Operator: Good morning. My name is Paulie, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's Second Quarter Fiscal Year 2024 Earnings Conference Call. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. Thank you. You may begin.

Matthew Kline: Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO; as well as David Johnson, Chief Financial Officer. We will take your questions after comments by Bill and David.

I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

In addition, any reference in our discussion today to EBITDA means adjusted EBITDA. And any reference to EPS or adjusted EPS means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill.

William Waltz: Thanks, Matt, and good morning, everyone. Starting on Slide 3, we are pleased with our second quarter performance. While organic volume was down 1% year-over-year, volume is up 6% year-to-date, closing out a strong first half of the fiscal year. Our net sales were in line with our initial projections and adjusted EBITDA and adjusted diluted EPS both exceeded the top end of our outlook we presented back in February.

We continued executing on our capital deployment strategy during the quarter, ending the first half of fiscal 2024 with $150 million in share repurchase and more than $70 million deployed for capital expenditures. I'm also proud to highlight the payment of our first quarterly dividend during the second quarter. As we near the end of our previously approved 1.3 billion share repurchase authorization, I'm pleased to share that our Board of Directors has authorized a new $500 million buyback program, which will be available upon the completion of our existing plan.

Additionally, during the quarter, Fitch Ratings moved Atkore into the prestigious investment-grade status. This destination reflects Atkore's operating profile, financial flexibility and our commitment to a balanced capital deployment strategy.

At the halfway point of our fiscal 2024, I'm pleased with the results we've been able to achieve. As we look forward to the second half of the year, we are amending the midpoint of our adjusted EBITDA outlook by $50 million to $875 million. While we remain enthusiastic about our long-term view of our HDPE and solar initiatives, we are reducing our near-term growth expectations. Despite challenges in those 2 areas, we are within our expectations of the pricing normalization topic.

Despite the near-term challenges to growth in the overall construction market, we remain confident in our diversified product portfolio, as it is unmatched across the market and positions us well to capitalize on the secular tailwinds of the energy transition and expansion of digital infrastructure over the long term.

With that, I'll turn the call over to David to walk through the results from the second quarter.

David Johnson: Thank you, Bill, and good morning, everyone. Moving to our consolidated results on Slide 4. In the second quarter, net sales were $793 million, and adjusted EBITDA was $212 million. We delivered a strong adjusted EBITDA margin of over 26%, which was in line with our performance in the first quarter. Our tax rate in the core was approximately 19%, which benefited from both stock compensation and the impact of the solar tax credits.

Turning to Slide 5 and our consolidated bridges. Our volume in the quarter was down 1% compared to the prior year, while net sales were at the midpoint of our guide. Despite lower volume, EBITDA was up $5 million due to overall favorable mix.

We continue to experience pricing normalization that was discussed in previous quarters. Our second quarter results were in line with our expectations, both sequentially and from a year-over-year perspective. Within our other portion of the EBITDA bridge, we saw overall improved plant productivity.

Moving to Slide 6. Our year-to-date volume increased 6% compared to the prior year with contributions across the portfolio.

Turning to Slide 7. Both segments had strong EBITDA margin performance in the second quarter. Our Electrical segment achieved 33% on essentially flat net sales sequentially to the first quarter. Our S&I segment EBITDA margins rebounded from the first quarter to over 12%. This improvement is due in part to better operational performance at our Hobart, Indiana facility.

Turning to Slide 8. We continue to execute our capital deployment model, supported by robust cash flow generation. Due to the strength of our balance sheet, we have flexibility to deploy capital in multiple ways in order to deliver value for our shareholders. With that, I'll turn it back to Bill to talk through some updates relating to our FY '24 outlook.

William Waltz: Thank you, David. Turning to Slide 9. I want to provide an update on 2 of our category expansion initiatives.

Our investment in HDPE is one of several growth initiatives that have long-term positive impacts for Atkore. During the first quarter, we discussed the demand for HDPE telecom-related products is challenged as the industry works through the excess inventory and awaits the rollout of government stimulus funding related to broadband investments.

Despite these current headwinds, we are optimistic about the fundamentals and long-term positive prospects for this business. We continue to make progress on our production output of solar torque tubes from our Hobart, Indiana facility.

Although our current and projected output levels are trailing our previous expectations, we continue to grow this product offering and remain confident that our capital investments position us well to participate in solar-related secular tailwinds.

Turning to Slide 10. Our updated fiscal year 2024 outlook reflects the impacts from both HDPE and solar. Overall, net sales are down slightly from our previous guide due to the continued HDPE market challenges and the delayed ramp-up of our solar torque tube facility. Overall, adjusted EBITDA is down $50 million from our previous guide.

We have reduced our expectations by HDPE and solar by $80 million, which is partially offset by strong performance in other electrical product lines and a reduction in overall corporate spending. Improvements in our interest expense, tax rate and reduced share count have resulted in an EPS midpoint of $16.50, which is the same as our original FY 2024 projection.

We continue to expect the electrical portfolio to have a stronger back half of the year compared to the first half of the year due to seasonal impact from the spring and summer construction season and have included this assumption in the updated outlook. If activity does not pick up as anticipated, the pricing environment could be challenged in the second half of 2024.

As we discussed during our first quarter call, we expect adjusted EBITDA to improve sequentially from Q2 to Q3 and then from Q3 to Q4.

Taking a step back, while we have some items to address as we progress through the year, our solid performance in the first half of our fiscal year reinforces our confidence in our ability to build on the momentum in the second half of the year and beyond.

On Slide 11, we've updated each of our key bridging assumptions when compared to fiscal year 2023 and our expected 2024 results. We expect a higher incremental margin on our volume as we have a very strong first half of the year fiscal '24.

We've updated the price cost assumption to a midpoint of $275 million unfavorable impact versus our original projection of $250 million. This shift is entirely due to HDPE.

We have not adjusted our FY '24 assumptions versus the overall expectation we presented in November 2022 that approximately $585 million of elevated earnings would continue to normalize over a multiyear period. Given the challenges to HDPE and solar in FY 2024 are primarily timing related, we remain confident in our ability to deliver $18 EPS in our fiscal 2025.

I'm incredibly proud of the team, strategy and processes we have in place and believe we are well positioned to achieve our long-term goals. With that, we'll turn it to the operator to open the line for questions.

Operator: Thank you. [Operator Instructions] And your first question comes from the line of Chris Moore from CJS Securities.

Christopher Moore: I was wondering if you could bridge or even just roughly bridge the $18 adjusted EPS in '25 to the $16.50 in '24, just price or volume? Is it really just -- it's HDPE and solar torque are going to be the big drivers. Just any thoughts there.

David Johnson: Yes, Chris, we haven't given a specific bridge, but I think it's pretty logical when you sit and look at where we are with HDPE and solar. And we said that in this year negatively impact $80 million, you can assume that, that would turn in the other direction and then even grow beyond that.

So there, you have a pretty nice positive impact, we believe. We also believe we're going to have a nice impact due to continuation of our large project business, which we're quoting quite a few opportunities this year that we think will manifest itself next year.

And then we would expect some help from the overall market. We offset some of that with continued the reduction of our price cost kind of the last year, we think of that year-over-year impact.

And then probably a little bit of favorability on the productivity. And if you add all that up, you're talking the $16.50 to $18 plus.

Christopher Moore: Got you. I appreciate it. Very helpful. Maybe just on the solar torque manufacturing. Can you separate kind of your -- some of your manufacturing challenges from what you're seeing in the overall market, what the lead times look like? Is domestic capacity meeting demand?

William Waltz: Yes. I think, Chris, the markets are still strong. They are out there. It's really us fine-tuning equipment. Let me just give a sound bite, probably deep diving, but if anyone thinks, "Oh, you just buy a set of equipment," just imagine one component like the saw that cuts the tubes. This pipe is flying down torque tubes with high precision at several hundred feet a minute, the saw has to go with it. It has to cut within 1/10 inch of tolerance. So obviously, with no burrs.

Make that happen, and also at different speeds, different diameters. And then just God forbid that over time, the tolerance uses because of the rattling and you have to take the machinery down for 3, 4 days to redesign, so it maintains its tolerance. It's just working through those things.

But the end markets are there, the customers are there. Our relationships are there. So just as we fine-tune things like that, that we don't expect to repeat in future quarters. One example is what gives us confidence in the future in that area.

David Johnson: And Chris, I probably should mention one other element, obviously, in the bridge, would be our capital deployment, which we've been pretty robust about. And you can see what we're implementing this year, and we would expect similar levels next year.

Christopher Moore: Got it. I appreciate that. I will leave it there.

William Waltz: Thanks, Chris.

Operator: Your next question comes from the line of Andy Kaplowitz from Citigroup.

Andrew Kaplowitz: David, can you give more color into your visibility into the recovery in HDPE? First of all, how big is HDPE right now as a percentage of Atkore sales? When do you think the channel will normalize?

And while I think we understand the volume component of the pressure on your guidance, is the price versus cost pressure that you have solely because of HDPE? I think you kind of suggested that, but anything else you're seeing across the portfolio?

William Waltz: Yes. So I'll defer to David on if we get that specific on the size. But the markets, Andy, if I hit all your questions here, definitely. So I think you know that. You can see it whether it's people that make the fiber optic, whether it's other manufacturers that are public, whether it's distributors after us that have commented. The markets are slower, like everybody walked in saying it would start to come up at the end of this year. People are still thinking that and saying that, but the markets this year are actually slower than last year, and that we did not assume in our guide or original estimates and so forth.

And then with it, Andy, yes, we're seeing pricing go down, which is not a new phenomenon for Atkore or any of our competitors. When volumes are slower, people are more apt to drop price to try to fill up their factory and so forth. So hopefully, as we go into next fiscal year, both the volume should pick up, and therefore, the pricing and spreads should pick up.

David Johnson: Yes. And the only thing I would add, Andy, is when we went into this year, we said we did not count on much on HDPE in our original guide. And we said that was mainly an FY '25 story. And we still believe that. But what we didn't anticipate was that the business would actually be worse year-over-year. So we had kind of penciled in a similar level of performance in FY '24 versus '23. And it's just not the case right now. And here we are over halfway through our fiscal year.

I know others might have had a different opinion they say later in their year, but they typically mean their calendar year, not our fiscal year. So I think it's just getting to the point where we think the performance, although perhaps maybe getting a little bit better going into the summer and so on and so forth, it's just not going to be enough to make up kind of where we are in the year.

Andrew Kaplowitz: Got it. And then could you elaborate on what you're seeing in your core PVC products markets? In your presentation, I think you mentioned strength from nonelectrical PVC products. Could you elaborate on what that means? And can you help us size -- obviously, everybody is talking about data centers these days. How that might help Atkore, how big a market that could be for Atkore moving forward?

William Waltz: Yes. Well, I'll do a couple here, Andy. The overall markets right now are probably light. In other words -- and again, you're seeing this, like whether you listen to distributors or other people in the commercial industrial, and that shouldn't be a surprise. We're growing faster than the market, back to the 6% year-to-date.

And a lot of this is our self-help. For example, in PVC, we specifically also call out products outside of electrical. If you go back to previous decks, where some of our growth initiatives like the global mega projects that David referenced and also with PVC expanding beyond our core markets are definitely helping us grow faster than the market.

And then for large projects, David referenced, there's a lot going on. That shouldn't be a surprise to anybody, whether it's people trying to build things for artificial intelligence and any other type of chip manufacturer out there, data centers out there. It's a booming market, and we do have a reasonably good backlog of projects that as we -- again, David answered to the question with Chris, what gives us comfort to bridge the $16.50 to the $18, that's one of several levers out there that we see playing out well for us.

Andrew Kaplowitz: And then, Bill, just a final quick follow-up. I just want to go back to your comment that if you talked about spring and summer activity in the electrical space. If it doesn't pan out, pricing could be impacted. I guess why did you say that? Are you seeing something on the volume or pricing side that concerns you at this point?

William Waltz: Yes, I'll start but David -- no, I think right now, things are playing out as expected. So there's no foreshadowing, but on the flip side here, one of the things I know David always references that's tougher for us is I'd love to be that corporation that has a year of backlog and it's just when do I ship it, versus we are a company with 2 weeks of backlog or less -- so trying to project out 5 months from now and how dynamics.

But right now, things are exactly playing out as we expected, whether both at the HDPE and bringing up Hobart and/or to the point, David, I think in our prepared remarks -- Andy, sorry, is the whole thing of, hey, if it wasn't for the $80 million of HDPE and solar, we'd be on our estimates and are above our estimates, including kind of the price spreads. We have products that are gaining price year-over-year as we speak. So things are moving basically as we projected a couple of, quite frankly, 2 years ago when we originally gave estimates.

David Johnson: Yes. Andy, I would just add to those comments regarding -- we have the 2 weeks visibility. But also typically by now, you would start to see more construction activity. I just think that, that's a little bit slower than what we had expected. But when you step back and you look at the fact that construction employment in non-res is still up over 3% year-over-year. So I think that's a positive. And the fact that contractors still have backlog that's over 8 months.

So again, these typical indicators we use are positive. It's just we need to start seeing the actual activity pick up going into the building season.

Operator: Your next question comes from the line of Deane Dray, RBC Capital Markets.

Deane Dray: Thank you. Good morning, everyone. Can we circle back on Hobart? Just -- and Bill, you gave some good specifics about some of the ramp challenges. Can you give us kind of a bigger picture in terms of what the volume or the output at the plant was in the quarter versus your expectations? So I don't know if you do it by linear feet, I don't know if you do it by pounds, but just kind of, "Hey, we expected to have ramped this much and our output was actually this." So just kind of frame that for us?

William Waltz: No, the only thing, Deane, we don't give -- I prefer not to just because then you get into every quarter by factory, saying "What's our production?" and even for our competitors. What I would tell you is Hobart is a very large facility. I mean I think there's pictures in our stack that we can share that would significantly increase our metal tons for all of Atkore.

And while it's not hitting our production levels, if you go back to one of the pages where we bridge, I'm trying to see which one, Page 6, mechanical tube overall is still up double digits year-over-year. So again, it's a large mover, but again, if we estimated whether it's bringing that evening shift on, whether it's taking the machines down for 4 days unplanned for preventive maintenance to make sure we keep the tolerances, a couple of things like that, just even the 4 days when you look and say, "Hey, in a 60-day work week in a quarter (slightly more than that), that's a big needle mover here for us.

So -- but again, Deane, as I mentioned earlier, things like that. We have poka-yoked the process and plan to continue to see the output increase. It's just a question, is it playing out more for FY '25 than we estimated in FY '24?

Deane Dray: Okay. That's helpful. And if we just think a bigger picture regarding pricing being better than we had expected or not down as much versus expectation, but a volume shortfall, was there any bias this quarter to hold on price at the expense of volume? I know it's hard to aggregate across the products, but was there any bias there?

William Waltz: I don't know about that, but I think we're -- a couple of things, Deane. We're always conscious of that as a market leader to go, "Hey, can we go out with almost any customer that would probably prefer us for lots of reasons and gain volume?" And we don't want to do that.

Flipside is we -- at least I think we did a good job for the specific quarter. And I think in our prepared remarks, mentioned, if you go back to the January call, they're going, "Hey, just first quarter -- our fiscal first quarter was strong," because we did have 2 customers pull in orders at rebates that we allowed. In January, I hope I never talk about the weather again, was light.

So us lining up 6% year-to-date, I would bet for our market segments, i.e., commercial, industrial and things like that, I'm pretty confident is much quicker or higher than what the market is growing.

So again, the business plans work and we're still locked on the $18 EPS. We're driving ahead and we just had these 2 short-term things that quite frankly are short term. So I'm in a good spot right now in my mind.

Deane Dray: All right. That's good to hear. Just last one from me, since we get this question a lot recently. Can you comment on the significance of any imports of conduit? We know that just the product physical dynamics do not lend itself to economical cargo shipments. But there still seems to be a very small presence of imports. Can you just comment on that, where and how it plays out?

William Waltz: Yes. So great question. Without getting product by product, it does vary. But to give you like things, it goes from 0% with some products to 3%. And then, by the way, do you add Canada in there? You're talking non-Canada and U.S. -- those type of things, but goes from 0% to 3% to the highest I'm aware is around 20%. And then it just gets to preference.

We can obviously -- I say obviously, but have a price premium, both for our reputation, our quality, our ability to ship. And then we're also seeing, in some cases, some products coming in that don't need every product specification. So that's starting to go "Yep, you saw it, and now you're not seeing it nearly as much."

So again, Deane, I think good question, but we keep back to our earnings guide, what we expected. We're running our game plan, and quite frankly, I think it's going well.

Deane Dray: Good. And just to clarify on that import question, is it the same that it's been for the past couple of years? Has it gotten bigger?

William Waltz: I think it varies. Like this year may be slightly up, but then 2023 was down compared -- our fiscal year '23 compared to '22. So it almost varies then, Deane, to go "You're talking in the last 3 months, you're talking year-over-year."

So the trend, Deane, I think, in the last 5 years, to be totally honest, because Atkore is making more profits, it allows somebody that does not have any better cost position (to my knowledge -- I'm not working on their books). But it does allow with us raising and our competitors raising market price for somebody to opportunistically come in.

So there has been a trend there. But it's not -- again, it's more on -- the things we discussed here. Let's get Hobart running smoothly. Let's get the DEEDS Act moving. Let's continue to act on our global mega projects, our delivery, our productivity. Let's use our excess cash to continue buyback shares and I'm comfortable with where we're taking the corporation.

Operator: Your next question is from the line of Chris Dankert from Loop Capital Markets.

Christopher Dankert: I guess, to focus in on the HDPE, I guess, just to be clear, as far as the guide goes, are we assuming a stabilization at current order rates and activity levels? Or does the guide assume some incremental fall off in the back half of the fiscal year improvement, just to kind of level set what is baked into the guide?

And then just what's giving you confidence from an order rate or customer activity perspective on an HDPE hitting that expectation?

David Johnson: Yes, Chris. So I would say that the back half of the year would be slightly better than the first half of the year would be what's in the guide. And I'd say that's supported by some uptick in current order rates.

William Waltz: But not sizable. This is not --

David Johnson: It's modest.

Christopher Dankert: Got you. Okay. That's helpful. I'm glad to hear that. And then, again, I know you mentioned in the past, destocking is pretty well behind us. Is that still the view? Are we still seeing incremental destocking? Was there anything to call out in the quarter or kind of looking forward here?

William Waltz: No, I think great question, Chris. The only thing I would say is, year-to-date, HDPE had destocked -- that was a new thing, again, that no one expected a year ago. But otherwise, we do -- well, we're always out with customers, but channel checks. And a lot of people because of the lighter economy or even cutting inventories more -- we were on with a customer last week that was talking about how they may take down 2 days. But basically, it's level loaded, I think, across the market.

Christopher Dankert: Got it. Well, I'll leave it there and thank you so much for the detail.

Operator: Your next question is from the line of Alex Rygiel from B. Riley.

Alexander Rygiel: A couple of quick questions here. When you look at your sales bridge, when might we anticipate price to be more neutral on a year-over-year basis?

David Johnson: I would say probably more so -- a couple of things I'll answer. If you look at our guide even for this year on an EBITDA basis, the implied midpoint of Q4 would be fairly flat with Q4 of last year. So that would be more or less the quarter where EBITDA would be flat.

Now you're still going to have some pricing year-over-year down and some volume up. I would say pricing -- now again, sales in total, including what happens with commodities because that also does impact our top line, is probably more of a Q1, Q2 next year.

Alexander Rygiel: That is helpful. And then as it relates to large project opportunities, can you talk about how you see that sort of sequentially progressing over the next couple of quarters?

And maybe not so much identify specific projects but identify specific sort of end markets that you see as being the biggest catalyst. Clearly, there's a lot of talk about AI data centers. But if you could expand upon that.

William Waltz: Yes. I think great question, Alex. It will expand into mostly an FY '25 and beyond story. So again, the orders are coming in now. We do have orders now, and we're shipping orders now. So this isn't a totally new thing, but we're dramatically increasing our team. We're doing things called off-site manufacturing. So partnering with some of the very largest names, you can imagine, like in the Magnificent 7 right now, where we're going to assembly offline and then providing them the products.

And as you mentioned, I think if I had to pick 2 areas, it's both chip manufacturers and then it's also data centers themselves. And it's across the world, mostly U.S. story, but we do have operations where customers have taken us and said, "Hey, you did such a great job in this specific city and said, would you work with us in different areas in Europe?" for example?

Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks.

William Waltz: Thank you. Let me take a moment to summarize my 3 key takeaways from today's discussion. First, volume is up 6% year-to-date, and we expect mid- to high single-digit volume growth for FY 2024. Second, we continue to execute our balanced capital deployment model with over $150 million in share repurchase year-to-date. Third, with a great team, market-leading product portfolio and strategy supported by strong secular tailwinds, we are excited about what the future holds for Atkore.

With that, thank you, as always, for your support and interest in our company. We look forward to speaking with you during our next quarterly call. This concludes the call for today.

Operator: This concludes today's conference call. Thank you for joining us. You may now disconnect.