Core & Main, Inc. — Form 10-Q Summary
Period: Quarter and six months ended August 1, 2021, compared with August 2, 2020. The request metadata says 2018 Q2, but the filing is for 2021 Q2. Financial statements are unaudited. Core & Main distributes water, wastewater, storm drainage and fire protection products through more than 285 branches in 48 states.
Financial performance
| Metric | Three months ended | Six months ended |
|---|---|---|
| Net sales | $1,297.6 million, up 35.7% | $2,352.7 million, up 30.9% |
| Gross profit / margin | $325.2 million / 25.1%, versus $230.6 million / 24.1% | $582.0 million / 24.7%, versus $429.8 million / 23.9% |
| Operating income | $99.8 million, versus $59.5 million | $168.9 million, versus $88.2 million |
| Net income | $9.5 million, versus $18.1 million | $36.9 million, versus $14.9 million |
| Adjusted EBITDA | $155.2 million, up 56.8% | $264.3 million, up 57.6% |
Sales growth reflected higher volume and price inflation; management said inflation accounted for approximately half of quarterly sales growth. Gross-margin improvement was attributed primarily to sourcing and pricing. Meter sales grew more slowly amid supply constraints. The quarter’s $50.4 million debt-modification and extinguishment loss and elevated equity-compensation expense weighed on reported net income. Core & Main reported $26.5 million attributable income for the quarter and $53.9 million for the half-year, but the reported $0.14 basic and diluted loss per share covers only July 23–August 1, after the IPO reorganization; pre-reorganization EPS is not presented.
Cash flow, debt and liquidity
- Operating cash flow was negative $99.1 million for the six months, versus positive $93.2 million a year earlier, primarily reflecting increased receivables and inventory with sales growth and higher cash interest payments.
- Investing cash outflow was $12.9 million, versus $211.7 million, which included the prior-year R&B acquisition. Financing cash outflow was $202.3 million; IPO proceeds partly offset debt repayments. Cash declined $314.3 million to $66.6 million.
- At August 1, debt principal was $1.5 billion under a new term loan maturing in 2028; the balance-sheet carrying amount was $1.477 billion, including current maturities. No ABL borrowings were outstanding. The amended ABL facility provides up to $850 million, with approximately $840.9 million available after letters of credit, subject to borrowing-base availability.
- The July refinancing replaced prior term-loan and note obligations, redeemed $300 million of 2024 notes and $750 million of 2025 notes, and generated a $50.4 million one-time loss. A $1.0 billion portion of the new term loan is initially swapped to a fixed effective rate of 3.24%; remaining debt exposure is variable-rate.
- Management said cash and available ABL capacity should fund working-capital and capital needs for at least 12 months, subject to assumptions. Substantially all operating assets secure the credit facilities.
Material changes, outlook and risks
- The company completed its IPO on July 27, 2021, raising approximately $663.7 million net before certain transaction costs; proceeds were used to buy Holdings interests and support debt repayment. The underwriters’ option added approximately $99.5 million net proceeds on August 20, after quarter-end.
- Management provided no specific earnings or revenue guidance in the filing. It expected near-term commodity-product inflation and supply-chain disruption to continue, including constraints affecting meters; management described efforts to manage sourcing and customer pricing.
- Two post-quarter acquisitions closed: Pacific Pipe on August 9, valued up to $102.5 million, and L&M Bag & Supply on August 30, valued up to $60.0 million, each subject to working-capital adjustments.
- Tax receivable agreements require payment of 85% of specified realized tax benefits to former and continuing limited partners. The recorded former-partner liability was $88.6 million; payments were expected to begin in fiscal 2023. Potential future obligations for exchanges by continuing partners are uncertain.
- Key risks include construction-market cyclicality and municipal funding, commodity and freight costs, supply availability, weather and seasonality, customer credit, acquisition integration, variable interest rates, and substantial debt. Deferred payroll taxes of $10.2 million under the CARES Act are due across 2021 and 2022. Management reported no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the reported GAAP earnings, post-IPO EPS period, non-controlling-interest allocations and Adjusted EBITDA adjustments.
- Track working-capital conversion and operating cash flow as inventory and receivables expanded, and confirm whether seasonal cash usage reverses.
- Review debt covenants, borrowing-base availability, interest-rate exposure and refinancing terms, including LIBOR transition provisions.
- Assess acquisition funding, purchase-price allocation and integration outcomes for Pacific Pipe and L&M.
- Monitor realized tax savings, timing and amounts payable under both tax receivable agreements.