Q1 2024 The AZEK Company Inc Earnings Call

Operator: This is a test. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Eric Robinson. Please go ahead, Eric.

After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to Eric Robinson. Please go ahead Eric.

Eric Robinson: Thank you and good afternoon. We issued our earnings press release and a supplemental earnings presentation this afternoon on the investor relations portion of our website at investors.azekco.com. The earnings press release was also furnished via 8K on the SEC's website. I'm joined today by Jesse Singh, our Chief Executive Officer, and Peter Clifford, our Chief Operations Officer and Chief Financial Officer. I would like to remind everyone that during this call, we may make certain statements that constitute forward-looking statements within the meaning of the federal securities laws, including remarks about future expectations, beliefs, estimates, forecasts, plans, and prospects. Such statements are subject to a variety of risks and uncertainties, as described in our periodic reports filed with the Securities and Exchange Commission, that could cause actual results to differ materially. Additionally, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. These non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAP.

Eric Robinson: Thank you and good afternoon, everyone.

Eric Robinson: We issued our earnings press release, and a supplemental earnings presentation. This afternoon to the Investor Relations portion of our website at investors that as a co dot com. The earnings press release was also furnished via an 8-K on the Sec's website.

Eric Robinson: I'm joined today by Jessie Zheng, our Chief Executive Officer, and Peter Clifford, Our Chief Operations Officer, and Chief Financial Officer.

Eric Robinson: I would like to remind everyone that during this call. We may make certain statements that constitute forward looking statements within the meaning of the federal securities laws, including remarks about future expectations beliefs estimates forecasts plans and prospects.

Eric Robinson: Such statements are subject to a variety of risks and uncertainties as described in our periodic reports filed with the Securities and Exchange Commission that could cause actual results to differ materially.

Eric Robinson: We do not undertake any duty to update such forward looking statements.

Eric Robinson: Additionally, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. These non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Jesse Singh: Reconciliations of such non-GATT measures can be found in our earnings press release, which is posted on our website. Now, let me turn the call over to Azek's CEO, Jesse. Good afternoon, and thank you for joining us. The AZAC team once again delivered strong results in our 2024 fiscal first quarter, including an 11% net sales increase year over year. Excluding the recently divested Vycom business, net sales increased 22% year over year, driven by strong residential performance. Adjusted EBITDA grew substantially year-over-year, and adjusted EBITDA margin expanded 16 percentage points to 23.2 percent, driven by strong gross margin performance and more normalized production. One of our core values is that the best team wins, and we believe that our success is driven by having the best employees and partners in the industry.

Eric Robinson: Reconciliations of such non-GAAP measures can be found in our earnings press release, which is posted on our website.

Eric Robinson: Now, let me turn the call over to ASIC CEO Jesse thing.

Jesse: Good afternoon, and thank you for joining us the APAC team once again delivered strong results and our 2020 for fiscal first quarter, including an 11% net sales increase year over year.

Jesse: Excluding the recently divested Viacom business net sales increased 22% year over year, driven by strong residential performance.

Jesse: Adjusted EBITDA grew substantially year over year, and adjusted EBITDA margin expanded 16 percentage points to 23, 2% driven by strong gross margin performance and more normalized production levels.

Jesse: One of our core values is that the best team wins and we believe that our success is driven by having the best employees and partners in the industry.

Jesse Singh: I want to take a moment to thank all of our expanded team members and partners for their dedicated and committed focus on delivering the best experience for our customers. We continue to see strong contractor and consumer demand for our products, and our increase in sales was driven by double-digit residential sell-through growth. Residential segment net sales increased 24% year over year, and segment adjusted EBITDA increased 430% year over year. Residential segment Adjusted EBITDA now includes the residential business and all corporate costs and highlights the strong performance of the core business excluding our commercial segment.

Jesse: I wanted to take a moment to thank all of our expanded team members and partners for their dedicated and committed focus on delivering the best experience for our customers.

Jesse: We continue to see strong contractor and consumer demand for our products and our increase in sales was driven by double digit residential sell through growth.

Jesse: Residential segment net sales increased 24% year over year and segment adjusted EBITDA increased 430% year over year.

Jesse: Residential segment adjusted EBITDA now includes the residential business and all corporate costs and highlight the strong performance of the core business, excluding our commercial segment.

Jesse Singh: Within the quarter, the residential segment saw strong growth in deck, rail, access, and Xteriors products. We experienced growth in both our residential pro and retail channels as we benefited from the execution of our initiative. We also saw strong interest in opening orders for our new products, including our new TimberTech Framing Aluminum Substructure Solution.

Jesse: Within the quarter the residential segment saw strong growth in deck rail accessory.

Jesse: And exteriors products, we experienced growth in both our residential pro and retail channels as we benefited from the execution of our initiatives.

Jesse: We also saw strong interest in opening orders for our new products, including our new timber tech framing aluminum substructure solution.

Jesse Singh: During the quarter and over the last year, we believe the strength of our business model combined with ongoing material conversion away from wood has supported our above-market performance in both our exteriors and outdoor living product categories. In the last 12 months, our residential segment has grown 12% year-over-year, which has been driven by in-market demand for our products. Like Q4 of 2023, we are seeing the cumulative and structural benefits of the actions we have taken over the last few years during significant market and supply chain volatility. We have systematically gained shelf position in the professional and retail channels, launched innovative new products, invested in our brand, and added strategic acquisitions that have led to a stronger position in the market and increased our capability to drive above-market growth.

Jesse: During the quarter and over the last year, we believe the strength of our business model combined with ongoing material conversion away from wood has supported our above market performance in both our exteriors and outdoor living product categories over the last 12 months, our residential segment has.

Jesse: Growing 12% year over year, which has been driven by end market demand for our products.

Jesse: Like Q4 of 2023, we are seeing the accumulative and structural benefits of the actions we have taken over the last few years during significant market and supply chain volatility.

Jesse: We have systematically gain shelf position in the pro and retail channels launched innovative new products invested in our brand and added strategic acquisitions that have led to a stronger position in the market and increased our capability to drive above market growth.

Jesse Singh: We have also increased the use of recycled materials, aggressively used our ASEC integrated management system to improve our efficiency, price to offset supply chain issues, and improve our product design, all leading to our expanded margins. As we highlighted at our Investor Day in 2022, we believe that we have an opportunity to increase our adjusted EBITDA margin percentage by 500 basis points to 27.5% through our. However, the progress of these margin initiatives was masked by the combination of supply chain issues and a meaningful reduction in factory utilization during the first nine months of fiscal 2023 as we managed down inventory. After multiple years of supply chain disruption, and a year of inventory recalibration in our channel and within our business, we have now returned to a more traditional operational model.

Jesse: We have also increased the use of recycled materials.

Jesse: <unk> used our <unk> integrated management system to improve our efficiency.

Jesse: <unk> to offset supply chain issues and improve our product design, all leading to our expanded margins.

Jesse: As we highlighted at our Investor day in 2022, we believe that we have an opportunity to increase our adjusted EBITDA margin percentage by 500 basis points to 27, 5% through our initiatives.

Jesse: The progress as these margin initiatives was masked by the combination of supply chain issues and a meaningful reduction in factory utilization during the first nine months of fiscal 2023, as we manage down inventory.

Jesse: After multiple years of supply chain disruption and a year of inventory recalibration in our channel and within our business. We have now returned to a more traditional operational cadence.

Jesse Singh: We believe that we are now in a good position to sustain our gains and continue future progress through our margins. We have invested in and will continue to invest in our core strengths of research and development. Brand Awareness, Customer Relationships, and our world-class manufacturing operations. We are in the process of completing a new manufacturing facility outside of Pittsburgh that will increase our exterior business capacity and allow us to expand our product offering. We are also making incremental investments in each of our facilities to allow us to expand the use of recycled materials and accommodate new products on our roadmap that will support future growth. At the upcoming 2024 International Builders Show, we will showcase a broad range of our products in an interactive format.

Jesse: We believe that we are now in a good position to sustain our gains and continue future progress through our margin initiatives.

We have invested and will continue to invest in our core strengths of research and development brand awareness customer relationships and our world class manufacturing operations.

Jesse: We are in the process of completing a new manufacturing facility outside of Pittsburgh that will increase our exteriors business capacity.

Jesse: And allow us to expand our product offerings.

Jesse: We are also making incremental investments in each of our facilities to allow us to expand the use of recycled materials and accommodate new products on our road map that will support future growth.

Jesse: At the upcoming 2024 International Builders' show, we will show a broad range of our products and an interactive format.

Jesse Singh: At the show, our TimberTech Advanced PVC Decking is being recognized as a Best of IBS Awards finalist in the Most Innovative Building Materials category based on its innovation, functionality, sustainability, design, and builder and consumer-friendly features. This product line uses a high percentage of recycled PVC and is one of the only decking products on the market that has a class A or very high fire rate.

Jesse: At the show our timber Tech advance PVC decking is being recognized as a best of Ibs Awards finalist in the most innovative building materials category based on its innovation functionality sustainability design and builder and consumer friendliness.

Jesse: This product line uses a high percentage of recycled PVC and it's one of the only decking products on the market that has a class a or very high fire rating. It reinforces our position as the number one brand in premium decade, driven by our proprietary products that provide unique.

Jesse Singh: It reinforces our position as the number one brand in premium decking driven by our proprietary products that provide unique solutions to aesthetic and functional problems. From a channel perspective, we exited the fiscal first quarter with channel inventory lower than historical averages and the previous year based on days on hand. We only ship product during the quarter to sustain the current demand in the market.

Jesse: <unk> solutions to aesthetic and functional problems.

Jesse: From a channel perspective, we exited the fiscal first quarter with channel inventory at lower than historical averages and the previous year based on days on hand, we only shipped product during the quarter to sustain the current demand in the market and as always we worked with our channel partners to ensure.

Jesse Singh: And, as always, we worked with our channel partners to ensure high service. During the quarter, we negotiated most of our dealer agreements for calendar 2024, including shelf position, pricing, and expectations for future orders. We once again had a successful process and have incrementally expanded our position in the pro-channel market. These shelf gains and subsequent pre-season or early buy orders started shipping in fiscal Q2. As we look to the remainder of the year, we continue to be both optimistic and cautious about the upcoming season.

Speaker Change: Sure High service levels.

Speaker Change: During the quarter, we negotiated most of our dealer agreements for calendar 2024, including shelf position pricing and expectations for future orders.

Speaker Change: We once again had a successful process and have incrementally expanded our position in the pro channel market.

Speaker Change: These shelf gains and subsequent pre season or early buy orders started shipping in fiscal Q2.

Speaker Change: As we look to the remainder of the year, we continue to be both optimistic and cautious about the upcoming season.

Jesse Singh: Year-to-date, we have had strong double-digit sell-through growth in our residential business, and we feel good about the progress we've made in establishing ourselves in preparation for the normal increase in seasonal demand. We think it's prudent to assume a flattish R&R market moving forward and have incorporated that into our 2024 outlook. We ended Q1 at meaningfully lower channel inventory levels than the historical average.

Speaker Change: Year to date, we have had strong double digit sell through growth in our residential business and we feel good about the progress we've made in establishing ourselves in preparation for the normal increase in seasonal demand.

Speaker Change: We think it's prudent to assume a flattish R&R market moving forward and have incorporated that into our 2020 for outlook.

Speaker Change: We ended Q1 at meaningfully lower channel inventory levels than the historical average our Q2 revenue guidance assumes a normal spring buying process for our channel and includes the outcome of our spring negotiation.

Peter Clifford: Our Q2 revenue guidance assumes a normal spring buying process for our channel and includes the outcome of our spring negotiations. Our channel and our contractors are incrementally more positive, and we continue to have more confidence and visibility into our margins. We are raising our fiscal 2024 outlook for the year, driven by the demand we have experienced year-to-date combined with our expectations that our adjusted EBITDA margins will range between 25.5 percent and 26.1% for the year. We remain confident in our ability to deliver our short and long-term ambitions as we continue to execute our overall strategy. 2024 will be another step in the journey of realizing our potential as a business. I will now turn the call over to Peter to provide some additional context on our financial results and our outlook. Thanks, Jesse, and good afternoon, everyone.

Speaker Change: Our channel and our contractors are incrementally more positive and we continue to have more confidence and visibility to our margins.

Speaker Change: We are raising our fiscal 2020 for outlook for the year driven by the demand we have experienced year to date.

Speaker Change: Bind with our expectations that our adjusted EBITDA margins will range between 25, 5% and 26, 1% for the year.

Speaker Change: We remain confident in our ability to deliver our short and long term ambitions as we continue to execute our overall strategy.

Speaker Change: 2024 will be another step in the journey of realizing our potential as a business.

Speaker Change: I'll now turn the call over to Peter to provide some additional context on our financial results and our outlook.

Peter Clifford: Thanks, Jessie and good afternoon, everyone as Erik highlighted at the beginning of the call. We have uploaded a supplemental earnings presentation on the Investor relations portion of our website.

Peter Clifford: As Eric highlighted at the beginning of the call, we have uploaded a Supplemental Learnings presentation to the Investor Relations portion of our website. Before we get into the first quarter results, I wanted to provide some context on first quarter demand. First on sell-through, consistent with last quarter, we continue to experience strong double-digit sell-through growth in fiscal 1Q24. This is the result of continued execution of the ASEC growth playbook, including downstream material conversion initiatives, channel expansion efforts, new product development, and shelf space gain. We ended the quarter with channel lamentories down approximately 20% versus the historical average days on hand. Consistent with past quarters, we surveyed a broad base of our professional contractors and dealers to understand the environment on the ground. What we learned is that demand indicators and sediment remain steady in the quarter.

Peter Clifford: Before we get into the first quarter results I wanted to provide some context on the first quarter demand.

Peter Clifford: First on sell through consistent with last quarter, we continued to experience strong double digit sell through growth in fiscal <unk> 24.

Peter Clifford: This was the result of continued execution.

Peter Clifford: The Asia growth playbook, including downstream material conversion initiatives channel expansion efforts, new product development and shelf space gains we ended the quarter.

Peter Clifford: With channel inventories down approximately 20% versus the historical average days on hand consistent.

Peter Clifford: Consistent with past quarters, we surveyed a broad base of our pro contractors dealers to understand the environment on the ground.

Peter Clifford: We learned is that demand indicators and sentiment remained steady in the quarter. Our contractors reported project backlogs of seven weeks just above pre pandemic levels from a sentiment perspective, both our dealers and our contractors recorded similar views at the end of the quarter.

Peter Clifford: Our contractors reported project backlogs of seven weeks, just above pre-pandemic levels. From a sediment perspective, both our dealers and our contractors recorded similar views at the end of the quarter. Current sentiment for both dealers and contractors is modestly more positive than the last quarter. On the digital side, we continue to see robust growth in both samples and web traffic. These metrics highlight continued strong interest in our products and the effectiveness of our digital engagement strategy. Finally, retail point-of-sale, or POS, data continues to experience healthy growth year over year. Total retail POS remained above our pro-channel self.

Current sediment for both dealers and contractors is modestly more positive in the last quarter.

Peter Clifford: On the digital side, we continue to see robust growth in both samples and web traffic. These metrics highlight continued strong interest in our products and the effectiveness of our digital engagement strategies.

Peter Clifford: Finally, the retail point of sale or Pos data continues to experience healthy growth year over year total retail Pos remained above our pro channel sell through.

Peter Clifford: These results underscore the strength of our retail partnerships, the continued demand for our products in-store, as well as the accretive growth opportunity in front of us in the retail channel. From an operating perspective, production levels were up substantially year-over-year, as expected after lapping the inventory drawdown experienced in the first quarter of last year. Normalized production levels in the quarter drove strong utilization and cost absorption in the quarter.

Peter Clifford: These results underscore the strength of our retail partnerships. The continued demand for our products in store as well as the accretive growth opportunity in front of us in the retail channel.

Peter Clifford: From an operating perspective production levels were up substantially year over year as expected after lapping the inventory drawdown experienced in the first quarter of last year nor.

Peter Clifford: Normalized production levels in the quarter drove strong utilization and cost absorption in the quarter, we continued to execute our traditional annual recycling and.

Peter Clifford: We continue to execute our traditional annual recycling and product configuration initiatives, and on the material cost input front, sourcing and material savings continue to provide incremental tailoring. These combined levers enabled us to deliver a structurally different gross margin. In terms of SG&A, our results reflect a more normalized spend profile relative to 1Q23. The combination of double-digit residential sell-through growth, coupled with strong execution of our material savings, conversion costs, and recycling initiatives, helped us drive strong results in the first quarter. As a reminder, for fiscal 1Q24, the residential segment of Justine Evita includes all corporate expenses.

Peter Clifford: And product configuration initiatives and on the material cost input from sourcing of materials savings continue to provide incremental tailwind.

Peter Clifford: These combined levers enabled us to deliver structurally different gross margins.

Peter Clifford: In terms of SG&A, our results reflect a more normalized spend profile relative to <unk> 23.

Peter Clifford: The combination of double digit residential sell through growth coupled with strong execution of our materials savings conversion cost and recycling initiatives helped us drive strong results in the first quarter.

Peter Clifford: As a reminder for fiscal <unk> 'twenty for the residential segment. Adjusted EBITDA includes all corporate expenses all numbers reflect this change for <unk> 24 in the prior year comparable quarter.

Peter Clifford: All numbers reflect this change for 1Q24 and the prior year comparable quarter. In addition, the previously announced closing of the Viacom transaction occurred on November 1, 2023, and as a result, fiscal 2024 includes the impact of approximately one month of Viacom's operations on the commercial segment performance. To assist with modeling, buy combat sales were approximately 3 million, and profitability was approximately breaking during the one month of ownership in October.

Peter Clifford: In addition, the previously announced closing of the Viacom transaction occurred on November one 2023, and as a result fiscal 2024 includes the impact of approximately one month of Viacom's operations on the commercial segment performance to.

Peter Clifford: To assist with modeling by combat sales were approximately $3 million and profitability was approximately breakeven during the one month of ownership in October.

Peter Clifford: As a reminder, with the divestiture of VICOM, the remaining portion of the commercial segment manufactures, fabricates, and distributes lockers and bathroom partitions. In the first quarter of 2024, we increased our consolidated net sales by 11% year-over-year to $240 million, which was above our guidance expectations. Excluding the impact of the Viacom divestiture, our net sales were up 22% year over year. The first quarter growth was driven by our residential business being up 24%, partially offset by the $18 million net impact from the sale of our Viacom business and our commercial segment. Additionally, effective as of December 31st, 2023, we have revised the definition of adjusted gross profit to include depreciation expense in the calculation. All numbers presented reflect this change for the first quarter of 2024 and the prior year comparable quarter. Taking this into consideration, 1Q24 gross profit increased by $44 million, or 92% year-over-year, to $91 million. 1Q adjusted gross profit increased by $43 million, or 83% year-over-year, to $95 million.

Peter Clifford: As a reminder, with the divestiture of Viacom the remaining portion of the commercial segment manufacturers fabricates and distributes lockers and bathroom partitions.

Peter Clifford: In the first quarter 2024, we increased our consolidated net sales by 11% year over year to $240 million, which was above our guidance expectations.

Peter Clifford: Excluding the impact of the Viacom divestiture, our net sales were up 2% year over year.

Peter Clifford: First quarter growth was driven by our residential business being up 24%, partially offset by the $18 million net impact from the sale of our Viacom business in our commercial segment.

Peter Clifford: Effective as of December 31, 2023, we have revised the definition of adjusted gross profit to include depreciation expense in the calculation.

Peter Clifford: All numbers presented reflect this change for the first quarter of 2024 and the prior year comparable quarter taking.

Taking this into consideration <unk> 24, gross profit increased by $44 million or <unk>, 92% year over year to $91 million.

Peter Clifford: <unk> adjusted gross profit increased by $43 million or 83% year over year to $95 million.

Peter Clifford: Our adjusted gross profit margin percentage increased 1,550 basis points year-over-year to finish at 39.6%. The adjusted gross profit increase was driven primarily by higher debt sales, stronger utilization in our plants, continued execution of recycling and product configuration initiatives, and benefits from both sourcing and material savings, as GINA expenses increased by $4 million to $77 million. The bulk of the year-over-year increase was primarily due to higher stock-based compensation and continued investment in marketing and brand awareness, partially offset by lower personnel costs. Adjusted EBITDA for the first quarter increased by $41 million, or 269% year-over-year, to $56 million. The adjusted EBITDA margin rate for the quarter increased 1,620 basis points year-over-year to 23.2%. Debt income for the first quarter increased by $52 million to $26 million, or $0.17 per share.

Peter Clifford: Our adjusted gross profit margin percentage increased 150 basis points year over year to finish at 39, 6%.

Peter Clifford: Adjusted gross profit increase was driven primarily by higher net sales stronger utilization of our plants continued execution of recycling product configuration initiatives.

Peter Clifford: And benefits from both sourcing and material savings.

Peter Clifford: SG&A expenses increased by 4 million to $77 million the bulk of the year over year increase was primarily due.

Peter Clifford: The higher stock based compensation and continued investment in.

Peter Clifford: In marketing our brand awareness, partially offset by lower personnel costs.

Peter Clifford: Adjusted EBITDA for the first quarter increased by $41 million or 269% year over year to $56 million.

Peter Clifford: The adjusted EBITDA margin rate for the quarter increased 16, 120 basis points year over year to 23, 2%.

Peter Clifford: Net income for the first quarter increased by 52 million to $26 million or <unk> 17 per share.

Peter Clifford: Adjusted net income for the first quarter increased by 30 million to $16 million or adjusted diluted EPS of <unk> 10 per share.

Peter Clifford: As a reminder, we have excluded this $38 $5 million gain on the sale related to the divestiture of our Viacom business from adjusted net income.

Peter Clifford: Adjusted debt income for the first quarter increased by $30 million to $16 million, or adjusted diluted EPS of $0.10 per share. As a reminder, we've excluded the $38.5 million gain on the sale related to the divestiture of our Viacom business from adjusted net income. Now turning to our segment results, residential segment net sales for the first quarter were $223 million, up 24% year-over-year; residential segment adjusted EBITDA for the first quarter came in at $53 million, up approximately 430% year-over-year; and residential segment adjusted even on margins were up 1,820 base points year over year to 23.7%. Commercial segmented sales for the quarter were $17 million, down 53% year-over-year, primarily due to the sale of our ViacomBiz business. Commercial segment adjusted EBITDA for the quarter came in at $2.9 million, or a decrease of $2.2 million year over year. The decrease was primarily driven by the disposition of the Viacom business.

Peter Clifford: Now turning to our segment results residential segment net sales for the first quarter was $223 million up 24% year over year.

Peter Clifford: Residential segment adjusted EBITDA for the first quarter came in at $53 million up approximately 430% year over year.

Peter Clifford: Residential segment adjusted EBITDA margins were up 1800, 20 basis points year over year to 23, 7%.

Peter Clifford: Commercial segment net sales for the quarter were $17 million down 53% year over year, primarily due to the sale of our Viacom business commercial segment adjusted EBITDA for the quarter came in at $2 9 million or a decrease of $2 $2 million year over year. The decrease was primarily driven by the disposition of the <unk>.

Peter Clifford: The account business from balance sheet and cash flow perspective, we ended the quarter with cash and cash equivalents of $275 million and approximately $148 million available for future borrowings under our revolving credit facility.

Peter Clifford: Working capital defined as inventory plus accounts receivable minus accounts payable was $251 million down $90 million year over year.

Peter Clifford: We ended the quarter with gross debt of $671 million, which included approximately $78 million of finance leases.

Peter Clifford: Net debt was 396 million and our net leverage ratio stood at one two times at the end of the first quarter.

Peter Clifford: From a balance sheet and cash flow perspective, we ended the quarter with cash and cash equivalents of $275 million and approximately $148 million available for future borrowings under our revolving credit facility. Working capital, defined as inventory plus accounts receivable minus accounts payable, was $251 million, down $90 million year-over-year. We ended the quarter with gross debt of $671 million, which included approximately $78 million of finance leases. Net debt was $396 million, and our net leverage ratio stood at 1.2 times at the end of the first quarter. Net cash from operating activities was negative $16 million during the first quarter, a decrease of $23 million year-over-year. Capital expenditures for the quarter were approximately $18 million, down $13 million year-over-year. For the first quarter, free cash flow was negative at $34 million, a year-over-year decrease of $10 million.

Peter Clifford: Net cash from operating activities was negative $16 million during the first quarter, a decrease of $23 million year over year.

Peter Clifford: Capital expenditures for the quarter were approximately $18 million down $13 million year over year.

For the first quarter free cash flow was negative at $34 million a year over year decrease of $10 million.

Peter Clifford: As a reminder, we are traditionally a net consumer of cash during the fiscal first quarter as it is our smallest quarter seasonally and coincides with the annual inventory build in preparation of the season.

Peter Clifford: As previously announced we initiated a $100 million accelerated share repurchase program under the agreement. The company received about $2 3 million shares with the balance to be delivered no later than February 2024.

Peter Clifford: After the ASR is completed the remaining authorization under our share repurchase program was approximately $101 million.

Peter Clifford: As a reminder, our capital allocation priorities remain the same as we've previously communicated we will continue to invest in our business, both organically and Inorganically and to the extent, we have excess cash flow, we will look to repurchase shares opportunistically as.

Peter Clifford: As we turn to the outlook, let me provide some color on what we're seeing and assuming for the balance of the fiscal year.

Peter Clifford: We expect to see a flattish R&R market in fiscal 2024, and we see our residential sell through in the mid single digits for the balance of the fiscal year.

Peter Clifford: As a reminder, we are traditionally a net consumer of cash during the fiscal first quarter as it is our smallest quarter seasonally and coincides with the annual inventory built in preparation of the season. As previously announced, we initiated a $100 million Accelerated Share Repurchase Program. Under the agreement, the company received about 2.3 million shares, with the balance to be delivered no later than February 2024.

Peter Clifford: We continue to focus on driving above market growth through our strategic initiatives, including market conversion and share gains as.

Peter Clifford: As we've mentioned in the past the early buy period kicks off in the fall and as the time of the year in which our dealer partners make shelf space decisions for the following years selling season.

Peter Clifford: Once again, we were pleased with our performance and we believe we drove shelf space wins and expansion similar to recent years. These shelf space wins will be realized as product reaches the shells and sell through begins in earnest in the traditional selling season from.

Peter Clifford: After the ASR is completed, the remaining authorization under our share of purchase program is approximately $101 million. As a reminder, our capital allocation priorities remain the same as we've previously communicated. We will continue to invest in our business, both organically and inorganically, and to the extent we have excess cash flow, we will look to repurchase shares opportunistically. As we turn to the outlook, let me provide some color on what we're seeing and assuming for the balance of the fiscal year. We expect to see a flattish R&R market in fiscal 2024, and we see residential sell-through in the mid-single digits for the balance of the fiscal year. We continue to focus on driving above market growth for our strategic initiatives, including market conversion and shared. As we've mentioned in the past, the early buy period kicks off in the fall, and it is the time of the year in which our dealer partners make shelf space decisions for the following year's selling season.

Peter Clifford: From an inventory perspective, we continue to manage the channel conservatively, while maintaining a high service and short lead times quarter over quarter. We increased our finished goods inventory to prepare for the season and be able to react quickly to changes in the demand environment.

Peter Clifford: Overall, consistent with our contractor and dealer service, we are cautiously optimistic on demand and the selling season, but need to see more data one season to update our expectations around the market and associated sell through.

Peter Clifford: On the margin side.

Peter Clifford: Our second fiscal quarter will be positively impacted by higher production levels increased utilization and cost absorption. We continue to see benefits from our focus on sourcing as well as recycling initiatives, which will continue to drive lower input cost and the benefit of our gross margins in the quarter.

Peter Clifford: On SG&A, we will continue to support organic growth through sales and marketing initiatives.

Peter Clifford: With that context, let me move to our updated planning assumptions for fiscal 2024.

Peter Clifford: With our outperformance in the first quarter and demand seen to date, coupled with increased visibility in our margin drivers. We are increasing our guidance for full year consolidated net sales to range between $1 billion $385 million to $1.425 billion and increasing our full year, adjusting but our range to <unk>.

Peter Clifford: Once again, we were pleased with our performance, and we believe we drove shelf space wins and expansion similar to recent years. These shelf space wins will be realized as product reaches the shelves, and sell-through begins in earnest in the traditional selling season. From an inventory perspective, we continue to manage the channel conservatively while maintaining high service levels and short lead times. Quarter over quarter, we increased our finished goods inventory to prepare for the season and be able to react quickly to changes in the demand environment. Overall, consistent with our contractor and dealer service, we are cautiously optimistic on demand in the selling season but need to see more data in the season to update our expectations around the market and associated sales on the margin side. The second fiscal quarter will be positively impacted by higher production levels, increased utilization, and cost absorption.

Peter Clifford: 353 million to $372 million.

Peter Clifford: Adjusting for the Viacom sale, our net sales guidance would imply a 7% to 10% year over year growth and 27% to 34% year over year growth in adjusted EBITDA, Our residential segment planning assumptions for the year is $1.312 billion to 1 billion 300.

Peter Clifford: $48 million in net sales and 340 million to $356 million and segment adjusted EBITDA, representing 7% to 10% sales growth year over year, and 30% to 37% segment adjusted EBITDA growth when combining corporate expenses with our residential reporting segment.

Peter Clifford: As mentioned earlier.

Peter Clifford: A few other assumptions. This year include the following we expect strong gross margin performance, enabling us to continue to invest in growth oriented sales marketing and brand awareness initiatives, we're expecting our capital expenditure range between 80 million to $95 million consistent with our stated target of <unk>.

Peter Clifford: Opex of approximately 5% to 7% of revenue.

Peter Clifford: We continue to see benefits from our focus on sourcing as well as recycling initiatives, which will continue to drive lower input costs to the benefit of our gross margins in the quarter. On SG&A, we will continue to support organic growth through sales and marketing initiatives. With that context, let me move to our updated planning assumptions for fiscal 2024. With our outperformance in the first quarter and demand seen to date, coupled with increased visibility in our margin drivers, we are increasing our guidance for full-year consolidated net sales to a range between $1,385,000,000 to $1,425,000,000 and increasing our full-year adjusted EBITDA range to between $353,000,000 to $372,000,000. Adjusting for the Viacom sale, our net sales guidance would imply 7% to 10% year-over-year growth and 27% to 34% year-over-year growth in adjusted EBITDA. Our residential segment planning assumptions for the year are $1,312,000,000 to $1,348,000,000 in net sales and $340,000,000 to $356,000,000 in segment-adjusted EBITDA, representing 7% to 10% sales growth year-over-year and A few other assumptions this year include the following.

Peter Clifford: We're expecting depreciation approximately 89 million to $92 million.

Peter Clifford: We're targeting a working capital reduction of approximately 10 million to $20 million for the year.

Peter Clifford: We're expecting a GAAP tax rate for the full year of 29% to 31% and finally for the full year fiscal 2024, we expect to deliver another strong year free cash flow generation.

Peter Clifford: For additional planning assumptions to assist with modeling fiscal 'twenty four please refer to the supplemental earnings presentation, we have posted on our Investor Relations website.

Speaker Change: Before we turn to our guide for the second quarter, Let me provide some context for the environment that we expect.

Speaker Change: For the quarter were expecting sell through growth in the mid single digit range traditionally we've seen our own inventory come down meaningfully from <unk> in 2024, we expect the stage modestly more inventory on our own balance sheet for <unk> before coming down in the second half of the year.

Speaker Change: These factors into consideration our guidance for the quarter was 407 million to $413 million in revenue and $108 million to $112 million and adjusted EBITDA.

Speaker Change: We're expecting an effective tax rate of approximately 27% for the quarter.

Speaker Change: With that I'll now turn the call back to Jesse for some closing remarks.

Jesse: Thanks Pete.

Jesse: I would again like to thank our dedicated team members channel and supplier partners and contractors that support the as that company.

Jesse: For your contribution and dedication.

Jesse: We are excited about the long term material conversion opportunity ahead of us.

Jesse: In the large and fast growing outdoor living and home exteriors markets that as that plays in our residential segment has continued to show remarkable resiliency and growth capability.

Peter Clifford: We expect strong gross margin performance, enabling us to continue to invest in growth-oriented sales, marketing, and brand awareness initiatives. We're expecting a capital expenditure range between 80 million and 95 million, consistent with our stated target of CapEx of approximately 5% to 7% of revenue. We are expecting depreciation of approximately $89 million to $92 million.

Jesse: Our business has delivered a compound annual growth rate of 12% over the last 10 years and 16% since fiscal 2017.

Jesse: Our execution of our strategic growth and margin initiatives and the benefits we have realized to date increase our confidence in our long term financial objectives of driving double digit annual net sales growth and expanding our adjusted EBITDA margin to our target of approximately 27 five.

Peter Clifford: We are targeting a working capital reduction of approximately $10 million to $20 million for the year. We are expecting a gap tax rate of 29 to 31% for the full year, and finally, for the full year, fiscal 2024, we expect to deliver another strong year of free cash flow generation. For additional planning assumptions to assist with modeling Fiscal 24, please refer to the Supplemental Earnings presentation we have posted on our Investor Relations website. Before we turn to our guide for the second quarter, let me provide some context for the environment that we expect. For the quarter, we are expecting sell-through growth in the mid-single-digit range. Traditionally, we have seen our own inventory come down meaningfully from 1Q to 2Q. In 2024, we expect to stage modestly more inventory on our own balance sheet for 2Q before coming down in the second half. Taking these factors into consideration, our guidance for the quarter is $407 million to $413 million in revenue and $108 million to $112 million in adjusted EBITDA. We are expecting an effective tax rate of approximately 27% for the quarter.

Jesse: 5%.

Speaker Change: With that operator, please open the line for questions.

Operator: Thanks, Jesse at this time I would like to remind everyone that in order to ask a question press star and the number one on your telephone keypad once again star one.

Speaker Change: In the interest of time, we kindly ask that you limit your questions to one question and one follow up. Thank you in advance and we will pause just a moment to compile the Q&A roster.

Speaker Change: And it looks like our first question comes from the line of Keith Hughes with Truest Keith. Please go ahead.

Keith Brian Hughes: Thank you some good results and a really strong guide here for the second quarter I guess, that's where my questions live with single digits fell through the revenue implication is higher than your guide I assume there is no inventory build if you could talk about where that's coming.

Keith Brian Hughes: And also any difference in growth rates between exteriors in decades.

Keith Brian Hughes: Yes, Keith this is Peter Thanks for the question so two parts there.

Peter Clifford: As I mentioned in the prepared remarks.

Peter Clifford: We exited the first quarter of 'twenty forward here with channel inventory down about 20%.

Peter Clifford: From a historical kind of pre pandemic days on hand, it's a little lighter than what we expect so that's part of the equation on top of the mid single digit kind of sell through assumption and just kind of normal early buy kind of staging that would be customary.

Jesse Singh: With that, I'll now turn the call back to Jesse for some closing remarks. Thanks, Pete. I would again like to thank our dedicated team members, channel and supplier partners, and contractors that support the Azek Company. Thank you for your contribution and dedication. We are excited about the long-term material conversion opportunity ahead of us in the large and fast-growing outdoor living and home exteriors markets that ASEC plays in. Our residential segment has continued to show remarkable resiliency and growth capability. The business has delivered a compound annual growth rate of 12% over the last 10 years and 16% since fiscal 2017. Our execution of our strategic growth and margin initiatives and the benefits we have realized to date increase our confidence in our long-term financial objectives of driving double-digit annual net sales growth and expanding our adjusted EBITDA margin to our target of approximately 27.5%. With that, Operator, please open the line for questions. Thanks, Jesse. At this time, I would like to remind everyone that in order to ask a question, press the star and the number one on your telephone keypad. Once again, star number one.

Speaker Change: Second question, we are seeing positive growth on both exteriors.

Speaker Change: As well as <unk> and accessories.

Speaker Change: And just a reminder to.

Keith Brian Hughes: Clarify Keith.

Speaker Change: Do you recall.

Speaker Change: Much of the inventory Recalibration of last year, we really didn't have much.

Speaker Change: Of an impact from our exteriors perspective, it was almost exclusively a decking.

Speaker Change: Item.

Speaker Change: Okay, just one follow up to that.

Speaker Change: I know you've won some shelf space in some big box is that playing a role a meaningful role in these numbers for the second quarter guidance.

Speaker Change: I don't know that I would call it meaningful but there is a modest impact rate that we won that business kind of middle of the year. So we probably really more benefit in the third and fourth quarter of last year, and probably have a net year over year pickup here in the first half of the year, but it's modest.

Okay, great. Thank you very much.

Speaker Change: Okay.

Speaker Change: Thanks Keith.

Speaker Change: And our next question comes from the line of Phil <unk> with Jefferies. Phil. Please go ahead.

Phil: Hey, guys, congrats on a strong quarter and outlook.

Phil: I guess, Pete if I look at your sales guidance for your residential segment for the full year and back out <unk> implies roughly call. It 501, 8% sales growth on the resi side for the rest of the year can you kind of help unpack, what's what's driving that I think there is a price increase in the marketplace by you guys.

Operator: In the interest of time, we kindly ask that you limit your questions to one question and one follow-up. Thank you in advance. And we will pause just a moment to compile the Q&A roster. And it looks like our first question comes from the line of Keith Hughes with Truist. Keith, please go ahead.

Are we seeing much traction how much of a contribution should we anticipate.

Pete: And what are you kind of thinking about sell out demand and you're busy peak season.

Pete: Yes.

Keith Brian Hughes: Thank you. Some good results and a really strong guide here for this second quarter. I guess that's where my questions lie.

Pete: The math there for you I mean on the last nine months of the year, we are implying just about 6%.

Keith Brian Hughes: With single digits to L3, the revenue application is higher in your guide. I assume there's an inventory bill that you could talk about where that's coming from, and also any difference in growth rates between exteriors and decks. Keith, this is Peter.

Pete: Kind of mid single digits kind of sell through without a lot of assume changes in channel inventory over the nine months as.

Pete: As far as pricing and it's the same answer as last quarter, our view Hasnt changed pricing is negligible for the year.

Peter Clifford: Thanks for the question. So, two parts there. As I mentioned in the prepared remarks, we exited the first quarter of 24 here with channel inventory down about 20% from historical numbers of pre-pandemic days on hand. It's a little lighter than what we expect.

Pete: Some traditional annual price actions and those basically washed with some of the backside.

Pete: Programmatic pricing initiatives that we talked about in the back half of last year.

Peter Clifford: So that's part of the equation on top of the mid-single digit kind of sell-through assumption and just kind of normal early buy kind of staging that would be customary. On the second question, we are seeing positive growth on both exteriors as well as deck rail and access. And just a reminder to clarify, Keith, if you recall, much of the inventory recalibration last year really didn't have much of an impact from an exterior perspective. It was almost exclusively a decking item.

Speaker Change: Okay. That's helpful and then from a margin standpoint, you guys are doing.

Speaker Change: <unk>.

Speaker Change: <unk> that we all hope for and you guys have talked about youre guiding to call. It 25, 8% EBITDA margins for the full year.

Speaker Change: Our long term targets closer to 27, 5% it seems like there is upside potential there.

Speaker Change: Help us kind of.

Speaker Change: Think about.

Speaker Change: Maybe is there upside there or maybe you get a little closer and what are some of those big drivers for.

Peter Clifford: Just one follow-up to that: I know you've won some shelf space at some big box stores; is that playing a role, a meaningful role? This is a production of WPSU. Thank you for your time. Thank you. You know, I don't know that I would call it meaningful, but there is a modest impact rate that we won that business kind of in the middle of the year, so we probably really benefited more in the third and fourth quarter of last year and probably have a net year-over-year pickup here in the first half of the year, but it's modest. Okay, great. Thank you very much.

Speaker Change: The pace being low factored and perhaps we may have anticipated.

Speaker Change: Yes.

Phil Jesse: Phil Jesse here.

Phil Jesse: Your point's a good one.

Certainly expected.

Phil Jesse: That we would have an opportunity to continue to drive margin I think what we highlighted at the Investor day in 2022, with a 500 basis points.

Phil Jesse: Opportunity that gets us to 27, 5%.

Phil Jesse: You should think of against that we continue to see give or take 100 basis points of opportunity.

Peter Clifford: Thanks, Keith. And our next question comes from the line of Phil Ng with Jeffries. Phil, please go ahead.

Phil Jesse: Per year moving forward, we're not giving specific guidance to 25 <unk>.

Phil Ng: Hey guys, congrats on a strong quarter and outlook. I guess, Pete, if I look at your sales guidance for your residential segment for the full year and back out one cue, it implies roughly 5.8% sales growth on the residency side for the rest of the year. Can you kind of help unpack what's driving that?

Phil Jesse: And beyond what I highlighted in my prepared remarks is we're incredibly confident on the 27, 5%.

Phil Jesse: And then against that you should consider that give or take 100 basis point on average margin expansion and a more normalized year and I think as as happy as we are with the progress that we've made against certain initiatives that are helping us with our margin, we still believe that theres a lot.

Phil Ng: I think there's a price increase in the marketplace because of you guys. Are we seeing much traction? How much of a contribution should we anticipate? And what are you thinking about sellout demand in your busy peaks? Yeah, you know, the math there for you, I mean, for the last nine months of the year, we are implying just about 6% of a big single-digit kind of sell-through without a lot of assumed changes in channel inventory over the nine months. As far as pricing is concerned, it's the same answer as last quarter. You know, our view hasn't changed. Pricing is negligible for the year.

Phil Jesse: A room for us to continue to drive operational efficiency increase the use of recycle and to continue to drive down.

Phil Jesse: And increased productivity in a number of different areas. So as we progress we will give you a better view on 'twenty five and beyond but I'll just summarize by saying we continue to see an opportunity of 100 basis points of year over the long term.

Speaker Change: Super I appreciate the color.

Jesse Singh: We took some traditional annual price actions, and those basically washed out with some of the backside programmatic pricing initiatives that we talked about in the back half of last year. Okay, that's helpful. And then from a margin standpoint, you guys are seeing the improvement that we all hope for, and you guys have talked about your guidance, you call it a 25.8% EBITDA margin for the full year. Your long-term target is closer to 27.5%. It seems like there's upside potential there. Help us kind of think about, you know, maybe there's an upside there, or maybe we can get there a little closer, and what are some of the big drivers for, you know, the pace being a little faster than perhaps we may have anticipated? Yeah, Phil, and Jesse here.

Speaker Change: Thanks, Phil.

Speaker Change: And our next question comes from the line of Matthew Bouley from Barclays. Matthew. Please go ahead.

Matthew Bouley: Good evening, everyone. Thanks for taking the questions.

Matthew Bouley: So obviously theres a lot of kind of chop out there.

Matthew Bouley: The R&R space.

Matthew Bouley: You guys raised guidance on the topline and the Bottomline.

Matthew Bouley: I guess the way to ask the question would be would you be able to bridge kind of the difference between the prior guide in the New guide is it simply.

Additional shelf space when does it feel like kind of material conversion is tracking a little bit better.

Matthew Bouley: Altogether as a result production is a little bit higher just kind of put all those pieces together difference between the prior guide in the New guide thanks, guys.

Speaker Change: Yes, I'll start at a high level.

Speaker Change: Excuse me, let Pete chime in as we said in our prepared remarks, we had strong double digit growth.

Jesse Singh: Your point's a good one. We certainly expected that we would have an opportunity to continue to drive margin. I think what we highlighted at Investor Day in 2022 was a 500 basis point opportunity that gets us to 27 and a half percent. You should think against that, you know, we continue to see, you know, give or take a hundred basis points of opportunity per year moving forward. We're not, you know, giving specific guidance to 25-year-olds and beyond.

Speaker Change: Really to the point that we're out now and at now and so clearly when you have that you saw our results in the first quarter.

Speaker Change: And.

Pete: That was primarily sell through driven.

Pete: So as you complete.

Pete: In our case coming on for months of sell through that's an element that.

Pete: It has already happened against that call it 5% sell through.

Pete: Assumption and then there is some modest.

Pete: Incremental.

Pete: Pick up that we have beyond that but if you just take a look at our three quarter.

Jesse Singh: You know, what I highlighted in my prepared remarks is that we're incredibly confident in the 27 and a half percent. And then against that, you should consider that, you know, give or take a hundred basis points on average margin expansion in a more normalized year. And I think as happy as we are with the progress that we've made against certain initiatives that are helping us with our margin, we still believe that there's a lot of room for us to continue to drive operational efficiency, increase the use of recycling, and to continue to drive down and increase productivity in a number of different areas. So, you know, as we progress, we'll give you a better view on 25 and beyond. But I'll just summarize by saying we continue to see an opportunity of a hundred basis points a year over the long term. Okay, good. I appreciate it, Kola.

Pete: Guide Q2, Q3 Q4, that's roughly in line with that mid single digit sell through assumption and so from our vantage point there is.

Pete: Some modest tweaks, but we're still operating under that baseline assumption of a flattish R&R.

Pete: Plus the contribution that we see against that of our incremental initiatives and the market space that we're in and as you pointed out part of that is continue conversion part of that is our shelf space gain part of that is the benefit we see.

Pete: From incremental new products and I think we've said, that's what allows us to stack and I'll call it 5% to seven points over the underlying R&R basis. So.

Pete: Although it is.

Pete: Certainly a step up in our guide if you just play through the basic fundamentals that we're talking about we're not really changing that much and in the guide as we look forward.

Phil Ng: Thanks, Phil. And our next question comes from the line of Matthew Boulay from Barclays. Matthew, please go ahead. Good evening, everyone.

Matthew Boulay: Thanks for taking the questions. So, you know, obviously, there's a lot of kind of chop out there in the R&R space, and you guys raised guidance on the top line and the bottom line. I guess the way to ask the question would be, you know, would you be able to bridge the kind of difference between the prior guide and the new guide? Is it simple?

Speaker Change: Got it okay. Thanks for that Jesse.

Speaker Change: Second one I think I heard you say at the top that.

Speaker Change: Retail Pos is actually above your pro channel sell through and correct me if I misheard, you, but I think thats probably another.

Speaker Change: Unique.

Speaker Change: Item to ASIC here. So just could you kind of go into some of the specifics around.

Matthew Boulay: You know, the additional shelf space wins, you know, does it feel like kind of material conversion is tracking a little bit better? You know, all together as a result, production is a little bit higher. Just kind of put all those pieces together, you know, difference between the prior guide and the new guide. Thanks guys. Yeah, I'll start at a high level and, excuse me, let Pete chime in.

Speaker Change: New retail business.

Speaker Change: And just sort of whats going on differently there for your products relative to what we're seeing elsewhere in the retail world. Thank you.

Speaker Change: Yes, I think if you just step back and you look at the equation that we're talking about from a business model standpoint, we continue to invest in our brands.

Speaker Change: We continue to invest in our sales force.

Speaker Change: And we continue to add new products. Those are all elements as we talked about that are additive.

Jesse Singh: As we said in our prepared remarks, we had strong double-digit growth, really to the point that we're at now. And so clearly, when you have that, you saw our results in the first quarter, and that was primarily sell-through driven. So as you complete, in our case, coming on four months of sell-through, that's an element that has already happened against that, call it, 5% sell-through assumption. And then there's some modest, incremental pickup that we have beyond that.

Speaker Change: To our overall growth equation against that as as we talked about last year, we picked up some incremental shelf position.

That is certainly.

Speaker Change: Contributing.

Speaker Change: <unk>.

Speaker Change: The benefit that we're that we're seeing in that channel and that's flowing through but on top of that we.

Speaker Change: We believe that some of the marketing activities.

Speaker Change: That we've had and the ongoing conversion and brand strength that we see that that's also benefiting us.

Speaker Change: Yes got it okay. Thanks, guys. Good luck guys.

Jesse Singh: But if you just take a look at our three-quarter guide, Q2, Q3, Q4, that's roughly in line with that mid-single-digit sell-through assumption. And so from our vantage point, there are some modest tweaks, but we're still operating under that baseline assumption of a flattish R&R. Plus the contribution that we see against that of our incremental initiatives and the market space that we're in. And, as you pointed out, part of that is continued conversion.

Speaker Change: Okay got it thanks, Thanks Matthew.

Speaker Change: And just a reminder, again if you'd like to ask a question. It is star one on your Touchtone phone once again star one on your telephone keypad and our next question comes from the line of Ryan Merkel with William Blair Ryan. Please go ahead.

Ryan Merkel: Hey, everyone. Thanks for taking the question I wanted to start on the margins I think in the in the deck you mentioned increased visibility on margins as part of the guidance range can you just unpack that a little bit.

Jesse Singh: Part of that is our shelf space gain. Part of that is the benefit we see from incremental new products. And I think we've said that's what allows us to stack.

Ryan Merkel: Yes, Ryan this is Peter.

Peter Clifford: Look obviously, we have plans internally every quarter to kind of hopefully out deliver on overdrive our guide.

Jesse Singh: And I'll call it 5 to 7 points over the underlying R&R basis. So, although it is certainly a step up in our guide, if you just play through the basic fundamentals that we're talking about, we're not really changing that much in the guide as we look forward. Got it.

Peter Clifford: But as we mentioned <unk> was pretty critical when you think about the comp comparisons to 'twenty three our largest variance was going to be in <unk>. So it was really important for us to see.

Peter Clifford: Does that.

Peter Clifford: Get booked can be done as well as kind of getting visibility or clarity on sort of seeing the early buy orders.

Matthew Boulay: Okay, thanks for that, Jesse. Second one, I think I heard you say at the top that, you know, retail POS is actually above your pro channel sell-through, and correct me if I misheard you, but I think that's probably another unique item to Azek here. So, yeah, can you kind of go into some of the specifics around your new retail business and just sort of, you know, what's going on differently there for your products relative to what we're seeing elsewhere in the retail world? Thank you.

Peter Clifford: Through the month of January so I think Thats really we saw the mix we saw our backlog those two things combined gave us confidence as well as every quarter, we get into the year, obviously with a rollback or balance sheet lag.

Peter Clifford: We start to get a firmer picture what deflation is going to look like in the back half of the year.

Speaker Change: Got it okay that makes sense and then maybe a question for Jesse I am curious how sensitive is decking to housing turnover and the reason I ask is your results have been really impressive and sort of a tougher macro and if housing turnover. It does improve like many of US think it will is that a boost to your business or should we not think of it that way.

Jesse Singh: Yeah, I think if you just step back and you look at the equation that we're talking about from a business model standpoint, we continue to invest in our brand. We continue to invest in our sales force, and we continue to add new products. Those are all elements, as we talked about, that are additive to our overall growth equation.

But.

Jesse: It's an interesting question one of the research companies a few days ago issued.

Jesse: A perspective on this and.

Jesse: I think what they highlighted was that the correlation.

Jesse: Between housing turnover in R&R.

Jesse: Has gotten to the <unk> in the last few years.

Jesse Singh: Against that, as we talked about last year, we picked up some incremental shelf position. That is certainly contributing to the benefit that we're seeing in that channel, and that's flowing through. But on top of that, we believe that some of the marketing activities that we've had and the ongoing conversion and brand strength that we see, that that's also a benefit. Yeah, got it.

Jesse: And so what I would say.

Jesse: Is what we're seeing and what we continue to see.

Jesse: Is that people are investing where they live and for US we are not a business that's about housing transactions.

Jesse: We're a business about people expanding.

Jesse: Where they where they live I think certainly we live within the macro economic environment and so as we're sitting here.

Jesse: We're guiding to mid single digit sell through growth.

Matthew Boulay: Okay. Thanks, Jesse. Good luck, guys. I appreciate it.

Operator: Thanks. Thanks, Matthew. And just a reminder, again, if you'd like to ask a question, it is star one on your touchtone phone. Once again, star one on your telephone keypad.

Jesse: That is below where we believe this business should be and thats really being driven by the underlying.

Jesse: Flat nature of the R&R market, so certainly if.

Jesse: If if and when the R&R market normalizes to more of a growth position that gives us an opportunity to continue to get.

Operator: And our next question comes from the line of Ryan Merkle with William Blair. Ryan, please go ahead. Hey everyone, thanks for taking the questions. Wanted to start on the margins. I think in the deck you mentioned increased visibility on margins as part of the guidance range. Can you just unpack that a little bit?

Get back to where we're guiding on double digit growth numbers pretty consistently we're getting close to that obviously with our our current guide in residential this year.

Ryan Merkle: Yeah, Ryan, this is Peter. Look, I, you know, obviously we have plans internally every quarter to kind of hopefully out-deliver and overdrive our guide. But as we mentioned, look, 1Q is pretty critical when you think about the comparisons to 23. Our large experience was going to be in 1Qs, so it was important for us to see that get booked and be done, as well as kind of getting visibility or clarity on sort of seeing the early bioware. I think that's really, we saw the mix, we saw our backlog, those two things combined gave us confidence, as well as every quarter we get into the year, obviously with our rollback or balance sheet lag, we start to get a firmer picture of what deflation is going to look like in the back end. Got it, okay, that makes sense. And then maybe I have a question for Jesse.

Jesse: But it's really determined by that underlying R&R market, whether thats driven by consumer sentiment.

Jesse: Housing turnover, we certainly think that there is an opportunity for that underlying R&R market too to accelerate.

Speaker Change: Got it thanks Jessy.

Speaker Change: Appreciate it.

Jessy: Thanks, Brian.

Jessy: And our next question comes from the line of Michael Rehaut with JP Morgan Michael. Please go ahead.

Jessy: Okay.

Jessy: Great.

Michael Jason Rehaut: Thanks, everyone and congrats on the results so far.

Michael Jason Rehaut: First I just wanted to make sure prop.

Michael Jason Rehaut: Properly appreciating.

Michael Jason Rehaut: The first half.

Michael Jason Rehaut: Our results and guide for <unk> and into the back half when you look at the.

Michael Jason Rehaut: Full year residential sales.

Looking at about 15%.

Michael Jason Rehaut: The 24 in the first quarter, you're guiding to about 15 in the second.

Michael Jason Rehaut: Again sell through of roughly 10% I believe in the first quarter and five in the second and I believe mid single digits for the full year. So.

Peter Clifford: I'm curious, how sensitive is decking to housing turnover? And the reason I ask is that your results have been really impressive in sort of a tougher macro, and if housing turnover does improve, like many of us think it will, is that a boost to your business, or should we not think of it that way? You know, it's an interesting question.

Speaker Change: I apologize if you kind of hit on some of this earlier, but just trying to get a sense of.

Speaker Change: The Delta, let's say of roughly 10 percentage points.

Speaker Change: Between sell through for the year in and.

Speaker Change: And your own residential sales growth guidance, how much of that might be share gains.

Jesse Singh: One of the research companies a few days ago issued a perspective on this, and I think what they highlighted was that the correlation between housing turnover and R&R has gotten to the 30s in the last few years. And so, what I would say is what we're seeing, and what we continue to see, is that people are investing where they live. And for us, we are not a business that's about housing transactions.

Speaker Change: Versus any channel inventory restocking.

Speaker Change: Yeah, Let me make sure I've got the numbers right the numbers I'm looking at our residential.

Speaker Change: Guidance between seven and 10% for the year.

Speaker Change: We didn't give exactly what our sell through growth was in Q1.

Speaker Change: We said strong double digits. So you should assume it's that's higher than 10%.

Jesse Singh: We're a business about people expanding, you know, where they where they live. I think certainly we we live within the macro economic environment. And so as we're sitting here and.

Speaker Change: So I think Thats, that's certainly one equation one.

Speaker Change: Part of the equation and then.

Jesse Singh: We're guiding to mid single-digit sell-through growth, but that is below where we believe this business should be. And that's really being driven by the underlying flat nature of the R&R market. So certainly, if and when the R&R market normalizes to more of a growth position, that gives us an opportunity to continue to get back to where we're guiding on double-digit growth numbers pretty consistently. We're getting close to that, obviously, with our current guide for residential this year. But it's really determined by that underlying R&R market, whether that's driven by, you know, consumer sentiment or housing turnover. We certainly think that there's an opportunity for that underlying R&R market to accelerate. I got it.

Speaker Change: Mike simply what we're doing is for the second quarter.

Speaker Change: It is a quarter, where we have.

Speaker Change: Orders on hand, as we stage over the next remaining two months. So the guide is inclusive of the orders we have on hand, and the visibility. We currently have and then just from that point on.

Speaker Change: Our conservatively extrapolating that for the remaining three quarters, we're going to be in that five 5%.

Speaker Change: Sell through with flat inventory is as we work our way through flat year over year changes on inventory as we work our way through so if you break that out it's a larger number in the first quarter and then a certain what we think is appropriately conservative number and the remaining three quarters with a guide in Q2 of what.

Jesse Singh: Thanks, Jesse. Thank you. Thanks, Fran. And our next question comes from Michael Rehaut with J.P. Morgan. Michael, please go ahead.

Speaker Change: We see on hand, and as Steve pointed out.

Michael Jason Rehaut: Great. Thanks, everyone, and congratulations on the results so far. You know, first, I just wanted to make sure I'm properly appreciating the first half results and guidance for 2Q and into the back half. When you look at... Full year residential sales, you're looking at about 15%, you did 24 in the first quarter, and you're guiding to about 15 in the second. And that's again, sell through of roughly 10%, I believe in the first quarter and five in the second. And I believe mid single digits for the full year. So I apologize if you kind of hit on some of this earlier, but just trying to get a sense of the delta, let's say of roughly 10 percentage points, between sell-through for the year and your own residential sales growth guidance, how much of that might be share gains versus any channel inventory restock. Let me make sure I've got the numbers right.

Speaker Change: Exited Q1.

Speaker Change: With effectively a lower level of inventory than is required to be able to service.

Speaker Change: The market and lower then.

Speaker Change: Date on a days on hand basis.

Then last year as such we do need to get some of that back to be able to service. The market. In addition to assuming that for the next nine months.

Speaker Change: Sell through will equal sell too.

Speaker Change: Yes.

Speaker Change: I appreciate that Jesse I think I.

Speaker Change: It looks like I missed that my numbers looking at the total sales instead of the residential so I appreciate the clarification there.

Speaker Change: I guess, just secondly, moving onto.

Speaker Change: The EBITDA margin upside.

Speaker Change: I believe earlier, you kind of hit on different drivers of what's driving that higher margin.

Speaker Change: <unk> relative relative to earlier expectations.

Jesse Singh: The numbers I'm looking at are our residential guide is between 7 and 10 percent for the year. We didn't give exactly what our sell-through growth was in Q1. We said strong double digits, so you should assume it's higher than 10 percent. So I think that's certainly one equation, one part of the equation, and then Mike, simply, what we're doing is we, you know, for the second quarter. It is a quarter where we have orders on hand as we stage over the next remaining two months. So the guide is inclusive of the orders we have on hand and the visibility we currently have.

Speaker Change: I was hoping to get a little more clarity in terms of.

Speaker Change: If it's possible.

Speaker Change: Kind of break it down between.

Speaker Change: Incremental leverage on the additional sales versus greater than expected savings on some of the.

Speaker Change: Margin initiatives around.

Speaker Change: Yes.

Speaker Change: High recycled content in.

Speaker Change: Productivity et cetera.

Speaker Change: Yeah, Michael this is Peter.

Peter Clifford: We've talked about kind of having our own budget or plan for the first quarter.

Peter Clifford: Really only modestly better on the topline and modestly better from a margin perspective, and there really wasn't any one lever it was meaningfully different than what we assume so generally speaking, we've just been executing pretty well against a broad basket, whether it's recycling.

Jesse Singh: And then just from that point on, we are conservatively extrapolating that for the remaining three quarters, we're going to be in that, you know, five and a half percent sell through with flat inventory as we work our way through flat year-over-year changes in inventory as we work our way through. So, you know, if you break that out, it's a larger number in the first quarter and then a certain, what we think is an appropriately conservative number in the remaining three quarters with a guide in Q2 of what we see on hand. And as Pete pointed out, we exited Q1 with effectively a lower level of inventory than is required to be able to service the market and lower than, um, you know, date on a days on hand basis uh than last year. As such, we do need to get some of that back to be able to service the market, in addition to assuming that for the next nine months, sell through will equal sell to. Yes. No, I appreciate that, Jesse.

Peter Clifford: It's continue to seize the utilization opportunity you have with the stronger volumes and leveraging conversion cost spend.

Peter Clifford: We've done pretty well just on sourcing initiatives above and beyond commodity so as a general statement.

Peter Clifford: We just came in and the execution was really strong in the first quarter and it was pretty consistent with what we expected.

Peter Clifford: And then as you look at the second quarter guide it certainly.

Peter Clifford: Our lapping.

Peter Clifford: Some underutilization.

Peter Clifford: From last year.

Peter Clifford: I think we called it out last year.

Peter Clifford: And so certainly in the second quarter.

Speaker Change: Pete I don't have that number in front of me, but I want to say, it's close to $10 million of benefit we're getting in the second quarter from lapping.

Speaker Change: Or any meaningful underutilization and.

Speaker Change: We had not fully experience the benefit of the deflation. So in addition to the execution on top of that the second quarter itself has some additional benefits Pete I don't know if you want to yes, yes. That's what we have communicated previously for 'twenty three we had about $30 million of deflation that flowed through the balance sheet to the income statement we.

Jesse Singh: I think I, it looks like I missed my numbers looking at the total sales instead of the residential. So, I appreciate the clarification there. I guess just secondly, moving on to, you know, the EBITDA margin upside. I believe earlier you kind of hit on different drivers of what's driving that higher margin versus relative to earlier expectations. I was hoping to get a little more clarity in terms of, you know, if it's possible, and, you know, to kind of break it down between, incremental leverage on the additional sales versus greater than expected savings on some of the, you know, margin initiatives around, you know, higher recycled content and, you know, productivity, etc.

Pete: Set out loud that was basically about a half a year's impact so.

Pete: <unk> got obviously that equivalent here in the first quarter ready.

Pete: Half of that and you'll get the other half really in the second quarters if that helps.

Speaker Change: Great. Thanks, so much.

Speaker Change: Great. Thanks, Michael.

Speaker Change: And our next question comes from the line of Tim Weiss with Baird. Tim. Please go ahead.

Speaker Change: Hey, this is actually Robert <unk> on for Tim Tonight, Thanks for taking the question.

Robert: It looks like you've raised the guide for Q1 upside and then your second quarter guidance is better than expectations, but just looking at the second half has anything really changed there versus your original expectations.

Peter Clifford: You know, as we talked about kind of having our own budget or plan for the first quarter, we're really only modestly better on the top line and modestly better from a margin perspective, and there really wasn't any one lever that www.kenhub.com has been executing pretty well, broad basket, whether it's recycling, whether it's continuing to, you know, seize the utilization opportunity you have with the stronger volumes and leverage. We've done pretty well just on sourcing initiatives above and beyond commodities. So as a general statement... came in, and the execution was really strong in the first quarter. www.ketanmantora.com And then as you look at the second quarter guide, it's certainly, we are lapped, some underutilization from last year. You know, I think we called it out last year.

Robert: No.

Speaker Change: Basically it's just to highlight what I, what we mentioned earlier.

Speaker Change: We need to see the season, we think a conservative assumption.

Speaker Change: Relative to the back half of the year.

Speaker Change: As appropriate so we continue to assume.

Speaker Change: A flattish <unk>.

Speaker Change: In our market and.

Speaker Change: In the back half of the year now incrementally certainly behind the scenes. We've we feel we've got some positives on some of our initiatives but.

We've got to wait to see.

Speaker Change: Those flow through and we've got to wait to see the season.

Speaker Change: And I'd just add we haven't really seen anything in our digital kind of demand indicators that would point to any change.

Speaker Change: Got it and then you mentioned in the prepared remarks that sentiment for both dealers and contractors is modestly more positive than last quarter. What do you think has really changed.

Peter Clifford: And so certainly in the second quarter, You know, Pete, I don't have that number in front of me, but I want to say it's, you know, close to $10 million of benefit we're getting in the second quarter from lapping pretty meaningful underutilization and We had not fully experienced the benefit of the deflation So in addition to the execution on top of that the second quarter itself has some additional benefits Pete I don't know if you want to yeah Communicated previously for 23, we had about 30 million dollars of deflation that flowed through the balance, statement, we said out loud that was basically about a half a year's impact. You've got obviously that equivalent here in the first quarter already or half of that and you'll get the other half. Great, thanks so much.

Speaker Change: Late November and kind of what's driven that incremental positivity youre seeing in the market.

Speaker Change: Well.

Speaker Change: We have highlighted over the years.

Speaker Change: Just a couple of things number one typically the market segments.

Speaker Change: We play in.

Speaker Change: Tend to be a more affluent consumer a consumer that has a house.

Speaker Change: Our consumer.

Speaker Change: That is maybe on their second or third house.

Speaker Change: As they tend to skew a little older. We've also highlighted that.

Speaker Change: That we believe and we've said this throughout right that we believe that.

Peter Clifford: Great. Thanks, Michael. And our next question comes from the line of Tim Weiss with Baird. Tim, please go ahead. Hey, this is actually Robert Schultz on for Tim's Tonight.

Speaker Change: Asset value has an impact on <unk>.

Speaker Change: Repair and remodel in our segment and our type of segment. So.

Speaker Change: I think if you were to look back a few months or even last year at this time there was certainly.

Robert Schultz: Thanks for taking the question. It looks like you've raised the guide for Q1 upside, and then your second quarter guidance is better than expectations. But just looking at the second half, has anything really changed there versus your original expectations? No.

Speaker Change: There was a lot more uncertainty.

Speaker Change: Relative to the stability of the economy.

Speaker Change: Our concern on the potential asset value.

Speaker Change: I think the sentiment of our dealer and contractor base is not too dissimilar from the sentiment.

Jesse Singh: Basically, it's just to highlight what I, you know, what we mentioned earlier. You know, we need to see the season. We think a conservative assumption relative to the back half of the year is appropriate, so we continue to assume a flattish R&R market in the back half of the year. Now, incrementally, certainly behind the scenes, we feel, you know, we've got some positives on some of our initiatives, but, You know, we've got to wait to see those flow through, and we've got to wait to see the season. And I'd just add, you know, we haven't really seen anything in our digital kind of demand. Got it.

Speaker Change: That people see as they look at the macro economy and in particular in the more asset based segments right. The markets at a record high housing values are holding in there.

Speaker Change: And people still have jobs and continue to invest.

Speaker Change: And in their homes and so.

Speaker Change: That's the backdrop.

Speaker Change: And we believe that those elements.

Speaker Change: Have modestly improved and that is what we hear reflected back from our channel base and from.

Speaker Change: From our contractor base and then I think the other basic element is anytime you move into the colder season for part of the country people worry about whether or not theyre going to see.

Jesse Singh: And then you mentioned in the prepared remarks that sentiment for both dealers and contractors is modestly more positive than last quarter. What do you think has really changed since late November and kind of what's driven that incremental positivity you're seeing in the market? Well, I, you know, we have highlighted over the years just a couple of things. Number one, typically, the market segment we play in tends to be a more affluent consumer, a consumer that has a house, a consumer that is maybe on their second or third house as they tend to skew a little older.

<unk> off on activity and backlog and I think our.

Speaker Change: For the most part our contractors feel really good and I think other surveys of validated it.

Speaker Change: I feel really good about their backlog the activity the phones ringing and they are engaging folks on what's possible in the future and that our own data continues to show that also from a digital perspective.

Speaker Change: Got it thanks.

Speaker Change: Great. Thank you for the question.

And our next question comes from the line of John Lovallo with UBS. John. Please go ahead.

Jesse Singh: We've also highlighted that we believe, and we've said this throughout, that asset value has an impact on repair and remodel in our segment, in our type of segment. I think if you were to look back a few months or even last year at this time, there was a lot more uncertainty relative to the stability of the economy and a concern about potential asset value. I think the sentiment of our dealer and contractor base is not too dissimilar from the sentiment that people see as they look at the macro economy and, in particular, in the more asset-based segments, right? The market's at a record high, housing values are holding in there, and people still have jobs and continue to invest in their homes.

John Lovallo: Good evening, guys and thank you for taking my questions. Jesse maybe just a follow up on that last one about the contractor backlogs I think they've been pretty stable at about eight weeks for three or four quarters. Now is there any change there that's giving you guys more confidence.

John Lovallo: I would say the data and the sentiment is very similar.

John Lovallo:

John Lovallo: Over the last few Kurt almost over the last I guess over a year of surveys.

John Lovallo: Some of the fraud that we may have felt.

John Lovallo: Is it has normalized and so now we're sitting at an above average backlog for most contractors and I think there's really two elements to that right Pete mentioned.

Jesse Singh: And so that's the backdrop. And we believe that those elements have modestly improved, and that is what we hear reflected back from our channel base and from our contractor base. And then I think the other basic element is, you know, anytime you move into a colder season for part of the country, people worry about whether or not they're going to see a tail off in activity and backlog.

John Lovallo: The weeks.

John Lovallo: <unk> backlog, which does vary between seven and eight in that range at seven and change right now, but we also ask those same contractors their assumption of growth and their sentiment beyond just the.

John Lovallo: The number of backlogs are the number of weeks of backlog in.

John Lovallo: And in general that's what you see as being incrementally more positive so the combination and affects us stable business much more normalized.

Jesse Singh: And I think our, you know, for the most part, our contractors feel really good, and I think other surveys have validated it, feel really good about their backlog, the activity, the phones ringing, and they're engaging folks on what's possible in the future. And that our own data continues to show that also from a digital perspective. Got it, thanks.

John Lovallo: Good activity.

John Lovallo: And.

John Lovallo: Pretty good.

John Lovallo: A.

John Lovallo: We're using the word cautiously optimistic view of what's ahead of them.

John Lovallo: Okay. That's helpful. And then I think in terms of SG&A in the quarter, Pete you called out higher stock comp and continued investment as we think about SG&A as we move through this year and maybe into next year. I mean is the right way to think about it still slight deleveraging. This year and then maybe a return to positive operating leverage.

John Lovallo: Great, thank you for the question. And our next question comes from the line of John Lovallo with UBS. John, please go ahead.

John Lovallo: In 2025.

John Lovallo: Good evening, guys, and thank you for taking my questions. Jesse, maybe just a follow-up on that last one about the contractor backlogs. I think they've been pretty stable at about eight weeks for three or four quarters now. You know, is there any change there that's giving you guys more confidence? I would say the data and the sentiment are very similar.

Pete: I think we will probably look at 'twenty four is kind of a more neutral year from a leverage perspective on SG&A and then I would think that we feel pretty passionately that you get beyond this year.

Pete: Sure. So we've got to get back to get into 25 bps of kind of.

Pete: SG&A leverage.

Pete: With growth.

Pete: Back to double digit.

Speaker Change: Got it thank you guys.

Jesse Singh: You know, over the last few, almost over the last, I guess, over a year of surveys, some of the froth that we may have felt has normalized. And so now we're sitting at an above average backlog for most contractors. And I think there are really two elements to that, right? Pete mentioned the weeks of backlog, which has varied between seven and eight in that range. It's seven and change right now.

Speaker Change: Thanks, John.

Speaker Change: Our next question comes from the line of Susan Mcclary with Goldman Sachs. Susan. Please go ahead.

Susan Marie Maklari: Thank you.

Susan Marie Maklari: My first question is on the exterior side again, you mentioned that you started a new facility I think outside Pittsburgh in the quarter can you talk a bit more about that facility and how we should think about it coming online and what it could mean for growth in that part of the business.

Susan Marie Maklari: Yes.

Speaker Change: Good question. So we have a facility in aliquippa, which is our <unk> facility.

Jesse Singh: But we also ask those same contractors their assumption of growth and their sentiment beyond just the number of backlogs or the number of weeks of backlog. And in general, that's what you see as being incrementally more positive. So the combination, in effect, says stable business, much more normalized, good activity, and, you know, a pretty good, we're using the word cautiously optimistic view of what's ahead of them. Okay, that's helpful.

Speaker Change: It does make.

Speaker Change: Products broader.

Speaker Change: But it is the original versus the tech facility in essence.

Speaker Change: We have property and we are doubling the size of that facility by building a similar size building.

Speaker Change: Nearby within that building, we will have.

Speaker Change: And we didn't disclose the specific completion date, except to say that that is where some of the capital is going that building.

John Lovallo: And then I think, you know, in terms of SG&A in the quarter, Pete, you called out higher stock comp and continued investment. As we think about SG&A as we move through this year and maybe into next year, is the right way to think about it still as deleveraging this year, and then maybe a return to positive operating leverage in 2025? You know, I think we'll probably look at 24 as kind of a more neutral year from a leverage perspective on SG&A, and then I would think, pretty passionately, that you get beyond this year. Most years, we have got to get back to getting 25.

Speaker Change: We will have the ability to do.

Speaker Change: Siding profiles, which are part of our exterior business and trim traditional trim.

Speaker Change: Feet.

Speaker Change: <unk> and <unk>.

Speaker Change: So in essence, what it does is it gives us both new product capacity.

Speaker Change: For some of our new siding and other profile products in addition to giving us.

Speaker Change: Capability to to service future growth.

Speaker Change: Against our exterior business and once again the benefit of all.

Peter Clifford: SG&A, back to you know. Got it. Thank you, guys. Thanks, John. And our next question comes from the line of Susan Maklari with Goldman Sachs. Susan, please go ahead.

Speaker Change: The way in which we operate is we're always allocating a portion of our capital to incremental new products and incremental capacity.

Susan Marie Maklari: Thank you. My first question is on the exterior side again. You mentioned that you started a new facility, I think, outside Pittsburgh in the quarter. Can you talk a bit more about that facility and how we should think about it coming online and what it could mean for growth in that part of the business? Yeah, good question.

Speaker Change: Okay. That's helpful color and then shifting gears a bit as you think about the cash generation of the business. That's expected this year end.

Speaker Change: Some of the perhaps priorities for that can you talk a bit about your appetite for further repurchases post the ASR.

Speaker Change: Any updates on the M&A pipeline, and what Youre seeing there or any changes to your appetite for deals.

Yes, I'll take that.

Speaker Change: Repurchases piece of it too.

Jesse Singh: So we have a facility in Aliquippa, which is our Versatec facility. It does make, you know, products wider, but it is the original Versatec facility. In essence, we have property, and we are doubling the size of that facility by building a similar-sized building nearby. Within that building, we will have, and we didn't disclose a specific completion date, except to say that that is where some of the capital is going. That building will have the ability to do, you know, siding profiles, which are part of our exteriors business, and trim, traditional trim, and sheet trim.

Speaker Change: Ultimately we.

Speaker Change: We do expect another year of strong both cash from ops as well as free cash flow.

Speaker Change: You should expect us to condition you to be at times I'll call programmatic.

Speaker Change: Our share repurchases through the balance of the year.

Speaker Change: But withholding right to also be opportunistic if we saw any dislocation.

Speaker Change: And I think if we exceed.

Speaker Change: Our cash generation ambitions. This year I think we would even consider later in the year being additive to repurchases would possibly looking at some.

Speaker Change: The debt retirement.

Speaker Change: Okay.

Speaker Change: Great. Thank you and then on the M&A front as we've talked about we'll continue to evaluate appropriate.

Jesse Singh: And so, in essence, what it does is it gives us both new product capacity for some of our new siding and other profile products in addition to giving us the capability to service future growth against our exteriors business. And once again, the benefit of the way in which we operate is we're always allocating a portion of our capital to incremental new products and incremental capacity. Okay, that's helpful, Culler.

Speaker Change: Opportunities were always in the market we're always.

Speaker Change: Chatting with folks, we certainly believe that there's an opportunity to continue to build out.

Speaker Change: Our product portfolio.

Speaker Change: In an appropriate way, but it's got to be the right time, and we're going to be very selective that anything we do will.

Speaker Change: Not alter our investor deck in terms of market focus in terms of margins in terms of.

Speaker Change: What we want to do moving forward.

Peter Clifford: And then, shifting gears a bit, as you think about the cash generation of the business that's expected this year and some of the perhaps priorities for that, can you talk a bit about your appetite for further repurchases post the ASR? Any updates on the M&A pipeline and what you're seeing there? Any changes to your appetite for deals? Yeah, I'll take the repurchases piece of it, Sue.

Speaker Change: I will highlight that underneath.

Speaker Change: Or as we look at the business, we recognize that as we move throughout the year. This business is now in a terrific position to generate.

Speaker Change: A fair amount of cash in.

Speaker Change: We've got a fair amount on the balance sheet right now even post ASR and we will continue to.

Speaker Change: To be in a good position of generating cash, which gives us a lot of optionality on the appropriate way to deploy it as both organically against the business selectively on M&A opportunities and then we have a lot of options relative to <unk>.

Peter Clifford: You know, ultimately, look, we do expect another year of strong cash from operations as well as free cash flow. You should expect us to continue to be, at times, what I'll call programmatic at our share repurchases through the balance of the year, but withholding a right to also be opportunistic if we see any dislocation. And I think if we exceed our cash generation ambitions this year, you know, I think, being an additive to..., possibly looking at some debt. OK. Great. Thank you.

Speaker Change: How we wanted to manage the balance sheet as Pete pointed out.

Speaker Change: Okay, great. Thank you for the color.

Speaker Change: I appreciate it thanks.

Speaker Change: Thank you Susan and our next question comes from the line of Mike Dahl with RBC capital markets. Mike. Please go ahead.

Michael Jason Rehaut: Hey, Thanks, a lot of my questions have been answered, but maybe just one more sorry to beat the horse on kind of the implied cadence, but if I if I hear the comments youre talking about improved sentiment no no indicators in digital.

Susan Marie Maklari: And then on the M&A front, as we've talked about, we'll continue to evaluate appropriate opportunities; we're always in the market, we're always... chatting with folks. We certainly believe that there is an opportunity to continue to build out our product portfolio in an appropriate way, but it's gotta be the right time, and we're gonna be very selective so that anything we do will not alter our investor deck in terms of market focus I will highlight that underneath, or as we look at the business, we recognize that as we move throughout the year, this business is now in a terrific position to generate a fair amount of cash.

Michael Jason Rehaut: Suggest that.

Michael Jason Rehaut: Anything's really changed recently.

Michael Jason Rehaut: The second half implied guide is still relatively modest so is the right way to think about this that.

Michael Jason Rehaut: If.

Michael Jason Rehaut: If what youre seeing today holds that would be upside to your guidance in the second half a year guide implies that conditions ultimately moderate versus what youre seeing in the early buy season.

Michael Jason Rehaut: Yes.

Speaker Change: I would work.

Susan Marie Maklari: And we've got a fair amount on the balance sheet right now, even post ASR, and we'll continue to be in a good position of generating cash, which gives us a lot of optionality on the appropriate way to deploy it, as both organically against the business and selectively on M&A opportunities. And then we have a lot of options relative to how we want to manage the balance sheet, as Pete pointed out. Okay, great. Thank you for the color.

Speaker Change: We have seen double digit sell through growth and we've seen that.

Speaker Change: For a.

Speaker Change: A reasonable period of time, you heard us talk about that last summer.

Speaker Change: And we have continued to talk about that to this point.

Speaker Change: That's what we have seen in our guide implies.

Speaker Change: Mid single digit growth.

Speaker Change: And we think that's appropriate.

Susan Marie Maklari: I appreciate it. Thanks. Thank you, Susan. And our next question comes from the line of Mike Dahl with RBC Capital Markets. Mike, please go ahead.

Speaker Change: Given that the season hasn't started and we can give you the assumption of a flat R&R with our initiatives on top of that.

Speaker Change: If something changes then obviously that would have an impact on.

Michael Jason Rehaut: I think a lot of my questions have been answered, but maybe just one more. Sorry to beat the horse on kind of the implied cadence, but if I hear the comments, you know, you're talking about improved sentiment, no indicators, and digital could suggest that anything's really changed recently. The second half implied guide is still relatively modest.

Speaker Change: On.

Speaker Change: Certainly the mid point of what we're talking about.

Speaker Change: Got it.

Speaker Change: And then obviously you had some nice share wins last year that you've articulated I guess as you've gone through the past couple of months.

Jesse Singh: So, is the right way to think about this that, you know, if what you're seeing today holds, that would be upside to your guidance in the second half, i.e., your guidance implies that conditions ultimately moderate versus what you're seeing in the early buy season. Yeah, the way I would word it, you know, we have seen double-digit sell-through growth. And we've seen that for a reasonable period of time.

Speaker Change: Anything that youre seeing on the pro or retail side.

Speaker Change: In terms of kind of.

Speaker Change: Additional opportunities or additional wins that might layer layer in through the year.

Speaker Change: Yes, as we mentioned on the call. It's pretty typical this time of the year, we go through a.

Speaker Change: Negotiation.

Jesse Singh: You heard us talk about that last summer, and we have continued to talk about that to this point. That's what we have seen, and our guide implies mid-single-digit growth, and we think that's appropriate given that the season hasn't started, and we can give you the assumption of a flat R&R with our initiatives on top of that. If something changes, then obviously that would have an impact on certainly the midpoint of what we're talking about. I just got it.

Speaker Change: On shelf space new products.

Positioning ourselves in the marketplace.

Speaker Change: As I mentioned on the call and as Pete mentioned, we feel really really good about.

Speaker Change: Our incremental opportunity that is an outcome of those discussions and I think the most important thing for us is.

Speaker Change: We want to.

Speaker Change: We want to drive.

Speaker Change: More growth in the marketplace, we want to drive more conversion in the marketplace, we want to expand.

Jesse Singh: Okay, and then obviously, you have some nice shares when last year that you've articulated, I guess, as you've gone through the past couple months, you know anything that you're seeing on the pro or retail side in terms of kind of additional opportunities or additional wins that might layer up layer in through the year. As we mentioned on the call, it's pretty typical this time of the year for on-shelf space, new products, and positioning ourselves in the marketplace. As I mentioned on the call, and as Pete mentioned, we feel really, really good about our incremental opportunity that is the outcome of those discussions. And I think the most important thing for us is, you know, we want to, you know, we want to drive more growth in the marketplace, we want to drive more conversion in the marketplace, we want to expand, um, you know, our brand, supercharge it, if you will, and I think it's really, really, a terrific opportunity and these things that we've just gone through, the discussions we've just gone through, have created an Okay, great.

Speaker Change: Our our brand supercharge it if you will.

Speaker Change: And I think it's really really a terrific opportunity and these things that we just the discussions we've just gone through have.

Speaker Change: And an opportunity for us to continue to drive broader conversion and.

Speaker Change: Yes.

Speaker Change: Be able to continue to.

Speaker Change: Expand in the marketplace.

Speaker Change: Okay, great. Thanks.

Speaker Change: Thanks, Mike and our final question today comes from Rafe <unk> with Bank of America. Please go ahead.

Rafe: Great. Thanks, Thanks for taking my question.

Rafe: Peter if I look at the EBITDA guide for the year I think it is.

Rafe: About $70 million growth at the midpoint can you just help us.

Rafe: Bridge that that growth I think it's about $30 million from costs. It sounds like prices neutral SG&A as neutral just can you help us bridge to that $70 million.

Rafe: Yes.

Rafe: Peter I mean, as we had communicated before you've got about $20 million of kind of underutilization in the first half of the year then.

Rafe: Piece of that you've got let's call it.

Michael Jason Rehaut: Thanks, Jesse, and Mike. And our final question today comes from Rafe Jadrosich with Bank of America. Rafe, please go ahead.

Rafe: Deflation of kind of close to $30 million in the recipe in sort of the flow through on the additional sales kind of offset by.

Rafe Jason Jadrosich: Great, thanks for taking my question. Peter, if I look at the EBITDA guide for the year, I think it's about 70 million growth at the midpoint. Can you just help us bridge that growth? I think it's about 30 million from cost.

Rafe: At a macro the disposition of the Viacom business.

Rafe: Those are the biggest pieces.

Speaker Change: Got it.

Speaker Change: Helpful. And then just on the change in your car and just if I have ray if I could just highlight.

Speaker Change: Under the surface and we tried to stress this.

Peter Clifford: It sounds like price is neutral, and SG&A is neutral. Can you help us bridge to that 70 million? Yeah, Rafe, this is Peter. I mean, as we had communicated before, you've got about $20 million of kind of underutilization in the first half. So, you've got, let's call it, inflation of kind of close to $30 million, and the rest being sort of the flow through on the additional sales kind of offset by, at a macro level, the disposition of the Viagra. Those are the biggest.

Speaker Change: We still have a lot of opportunity ahead of us, but we have also been <unk>.

Speaker Change: Progressing over the last two years.

Speaker Change: And.

Speaker Change: Yes, some of the the kind of the combination of Underutilization and.

Speaker Change: Yes.

Speaker Change: Having elevated supply chain cost has masked.

Some of what was underneath and so what what piece highlighting as it is just.

Speaker Change: In effect, a more normal cadence.

Speaker Change: Which.

And then let the underlying capability of the business come out I'm sorry, you had another question.

Peter Clifford: Got it. That's very helpful. And then just on the change in your guidance. And just if I, Rafe, could just highlight the..., you know, under the surface, and we tried to stress this. You know, we still have a lot of opportunity ahead of us, but we have also been progressing over the last two years. And, you know, some of the, you know, the kind of combination of underutilization and, you know, having elevated supply chain costs has masked some of what was underneath, and so what Pete's highlighting is, in effect, a more normal cadence, which can then, you know, let the underlying I'm sorry, did you have another question? Thank you, that's really helpful. Just on the change in guidance from last quarter, sales are going up, I think at the midpoint, around 50 million, and then EBITDA is going up, to 40 million at the midpoint.

Speaker Change: Okay. Thank you.

Speaker Change: That's really helpful. Just on the change in guidance from last quarter.

Speaker Change: Sales are going up I think at the midpoint.

Speaker Change: Around $50 million and then EBITDA is going up.

Speaker Change: $40 million at the midpoint, so the margins on the incremental sales that youre getting is really high can you just help us understand.

Speaker Change: Why it's so high.

Speaker Change: Yeah relative to where I would separate I would separate those two I would look at it as there is incremental sales that.

Speaker Change: Have an incremental benefit and I think in the play out in the past, we've talked about that incremental flow through.

Speaker Change: 30% to 40% its probably closer to 40 right now.

Speaker Change: And then there is the base.

Speaker Change: Amount of activity.

Speaker Change: That as Pete pointed out we felt really good about our ability to drive.

Speaker Change: Higher margins on the business, we already had but.

Speaker Change: But we wanted to see a few more cards.

Speaker Change: Before.

Speaker Change: We took off the.

Jesse Singh: So the margins on the incremental sales that you're getting are really high. Can you just help us understand why they're so high relative to where they've been? I would separate those two. I would look at it as there are incremental sales that have an incremental benefit. And I think in the past, we've talked about that incremental flow through of 30% to 40%. It's probably closer to 40% right now.

Speaker Change: The constraints or took off some of the constraints, obviously, we're always risk adjusting our activity but.

Speaker Change: We have much much better visibility on the underlying margin.

Speaker Change: The ability of the core business. So I would just separate the two there is some incremental benefit from incremental sales.

Speaker Change: But even if we had not guided sales up.

Speaker Change: What we can see on the margin side.

Speaker Change: Which certainly of.

Peter Clifford: And then there's the base amount of activity that, as Pete pointed out, we felt really good about our ability to drive higher margins on the business we already had. But we wanted to see a few more cards before we took off some of the constraints. Obviously, we're always risk adjusting our activity. But we have much, much better visibility on the underlying margin and capability of the core business. So I would just separate them.

Speaker Change: <unk> had been guided up just based on the execution, we see of the core business and I would just add we're in an environment right now where extra sales means extra production, which means leveraging the plants. It means extra recycling activity, which means extra recycling impact if we're buying more we're getting more deflation.

Speaker Change: So we're in a pretty enviable position right now whenever we get additional revenue.

Speaker Change: It is very supportive of that incremental 40%.

Speaker Change: Flow through rate.

Speaker Change: Great. That's really helpful to you guys at the builder show.

Speaker Change: Thanks appreciate it.

Jesse Singh: There's some incremental benefit from incremental sales, but even if we had not guided sales up, you know, what we can see on the margin side, which certainly has, you know, have been guided up just based on the execution we see of the core business. And I'd just add, we're in an environment right now where extra sales means extra production. Leveraging the Plants for Recycling and Activity

Speaker Change: Great.

Speaker Change: And that does conclude our Q&A session I will now turn the call back over to Jesse Singh for closing remarks, Jesse the floor is yours.

Jesse Singh: I appreciate it. Thank you once again for joining us as I mentioned on the call.

Jesse Singh: We we have a core value of the best team wins, and we feel really good about our team we feel really good about the opportunity that is ahead of us and we view this as a journey.

Rafe Jason Jadrosich: Thank you for cycling in. We're buying more, we're getting more deflation, so we're in a pretty enviable position right now. Whenever we get additional revenue, it's very supportive of that increase. Great, that's really helpful. See you guys at the Builder Show. Thanks. I appreciate it. Thanks, Rafe. And that does conclude our Q&A session. I will now turn the call back over to Jesse Singh for closing remarks. Jesse, the floor is yours. I appreciate it. Thank you once again for joining us. As I mentioned on the call, we have a core value of "the best team wins," and we feel really good about our team. We feel really good about the opportunity that is ahead of us, and, you know, we view this as a journey.

Speaker Change: We appreciate all of you taking the time to.

Speaker Change: To have this discussion this evening have a great evening.

Speaker Change: Thanks, Jesse and ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.

Please wait the conference will begin shortly.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

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Speaker Change: Yes.

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Speaker Change: Thanks.

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Jesse Singh: And, you know, we appreciate all of you taking the time to have this discussion this evening. Have a great evening. Thanks, Jesse.

Speaker Change: Sure.

Operator: And ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now, Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.

Speaker Change: Sure.

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