Business context and reporting period
Period clarification: The supplied filing is Core & Main, Inc.’s Form 10-K for the 52-week fiscal year ended January 30, 2022, not a 2018 Q4 filing as indicated in the request metadata. Comparisons below are with fiscal 2020, ended January 31, 2021.
Core & Main is a specialized U.S. distributor of water, wastewater, storm drainage and fire protection products and related services. It operated approximately 300 branches in 48 states. Fiscal 2021 sales were approximately 39% municipal, 39% non-residential and 22% residential. The company completed its IPO in July 2021 and a secondary offering by existing stockholders in January 2022.
Key financial metrics
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales | $5,004 million | $3,642 million |
| Gross profit / gross margin | $1,280 million / 25.6% | $878 million / 24.1% |
| Operating income | $425 million | $185 million |
| Net income | $225 million | $37 million |
| Net income attributable to Core & Main, Inc. | $166 million | Not separately presented for this pre-reorganization period |
| Adjusted EBITDA | $604 million | $342 million |
| Operating cash flow | $(31) million | $214 million |
| Capital expenditures | $20 million | $12 million |
Sales increased 37.4%, gross profit 45.8%, and Adjusted EBITDA 76.6%. Higher selling prices contributed approximately half of sales growth; volume growth, market-share gains, acquisitions and product availability also contributed. Pipes, valves and fittings sales grew 41.6%, storm drainage 40.5%, fire protection 36.5%, and meters 6.8%. Operating expenses were $855 million, including $717 million of SG&A; SG&A declined to 14.3% of sales from 15.3%.
Fiscal 2021 net income included a $51 million loss on debt modification and extinguishment related to the refinancing. Interest expense fell to $98 million from $139 million. Diluted EPS was $0.55 for the post-reorganization period only; the filing does not present comparable pre-reorganization EPS.
Debt and liquidity
At January 30, 2022, consolidated debt was $1,493 million, principally a $1.5 billion term loan facility maturing July 2028. Cash was $1 million, and there were no outstanding ABL borrowings; approximately $841 million was available under the $850 million asset-based revolving facility, subject to borrowing-base availability. The term loan’s weighted-average rate was 2.61% before the interest-rate swap. A swap fixed the rate on $1.0 billion of borrowings at an effective 3.24% at year-end, with its notional amount scheduled to decline over time.
Operating cash flow turned negative, primarily because of increased receivables and inventory investment amid strong sales growth, inflation and strategic inventory purchases. Inventory rose to $856 million from $384 million and receivables to $884 million from $557 million. Management stated that available liquidity was expected to cover working capital, capital expenditures, debt service and other commitments for at least 12 months, subject to assumptions. Purchase obligations were $1,511 million, generally cancellable but expected to be paid primarily in fiscal 2022. Operating lease liabilities totaled $152 million.
Material changes, outlook and risks
- Refinancing and IPO: The company replaced prior debt with the new term loan, redeemed $1.05 billion of notes and repaid $1.258 billion of prior term-loan borrowings. The refinancing reduced ongoing interest expense but generated the $51 million one-time charge. IPO proceeds were used principally in the refinancing; the company received no proceeds from the January secondary offering.
- Acquisitions: Fiscal 2021 acquisitions included Pacific Pipe and L&M, with stated transaction values of $103 million and $60 million, respectively. The company cited acquisitions as part of its growth strategy.
- Outlook: Management expected federal infrastructure investment, including the Infrastructure Investment and Jobs Act’s $55 billion for water infrastructure, to support future municipal demand. The filing gives no quantified company revenue or earnings guidance. Management cautioned that project funding and benefits may be delayed or unevenly distributed.
- Pricing and supply: PVC pipe costs increased an estimated 90% in fiscal 2021 versus fiscal 2020. Management estimated that 50–100 basis points of fiscal 2021 margin expansion might be temporary as pricing and supply conditions normalize. Supply-chain constraints, including semiconductor shortages affecting meters, and higher freight, petroleum and commodity costs remained risks.
- Debt and capital structure: Most debt bears variable rates; the filing estimates a one-percentage-point rate change could affect annual interest expense by approximately $23 million assuming full ABL utilization and excluding hedging. Debt covenants, collateral over substantially all operating assets, tax receivable agreement obligations and potential future exchanges of partnership interests may constrain liquidity or dilute Class A holders. The recorded tax receivable agreement liability was $153 million; further exchanges could add substantial obligations.
- Other risks and unusual items: Results are seasonal, with typically lower sales in the first and fourth quarters. The company disclosed two current asbestos-related claims and expects additional claims, while stating such claims had not historically materially affected results. No material legal proceedings were identified. Goodwill was $1,515 million; no impairment was recorded, but valuation depends on forecasts including gross margin. The company reported effective disclosure controls, but did not include management’s internal-control assessment because of its newly public company transition period.
Investor verification priorities
- Confirm the reporting period and compare reported sales growth with underlying volume, pricing and acquisition contributions.
- Track working-capital conversion, inventory and receivables, and whether operating cash flow recovers after the fiscal 2021 investment.
- Assess sustainability of margins as commodity prices, product availability and supplier incentives normalize.
- Review debt covenant headroom, interest-rate exposure, ABL borrowing-base availability and the effect of the declining swap hedge.
- Evaluate expected tax receivable agreement payments and potential dilution from partnership-interest exchanges.
- Monitor realization and timing of infrastructure funding, acquisition integration, asbestos claims and goodwill valuation assumptions.