Good day and welcome to the American Woodmark Corporation Second Quarter 2018 Conference Call. Today’s call is being recorded, December 1, 2017. Please note American Woodmark’s earnings release and this morning’s presentation, are available on the Investor Relations page of the Company’s website, at www.americanwoodmark.com. 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.

Good morning, ladies and gentlemen. Welcome to American Woodmark’s second 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 will add additional details regarding our financial performance. We’ll then walk through a presentation available on our website regarding a transaction announced this morning. After the presentation, we will be happy to answer your questions. Cary?

Thank you, Scott, and good morning to you all. Certainly an exciting time for American Woodmark and I look forward to presenting the information on the acquisition. But, I would like to begin with our second quarter which ended with mixed results. The quarter proved to be challenging from a revenue perspective with the 4% year-over-year growth. With Florida and Texas being very large operations for us within new construction, we did see an impact from the two hurricanes. Within remodel, we continued to gain share in our over-index and our deal channel, however, home center was hit especially hard by promotional activity. Looking specifically at new construction. For the quarter, we grew our Timberlake business 9%. Sales under-index reported single family starts, driven by the impact of the hurricanes and the increasing delay between starts and closing. Regarding the hurricanes, builders were not only shut down for a period of time, but startups have been delayed with the most visible impact in Florida, one of our largest operations. One key question we’re often asked is if builders would able to catch up in these markets. We continue to work closely with our builders on this very topic, particularly with the year-end approaching from many of them. Although they’re driving hard, the challenge associated with labor shortages remains a key bottleneck. We do expect demand to remain healthy and our Timberlake business to regain prior momentum. The industry as a whole remains very favorable with increasing demand from first time home buyers. Although headwinds remain, we continue to see strengthening in the lower price point, which is very favorable for long-term growth with the new construction and remodel. Taking a look at our dealer channel, we grew the business 11% over prior year. Although the industry is seeing some softening…

The financial headlines for the quarter. Net sales were $274.8 million, representing an increase of 4% over the same period last year. Reported net income was $19.8 million or $1.21 per diluted share in the current fiscal year versus $17.6 million or $1.07 per diluted share last year. For the six months ended October, year-to-date net sales were $551.6 million, representing an increase of 6% over the same period last year. Net income was $42 million or $2.58 million per diluted share in the current fiscal year versus $39.3 million or $2.39 per diluted share last year. For the current fiscal year, the Company generated $41.8 million in cash from operating activities compared to $40.1 million the last year. The new construction market was negatively impacted by two significant hurricanes during the quarter, but 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 13% for the financial second quarter. Single family starts during June, July and August of the prior year averaged 756,000 units. Starts over that same time period from a current year averaged 856,000 units. Completions over that same time period, only averaged 7%, as closings were delayed in the Texas and Florida markets as a result of the hurricanes. We also believe the construction cycle has been extended. And utilizing a 90 to 120-day lag between start and cabinet installation, growth was approximately 10%. Our new construction based revenue increased 9% for the quarter. The remodel business continued to be challenging. On the positive side, existing home sales increased slightly during the third calendar quarter 2017. Between July and September of 2016, existing home sales averaged 5.38 million units; that same period for 2017 averaged 5.39 million units, an increase of…

Thanks again, Scott. So, it’s with great excitement that we announced today that we have entered into a definitive agreement to acquire RSI Home Products Incorporated. As Scott mentioned, we have prepared a presentation that we will walk you through on this call. And as a reminder, the presentation has been posted and is available on our website. As I present, I will call out each slide that I’m referencing to ensure that you can follow along with me. Beginning with slide four, I want to provide a high level summary of industry growth and product and market end-use breakdown. We’ve communicated for some time that we remain very confident future industry growth, both in R&R and in new construction. With single family new construction starts at roughly 850,000, we believe 30 to 40% growth remains, driven heavily by first time home buyers. And although multifamily new construction has leveled out, this is a market in which we have very little share, thus creating a significant opportunity to leverage our builder service platform with a low cost, value-based product. Aging multifamily units also offer opportunity within the R&R space. In addition, as first time home buyers continue to enter both the new construction and existing home markets, we feel this will start to release some of the deferred R&R spending within the home centers and dealers. Bottom line, significant growth remains in our industry as does the opportunity for us to continue to gain share and over-index the overall market. We absolutely remain committed to making smart investments to achieve this goal. Moving to slide five, for over a year now, we have been openly communicating our strategy to expand our positioning into all relevant markets. American Woodmark’s current manufacturing platform is designed to service the middle to higher end…

As Cary mentioned previously, the implied enterprise value for the transaction is $1.075 billion including approximately $346 million in net cash, debt assumed to $589 million and $140 million in American Woodmark common stock. The Company will fund the transaction with cash on the balance sheet and a new $250 million term loan. The Company will also enter into a new $100 million revolving credit facility to replace its existing facility. We do plan to pursue refinance of the second lien notes at the appropriate time. Pro forma net debt to adjusted EBITDA will be three times calendar year 2017 adjusted EBITDA and will reduce to 1.5 times net debt to EBITDA by the end of calendar year 2019 including synergies. Finally, the Company will have approximately $200 million in liquidity at closing. Cary?

Wrapping up on slide 15, I cannot express enough how very excited we are about the strategic alignment. We have been steadfast in our vision and have been patient enough to make the best, long-term strategic decision for our Company, employees and shareholders. Critical to this deal is that we remain true to our culture. Throughout our review of the business, it quickly became evident that our cultures are very aligned and complement each other. RSI is made up of incredible people that truly care about each other in all they do. Both companies have similar backgrounds and were founded with strong values. And I am very excited to be able to lead the combined company well into the future. This deal clearly positions us as an industry leader with greater scale and broad product offering. With the new offering, we will strengthen our existing customer relationships and continue to grow our business well into the future. Although volatile, long-term growth remains within single family new construction, driven by the first time homebuyers. Likewise, within both our home center and dealer channels, we believe the outlook is very favorable as the younger generation continues to enter the remodel market. The RSI platform is well-suited for this growing demand at the lower price point. And as the pro business continues to grow within both home center and dealer channels, the combination of our two platforms will allow us to invest in and further strengthen our positioning and commitment to this business. Lastly, the platform opens the door for us to begin to compete within the multifamily new construction market. Although it accounts for one third of all new construction starts in America, as I stated previously, we have virtually no share. Over time, we firmly believe that this is an underserved market that we can create a clear competitive vantage in by leveraging our national builder centers and RSI’s low-cost, value-based product for a turnkey solution. Operationally, we look forward to sharing best practices across the platforms and strengthening our manufacturing excellence. By bringing together two respected platforms and complementary market segments, we’ll be able to expand our core competitive advantage of offering a superior customer experience. Financially, the combination is immediately accretive to American Woodmark’s margins and earnings per share. Our final message, we wholeheartedly welcome all RSI employees to the American Woodmark family and look forward to growing our business together. This concludes our prepared remarks. We’d be happy to answer any questions you have at this time.

Yes, sir. Thank you. [Operator Instructions] We’ll first go to Nick Coppola with Thompson Research Group.

Hey. Good morning and congrats on the announcement. So, I would just like to dive in on any more color on the strategic rationale. I mean, I saw in the press release a quote that RSI believes they are the lowest cost manufacturer. What does that mean to you and to what extent does that help you in the big box channel where you’ve been more challenged recently?

Yes, really, the full alignment with the strategy that we’ve been openly communicating for some time now. When you think about the shift in the market demographics and the buying power that’s increasing out there with the younger generation, we’re really starting to see that shift down in the price point, as a younger generation both enters new construction, obviously it’s driving a lower price point home as well as the R&R that we feel is coming related to that is also going to be a lower price point. Our challenge is as a manufacturing organization and the footprint that we have is it’s really not designed to serve that market. Running a higher price box on the same platform with a lower price box is very difficult. So, we’ve committed that we’re going to make the investment to get a dedicated platform to service this market. And we’re obviously following parallel paths. We’re working on an internal Brownfield/Greenfield solution or an M&A solution and feel we’re blessed enough to have this M&A opportunity come along with an industry leader in that price point. So, it fits very well, allows us to combine our two platforms, to take our service platform in that low cost platform that RSI offers and really go out now and aggressively pursue that lower cost price point basis, both the new construction and the repair and remodel. Specifically on home center, I think a lot of folks don’t understand the diversity that actually exists within home center. We really see three distinct customers often times that walk in the door. We’re obviously very familiar with serving a special order customer and that baby boomer population has driven that for many, many years now. We feel there’s continued growth in that special order business but that…

That’s fantastic. And then, just a second question here. Can you dive in any greater detail about the $30 million to $40 million of synergies you identified? Is that all cost synergies or are there revenue synergies in there, and just maybe, any more granularity across the buckets that you called out?

Sure, Nick. As we’ve worked through that plan, the bulk of the saving -- or the bulk of that benefit’s going to be driven by incremental revenue. So, the way we’ve modeled it is approximately 75% of the synergies will come from incremental revenue gains and then the remaining 25% is purchasing and manufacturing efficiencies.

Got you. All right. And that is you’re pushing their products through and leveraging I guess your distribution channels. Is that fair way to looking at that?

Correct.

We’ll take our next question from Scott Rednor with Zelman & Associates.

Good morning and congratulations. Cary, first question for you would just be -- and also for Scott, it’s significantly larger deal than I think you were alluding to maybe pursuing. So, I just wanted to -- maybe you guys could give us some clarity, what was unique about this asset that you’re willing to obviously write a bigger check than kind of what a lot of us thought out here?

I think what was fairly well understood and when you get into lower price point market, it’s really driven by lower SKU; very, very high volume operation. So, economies of scale are critical when you get into a manufacturing footprint. So, when you get out and really think about being a proactive, offensive player in that space, economies of scale are very, very important. You think about servicing the home center market and the type platform that you’re required to do that on national level, it really requires high investment. To sort of start from scratch would be very difficult. So, obviously, having this opportunity come along allows us to truly jump in as a real offensive player in this market, fully align and leverage our platform on it. It was too good of an opportunity to pass that, to be honest with you.

And when you think about the -- it seems clear that -- and maybe you could just clarify the biggest revenue opportunity is the push into the new construction from their existing portfolio. Are they seeing -- based on the slides that they’re underway new construction, not just relative to your business but relative to the market. So, how easy or hard do you think about that Cary, when you think about a product that’s maybe not have any new construction? Is that something in terms of timeframe that you could do immediately or is it kind of like what you’ve done on the dealer side where you need to put some cost upfront and over time you could really ramp the gross rate?

Clearly, we need to get in and better understand their platform in much -- great degree. But the good thing is, they do have, as I mentioned, what we call, a value-based stock product that is well suited for the lower price point in new construction as well as leveraging perhaps some of the in-stock product. From a revenue perspective, on the single family side, it’s really no different in the way we operate today. So, it’s not instantaneous. We have to go out and as sub division are bid -- we’ll bid on sub divisions. So that can come in a much quicker rate than say something like a multifamily, which tends to be much longer term, contractual and job based. So, it’s going to take longer term to wrap up the business in that space. But at the same time, we’re not underestimating the R&R side either. I’ve been talking for some time that -- it’s my philosophy, but I think if you really look at the cycle and how we’ve come out of this recession compared to prior recessions, there has been very little move up and move down, and really what’s been missing is that first home buyer. So, that new construction is the kicker. But, I think once that starts to really flow, it’s going to unleash a lot of demand in the R&R; it’s going to be a lower price point. So, we see growth there as well. It’s going to be a longer delay I’ll say compared to the new construction. So, you’re correct. I think single family is our -- most immediate opportunity but both home center and the dealer business offers growth. And we can’t forget too, I mean both of those businesses are heavily involved with new construction. Obviously, the smaller builder and the pro customer on the new construction side is a growing business within dealer and in the home center market that will -- obviously this really provides us opportunity to go after.

And then, just last for me on the -- for the organic business or for the legacy American Woodmark, the revenue growth guidance for the year came down to mid single versus high single. Could I ask you guys maybe talk about that a little bit more by end channel? Do you have an estimate for what the hurricane impact was in the quarter and kind of is the builder business rebounded?

I’ll let Scott jump in on the details with regards to the hurricane. Just a high level with regards to the channels, we’re not going to give tons of details. New construction, what we’ve been communicating, if you take the hurricane out of mix, we do expect it to return to -- consider normalized levels. We’ve communicated that we’re going to continue to over-index but at a lesser rate, gaining share in that market is getting tougher with the core business. Obviously the new platform, we’ll hopefully reverse that, and obviously go out and be aggressive in the lower price point. But on the core side, we’ll continue to over index. And we do expect it to return to more normalized levels, very dependent upon the weather. I mean, when you get into this time of the year and particularly the spring, been very susceptible to the weather. So, pending -- nothing crazy up in the weather, we’re expecting new construction to return to normal -- I’d say higher single digit once again. And the remodel side with regards to dealer, we’ll continue to over index, expect similar performance kind of where we’ve been but slightly over index the market in case you made numbers. Really, the challenge as you know has been in home center. I think we’ve -- I obviously don’t think the promotions can get much higher than what they are; in fact I don’t think it can get really any higher. I think we’re all working together very smartly, i.e. us and -- even competition and the home centers. We all know that’s not really sustainable long-term, and really looking at the business hard. So, we’re trying to be creative. We’re working very closely with our merchants. Obviously, we’re not pleased with the market share loss; that’s a very important business to us. And by no means are we willing to say that we’re not focused on it or walking away from it, just the opposite. So, when I say we’re not willing to promo, it just means we’re spending money but we’re going to be more aggressive in other areas and areas I feel are long term strategic opportunities to get new customers in the door and so forth. So, that’s going to take time. But, honestly, when you’re up against some of the heavy promos that we’ve been facing, there is not much you can do against that. So, if it stays as high as it is, we’re probably going to continue to under index. We don’t expect to have the negative comps like we’ve seen in the past couple of quarters, certainly not our goal, like to get that back up and we’re been aggressive on that, but time is going to tell. We just have to wait and see whether that happens in home enter, knowing that longer term I am very confident, next couple of quarters or so, it is kind of watch and see.

And then, Scott on the hurricanes, it is hard to get to an exact number on that, but our team has done some work. And our best estimate is it’s approximately $2.5 million impact in our fiscal quarter.

Next question comes from Tim Wojs with Baird.

Congratulations. I know you guys have been looking to deploy the capital and nice to see that come to fruition. I guess, just on the -- a clarification question first on the synergies, the 30 million to 40 million. Is that a -- I know you said 75% was revenue base, is that 30 million to 40 million still an EBIT number?

That number would be a -- you could call it an EBIT number, yes.

And then, I guess when we think of the potential purchase price amortization, I know it’s probably hard to figure out right now, it is now close yet. But, any sort of kind of rough work that you’ve done in terms of what that might look like from a amortization perspective?

You’re right. I can’t give you any precise information there. We’ve obviously got work to do between sign and close on that effort. Certainly, you can model it. We’ve done some modeling. And I would just refer you back to Cary’s earlier comment around accretion where we believe will be at least 10 to 20% with that modeled assumption that we’ve got factored in. But we’ll have more detail around that as we get closer to a closing date and can produce the pro formas and give you some context on that.

Okay. And then just looking at that map that you guys had on the -- in the chart in terms of -- there is a fair amount of just facilities that kind of overlap in I think Texas, kind of the Atlanta area and maybe North Carolina. Longer term, as you kind of look at the business, is there an opportunity to do some facility consolidation in your eyes, or is it manufacturing process so much different that it really doesn’t make a lot of sense?

Kind of few aspects, I mean, one, it’s early for us, so we really need to get into working on synergies and footprint so forth. But the map can be a little misleading cause the reality is what you see in Texas for example is our builder centers where they actually have manufacturing there. So that’s actually a plus for us. And then, even when you look across the manufacturing that they have is strictly on I’ll say the low cost in-stock side is very, very different than our manufacturing. So that has very little to no synergies honestly from a what you’re thinking about, certainly synergies from a learning, operational excellence, best practice and so forth but the manufacturing is very distinct.

Okay. And then, lastly, maybe just on the overlap. I think you mentioned in your prepared remarks, but any sort of kind of rough percentages in terms of the home center exposure that you think maybe overlaps in some of the custom order or some of the stock programs?

The good thing is, I mean, if you could see my fingers, it’s miniscule. And that is the best part of this deal as it’s pretty rare in the M&A world you can really go out and take two companies together and truly say that there is virtually no overlap. So, even when you talk about the segment of stock, they really serve that low cost value based customer which we cannot do. Our platform’s not capable. So, you get into a much higher price point with our product. So that is really the best opportunity with this deal is the minimal overlap.

[Operator Instructions] And we next move to Garik Shmois with Longbow Research.

Hey, this is Jeff Stevenson in on for Garrick. First off, congrats on the acquisition. And my first question is, I think, you guys did a great job explaining kind of why you targeted RSI and the benefits moving forward. But, was there a reason that you decided to go this route than say getting more concentrated in the dealer channel?

Yes, this is setting the game really. We have interest in both. And don’t underestimate, I think the dealer channel, often times, people are merely down to the fact that you have to have a really high end product to service the dealer channel. When you really look at what we call dealer distributor out there, there is a lot of volume that’s at a lower price point, really what we call the megadealers or a lot of the chain stores out there or you could get into lumberyards and so forth that are really in a much more value based pro category. So, we’re not ignoring dealer with this. In fact, our dealer channel is very happy with this acquisition and the opportunity to expand the business. It was just a matter of priority for us and the context that I provided, really I provided for some time now as you think about the entry level price point home buyer and concentration how it’s growing. We have to and obviously would always continue to service that market, just because we service the top builders in the country. They’re not going to allow us to cherry pick, nor do we want to. We have to be a full service provider for the top builders. So, as they started to move down on price point, we were going to move with them and unfortunately not having a lower cost product would have been detrimental to our margins. So, this has been our key focus, initially when we talked about expanding, was really going to have to have lower cost price point, not only from a growth perspective, but also from a margin perspective and allow us to continue to grow.

Got it. And just a clarification question on the $30 million to $40 million in synergies. That will become annual after three years. And I was wondering up until then, how would that be split over the three-year period. Do you have any more color on that?

It will be phased in, but I don’t really have any additional color to add at this time.

Okay. And then, is there going to be any step up in DD&A from the purchase?

I’m sorry, step up in the…?

Depreciation?

Yes. That’s a similar question to Tim’s earlier. So, we’ve got work to do around valuation and purchase accounting treatment. And there’s nothing that I can really share at this point in time. We’ve got to get through that work between now and closing.

As I do not see there anyone else’s questions waiting to be asked, then I’d like to turn the line back over to Mr. Culbreth for any closing comments. Please go ahead, sir.

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

Thank you. Ladies and gentlemen, that does conclude today’s conference. We thank you for your participation. And you may now disconnect.