Good day and welcome to the American Woodmark Corporation First Quarter 2018 Conference Call. Today’s call is being recorded, August 22, 2017. We will begin 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 maybe 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.

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, President and Chief Executive Officer. Cary will begin with a review of the quarter and an update on our strategy and I will add additional details regarding our financial performance. After our comments, we will be happy to answer your questions. Cary?

Thanks, Scott, and good morning to you all. Our first quarter of the new fiscal year was not without a few challenges and despite these challenges, we grew revenue by 7%, continuing to outperform our key competition and the industry. Our new construction and dealer business has outpaced both the industry and competition, while home center continued to lag. Looking specifically at new construction, for the quarter, we grew our Timberlake direct business 13% and our overall builder business by 12% over prior year, outpacing single family home start growth of closer to 9% over the same period. We continue to invest in and strengthen our direct-to-builder competitive advantage. I did want to touch briefly on the news that is circulating related to one of our direct builder customers making the decision to shift business to another cabinet company. The reality is, given our success and significant market share, we recognize that competition will always be aggressively pursuing our business. Although we’re extremely confident in our competitive advantage based on a direct service model, there will be times such as this when we lose the contract. With this specific customer, which we have the utmost respect for, in the coming months, we are going to ensure they have the smoothest and most professional transition possible and we’ll always appreciate the opportunity to supply them again in the future. From a revenue impact perspective, it is important to know that strategically in the markets in which we operate, we have been very careful over the past several years to properly balance our aggressive growth with our need to continue to provide an exceptional customer experience. As such, opportunity typically exists for us to pursue additional direct business when deemed strategically appropriate. Our team has been very aggressive at successfully backfilling this…

Thanks, Cary. The financial headlines for the quarter. Net sales were $276.8 million, representing an increase of 7% over the same period last year. Net income was $22.3 million or $1.36 per diluted share for the first quarter of the current fiscal year compared with $21.7 million or $1.32 per diluted share for the first quarter of the prior fiscal year. The company benefited $0.13 per diluted share in the first quarter of the current fiscal year and $0.06 per diluted share in the first quarter of the prior fiscal year from a lower tax rate due to a benefit from stock-based compensation transactions. For the quarter, the company generated $26.6 million in cash from operating activities compared to $32.9 million for last year. 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 over 9% for the financial first quarter. Single family starts during March, April and May of the prior period averaged 749,000 units. Starts over that same time period from the current year averaged 815,000 units. Our new construction based revenue increased 12% for the quarter. As we've stated on prior calls, we continue to over-index the market due to share penetration with our builder partners and the health of the markets where we concentrate our business. The remodel business continues to be challenging. On the positive side, unemployment continues to improve. The July U3 unemployment rate dropped to 4.3%, U6 dropped to 8.6%. Both measures were lower than the July 2016 reported figures. Existing home sales increased during the second calendar quarter 2017, but a slowing pace as inventory remains low. Between April and June of 2016, existing home sales averaged 5.48 million units. At same period…

[Operator Instructions] And we’ll take our first question from Scott Rednor with Zelman & Associates.

I just wanted to clarify, given the comments on the one customer loss and the no change to your fiscal ’18 outlook, just hoping you guys could get a little bit more specific, within the high single digits, what's assumed for new construction and do you consider the 1Q growth above or below the high single digit guidance as we think about the balance of the year?

If you recall, going back to the end of last year, we basically said the single family growth would be around 8% to 10% and we would over index that. We continue to feel that. So the growth we experienced in the first half was a bit lighter than we anticipated. Most of what you're hearing from the industry right now out in the field particularly is that it has picked up. So we do expect the growth to rebound in the second half. And ultimately, we just -- like I said on my notes, are not expecting any long term impact or even a fiscal year impact from the loss of that customer. We've been able to manage to backfill that.

And on the gross margin side, Scott, would you say the healthcare -- can you maybe just give us a sense, does that headwinds, it sounds like it goes away in 2Q, but was that consistent with your expectations here in 1Q? I just wanted to maybe clarify if you have visibility on the variability of that cost item.

Yes. So as we said and we went through our planning cycle, we did expect to have an increase to be unfavorable in the first quarter. So that was anticipated. The degree to which we felt the increase was, it was elevated. So, it was higher than our planning projections were, but we were expecting that to come through because it was such an artificially low period in the first quarter last year.

And then just lastly, Cary, for you. The commentary on, we will expand, it's not if, it's how, were you trying to signal that you might go at this 100% organically, is that incremental or are you just reiterating that maybe something didn’t get done this quarter, but it hasn't changed your strategic outlook?

Nothing has really changed strategically. We've been approaching that in two parallel paths, one through M&A analysis and secondly, we have been working hard internally. Obviously if something does not pan out externally is that we also want to have an internal solution that is a very viable option that allows us to profitably grow in that opening price point category.

[Operator Instructions] We'll take our next question from Tim Wojs with Baird.

I guess maybe just on, I guess one of the questions I have is really more centered on mix and maybe what you're seeing within the new construction channel, maybe how to think about the impact of maybe the first time home buyer coming back and how the move to maybe a little bit more of an opening price point might help you guys protect gross margins in that scenario?

There's a lot in there. Strategically, I’ve been talking for some time as really the mix does start to shift towards more of an opening price point consumer. Overall big picture is much better for the industry. I think it will unleash some pent-up demand, both in R&R as well as new construction, move up and move down buyers and so forth. So I think for the industry as a whole, it’s very positive. For us, it will be very positive. Also from a mix shift perspective, as you move down towards the opening price point, you're going to see your take -- move down and that can be a challenge for most in our industry with regards to the margin, which is why we're very focused on that opening price point solution. So I think the bigger question is, right now, we're just not seeing a big shift towards that. The good thing is we, like I said earlier is we can, I will say, control our mix. We do have influence over our mix on obviously what we bid. Pricing is still very high out in the market right now. The average square footage home is still very high. We're seeing some markets that are expanding on the opening price point, but it's fairly limited really with regards to the impact on mix. We're seeing -- still continue to see a favorable mix in our industry from a pricing point perspective, but it will come, it has to come and that's just why we're very strategically focused on finding a solution for that lower price point and if it means, we do it organically, we do it organically, but we absolutely are going to find a solution.

Okay. And does that just really mean like a different manufacturing process just to make it a little more efficient?

Yeah. Our platform today is really designed for that stock and stock plus. So it's a higher price point that you’d consider for opening price point. We can cover it and we do that today. I mean, certain mix of our business is opening price point today. But to get extremely efficient at high volume, yeah, you want to open really a different platform that's got a, I’ll say less complex with regards to the SKU count, running a higher volume lower SKU operation. And it also opens the door for us like we've communicated to potentially get another market such as multifamily. We've got a wonderful service platform out there that we can leverage. We just need a product to go out there and really go after that business and take market share.

And then Scott, maybe just to clarify, you said that margin should still be up in fiscal ’18, is that both gross and EBIT?

Correct.

Okay. And then last question just competitively, some of your competitors have exited the builder direct market over the last three or four years, are you seeing any more re-entrants into that market? I'm just curious if growth is faster in new construction over the next couple of years. Do you see some of your competitors maybe reentering that market in a bigger way?

No, I mean they're still in it. It’s just a different model, so they've moved out of the direct [indiscernible] market. And no, I've not seen a shift in that. We are really the only one that still remains with a heavy direct model, particularly on a national level and I don't foresee that changing just because of the capital investment required to go out and do that.

[Operator Instructions] We’ll go next to Garik Shmois with Longbow Research.

Hi. This is Jeff in for Garik. I had a question on gross margin first. Kind of moving forward, what is your updated guidance on raw material inflation? And on top of that, outside of the increased logistics cost that you mentioned during the call, is there anything else we should be taking into account?

So there are a couple things in there. Nothing else that I would say you need to be thinking about beyond the transportation arena, fuel and then core input costs and we've seen increases in liner board and plywood that Cary referenced earlier. As we look forward, we're not seeing anything that indicates any major change in hardwood pricing. So we think those are the only elements that are facing us today and really the question for our organization that we're evaluating is what we do from a pricing standpoint and we are finalizing plans as we speak on exactly how we want to address that forward-looking.

And then it sounds like promotions have picked up at the home center channel. Can you talk about how the competitive environment moved throughout the quarter and as we head into the holiday season moving forward, do you expect them to further pickup?

Yes. The first part of the question on competitive, as we have seen an uptick, it's really just more with regards to the percentage of the promotional cost that they're willing to fund themselves versus really where we're coming in and the return on that investment is where, I think, we're struggling the most with regards to how high we’re willing to go. There is a chance. I guess I continue to remain hopeful that promotional costs will level out and eventually come back down. I think we need to see R&R increase in our category, just in general to get consumers out there and get them buying remodeling their kitchen or get back in the home center. Until that happens, it's really hard to predict what promotional costs are going to do, particularly going into the holiday season. I'd like to hope that they don't elevate, but we've not accurately predicted promotional cost for quite some time now to be honest with you. So I can't really give you a solid answer there.

That does conclude today's question-and-answer session. At this time, I’d like to turn the call back over to Mr. Culbreth for any closing remarks. Please go ahead, sir.

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

This does conclude today's conference. Thank you for your participation. You may now disconnect.