of Holdings and its subsidiaries. The limited partner interests of Holdings ("Partnership Interests") not held by Core & Main are reflected as non-controlling interests in the condensed consolidated financial statements.
Fiscal Year
The Company's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31st. Quarters within the fiscal year include 13-week periods, unless a fiscal year includes a 53rdweek, in which case the fourth quarter of the fiscal year will be a 14-week period. Each of the three months ended May 4, 2025 and three months ended April 28, 2024 included 13 weeks. The current fiscal year ending February 1, 2026 ("fiscal 2025") will include 52 weeks.
Key Factors Affecting Our Business
End-Markets and General Economic Conditions
Historically, demand for our products has been tied to municipal infrastructure spending, non-residential construction and residential construction in the U.S. We estimate that, based on net sales for the fiscal year ended February 2, 2025 ("fiscal 2024"), our exposure by end market was approximately 42% municipal, 38% non-residential and 20% residential. Infrastructure spending and the non-residential and residential construction markets are subject to cyclical market pressures. Municipal demand has been relatively steady over the long term due to the consistent and immediate need to replace broken infrastructure; however, activity levels are subject to the availability of funding for municipal projects. Non-residential and residential construction activities are primarily driven by availability of credit, interest rates, general economic conditions, consumer confidence and other factors that are beyond our control. The length and magnitude of these cycles have varied over time and by market. Cyclicality can also have an impact on the products we procure for our customers or our related services, as further discussed under "-Price Fluctuations" below. Interest rate increases in the fiscal year ended January 28, 2024 ("fiscal 2023") slowed home buying and new lot development, which was a contributing factor to a decline in the residential end market in fiscal 2023. In the second half of 2024 certain benchmark interest rates were cut, if interest rates continue to decline this may result in increased levels of activity in the U.S. residential and non-residential construction markets.
In November 2021, the Infrastructure Investment and Jobs Act ("IIJA") was signed into law, which includes $55 billion to invest in water infrastructure across the U.S. In January 2025, President Trump issued an executive order to pause funding disbursements under IIJA; however this funding pause was not related to funding for water or road projects. While this pause is temporary, a more permanent reduction in IIJA funding may have an adverse effect on our business or financial condition. In the coming years, including as a result of the IIJA, we expect, but cannot provide any assurance that, increased federal infrastructure investment to have a core focus on the upgrade, repair and replacement of municipal waterworks systems and to address demographic shifts and serve the growing population. We believe these dynamics, coupled with expanding municipal budgets, create the backdrop for a favorable funding environment and accelerated investment in projects that will benefit our business.
Seasonality
Our operating results within a fiscal year are typically impacted by seasonality. Colder weather and shorter daylight hours historically have reduced construction, maintenance and repair activity. As a result, net sales are typically lower in our first and fourth fiscal quarters, especially in northern geographic regions. Abnormal levels of precipitation may negatively impact our operating results as it may result in the delay of construction projects across fiscal quarters. Our operating results may also be adversely affected by hurricanes, which typically occur during our third fiscal quarter. Our cash flows from operating activities are typically lower during the first and second fiscal quarters due to investment in working capital and annual incentive compensation payments and are typically higher during the third and fourth fiscal quarters due to cash inflows associated with receivable collections and reduced inventory purchases.
Price Fluctuations
Our financial performance is impacted by price fluctuations in the cost to procure substantially all the products we sell and our ability to reflect these changes, in a timely manner, in our customer pricing.
The costs to procure the products we sell are historically volatile and subject to fluctuations arising from changes in supply and demand, national and international economic conditions, labor and material costs, competition, market speculation, government regulation, weather events, trade policies and periodic delays in the delivery of our products. If we are able to pass through price increases to our customers, our net sales will increase; conversely, during periods of deflation, our customer pricing may decrease to remain competitive, resulting in decreased net sales. During the fiscal year ended January 29, 2023 ("fiscal 2022"), we experienced supply chain disruption that contributed to significant price inflation and product surcharges with respect to certain products we sell. The supply chain disruption was due to several factors, including, but not limited to, unpredictable lead times and delays from our suppliers, labor availability, global logistics and the availability of raw materials. In fiscal 2023, we saw improvements in the supply chain and more predictable lead times for certain products, but for other products the supply chain remained constrained. This led to price stability in fiscal 2023 compared to the price inflation we experienced during fiscal 2022. In fiscal 2024, certain suppliers and product lines experienced greater product availability that slightly lowered selling prices for these product lines. Additional supply chain disruptions may result in increases in product costs which we may not be able to pass on to our customers, loss of sales due to lack of product availability or potential customer claims from the inability to provide products in accordance with contractual terms. Greater product availability from supply chain improvements may lead to increased competition that may result in price and volume declines. We continue to monitor all of these factors and the resulting price impacts. In addition, the cost of products we purchase and sell may be impacted by the imposition of additional tariffs on imported goods from several geographic regions.
In recent months, the U.S. government has announced tariffs and trade restrictions on certain goods produced outside the United States. We believe our exposure to tariffs is limited as over three-quarters of products that we purchase are manufactured domestically. In addition, when price increases occur, we proactively evaluate our customer pricing and strategic buying opportunities. The potential direct and indirect impacts of tariffs on the broad economy and our end markets are uncertain and we continue to closely monitor and evaluate the ongoing situation.
We are also exposed to fluctuations in costs for petroleum as we distribute a substantial portion of our products by truck. In addition, we are exposed to fluctuations in prices for imported products due to logistical challenges and changes in labor, fuel, shipping container and other importation-related costs. We may also face price fluctuations on other products due to constrained labor availability and manufacturing capacity of our suppliers. Our ability to reflect these changes, in a timely manner, in our customer pricing may impact our financial performance.
Interest Rates
Certain of our indebtedness, including borrowings under the Senior Term Loan Credit Facility (as defined in Note 6 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) and the Senior ABL Credit Facility, are subject to variable rates of interest and expose us to interest rate risk. The Senior Term Loan Credit Facility and the Senior ABL Credit Facility each bear interest based on term secured overnight financing rate ("Term SOFR"). If interest rates increase, our debt service obligations on our variable-rate indebtedness will increase and our net income would decrease, even though the amount borrowed under the facilities remains the same. As of May 4, 2025, we had $2,284 million of outstanding variable-rate debt. We seek to mitigate our exposure to interest rate volatility through the entry into interest rate swap instruments, such as our interest rate swap, associated with borrowings under the Senior Term Loan Credit Facility, which effectively converts $800 million of our variable rate debt to fixed rate debt, with notional amount decreases to $700 million on July 27, 2025 through the instrument maturity on July 27, 2026. On February 12, 2024, Core & Main LP entered into an additional interest rate swap, associated with borrowings under the Senior Term Loan Credit Facility, that has a starting notional amount of $750 million that increases to $1,500 million on July 27, 2026 through the instrument maturity on July 27, 2028. Despite these efforts, unfavorable movement in interest rates may further result in higher interest expense and cash payments.
Acquisitions
In addition to our organic growth strategy, we opportunistically pursue strategic asset and business acquisitions to grow our business. Below is a summary of the acquisitions that closed during thefiscal year ended February 2, 2025 (the "Fiscal 2024 Acquisitions") with an aggregate transaction value of $769 million, subject to working capital adjustments, respectively.
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Product Lines
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Closing Date
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Fiscal 2024
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ARGCO Northeast LLC
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Fire Protection
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November 2024
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Eastcom Associates, Inc.
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Pipes, Valves & Fittings; Meter products
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October 2024
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Green Equipment Company
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Pipes, Valves & Fittings; Meter products
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September 2024
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GroGreen Solutions Georgia, LLC
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Storm Drainage
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September 2024
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HM Pipe Products LP and HM Pipe Products Kitchner LP
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Pipes, Valves & Fittings; Storm Drainage
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August 2024
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Geothermal Supply Company Inc.
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Pipes, Valves & Fittings
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May 2024
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EGW Utilities Inc.
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Pipes, Valves & Fittings; Meter products
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April 2024
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NW Geosynthetics Inc.
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Storm Drainage
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April 2024
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DKC Group Holdings, LLC
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Pipes, Valves & Fittings; Storm Drainage; Meter products
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March 2024
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Eastern Supply Inc.
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Storm Drainage
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February 2024
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As we integrate these and other acquisitions into our existing operations, we may not be able to identify the specific financial statement impacts associated with these acquisitions. There can be no assurance that the anticipated benefits of the acquisitions will be realized on the timeline we expect, or at all.
Key Business Metrics
Net Sales
We generate net sales primarily from the sale of water, wastewater, storm drainage and fire protection products and the provision of related services to over 60,000 customers, as of February 2, 2025, including municipalities, private water companies and professional contractors. We recognize sales, net of sales tax, customer incentives, returns and discounts. Net sales fluctuate as a result of changes in product costs as we seek to reflect these changes in our customer pricing in a timely manner. This will increase net sales if we are able to pass along price increases and decrease net sales if we are required to reduce our customer prices as a result of competitive dynamics.
We categorize our net sales into pipes, valves & fittings, storm drainage products, fire protection products and meter products:
•Pipe, valves, hydrants, fittings include these products and other complementary products and services. Pipe includes PVC, ductile iron, fusible HDPE and copper tubing.
•Storm drainage products primarily include corrugated piping systems, retention basins, manholes, grates, geosynthetics, erosion controland other related products.
•Fire protection products primarily include fire protection pipe, sprinkler heads, fittings, valves and devices as well as custom fabrication services.
•Meter products primarily include smart meter products, meter sets, meter accessories, installation, software and other services.
Gross Profit
Gross profit represents the difference between the product cost inclusive of material costs from suppliers (net of earned rebates and discounts and including the cost of inbound freight), labor and overhead costs and depreciation and the net sale price to our customers. Gross profit may be impacted by the time between changes in supplier costs and changes in our customer pricing. Gross profit may not be comparable to those of other companies, as other companies may include all of the costs related to their distribution network in cost of sales.
Operating Expenses
Operating expenses are primarily comprised of selling, general and administrative costs, which include personnel expenses (salaries, wages, incentive compensation, benefits and payroll taxes), rent, insurance, utilities, professional fees, outbound freight, fuel and repair and maintenance.
Net Income
Net income represents net sales less cost of sales, operating expenses, depreciation and amortization, interest expense, other expense and the provision for income taxes.
Net Income Attributable to Core & Main, Inc.
Net income attributable to Core & Main, Inc. represents net income less income attributable to non-controlling interests. Non-controlling interests represent owners of Partnership Interests of Holdings other than Core & Main, Inc.
Adjusted EBITDA
We define Adjusted EBITDA as EBITDA further adjusted for certain items management believes are not reflective of the underlying operations of our business, including but not limited to (a) loss on debt modification and extinguishment, (b) equity-based compensation, (c) expenses associated with the public offerings and (d) expenses associated with acquisition activities. Adjusted EBITDA includes amounts otherwise attributable to non-controlling interests as we manage the consolidated Company and evaluate operating performance in a similar manner. We use Adjusted EBITDA to assess the operating results and effectiveness of our business. See "-Non-GAAP Financial Measures" below for further discussion of Adjusted EBITDA and a reconciliation to net income or net income attributable to Core & Main, Inc., the most directly comparable measure under U.S. generally accepted accounting principles ("GAAP"), as applicable.
Earnings Per Share
Earnings per share represents the Class A common stock basic and diluted earnings per share. For a further description of basic and diluted earnings per share, refer to Note 10 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
Three Months Ended May 4, 2025 Compared with Three Months Ended April 28, 2024
Amounts in millions (except per share data)
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Three Months Ended
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May 4, 2025
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April 28, 2024
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Net sales
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$
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1,911
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$
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1,741
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Cost of sales
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1,401
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1,273
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Gross profit
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510
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468
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Operating expenses:
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Selling, general and administrative
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293
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257
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Depreciation and amortization
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46
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43
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Total operating expenses
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339
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300
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Operating income
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171
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168
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Interest expense
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30
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34
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Income before provision for income taxes
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141
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134
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Provision for income taxes
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36
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33
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Net income
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105
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101
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Less: net income attributable to non-controlling interests
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5
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6
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Net income attributable to Core & Main, Inc.
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$
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100
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$
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95
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Earnings per share:
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Basic
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$
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0.53
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$
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0.49
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Diluted
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$
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0.52
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$
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0.49
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Non-GAAP Financial Data:
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Adjusted EBITDA
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$
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224
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$
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217
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Net Sales
Net sales for the three months ended May 4, 2025 increased $170 million, or 9.8%, to $1,911 million compared with $1,741 million for the three months ended April 28, 2024. Net sales increased primarily due to higher volumes and acquisitions. Net sales increased for pipes, valves & fittings, storm drainage and meter products due to higher volumes and acquisitions. Net sales for fire protection products declined due to lower end-market volumes and lower selling prices partially offset by acquisitions.
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Three Months Ended
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May 4, 2025
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April 28, 2024
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Percentage Change
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Pipes, valves & fittings products
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$
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1,297
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$
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1,169
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10.9
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%
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Storm drainage products
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295
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253
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16.6
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%
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Fire protection products
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152
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167
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(9.0)
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%
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Meter products
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167
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152
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9.9
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%
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Total net sales
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$
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1,911
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$
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1,741
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Gross Profit
Gross profit for the three months ended May 4, 2025 increased $42 million, or 9.0%, to $510 million compared with $468 million for the three months ended April 28, 2024. Gross profit as a percentage of net sales for the three months ended May 4, 2025 was 26.7% compared with 26.9% for the three months ended April 28, 2024. The overall decrease in gross profit as a percentage of net sales was primarily attributable to a higher average cost of inventory this year compared to the prior year partially offset by favorable impacts from the execution of our gross margin initiatives and accretive acquisitions.
Selling, General & Administrative ("SG&A") Expenses
SG&A expenses for the three months ended May 4, 2025 increased $36 million, or 14.0%, to $293 million compared with $257 million during the three months ended April 28, 2024. The increase is primarily attributable to higher personnel expenses, primarily attributable to acquisitions, inflation and other distribution-related costs due to an increase in sales volume. SG&A expenses as a percentage of net sales were 15.3% for the three months ended May 4, 2025 compared with 14.8% for the three months ended April 28, 2024. The increase was primarily attributable to acquisitions and inflationary cost impacts.
Depreciation and Amortization ("D&A") Expense
D&A expense was $46 million for the three months ended May 4, 2025 compared with $43 million for the three months ended April 28, 2024. The increase was primarily attributable to recent acquisitions.
Operating Income
Operating income for the three months ended May 4, 2025 increased $3 million, or 1.8%, to $171 million compared with $168 million during the three months ended April 28, 2024. The increase in operating income was primarily attributable to higher gross profit partially offset by higher SG&A and D&A expenses.
Interest Expense
Interest expense was $30 million for the three months ended May 4, 2025 compared with $34 million for the three months ended April 28, 2024. The decrease was primarily attributable to a decrease in interest rates and decreased average borrowings under the Senior ABL Credit Facility.
Provision for Income Taxes
The provision for income taxes for the three months ended May 4, 2025 increased $3 million, or 9.1%, to $36 million compared with $33 million for the three months ended April 28, 2024. The increase was primarily attributable to an increase in operating income and an increase in the effective tax rate. For the three months ended May 4, 2025 and April 28, 2024, our effective tax rate was 25.5% and 24.6%, respectively. The effective tax rate for each period reflects only the portion of net income that is attributable to taxable entities. The increase in the effective taxrate was primarily attributable to a decrease in the non-controlling interest ownership that increased the allocation of net income to taxable entities.
Net Income
Net income for the three months ended May 4, 2025 increased $4 million, or 4.0%to $105 million compared with $101 million for the three months ended April 28, 2024. The increase in net income was primarily attributable to a 1.8% increase in operating income and a decrease in interest expense partially offset by an increase in income tax expense.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests for the three months ended May 4, 2025 decreased $1 million to $5 million compared with $6 million for the three months ended April 28, 2024. The decreasewas primarily attributable to exchanges of Partnership Interests by non-controlling interest holders partially offset by an increase in net income.
Net Income Attributable to Core & Main, Inc.
Net income attributable to Core & Main, Inc. for the three months ended May 4, 2025 increased $5 million, or 5.3%, to $100 million compared with $95 million for the three months ended April 28, 2024. The increase was primarily attributable to a 4.0%increase in net income and a decreased allocation to non-controlling interest holders following exchanges of Partnership Interests.
Earnings Per Share
The Class A common stock basic earnings per share for the three months ended May 4, 2025 increased 8.2% to $0.53 compared with $0.49 for the three months ended April 28, 2024. The Class A common stock diluted earnings per share for the three months ended May 4, 2025 increased 6.1%to $0.52compared with $0.49for the three months ended April 28, 2024. The basic earnings per share increaseddue to an increase in net income attributable to Core & Main, Inc. and lower Class A share counts following the share repurchase transactions executed throughout fiscal 2024 and fiscal 2025. Diluted earnings per share increaseddue to an increase in net income and lower Class A share counts following the share repurchase transactions executed throughout fiscal 2024 and fiscal 2025.
Adjusted EBITDA
Adjusted EBITDA for the three months ended May 4, 2025 increased $7 million, or 3.2%, to $224 million compared with $217 million for the three months ended April 28, 2024. The increase in Adjusted EBITDA was primarily attributable to higher gross profit partially offset by higher SG&A expenses. For a reconciliation of Adjusted EBITDA to net income or net income attributable to Core & Main, Inc., the most comparable GAAP financial metric, as applicable, see "-Non-GAAP Financial Measures."
Liquidity and Capital Resources
Historically, we have financed our liquidity requirements through cash flows from operating activities, borrowings under our credit facilities, issuances of equity and debt securities and working capital management activities. Our principal historical liquidity requirements have been for working capital, capital expenditures, acquisitions, servicing indebtedness, payments under the Tax Receivable Agreements and share repurchases (including under the Repurchase Program).
As of May 4, 2025, our cash and cash equivalents totaled $8 million. We maintain our cash deposits according to a banking policy that requires diversification across a variety of highly-rated financial institutions. However, this could result in a concentration of cash and cash equivalents across these financial institutions in excess of Federal Deposit Insurance Corporation-insured limits.
As of May 4, 2025, we had $100 millionoutstanding borrowings on our Senior ABL Credit Facility, which provides for borrowings of up to $1,250 million, subject to borrowing base availability. As of May 4, 2025, after giving effect to approximately $15 million of letters of credit issued under the Senior ABL Credit Facility, Core & Main LP would have been able to borrow approximately $1,135 million under the Senior ABL Credit Facility, subject to borrowing base availability. Our short term debt obligations of $24 million are related to quarterly principal payments on the Senior Term Loan Credit Facility.
In fiscal 2025 and fiscal 2024, the Company had a financing cash outflow related to the payment of $18 millionand $11 million, respectively, under the Tax Receivable Agreements. The annual payments under the Tax Receivable Agreements increased as a result of exchangesof Partnership Interestscompleted in fiscal 2023. Payments under the Tax Receivable Agreements are only required to be made to the extent that we realize or are deemed to have realized the benefit of the corresponding tax deductions to reduce payments to federal, state and local taxing authorities. These payments are in an amount that represents 85% of the reduction in payments to federal, state and local taxing authorities. As such, the cash savings from the incremental tax deductions are expected to exceed the payments under the Tax Receivable Agreements over the life of these arrangements. Based on the anticipated filing date of income tax returns and contractual payment terms in the Tax Receivable Agreements, we expect these payments to occur two fiscal years after we utilize the corresponding tax deductions.
Further exchanges of Partnership Interest by Management Feeder will result in additional tax deductions to us and require additional payables pursuant to Tax Receivable Agreements. The actual amount and timing of the additional payments under the Tax Receivable Agreements will vary depending upon a number of factors as discussed further in Note 7 to the unaudited condensed consolidated financial statements included elsewherein this Quarterly Report on Form 10-Q.
Payments under the Tax Receivable Agreements may be accelerated if we elect an early termination in accordance with the terms of the Tax Receivable Agreements or negotiate a settlement of the Tax Receivable Agreements. An early termination or negotiated settlement of our obligations, or our successor's obligations, under such Tax Receivable Agreement to make payments thereunder would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to such Tax Receivable Agreement.
We believe that our current sources of liquidity, which include cash generated from operations, existing cash and cash equivalents and available borrowing capacity under the Senior ABL Credit Facility, will be sufficient to meet our working capital, capital expenditures and other cash commitments, including obligations relating to our indebtedness and the Tax Receivable Agreements, over the next 12 months, at minimum. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Our growth strategy contemplates future acquisitions for which we will need sufficient access to capital. To finance future acquisitions, particularly larger acquisitions, we may issue additional equity or incur additional indebtedness. Any such additional indebtedness would increase our debt leverage. See "Risk Factors" in Part I, Item 1A of the 2024 Annual Report on Form 10-K.
Additionally, we regularly evaluate our approach to our capital allocation, which may include acquisitions, capital expenditures, greenfields, debt reduction (including through open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt), stock repurchases, dividends, payments on Tax Receivable Agreements or other distributions. During the three months ended May 4, 2025, we completed $39 million of repurchases of Class A common stock under the Repurchase Program. For further details, refer to Note 1 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We may continue to return capital to our shareholders through share repurchases, including pursuant to the Repurchase Program or initiating dividend payments. The execution of these, and other, capital allocation activities may be at the discretion of, and subject to the approval by, our board of directors and will depend on our financial condition, earnings, liquidity and capital requirements, market conditions, level of indebtedness, contractual restrictions, compliance with our debt covenants, restrictions imposed by applicable law, general business conditions and any other factors that our board of directors deems relevant in making any such determination. Therefore, there can be no assurance that we will engage in any or all of these actions or to what amount of capital we will allocate to each option.
The execution of certain initiatives under our capital allocation policy may require distributions by Holdings and Core & Main LP. These entities' ability to make distributions may be limited as a practical matter by our growth plans as well as Core & Main LP's Senior Term Loan Credit Facility and Senior ABL Credit Facility. The Senior Term Loan Credit Facility may require accelerated repayment based upon cash flows generated in excess of operating and investing requirements when Core & Main LP's net total leverage ratio (as defined in the agreement governing the Senior Term Loan Credit Facility) is greater than or equal to 3.25. In addition, the Senior ABL Credit Facility requires us to comply with a consolidated fixed charge coverage ratio of greater than or equal to 1.00 when availability is less than 10.0% of the lesser of (i) the then applicable borrowing base and (ii) the then aggregate effective commitments under the Senior ABL Credit Facility. Substantially all of Core & Main LP's assets secure the Senior Term Loan Credit Facility and the Senior ABL Credit Facility.
Information about our cash flows, by category, is presented in the Condensed Consolidated Statements of Cash Flows and is summarized as follows:
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Three Months Ended
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May 4, 2025
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April 28, 2024
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Cash flows provided by operating activities
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$
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77
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$
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78
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Cash flows used in investing activities
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(16)
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(574)
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Cash flows (used in) provided by financing activities
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(61)
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525
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$
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-
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$
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29
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Operating Activities
Net cash provided by operating activities was $77 million for the three months ended May 4, 2025 compared with $78 million for the three months ended April 28, 2024. The $1 million decrease in cash provided by operating activities was due to a higher investment in working capital in the three months ended May 4, 2025 partially offset by the timing of interest payments, lower tax payments and an increase in net income.
Investing Activities
Net cash used in investing activities decreased by $558 million to $16 million for the three months ended May 4, 2025 compared with $574 million for the three months ended April 28, 2024, primarily attributable to $564 millionin cash outflows for acquisitions during fiscal 2024.
Financing Activities
Net cash used in financing activities was $61 million for the three months ended May 4, 2025 compared with net cash provided by financing activities of $525 million for the three months ended April 28, 2024. The change of $586 million was primarily attributed to a $542 million decrease in net borrowings and debt issuance costs, $39 million increase in outflows related to the repurchases of Class A common stock under the Repurchase Program and a $7 million increase in paymentsunder the Tax Receivable Agreements during fiscal 2025.
Financing
As of May 4, 2025, our debt obligations (in millions) consist of the following:
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|
|
Aggregate Principal/Borrowing Capacity
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Maturity Date
|
|
Interest
|
2028 Senior Term Loan
|
|
$
|
1,245
|
|
|
July 27, 2028
|
|
(i) Term SOFR plus, in each case, an effective applicable margin of 2.00%, or (ii) the base rate (described in Note 6 included elsewhere in this Quarterly Report on Form 10-Q).
The weighted average interest rate, excluding the effects of the interest rate swaps, was 6.27% as of May 4, 2025.
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2031 Senior Term Loan
|
|
939
|
|
|
February 9, 2031
|
|
(i) Term SOFR plus, in each case, an applicable margin of 2.00%, or (ii) the base rate (described elsewhere in this Form 10-Q).
The weighted average interest rate, excluding the effects of the interest rate swaps, was 6.27% as of May 4, 2025.
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Senior ABL Credit Facility(1)
|
|
1,250
|
|
|
February 9, 2029
|
|
Term SOFR rate plus an applicable margin ranging from 1.25% to 1.75%, or an alternate base rate plus an applicable margin ranging from 0.25% to 0.75%, depending on the borrowing capacity under the Senior ABL Credit Facility.
|
Interest Rate Swap(2)
|
|
800
|
|
|
July 27, 2026
|
|
Effective fixed rate of 2.693%, based upon the 0.693% fixed rate plus an applicable margin of 2.00% associated with the Senior Term Loan Credit Facility.
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Interest Rate Swap(3)
|
|
750
|
|
|
July 27, 2028
|
|
Effective fixed rate of 5.913%, based upon the 3.913% fixed rate plus an applicable margin of 2.00% associated with the Senior Term Loan Credit Facility.
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(1)Aggregate amount of commitments under the asset-based revolving credit facility of $1,250 million overall, subject to borrowing base availability. There were $100 million outstanding under the Senior ABL Credit Facility as of May 4, 2025.
(2)Notional amount of $800 millionas of May 4, 2025. The notional amount decreases to $700 million on July 27, 2025 through the instrument maturity on July 27, 2026.
(3)Interest rate swap entered into on February 12, 2024 for a notional amount of $750 million. The notional amount increases to $1,500 million on July 27, 2026 through the instrument maturity on July 27, 2028.
Refer to Note 6 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Qfor a description of our debt obligations and the timing of future principal and interest payments including impacts from our interest rate swap.
Purchase Obligations
As of May 4, 2025, the Company had agreements in place with various suppliers to purchase goods and services, primarily inventory, in the aggregate amount of $1,262 million. These purchase obligations are generally cancellable, but the Company foresees no intent to cancel. Payments are generally expected to be made during fiscal 2025 and the fiscal year ended January 31, 2027.
Non-GAAP Financial Measures
In addition to providing results that are determined in accordance with GAAP, we present EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. These measures are not considered measures of financial performance or liquidity under GAAP and the items excluded therefrom are significant components in understanding and assessing our financial performance or liquidity. These measures should not be considered in isolation or as alternatives to GAAP measures such as net income or net income attributable to Core & Main, Inc., as applicable, cash provided by or used in operating, investing or financing activities or other financial statement data presented in our financial statements as an indicator of our financial performance or liquidity.
We define EBITDA as net income, or net income attributable to Core & Main, Inc., as applicable, adjusted for non-controlling interests, depreciation and amortization, provision for income taxes and interest expense. We define Adjusted EBITDA as EBITDA as further adjusted for certain items management believes are not reflective of the underlying operations of our business, including but not limited to (a) loss on debt modification and extinguishment, (b) equity-based compensation, (c) expenses associated with the initial public offering and subsequent secondary offerings and (d) expenses associated with acquisition activities. Net income attributable to Core & Main, Inc. is the most directly comparable GAAP measure to EBITDA and Adjusted EBITDA.
We use EBITDA and Adjusted EBITDA to assess the operating results and effectiveness and efficiency of our business. Adjusted EBITDA includes amounts otherwise attributable to non-controlling interests as we manage the consolidated Company and evaluate operating performance in a similar manner. We present these non-GAAP financial measures because we believe that investors consider them to be important supplemental measures of performance, and we believe that these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Non-GAAP financial measures as reported by us may not be comparable to similarly titled metrics reported by other companies and may not be calculated in the same manner. These measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA and Adjusted EBITDA:
• do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on debt;
• do not reflect income tax expenses, the cash requirements to pay taxes or related distributions;
• do not reflect cash requirements to replace in the future any assets being depreciated and amortized; and
• exclude certain transactions or expenses as allowed by the various agreements governing our indebtedness.
In evaluating Adjusted EBITDA, you should be aware that, in the future, we may incur expenses similar to those eliminated in this presentation.
The following table sets forth a reconciliation of net income or net income attributable to Core & Main, Inc. to EBITDA and Adjusted EBITDA for the periods presented:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended
|
|
|
May 4, 2025
|
|
April 28, 2024
|
Net income attributable to Core & Main, Inc.
|
|
$
|
100
|
|
|
$
|
95
|
|
Plus: net income attributable to non-controlling interest
|
|
5
|
|
|
6
|
|
Net income
|
|
105
|
|
|
101
|
|
Depreciation and amortization (1)
|
|
47
|
|
|
44
|
|
Provision for income taxes
|
|
36
|
|
|
33
|
|
Interest expense
|
|
30
|
|
|
34
|
|
EBITDA
|
|
$
|
218
|
|
|
$
|
212
|
|
Equity-based compensation
|
|
5
|
|
|
3
|
|
Acquisition expenses (2)
|
|
1
|
|
|
2
|
|
Adjusted EBITDA
|
|
$
|
224
|
|
|
$
|
217
|
|
(1)Includesdepreciation of certain assets which are reflected in "cost of sales" in our Statement of Operations.
(2)Represents expenses associated with acquisition activities, including transaction costs, post-acquisition employee retention bonuses, severance payments and expense recognition of purchase accounting fair value adjustments (excluding amortization).
Recently Issued and Adopted Accounting Pronouncements and Accounting Pronouncements Issued But Not Yet Adopted
Refer to Note 2 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies are discussed in Note 2 to the audited consolidated financial statements in our 2024Annual Report on Form 10-K. The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Our estimates and assumptions are based on historical experiences and changes in the business environment. However, actual results may differ from estimates under different conditions, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results of operations and require management judgment. There have been no significant changes to these policies which have had a material impact on the Company's interim unaudited condensed consolidated financial statements and related notes during the three months ended May 4, 2025.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of May 4, 2025.