Q2 2024 The AZEK Company Inc Earnings Call

Operator: Hello, and welcome to the Azek Company's second quarter fiscal 2024 earnings call. At this time, all participants are in a listen-only mode. 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.

Hello, and welcome to the AZ companies second quarter fiscal 'twenty 'twenty four earnings call at.

Operator: Your next question comes from the line of Adam Baumgarten with Zellman & Associates. Your line is open. Hey guys, good evening.

Operator: At this time all participants are in a listen only mode. 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.

Adam Michael Baumgarten: I think you mentioned the possibility at some point of inorganic growth, maybe

Eric Robinson: Thank you and good afternoon, everyone. 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 by 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.

Jesse G. Singh: Yeah, well, certainly our focus is continuing to build out the residential business. You know, at Investor Day in 2022, we laid out what we thought was a pretty good growth algorithm. But we also laid out the areas that we would define as core and adjacency.

Eric Robinson: Thank you and good afternoon, everyone. 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.

Eric Robinson: The earnings press release was also furnished to buy 8-K on the Sec's website.

Eric Robinson: I'm joined today by Jessie Singh, 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 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. We do not undertake any duty to update such forward-looking statements.

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

Eric Robinson: 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. Additionally, during today's call. We will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. These.

Eric Robinson: Additionally, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. However, these non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of such non-GAAP measures can be found in our earnings press release, which is also posted on our website. Now, I will turn the call over to AZIC's CEO, Jesse Singh.

Jesse G. Singh: These non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Jesse G. Singh: Reconciliations of such non-GAAP measures can be found in our earnings press release, which is also posted on our website.

Jesse G. Singh: And if you just look at our track record, we, for the most part, have acquired tuck-in acquisitions, acquisitions where we can benefit from their existing customer base, but we can also take the product and move it into our existing channels and really leverage that. And, you know, we've done that recently with Intex and Structure. We've done that over a long period of time with the Ultralux acquisition.

Jesse G. Singh: Now, let me turn the call over to <unk> CEO Jesse.

Jesse G. Singh: Thank you for joining us today. The Azek Company delivered strong performance this quarter and once again outperformed the market with double-digit residential sell-through growth driven by outstanding execution of our growth initiatives. We continue to see the momentum, strength, and resilience of Azek's business model, and our team continues to deliver results ahead of our planning assumptions. Based on our recent performance and increased confidence in our execution, we are raising our fiscal year 2024 net sales and adjusted EBITDA outlays. Before we go into more details on our quarterly performance and the updated outlook, I'd like to have Pete provide some background on why we are delaying our Form 10-2 filing.

Jesse G. Singh: And so I think that kind of a feel for what we would look at gives you a good sense of the opportunity. And then clearly, there are opportunities within the supply chain. We've continued to take advantage of the opportunity we see to expand our capability and recycling. And so those are, you know, directionally, you know, the areas that we would look at.

Jesse G. Singh: Thank you for joining us today, the HVAC company delivered strong performance this quarter and once again outperformed the market with double digit residential sell through growth driven by outstanding execution of our growth initiatives, we continue to see the momentum strength and resilience.

Jesse G. Singh: <unk> business model and our team continues to deliver results ahead of our planning assumptions based on our recent performance and increased confidence in our execution. We are raising our fiscal year 2024, net sales and adjusted EBITDA outlooks.

Adam Michael Baumgarten: I think the most important takeaway is that we really like our business model. We're really well set up to continue to drive above-market growth in our core. So anything we do is really going to be around strengthening the core and making sure that we set ourselves up for continued growth in the segment that we love, which is the segment that we play in. Got it. Thanks.

Jesse G. Singh: Before we go into more details on our quarterly performance and the updated outlook I'd like to have Pete provide some background on why we are delaying our Form 10-Q filings.

Peter G. Clifford: Thank you, Jesse, and good evening, everyone. During our March 2024 quarter-end closed process, a plant accountant took over certain inventory-related responsibilities from an employee who had recently left the company and discovered a gap between the company's balance sheet and the physical inventory subledger. As soon as we identified the issue, the Audit Committee initiated a thorough, independent investigation with outside counsel and independent accounting advisors, with the diligent support of management and other

Jesse G. Singh: And then just back to the sell-through being up double digits. Maybe you could put a finer point on how much you think the composite decking market is growing versus that number. Uh, you know, it's a, I don't know that I have a great sense of that. I think if you look over the last..., give or take 12 months. I think what you would have heard is, in general, probably, you know, give or take around 5%.

Adam Michael Baumgarten: Thank you Jesse and good evening, everyone. During our March 2020 for quarter end close process applied to count and took over certain inventory related responsibilities from them or you have recently left the company and discovered a gap between the companys balance sheet and physical inventory sublet here as soon as we identified the issue.

Jesse G. Singh: And we've been growing 5% over that. I think, unfortunately, we're in a market where you make judgments on market growth looking backwards. But I certainly think there's enough data to show that, as a market segment, we, the composite decking area, deck rail, and accessories, are outgrowing the underlying R&R market. And I think it just highlights the resilience and the continued material conversion.

Jesse G. Singh: Audit Committee initiated a thorough independent investigation with outside counsel and independent accounting advisers with the diligence support of management and other employees.

Operator: And that concludes the question and answer session. I'll turn the call over to Jesse Singh for closing remarks.

Jesse G. Singh: I really appreciate everyone taking the time once again this evening to have a discussion with us. As always, reach out with questions. We look forward to having ongoing dialogue and chatting with you again next quarter. Thanks, and have a great evening.

Peter G. Clifford: The investigation determined that the recently departed employee had been recording unsupported manual journal entries that ultimately increased the value of inventory and decreased the cost of goods sold. The investigation also identified no evidence of involvement by anyone other than a single former employee and found no indication that there were any affected accounts other than inventory and cost of goods sold.

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

Jesse G. Singh: The investigation determined that the recently departed employees had been recording unsupported manual journal entries that ultimately increase the value of inventory and decrease the cost of goods sold.

Operator: Please wait; the conference will begin shortly.

Operator: The investigation also identified no evidence of involvement by anyone other than a single former employee and found no indication that there were any affected accounts other than inventory and cost of goods sold. The investigation is now substantially complete and we have identified the specific adjustments needed for <unk>.

Peter G. Clifford: The investigation is now substantially complete, and we have identified the specific adjustments needed. For more details, please see the Form 8K we filed today. We are confident that our preliminary year-to-date 2Q24 financials reflect the entire impact for fiscal year 2024. The impact on fiscal 24 is caused by FICO accounting estimates being revised due to the restatement of inventory used in a rollback, which caused approximately $4 million of additional costs not previously planned for in our year-to-date 2Q results.

Peter G. Clifford: Details. Please see the form 8-K, we filed today.

Peter G. Clifford: We are confident that our preliminary year to date <unk> 'twenty for financials reflect the entire impact for fiscal year 2020 for the.

Peter G. Clifford: The impact on fiscal 'twenty four is caused by FIFO accounting estimates being revised to the restatement of inventory Houston, a rollback, which caused approximately $4 million of additional costs not previously planned for and our year to date <unk> results.

Peter G. Clifford: I want to emphasize there is no impact on net sales or the underlying fundamentals of the business. Actions are underway to strengthen reporting processes and internal controls to prevent this from happening in the future. I now hand the call back to Jesse to provide an update on the businesses and progress against our strategic initiatives.

Peter G. Clifford: I want to emphasize there is no impact on net sales for the underlying fundamentals of the business.

Jesse: Actions are underway to strengthen our reporting processes and internal controls to prevent this from happening in the future.

Peter G. Clifford: Now I'll hand, the call back to Jesse to provide an update on the businesses and progress against our strategic initiatives.

Jesse G. Singh: Thank you, Pete. I'd like to thank members of our finance team that identified the issue and acted quickly to raise the matter and support the investigation. With the investigation substantially complete, we are confident that we understand the scope of the adjustment. To reiterate what Pete said earlier, this matter has no impact on net sales or the strength of our underlying business operations, and we are confident in our updated and increased fiscal 2024 outlook.

Jesse: Thank you Pete I'd like to thank members of our finance team that identified the issue and acted quickly to raise the matter and support the investigation with.

Jesse G. Singh: With the investigation substantially complete we are confident that we understand the scope of the adjustments.

Jesse G. Singh: To reiterate what Pete said earlier this matter has no impact on net sales for the strength of our underlying business operations and we are confident in our updated and increased fiscal 2020 for outlook.

Jesse G. Singh: Our team continues to remain focused on execution to drive above market growth and margin expansion in fiscal year 2024 and beyond. For example, over the last 12 months, our residential segment has grown 19% year over year, driven by strong channel, contractor, and consumer demand for our residential product portfolio. Through the first six months and on March 31st, 2024, our residential segment has grown 20% year over year, and demand for our products remains strong as we enter the 2024 building. Over the last several years, we have invested in and will continue to invest in our core strengths of research and development, innovation, brand awareness, customer relationships, and our world-class manufacturing operations.

Jesse G. Singh: Our team continues to remain focused on execution to drive above market growth and margin expansion in fiscal year 2024 and beyond.

Jesse G. Singh: Over the last 12 months, our residential segment has grown 19% year over year, driven by strong channel contractor and consumer demand for our residential product portfolio through.

Jesse G. Singh: Through the first six months ended March 31, 2020 for our residential segment has grown 20% year over year and demand for our products remained strong as we enter the 2024 building season.

Jesse G. Singh: Over the last several years, we have invested and will continue to invest in our core strengths of research and development innovation brand awareness customer relationships and our world class manufacturing operations, all of which advances and strengthens our position.

Jesse G. Singh: All of which advances and strengthens our position as a category leader and allows us to provide the best service to our customers. Our TimberTech brand is strengthening across all channels. Sample orders are up year over year, as are websites.

Jesse G. Singh: As the category leader and allows us to provide the best service to our customers.

Jesse G. Singh: Our timber tech brand is strengthening across all channels sample orders are up year over year as well as website visits.

Jesse G. Singh: We've also added more than 1000 contractors to our timber tech loyalty program year to date, and several of our products are being recognized by industry and design leaders alike. For example, our new Timber Tech Composite Terrain Plus collection received Green Builders 2024 Sustainable Product of the Year Award and was named HGTV Magazine's 2024 Green List. We are experiencing incremental growth from some of our newest product innovations, such as our Timber Tech Composite Terrain Plus Horizontal Cable Railing and Timber Tech Aluminum Framing Substructure.

Jesse G. Singh: We've also added more than 1000 contractors into our timber tech loyalty program year to date and several of our products are being recognized by industry and design leaders alike.

Jesse G. Singh: For example, our new timber tech composite terrain plus collection received green builders 2020 for sustainable product of the year Award.

Jesse G. Singh: <unk> was named the HD TV magazines 2024 Green list.

Jesse G. Singh: We are experiencing incremental growth from some of our newest product innovations such as our timber tech composite terrain plus.

Jesse G. Singh: Horizontal cable railing and timber tech aluminum framing substructure.

Jesse G. Singh: This new product is driving contractor productivity and giving homeowners a long-lasting, solid-deck substructure that is superior to wood and other alternatives. In addition, our new siding and railing products continue to gain share and drive incremental growth. Last month, our Timber Tech Advanced PVC Vintage and Landmark Decking Collection. We are the first in the composite decking industry to receive an ignition resistant designation from California State Fire. In addition to the new ignition-resistant designation, these collections hold a Class A flame spread rating and meet WUE compliance, the combination of which sets the industry standard for fire resistance. With more than 46 million homes across 70,000 communities across the US at risk from the impacts of wildfire, products across AZEK's portfolio can help consumers increase resistance to heat, flames, and embers that are typical of most wildfires. No other decking features this level of fire rating, beauty, and performance of these premium collections.

Jesse G. Singh: This new product is driving contractor productivity and giving homeowners a long lasting solid deck substructure that is superior to wood and other alternatives.

Jesse G. Singh: In addition, our new siding and railing products continue to gain share and drive incremental growth last month, our timber tech advanced PVC vintage and landmark decking collections were the first in the composite decking industry to receive an ignition resistant designation.

Jesse G. Singh: From California State fire Marshals. In addition to the new ignition resistant designation. These collections hold a class a flame spread rating and meat really compliance the combination of which sets the industry standard for fire resistance with.

Jesse G. Singh: With more than 46 million homes across 70000 communities across the U S at risk from the impacts of wildfire.

Jesse G. Singh: Alex across <unk> portfolio can help consumers increased resistance to heat.

Jesse G. Singh: James and embers that are typical of most wildfires.

Jesse G. Singh: No. Other decking features this level a fire rating beauty and performance of these premium collections.

Jesse G. Singh: We also continue to benefit from our shelf space gains over the last few years in both the pro and retail channels. We are excited about some recent and incremental gains that will support our growth in 2025, drive incremental material conversion, and allow us to continue to build on the brand momentum of TimberTech and Azek. We expect to invest approximately $4.5 million in our fiscal fourth quarter.

Jesse G. Singh: We also continue to benefit from our shelf space gains over the last few years in both the pro and retail channels.

Jesse G. Singh: We are excited about some recent and incremental gains that will support our growth in 2025 drive incremental material conversion and allow us to continue to build on the brand momentum of timber tech and <unk>.

Jesse G. Singh: We expect to invest approximately $4 5 million in our fiscal fourth quarter to support these incremental gains which is embedded in our updated outlook. The investments. We have made in our sales team the timber tech brand new products and new capacity have put us in a position.

Jesse G. Singh: Support these incremental gains, which are embedded in our updated outlook. The investments we have made in our sales team, the TimberTech brand, new products, and new capacity have put us in a position of increasing relevance to the consumer, the contractor, and the channel. On the recycling and operational front, we continue to focus on expanding our sourcing network, increasing the usage of recycled materials, and lowering our conversion costs. We recently expanded our geographic recycling footprint with the addition of a new Texas-based operation. The initiative expands our sourcing reach, adds processing capacity, reduces logistical and transportation costs, and adds new collection points to our full-circle recycling program. This program currently has more than a thousand bins placed throughout the country.

Jesse G. Singh: <unk> of increasing relevance to the consumer the contractor and the channel.

Jesse G. Singh: On the recycling and operational front, we continue to focus on expanding our sourcing network, increasing the usage of recycled materials and lowering our conversion costs. We recently expanded our geographic recycling footprint with the addition of a new Texas based operation.

Jesse G. Singh: The initiative expands our sourcing reach adds processing capacity reduces logistical and transportation costs and adds new collection points to our full circle recycling program.

Jesse G. Singh: This program currently has more than a 1000 bins placed throughout the country.

Jesse G. Singh: Our newer Boise decking manufacturing facility is also nearing the utilization and production levels we had planned for its initial build-out phase. This is an important component to some of our recent shelf space wins. Across our manufacturing and recycling network, we are aggressively leaning into our AZAC integrated management system to improve efficiency and drive continuous improvement that support our long-term margin expansion initiative. As we look to the remainder of the year, we continue to be optimistic about our ability to drive above-market growth and margin expansion. [inaudible] Channel inventories are healthy and remain below the historical average.

Jesse G. Singh: Our newer Boise decking manufacturing facility is also nearing the utilization and production levels. We had planned for its initial build out phase.

Jesse G. Singh: This is an important component to some of our recent shelf space wins.

Jesse G. Singh: Across our manufacturing and recycling network, we are aggressively leaning in to our <unk> integrated management system to improve efficiency and drive continuous improvements that support our long term margin expansion initiatives.

Jesse G. Singh: As we look to the remainder of the year, we continue to be optimistic about our ability to drive above market growth and margin expansion year to date, we have had strong double digit sell through growth in our residential segment.

Jesse G. Singh: Channel inventories are healthy and remain below historical averages. We think it is prudent to continue to assume a flattish repair and remodel market and a mid single digit sell through growth through the remainder of the fiscal year and our updated 2024 outlook.

Jesse G. Singh: We think it is prudent to continue to assume a flattish repair and remodel market and mid-single-digit sell-through growth through the remainder of the fiscal year in our updated 2024 outlook. The results of our recent survey of over 500 dealers and over 1,000 contractors showed that our partners remain positive and balanced in their outlook. Contractor backlogs remain stable, and sentiment is positive, with continued expectations for growth in 2024. Internally, key awareness and demand indicators, including sample orders and website sessions, continue to show double-digit growth, and contractor conversions are up.

Jesse G. Singh: The results of our recent survey of over 500 dealers and over 1000 contractors showed that our partners remain positive and balanced in their outlook.

Jesse G. Singh: Contractor backlogs remained stable and sentiment is positive with continued expectations for growth in 2024.

Jesse G. Singh: Internally key awareness and demand indicators, including sample orders and website sessions continued to show double digit growth in contractor conversions are up.

Jesse G. Singh: We are raising our fiscal 2024 outlook for the year driven by our fiscal second quarter performance, the demand for our products we have experienced year to date, and our increased visibility to our margin. We now expect adjusted EBITDA margins to range between 25.8% and 26.4% for the year, demonstrating strong progress to our 27.5% objective. We will continue to execute our strategy for the remainder of fiscal 2024 and believe that we are well positioned to continue to drive above market growth in 2025. I will now turn the call back over to Pete to provide some additional context on our financial results and outcomes.

Jesse G. Singh: We are raising our fiscal 2020 for outlook for the year driven by our fiscal second quarter performance. The demand for our products, we have experienced year to date and our increased visibility to our margins.

Pete: We now expect adjusted EBITDA margins will range between 25, 8% and 26, 4% for the year demonstrating strong progress toward our 27, 5% objective.

Pete: We will continue to execute our strategy for the remainder of fiscal 2024 and believe that we are well positioned to continue to drive above market growth in 2025.

Jesse G. Singh: I will now turn the call back over to Pete to provide some additional context on our financial results and outlook.

Peter G. Clifford: Thanks, Jesse. As Eric highlighted at the beginning of the call, we have uploaded a supplemental presentation on the investor relations portion of our website. Before we get into the 2nd quarter results, I wanted to provide some context on the 2nd quarter demand. First, on sell-through, we continue to experience approximately double-digit sell-through growth in fiscal 2Q24. This is the result of continued execution of the ASEC growth playbook, including downstream material conversion initiatives

Pete: Thanks, Jessie as Erik highlighted at the beginning of the call. We have uploaded a supplemental presentation on the Investor relations portion of our website before we get into the second quarter results I wanted to provide some context on the second quarter demand.

Peter G. Clifford: First on sell through we continue to experience approximately double digit sell through growth in fiscal <unk> 24.

Peter G. Clifford: This is the result of continued execution of the Asia growth playbook, including downstream material conversion initiatives channel expansion efforts, new product development and shelf space gains. We ended the quarter with channel inventory is down approximately 15% versus the historical average days on hand.

Peter G. Clifford: Channel Expansion Efforts, New Product Development, and Shelf Space Gains. We ended the quarter with channel inventories down approximately 15% versus the historical average days on hand. Retail point-of-sale data continues to experience healthy growth year over year. However, total retail POS remained above our pro-channel sell-through growth. These results underscore the strength of our retail partnerships, the continued demand for our products in stores, as well as the accretive growth opportunity in front of us in the retail channel. From an operating perspective, we continue to execute our traditional annual recycling and product configuration edition. Commodity prices and our conversion costs remain stable, and we continue to see additional sourcing savings opportunities.

Peter G. Clifford: Retail point of sale data continues to experience healthy growth year over year. The total retail Pos remained above our pro channel sell through growth.

Peter G. 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 and the retail channel.

Peter G. Clifford: From an operating perspective, we continue to execute our traditional annual recycling product configuration initiatives commodity prices at our conversion costs remained stable and we continue to see additional sourcing savings opportunities in terms of SG&A, our preliminary results reflected normalized spend level.

Peter G. Clifford: In terms of SG&A, our preliminary results reflected normalized spend levels, and we continue to invest opportunistically to drive future growth and brand awareness. The combination of approximately double-digit residential sell-through growth coupled with strong execution of our material savings, conversion costs, and recycling initiatives helped us drive strong performance in the second quarter. Turning to the preliminary results.

Peter G. Clifford: And we continue to invest opportunistically to drive future growth and brand awareness.

Peter G. Clifford: Combination of approximately double digit residential sell through growth coupled with strong execution of our materials savings conversion cost and recycling initiatives helped us drive strong performance in the second quarter.

Peter G. Clifford: Turning to the preliminary results.

Peter G. Clifford: For the second fiscal quarter, consolidated net sales increased 11% year over year to $418 million, and adjusted net sales, excluding results from the divestiture of Viacom, increased 17% year over year. Residential segment net sales increased 18% year over year, driven by double-digit sell-through growth, solid demand for our products, and our positioning for the building season. For the six months ended March 31st, 2024, consolidated net sales increased 11% year-over-year to $658.9 million, and adjusted net sales, excluding results for the divested Viacom business, increased 19% year-over-year.

Peter G. Clifford: For the second fiscal quarter consolidated net sales increased 11% year over year to $418 million and adjusted net sales excluding results from the divestiture of Viacom increased 17% year over year.

Peter G. Clifford: Residential segment net sales increased 18% year over year, driven by double digit sell through growth solid demand for our products and our positioning for the building season.

Peter G. Clifford: For the six months ended March 31, 2020 for consolidated net sales increased 11% year over year to $658 9 million and adjusted net sales excluding results from the divested Viacom business increased 19% year over year.

Peter G. Clifford: For that same period, we've spent net income in the range of $74 to $75 million and net profit margins in the range of 11.2% to 11.4%. We expect adjusted EBITDA in the range of $167 to $169 million and adjusted EBITDA margins in the range of 25.3% to 25.6%. From a balance sheet and cash flow perspective, we ended the quarter with cash and cash equivalents of $227 million and approximately $148 million available for future borrowings under a revolving credit facility. We ended the quarter with gross debt of $669 million, which included approximately $78 million of finance leases.

Peter G. Clifford: For that same period, we expect net income in the range of <unk> $74 million to $75 million and net profit margin in the range of 11, 2% to 11, 4% we.

Peter G. Clifford: We expect adjusted EBITDA in the range of $167 million to $169 million and adjusted EBITDA margins in the range of 25, 3% to 25, 6%.

Peter G. Clifford: From a balance sheet cash flow perspective, we ended the quarter with cash and cash equivalents of $227 million and approximately $148 million available for future borrowings under our revolving credit facility.

Peter G. Clifford: We ended the quarter with gross debt of $669 million, which included approximately $78 million of finance leases.

Peter G. Clifford: Net debt was $441 million, and capital expenditures for the quarter were approximately $19.2 million. During the three months ended March 31, 2024, the company repurchased approximately a half a million shares of its Class A common stock on the open market, totaling approximately $25.2 million in reacquisition costs. Fiscal year to date, the company has repurchased $125 million worth of shares. The remaining authorization under our share repurchase program is approximately $76 million, and we expect to be active on the share repurchase front for the remainder of the year. As a reminder, our capital allocation priorities remain the same as we previously communicated.

Peter G. Clifford: Net debt was $441 million.

Peter G. Clifford: Capital expenditures for the quarter were approximately $19 2 million.

Peter G. Clifford: During the three months ended March 31, 2024, the company repurchased approximately a half a million shares of its class a common stock on the open market totaling approximately $25 2 million re acquisition costs.

Peter G. Clifford: Fiscal year to date, the company has repurchased $125 million worth of shares the remaining authorization under our share repurchase program is approximately $76 million and we expect to be active on the share repurchase front for the remainder of the year.

Peter G. Clifford: As a reminder, our capital allocation priorities remain the same as we 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.

Peter G. Clifford: 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 are seeing and assuming for the balance of the fiscal year. We continue to expect the R&R market in fiscal 24 to remain flattish, and we see our residential sell through in the mid single digits for the balance of the fiscal year. We will continue to focus on driving above market growth for our strategic initiatives, including market conversion and shared. We are pleased with the results of our first half of Fiscal 24 and the impact from shelf space wins and expansion in both the Pro and Retail Channel.

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

Peter G. Clifford: We continue to expect the R&R market in fiscal 'twenty four to remain flattish and we see our residential sell through in the mid single digits for the balance of the fiscal year.

Peter G. Clifford: We continue to focus on driving above market growth for our strategic initiatives, including market conversion and share gains. We are pleased with the results of our first half of fiscal 'twenty, four and the impact from shelf space wins and expansion in both the pro and retail channel.

Peter G. Clifford: These wins, coupled with double-digit residential sell-through over the first 6 months, provide confidence in our second half of the year and generates a tailwind to Fiscal 25 for us to continue to outperform the market. From a channel inventory perspective, we continue to manage the channel conservatively while maintaining high service levels and short lead times.

Peter G. Clifford: These wins, coupled with double digit residential sell through over the first six months provides confidence that our second half of the year and generates a tailwind with fiscal 'twenty five for us to continue to outperform the market.

Peter G. Clifford: From a channel inventory perspective, we continue to manage the channel conservatively, while maintaining high service levels and short lead times on the margin side, we continue to see benefits from our margin expansion initiatives and remain focused on expanding our sourcing and recycling programs, while lowering our conversion.

Peter G. Clifford: On the margin side, we continue to see benefits from our margin expansion initiatives and remain focused on expanding our sourcing and recycling programs while lowering our conversion costs to further benefit our gross margins in future quarters. On SG&A, we will continue to support organic growth through sales and marketing initiatives. With our outperformance in the first half and demand seeming to date, coupled with increased visibility to our margin driver, we are increasing our guidance for full year consolidated net sales to range between $1,407,000,000 to $1,438,000,000 and increasing our full year adjusted event arrangement to between $364,000,000 to $380,000,000.

Peter G. Clifford: <unk> costs to further benefit our gross margins in future quarters.

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

Peter G. Clifford: With our outperformance in the first half and demand seem to date, coupled with increased visibility to our margin drivers. We are increasing our guidance for full year consolidated net sales to range between $1.407 billion to 1.438 billion and <unk>.

Peter G. Clifford: Greasing, our full year, adjusted EBIT range to between $364 million to $380 million.

Peter G. Clifford: The updated adjusted EBITDA range includes the $4 million of first-half Fiscal 24 FIFO accounting charges, which were not contemplated in our last guide, and $4.5 million of incremental investment related to recent retail and pro-channel wins, which will show in the gross margin rate as a reduction in sales. We are excited about the growth opportunity this adds to our fiscal year 25. Excluding the approximately $4.5 million impact from this channel investment in 4Q, our second half of fiscal 24 adjusted EBITDA margin would be in the range of 26.6% to 27.7%.

Peter G. Clifford: The updated adjusted EBITDA range includes the $4 million of first half fiscal 'twenty four LIFO accounting charges, which were not contemplated at our last guide and $4 5 million of incremental investment related to recent retail and pro channel wins, which will show in the gross margin rate.

Peter G. Clifford: As a reduction in sales we are excited about the growth opportunity in this adds to our fiscal year 'twenty five and beyond.

Peter G. Clifford: Excluding the approximately $4 5 million impact from this channel investment in <unk>, our second half of fiscal 'twenty four adjusted EBITDA margin would be in the range of 26, 6% to 27, 7%.

Peter G. Clifford: Adjusting for the Viacom sale, our consolidated net sales guidance range would imply 9% to 11% growth year over year. The residential segment planning assumptions for the year are $1,337,000,000 to $1,364,000,000 in net sales, representing 9% to 12% sales growth year over year, and adjusted segment EBITDA between $350,000 to $365,000,000. A few other assumptions for full year 24 to share include the following. We are expecting a capital expenditure range of between $85 to $95 million, consistent with our stated target of capex of approximately 5% to 7% of revenue.

Peter G. Clifford: Adjusting for the <unk> sale.

Peter G. Clifford: Consolidated net sales guidance range would implied 9% to 11% growth year over year.

Peter G. Clifford: Our residential segment planning assumptions for the year is $1.337 billion to $1 billion $364 million in net sales, representing 9% to 12% sales growth year over year and.

Peter G. Clifford: And adjusted segment EBITDA between $350 million to $365 million.

Peter G. Clifford: A few other assumptions for full year 'twenty four to share include the following.

Peter G. Clifford: We're expecting our capital expenditure range of between $85 million to $95 million consistent with our stated target of Capex of approximately 5% to 7% of revenue.

Peter G. Clifford: We are expecting depreciation of approximately $90 million to $93 million. Additionally, we are targeting a working capital reduction of approximately 10 to 20 million for the year. We are expecting a gap tax rate for the full year of 29 to 30%. And finally, for the full year, fiscal 24, 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 presentation we have posted on our investor relations website.

Peter G. Clifford: We're expecting depreciation of approximately 90 million to $93 million.

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

Peter G. Clifford: We are expecting a GAAP tax rate for the full year of 29% to 30%.

Peter G. Clifford: And finally for the full year fiscal 'twenty four we expect to deliver another strong year of free cash flow generation for additional planning assumptions to assist with modeling fiscal 'twenty four please refer to the supplemental presentation, we have posted on our Investor Relations website.

Peter G. Clifford: Our three key revenue guidance assumes sell-through growth in mid-single-digits. Our guidance for the quarter is $385 million to $400 million in revenue and $103 million to $110 million in adjusted EBITDA. We are expecting an effective tax rate of approximately 27% for the quarter. With that, I'll now turn the call back to Jesse for some closing remarks.

Peter G. Clifford: Our three key revenue guidance assumes sell through growth and mid single digit range or guidance for the quarter is 385 million to $400 million in revenue and $103 million to a $110 million and adjusted EBITDA.

Peter G. Clifford: We are expecting an effective tax rate of approximately 27% for the quarter with that I'll now turn the call back to Jesse for some closing remarks.

Jesse: Thanks, Pete I would again like to thank our dedicated team members channel and supplier partners and contractors that support the Ace at company.

Jesse G. Singh: At this point, I would again like to thank our dedicated team members, channel and supplier partners, and contractors that support Azek. Azek's success and momentum are a testament to the hard work of our exceptional team and partners. I would like to express my gratitude for their continued commitment and execution.

Jesse G. Singh: <unk> success and momentum are a testament to the hard work of our exceptional team and partners.

Jesse G. Singh: I would like to express my gratitude for their continued commitment and execution.

Operator: Our margin expansion initiatives and trends remain strong. We believe we are well positioned to achieve our adjusted EBITDA margin objective of 27.5% earlier than planned and continue to invest to deliver 5 to 7% above market growth. We remain focused and excited about the long-term growth and material conversion opportunity ahead of us in both our fast-growing $14 billion core outdoor living market and in our $10 billion of near-adjacent markets. The expansion of our product portfolio, combined with the continued execution of our growth strategy and share, puts us in a great position for the rest of fiscal 2024 and fiscal 2025. With that, Operator, please open the line for questions.

Jesse G. Singh: Our margin expansion initiatives and trends remained strong we believe we are well positioned to achieve our adjusted EBITDA margin objective of 27, 5% earlier than planned and continue to invest to deliver 5% to 7% above market growth.

Operator: We remain focused and excited about the long term growth and material conversion opportunity ahead of us in both our fast growing $14 billion core outdoor living market.

Operator: And in our $10 billion of near adjacent markets.

Operator: The expansion of our product portfolio combined with the continued execution of our growth strategy and share gains put us in a great position for the rest of fiscal 2024 and fiscal 2025.

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

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question. Your first question comes from the line of Keith Hughes with Truist. Your line is open.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad.

Operator: I would like to withdraw your question simply press Star one again.

Keith Brian Hughes: Thank you please limit yourself to one question.

Operator: Your first question comes from the line of Keith Hughes with Truest. Your line is open.

Keith Brian Hughes: Thank you. My question is on sell-through. You're discussing a deceleration from double-digit sell-through in this quarter to single-digit in the next couple quarters. If you could talk about why you think that's occurring and whether that has already started to occur here in the

Keith Brian Hughes: Thank you my question is on the sell through.

Keith Brian Hughes: Youre discussing a deceleration from double digit sell through in this quarter to single digit over the next couple of quarters.

Keith Brian Hughes: Could talk about why you think thats occurring and has that already started to occur here in April.

Jesse G. Singh: Just to answer your latter question, that has not occurred. And, you know, similar to our last earnings call, we believe it's prudent to assume a flat R&R market and assume that our sell-through growth would be five points over that. I think as you look at what we highlighted in the most recent quarter that we ended, that sell-through growth was right around double digits. And, you know, without getting into too much detail, it's safe to say that that level has continued to date. So, once again, it's a very similar assumption that we had in our last call.

Keith Brian Hughes: Yes, just to answer your latter question that has not occurred and similar to our.

Jesse G. Singh: Last earnings call, we believe it's prudent to.

Jesse G. Singh: I assume a flat R&R market and to assume that.

Jesse G. Singh: Our sell through growth would be five points over that.

Jesse G. Singh: As you look at what we highlighted in the most recent quarter that we ended that sell through growth was right around double digits.

Jesse G. Singh: Without getting into too much detail.

Jesse G. Singh: Safe to say that that level has.

Jesse G. Singh: Continued to date.

Jesse G. Singh: So once again, it's a very similar assumption that we had in our last call.

Jesse G. Singh: And then finally, just on the same topic, in the September quarter, the fourth quarter, the implied guidance there is flat-ish revenue. Again, that would be below the sell-through that you just discussed. Is that just taking inventory off, or how would you end up down there? Yeah, so I

Jesse G. Singh: Okay.

Jesse G. Singh: And then finally just on the same topic.

Jesse G. Singh: In September.

Jesse G. Singh: September quarter, the fourth quarter.

Jesse G. Singh: The implied guidance is flattish revenue again that would be.

Jesse G. Singh: Hello, So sell throughs that you just discussed is that just taking inventory also.

Jesse G. Singh: How would you end up down there.

Jesse G. Singh: Yeah, so I think, as we said on the last call, in the second quarter, we would expect to build some modest inventory ahead of the season. And as you look at our implied Q4, if our sell-through stays at 5%, we think it's appropriate to be conservative on that inventory coming back out and bringing us back to what we've talked about all year, which is a decline in days on hand compared to our historical average and really ending the year. This particular guide assumes that we're going to end the year at that 10 to 15% down from our historical average, maybe even a

Jesse G. Singh: So I think as we said on the last call in the second quarter, we would expect to build some modest inventory ahead of the season.

Jesse G. Singh: And as you look at our implied Q4, if our sell through stays at 5%. We think it's appropriate to be conservative on that inventory coming back out and bringing us back to.

Jesse G. Singh: What we've talked about all year, which is a decline in.

Jesse G. Singh: And days on hand, compared to our historical average and really ending the year. This particular guide assumes that we're going to end the year at that 10.

Jesse G. Singh: 15%.

Jesse G. Singh: Down from historical average, maybe even a little higher.

Speaker Change: Okay. Thank you very much.

Operator: Your next question comes from the line of Tim Weiss with Baird. Your line is open.

Jesse G. Singh: Your next question comes from the line of Tim Weiss with Baird. Your line is open.

Tim Weiss: Hey, good afternoon, guys. Maybe just to start on some of the new business wins that you talked about, Jesse, is there any way to kind of, you know, ring fence or kind of size what the incremental business is? And I guess, is it similar to what you've seen over the last couple of years? Or is there anything in there that's kind of new?

Tim Weiss: Hey, good afternoon guys.

Tim Weiss: Maybe just to start on some of the new business wins that you talked about Jesse.

Tim Weiss: Is there any way to kind of ring.

Tim Weiss: Ring fence or kind of size, what the incremental business is I guess is it similar to what you've seen over the last couple of years or is there anything in there that's kind of new.

Jesse G. Singh: You know, thanks for the question. As we've highlighted in our prepared remarks, the wins are really both in retail and in the pro. I think from a sizing standpoint, as we look at next year, you know, it is the first time we've called out some incremental costs associated with that transition. And I think as we look at 2025, I would think some of the incremental positions that we gain give us a lot of confidence to be able to really articulate that we're in a good position to continue to outgrow the market by 5%. So we're not sizing it specifically, but clearly, it's something that is probably a bit larger than what we've talked about in the past and really sets us up for 2025.

Jesse: Thanks for the question as we've highlighted in our prepared remarks, the wins are really both in.

Jesse G. Singh: In retail and in the pro.

Jesse G. Singh: I think from a sizing standpoint as as we look at next year.

Jesse G. Singh: It is the first time, we've called out some incremental costs associated with that transition.

Jesse G. Singh: And I think as we look at 2025.

Jesse G. Singh: I would think some of the incremental positions that we gain give us a lot of confidence to be able to.

Jesse G. Singh: To really articulate that we're in a good position to continue to outgrow the market.

Jesse G. Singh: By 5%, so we're not sizing it specifically, but clearly it's something that.

Jesse G. Singh: It's probably a bit larger than what we've talked about in the past and really sets us up for 2025.

Tim Weiss: Okay, okay, great. That was helpful.

Speaker Change: Okay. Okay, great no. That's helpful. And then just thinking about the investments is that really just.

Tim Weiss: <unk> channel kind of servicing sales were up those types of things or are there other kind of structural investments that you need to make.

Speaker Change: Just just given where the tinder business I would think of it as.

Speaker Change: Anytime you have.

Tim Weiss: A meaningful.

Tim Weiss: Gain in either the pro or the retail channel.

Tim Weiss: And in some cases, you need to support that.

Tim Weiss: Transition and so I would think of it as transition costs.

Tim Weiss: As as we move forward.

Jesse G. Singh: And then just thinking about the investments, is that really just channel kind of servicing, sales rep, those types of things, or are there other kinds of structural investments that you need to make, just given where the new business is? I would think of it as, you know, anytime you have, you know, a meaningful gain in either the pro or the retail channel, in some cases, you need to support that transition. And so I would think of it as transition costs as we move forward. Okay, very good. Thanks a lot for the color, guys.

Speaker Change: Okay. Okay very good thanks, a lot for Dakota.

Operator: Your next question comes from the line of Philip Ng with Jeffreys. Your line is open.

Jesse G. Singh: Your next question comes from the line of Philip <unk> with Jefferies. Your line is open.

Philip H. Ng: Hey Jesse, exciting news on some of the share gains. I guess a really simple question: what are you guys doing that you think is driving some of these share gains? And you know, sorry to kind of dig a little more.

Philip H. Ng: Hey, Jesse.

Philip H. Ng: Writing news on some of the share gains.

Philip H. Ng: I guess really simple question. What are you guys doing that do you think thats driving some of these share gains.

Philip H. Ng: And sorry to kind of dig a little more last year to share gains was it a little more on the retail side any more color or if this is a little more balanced between the channel any color on type of product that is more on the high end.

Jesse G. Singh: Last year the share gains were a little more on the retail side. Any more color on whether this is, you know, a little more balance between the channel? Any color on type of product? Is this more on the high-end, you know, good, bad, or best side of the portfolio? Any color on that front would be helpful as well.

Jesse G. Singh: Good better best side of the portfolio any color on that front would be helpful as well.

Jesse G. Singh: Sure. I think, as we've talked about over the last, really, two years, we've had a really balanced execution of increasing our position in the market on both the professional and on the retail side. And, you know, and obviously, we've highlighted that that will continue into 2025. And I think it really comes down to the investments we've made in terms of expanding our product portfolio, the investments we've made in our downstream sales force.

Jesse G. Singh: Sure.

Jesse G. Singh: As we've talked about over the last.

Jesse G. Singh: Really two years.

Jesse G. Singh: We've had a really.

Jesse G. Singh: Balanced execution of.

Jesse G. Singh: Increasing our position in the market on both the pro.

Jesse G. Singh: And on the.

Jesse G. Singh: Rail side.

Jesse G. Singh: And.

Jesse G. Singh: Obviously, we've highlighted that that will continue into 2025 and I think it really comes down to the investments we've made in terms of expanding our product portfolio.

Jesse G. Singh: The investments we've made.

Jesse G. Singh: Our downstream Salesforce and we've had some meaningful step ups in SG&A investment I think as you look over.

Jesse G. Singh: And we've had some meaningful steps up in SG&A investment, I think, as you look over the last couple of years. And then, I think, as you consider your question on mix, I think we've always and will continue to drive expansion in the more premium segments of the market. We've done that nicely over the last few years, you know, and we called out the ignition resistance of a designation from California, which we believe we're the only player out there that has that. And so those things really secure our position in the premium. And, you know, we believe we're taking steps to not only grow on the premium but close that gap of being underpenetrated in those segments.

Jesse G. Singh: Over the last couple of years, and then I think as you consider your question on mix I think.

Jesse G. Singh: We've always and will continue to.

Jesse G. Singh: Drive expansion in the more premium segments of the market.

Jesse G. Singh: We've done that nicely over the last few years.

Jesse G. Singh: And we called out the ignition resistance.

Jesse G. Singh: <unk>.

Jesse G. Singh: A designation from California, which we believe we're the only player out there that has that.

Jesse G. Singh: And so those things really secure our position in the premium and then obvious.

Jesse G. Singh: Obviously.

Jesse G. Singh: On certain shelves, it's important that we're able to provide the entirety of the portfolio.

Jesse G. Singh: Which includes more of the mid price point products.

Jesse G. Singh: I would say as you consider next year, it's pretty balanced, but we have typically been underpenetrated in more on the good and better parts of the category.

Jesse G. Singh: We believe we are taking steps to not only grow on the premium, but close that gap being underpenetrated in those segments.

Jesse G. Singh: And Jesse, it sounds like your guidance bakes in a fair amount of conservatism with sellout, perhaps, monitoring, which is not what you're seeing, and then inventory coming down to, you know, 10 to 15 percent below historical levels, maybe even higher. Has the channel actually kind of signaled to you that we want to manage inventory a lot more conservatively? Because actually coming into the year, it sounds like they were quite bullish, and they were building more inventory than normal, especially during the winter virus. So I just want to make sure this is more conservatism on your end versus what your channel partners are kind of signaling.

Jesse G. Singh: And Jesse it sounds like your guidance baked in a fair amount of conservatism with sell out perhaps moderating which is not what you are seeing and then inventory coming down too.

Jesse G. Singh: 10% to 15% below historical levels, maybe even higher has the channel actually kind of signaled to you that we want to manage inventory a lot more conservatively because it actually coming into the year. It sounds like you're quite bullish there we're building more inventory than normal, especially going into what a buyer. So I just wanted to make sure.

Jesse G. Singh: This is more conservatism on your end versus what your channel partners are kind of signaling at this point.

Jesse G. Singh: You know, as we've talked about over the last couple of years, I think it's important, as our service levels have been consistent, that we work with our channel partners to make sure that they have an appropriate level of inventory in the channel. And as we've talked about in the last few quarters, really, as we ended 2023, our intent is not to put any more inventory in the channel that is absolutely necessary. What I would say is, in terms of channel behavior, it is pretty normal.

Jesse G. Singh: As we've talked about over the last couple of years I think it is important as our service levels have been consistent.

Jesse G. Singh: That we work with our channel partners to make sure that they have an appropriate level of inventory in the channel and as we've talked about the last few quarters really as.

Jesse G. Singh: We ended.

Jesse G. Singh: 2023, our intent is not to put any more inventory in the channel.

Jesse G. Singh: That is absolutely necessary, what I would say is in terms of channel behavior.

Speaker Change: It is.

Jesse G. Singh: Pretty normal.

Jesse G. Singh: They want enough product to be able to serve their customers, but they don't want too much product that has an impact on their return on investment. And so I would just say it's a pretty normal conversation in a pretty normal year. I think our lower lead times and the consistent execution of those lower lead times give us an opportunity to have high service levels with less inventory in the channel. And if anything, we're probably an advocate of that.

Jesse G. Singh: They want enough product to be able to service their customers, but they don't want too much product that has an impact on their return on investment and so I would just say, it's a pretty normal.

Jesse G. Singh: <unk> and a pretty normal year, I think our lower lead times and the consistent execution of those lower lead times gives us an opportunity to have high service levels.

Jesse G. Singh: With less inventory in the channel and if anything we're probably an advocate of that.

Jesse G. Singh: Okay, great call. I appreciate it, guys.

Speaker Change: Okay, great color I appreciate it guys.

Operator: This question comes from the line of Susan Maklari with Goldman Sachs. Your line is open.

Susan Marie Maklari: Question comes from the line of Susan Mcclary with Goldman Sachs. Your line is open.

Susan Marie Maklari: Thank you. Good afternoon, everyone. My first question is just around demand generally, you know, it sounds like R&R activities started a bit softer for some product categories this year. I guess, how would you characterize what you're hearing from your customers, what you're seeing in perhaps some of your more recent surveys and, you know, anything else that suggests the health of the consumer and the pace of demand that we could see as we get into the summer?

Susan Marie Maklari: Thank you good afternoon, everyone.

Susan Marie Maklari: My first question is just around demand generally you know it sounds like R&R activity started a bit softer for some product categories. This year I guess, how would you characterize what you're hearing from your customers, what youre seeing and perhaps some of your more recent surveys and anything else that suggests the health of the can.

Susan Marie Maklari: Humor, and the pace of demand that we could see as we get into the summer.

Jesse G. Singh: It's been, you know, the general feedback, as we highlighted in our surveys, has been relatively steady. I think certainly in dialogue with the market in general, you would have an R&R rate, a feeling of a flattish R&R rate, as we've highlighted. And I think there's certainly a sense that there is an opportunity for some acceleration when interest rates come down. But, you know, the word I would continue to use is steady. And, you know, there's always going to be geographic or weather variations.

Ben: It's Ben.

Jesse G. Singh: The general feedback as we highlighted on our surveys has.

Jesse G. Singh: Been relatively steady.

Jesse G. Singh: I think certainly in dialogue with the market in general.

Jesse G. Singh: You would you would have an R&R rate a feeling of a flattish R&R rate as <unk>.

Jesse G. Singh: <unk>.

Jesse G. Singh: We've highlighted and I think theres certainly.

Jesse G. Singh: Our sense that there is an opportunity for some acceleration when interest rates come down.

Jesse G. Singh: But the word I would continue to use is steady and.

Jesse G. Singh: Theres always going to be geographic or weather variations, but in general I think.

Jesse G. Singh: But in general, I think what we're seeing is, at least in our consumer segment, a pretty steady set of activity. And clearly, we're benefiting from our activities of growing above the market. And so that's the word I would use is steady. And Pete, I don't know if you've got the data in front of you. I don't know if you've got any incremental comments there.

Pete: What we're seeing is a at least in our consumer segment are pretty steady.

Pete: Set of activity and clearly we're benefiting.

Pete: From our activities of growing above the market and so that's that.

Jesse G. Singh: The word I would use is steady and Pete I don't know if you've got you've got the data in front of me I don't know if <unk> got any incremental comments, there and just from our quarterly surveys with our channel partners.

Peter G. Clifford: Just, you know, from our quarterly surveys with our channel partners, the sentiment from the dealers is incrementally more positive than last quarter. Growth expectations on the dealer set are modestly better than last quarter. You know, contractor side backlogs are kind of still in that seven to eight weeks. So again, really steady over the last kind of six to eight quarters.

Peter G. Clifford: The mean.

Peter G. Clifford: Adamant from the dealers is incrementally more positive.

Peter G. Clifford: From last quarter growth expectations on the dealer said is modestly better than last quarter.

Peter G. Clifford: Contractor side backlogs are kind of still in that seven to eight weeks. So again really steady over the last kind of six to eight quarters.

Susan Marie Maklari: Okay, all right, that's a great color. And then maybe turning to the exterior specifically, I guess anything that you would highlight there, and I know last quarter you mentioned that you're in the process of adding capacity, just any incremental update on how that's coming along and anything, you know, and anything new.

Speaker Change: Okay, Alright, thats, great color and then maybe turning to exterior specifically I guess anything that you would highlight there and I know last quarter, you had mentioned that you.

Susan Marie Maklari: Or in the process of adding capacity just any incremental update on how that's coming along and.

Susan Marie Maklari: And anything.

Susan Marie Maklari: New.

Peter G. Clifford: Pete, why don't you go ahead and take that? Just first on utilization and capacity, as we've talked about previously, we're probably in that 85% to 90% range, and hence that's where some capital is being deployed here, especially in the back half of this year to expand capacity. For 2025, again, we are approaching completion of Phase I of Boise, and capacity utilization on our decking business is pretty steady here at probably 65% to 70%.

Susan Marie Maklari: No.

Peter G. Clifford: As Pete wants you to go ahead and take that just firsthand utilized.

Peter G. Clifford: Utilization and capacity.

Peter G. Clifford: Yes, as we've talked about previously we're probably in that 85% to 90% range.

Peter G. Clifford: And handsets, where is some capital is being deployed here.

Peter G. Clifford: Especially in the back half of this year or two to expand capacity.

Peter G. Clifford: For 2025.

Peter G. Clifford: Again, we are.

Peter G. Clifford: Approaching completion of phase one on Boise.

Peter G. Clifford: Capacity utilization on our decking business is kind of pretty steady here at probably 65% to 70%.

Peter G. Clifford: Yeah, and as you pointed out, the incremental capacity we brought online was within our Versatec and our exteriors business, and that capacity is not only for some of our traditional exterior products, but it's also to help us continue to service the market on some of our new siding products. And what I would say is that that siding capacity expansion is certainly on track. We're in the early days of that particular business. It's a very high-end, niche kind of a side play. But we, you know, certainly have capacity to service that business as it continues to get seeded and grow as we move into 25.

Pete: Yes, and as Jay pointed out the incremental capacity brought online.

Peter G. Clifford: Within our <unk> in our exteriors business and.

Peter G. Clifford: And.

Peter G. Clifford: That capacity is not only in some of our traditional exterior products, but it's also to help us continue to service the market on some of our new <unk>.

Peter G. Clifford: <unk> products and what I would say is that siding capacity expansion is certainly on track. We're in the early days of.

Peter G. Clifford: That particular business, it's a very high end niche.

Peter G. Clifford: Kind of a siding play, but we we certainly have capacity to service that business as it continues to get seeded and grow as we move into 'twenty five.

Susan Marie Maklari: Okay. All right. That's a great color. Thank you both for that, and good luck.

Speaker Change: Okay, Alright, that's great color. Thank you.

Susan Marie Maklari: For that and good luck.

Speaker Change: I appreciate it thanks.

Operator: Your next question comes from the line of Trey Grooms with Stevens Inc. Your line is open.

Susan Marie Maklari: Your next question comes from the line of Trey Grooms with Stephens, Inc. Your line is open.

Trey Grooms: Good afternoon. So, the margin, excluding some of these expenses, looks like it's going to be $26,600 to $27,700 this year. So, you know, you're basically knocking on the door of your long-term target and, or if not hitting it, maybe. And Jesse, I know you guys feel confident that you could hit that early, which was a $27,000 target, that $27,500. So, you know, maybe what it would take, you know, to maybe update that longer-term target and, you know, maybe what it could look like in a few years? Yeah.

Trey Grooms: Good afternoon.

Trey Grooms: So the margin excluding some of these expenses.

Trey Grooms: It looks like it's going to be 26, 6% to 27, 7%. This year, so youre basically knocking on the door here of your long term target.

Trey Grooms: Or if not hitting it maybe.

Trey Grooms: And Jesse I know you said you guys feel confident that you could hit that early which was a 27 target 27 five so.

Speaker Change: Maybe what would it take.

Speaker Change: Maybe update that longer term target.

Speaker Change: Maybe what that could look like in a few years.

Peter G. Clifford: Yeah, as we've said, Trey, in the past, if you go back to our 2022 kind of investor day, you know, we felt like on the recycling side, I think back then we laid out about 350 base points of an opportunity. You know, we still probably see half of that or more ahead of us. And as well on the product configuration side, I think we've ID'd about 200 base points of incremental projects and pathways to expansion. Again, I think we're probably at best the sort of mid-innings in tackling that. So, you know, we still feel like, as we look out over the next couple of years, we've got headroom to expand gross margins.

Jesse: Yes, So we've said train.

Peter G. Clifford: Past, if you go back to our 2022 kind of Investor day.

Peter G. Clifford: We felt like on the recycling side I think back then we laid out about 350 basis points of an opportunity.

Peter G. Clifford: We still probably see half of that or more ahead of us and as well on the product configuration side I think we had about 200 basis points of incremental.

Peter G. Clifford: Projects in pathway to expansion again, I think we're probably at best sort of mid innings.

Peter G. Clifford: In tackling that so we still feel like as we look out over the next couple of years, we've got headroom.

Peter G. Clifford: To expand gross margins.

Trey Grooms: Okay, and maybe just housekeeping. Thanks for that, Pete.

Speaker Change: Okay, and maybe just housekeeping.

Speaker Change: Housekeeping it sounds like the 4 million FIFO impact.

Peter G. Clifford: Sounds like the $4 million FIFO impact. Would that all have been in one cue? Or is some of that going to be in the other cue as well? Yeah.

Pete: Is that would that all have been in <unk> or is some of that going to be in the <unk> as well yes.

Peter G. Clifford: Yeah, it's a great question, Trey. So part of why we're providing kind of year-to-date numbers here is we will likely restate 1Q, and so we're very comfortable with the year-to-date results, but there could be some modest movements from 1Q to 2Q, so that's the color I can provide.

Speaker Change: Question trace so part of why we're providing kind of year to date.

Peter G. Clifford: Numbers here as we will likely restate <unk>.

Peter G. Clifford: And so we're very comfortable in the year to date results, but there could be some.

Peter G. Clifford: Modest movements from <unk>. So that's.

Peter G. Clifford: The color I can provide.

Trey Grooms: Okay, thanks for the color.

Trey Grooms: Okay. Thanks for the color.

Operator: Your next question comes from the line of Matthew Bouley with Barclays. Your line is open.

Trey Grooms: Your next question comes from the line of Matthew Bouley with Barclays. Your line is open.

Matthew Adrien Bouley: Good evening everyone, thanks for taking the questions. So on ASEC's growth relative to sell-through beyond just that fourth quarter dynamic you spoke about earlier, obviously the year-over-year growth has been very strong for the past three quarters and that reflected of course the comparison from the D stock the prior year, but you know as we kind of get forward and we look to more normalized channel inventory comps in the future, you know should we think that ASEC's growth will settle out to sort of match industry sell-through plus your shelf wins, you know perhaps as we forecast out 2025 or you know what could cause your quarterly growth to you know still remain somewhat lumpy. Thank you.

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

Matthew Adrien Bouley: So on <unk> X growth relative to sell through.

Matthew Adrien Bouley: <unk> just that fourth quarter dynamic you spoke about earlier.

Matthew Adrien Bouley: Obviously the year over year growth has been very strong for the past three quarters and that reflected of course, the comparison from the destock the prior year, but as we kind of get forward and we look to more normalized channel inventory comps.

Matthew Adrien Bouley: Comps in the future.

Matthew Adrien Bouley: Should we think that as X growth will settle out to sort of match industry sell through plus your shelf wins.

Matthew Adrien Bouley: Perhaps as we forecast out 2025, or what could cause your quarterly growth to still remain somewhat lumpy.

Jesse G. Singh: Yeah, so, as you point out, we had some modest lapping, I think we called it out in the kind of 20 to 30 range in Q1, but really, since then, you should assume that, you know, we're operating under a normal inventory sell-through scenario. So, as you look at what we delivered in 2Q and compare that to, you know, our fourth quarter, what you're basically seeing is 2Q modestly filling the channel, which is pretty normal at this time of the year; 3Q sells, you know, sell through, sell to being close, there's always a little bit of movement, and then the inventory coming out in Q4.

Matthew Adrien Bouley: Yes.

Jesse G. Singh: So.

Jesse G. Singh: As you point out we had some modest lapping.

Jesse G. Singh: We called it out in kind of.

Jesse G. Singh: 20 to 30 range in Q1, but really since then.

Jesse G. Singh: You should assume.

Jesse G. Singh: That we're operating under a normal inventory sell throughs scenario. So as you look at what we delivered in <unk>.

Jesse G. Singh: And compare that to.

Jesse G. Singh: Our fourth quarter, what you're basically seeing is <unk>.

Jesse G. Singh: Modestly filling the channel, which is pretty normal at this time of the year three Q cell.

Jesse G. Singh: Sell through.

Jesse G. Singh: Sel, two being close Theres always a little bit of movement, and then the inventory coming out in.

Jesse G. Singh: And once again, that's against an assumption of only 5% sell-through growth, and we've been operating at a level above that. I think as you move into next year, your focus and the equation is to be, you know, roughly 5 to 7 points above the market. And over the underlying R&R market. I think you've seen that probably a little higher this year in terms of our overall execution. You know, my guess is decking is probably in the 4 to 5% growth range, and we're 5 to, you know, 6 points over that, which gets us in that double-digit sell-through range. You know, if there's any positive news as we move through 25, we should stack on top of that, and so I'll just leave it at the 5 to 7% above market that we've talked about.

Jesse G. Singh: In Q4, and once again thats against an assumption of only 5% sell through growth in and we've been operating at a level above that I think as you move into next year.

Jesse G. Singh: Our focus in the equation is to be roughly 5% to seven points over the market.

Jesse G. Singh: John.

Jesse G. Singh: Over the underlying R&R market I think you've seen that.

Jesse G. Singh: A little higher this year.

Jesse G. Singh: In terms of our overall execution my guess is decades, probably in the 4% to 5%.

Jesse G. Singh: Growth range, and we're five to six points over that.

Jesse G. Singh: It gets us in that double digit sell through range.

Jesse G. Singh: If there is any positive.

Jesse G. Singh: News as we move through 'twenty five we should stack on top of that and so I'll just leave it at the 5% to 7%.

Jesse G. Singh: <unk> market that we've talked about.

Matthew Adrien Bouley: Got it. Okay, that's helpful, Jesse. And then secondly, I know you just spoke about some of the margin benefits of, you know, your recycling initiatives, but, you know, you called out in the comments about new operations in Texas, adding capacity and sourcing capabilities. I'm just curious if you can elaborate a little bit on what this will do to your mix of recycled products. And also, you know, if you have kind of anything else cooking for the future, I would love to hear it. Thank you.

Speaker Change: Got it okay. That's helpful. Jessie Thank you for that.

Matthew Adrien Bouley: And then secondly, I know you just spoke about some of the margin benefits of.

Matthew Adrien Bouley: Youre recycling initiatives, but.

Matthew Adrien Bouley: You called out in the comments.

Matthew Adrien Bouley: Sort of new operations in Texas, adding capacity and sourcing capabilities I'm just curious if you can.

Matthew Adrien Bouley: Elaborate a little bit on what this will do to your mix of recycled product and also if you've got kind of anything else cooking for the future would love to hear it. Thank you.

Peter G. Clifford: Yeah, specifically, the Texas asset is an opportunity for us to source some premium pure white PVC for the portfolio, which is obviously really important to us on the trim side of the business. We've got plenty of access to raw inputs on the recycling side. We've got plenty of capacity from a conversions perspective. So I think we're positioned really well on the recycling side from a capacity perspective.

Speaker Change: Yes, specifically, the Texas asset.

Peter G. Clifford: Opportunity for us to source some premium pure white PVC.

Peter G. Clifford: Portfolio, which is obviously really important to us on the trim side of the business.

Peter G. Clifford: We've got plenty of access to.

Peter G. Clifford: <unk>.

Peter G. Clifford: Raw inputs on the recycling side, we've got plenty of capacity from a conversion perspective.

Peter G. Clifford: So I think we are well.

Peter G. Clifford: We're positioned really well on the recycling side from a capacity perspective.

Peter G. Clifford: Yeah, and the only other thing, Matt, I'd call out just on the utilization side is, you know, clearly with a solid season and, you know, an expectation of some incremental volume in 25, our Boise facility is now running, I think we call that out in the comments, it's running at an appropriate utilization rate, you know, that's ramping up very nicely. I think we've got an additional line coming online shortly there.

Speaker Change: Yes, and the only other thing Matt I'd call out just on the utilization side is yes.

Peter G. Clifford: Clearly with a.

Peter G. Clifford: With a solid season.

Peter G. Clifford: And an expectation of some incremental volume.

Peter G. Clifford: Volume in 'twenty five hour, our Boise facility.

Peter G. Clifford: Is.

Peter G. Clifford: Now running I think we call that out in our comments it's running at.

Peter G. Clifford: On appropriate utilization, that's ramping up very nicely I think we've got an additional line coming online.

Peter G. Clifford: But, you know, from a utilization standpoint, we're moving back into a window where our aggregate utilization is moving towards, you know, historical norms. And, you know, we feel really good about that and our ability to serve the market. And as Pete pointed out, that high quality recycling that we get really gives us an opportunity to increase the percentage in our exteriors business, in particular the exterior business that's not paying attention. Got it. Thanks, Jesse. Thanks, Pete.

Peter G. Clifford: Shortly there but.

Peter G. Clifford: From a utilization standpoint, we're moving back into a window, where our aggregate utilization is.

Peter G. Clifford: It is moving towards historical norms.

Peter G. Clifford: And.

Peter G. Clifford: We feel really good about that and our ability.

Peter G. Clifford: To service the market and we're always going to be focused on expanding our percentage of recycle and as Pete pointed out that high quality <unk>.

Peter G. Clifford: <unk> cycle that we get really gives us an opportunity to increase the percentage in our exteriors business in particular, the exterior business thats not paying it.

Matthew Adrien Bouley: Thanks Pete. Good luck guys. I appreciate it.

Speaker Change: Got it thanks, Jesse Thanks, Good luck guys I appreciate it thank you.

Operator: Your next question comes from the line of Michael Rehaut with JP Morgan. Your line is open.

Matthew Adrien Bouley: Your next question comes from the line of Michael Rehaut with J P. Morgan Your line is open.

Michael Jason Rehaut: Thanks, I appreciate you taking my questions. Good afternoon.

Michael Jason Rehaut: Thanks, I appreciate you taking my questions.

Michael Jason Rehaut: Good afternoon.

Jesse G. Singh: First, just wanted to drill down a little bit on the double-digit sell-through during the quarter, and I guess you said into April. Wanted to get a sense of if that was similar across both, you know, across your different channels, retail or wholesale, pro. And also the, you know, exteriors versus the decking and railing if they were also kind of at similar growth rates. And, you know, any indications that those growth rates have changed at all as you look into May?

Michael Jason Rehaut: First just wanted to drill down a little bit on the.

Jesse G. Singh: Double digit sell through during the quarter and I guess, you said into April.

Jesse G. Singh: Wanted to get a sense of it.

Jesse G. Singh: That was similar across both.

Jesse G. Singh: Across your different channels retail or wholesale pro.

Jesse G. Singh: And also the.

Jesse G. Singh: Exteriors versus the decking and railing if they were also kind of at similar growth rates.

Jesse G. Singh: And any indications that those growth rates have changed at all as you're looking into may.

Jesse G. Singh: Yeah, I think as Pete pointed out in his comments, you know, we, given our position in the marketplace, on a relative basis, we expect that just the nature of our expansion, that retail will be accretive to our growth. And I think we certainly have seen that, and we continue to see that, and we expect to see that moving forward. And we've had really nice growth within the pro channel. Now, there are some modest geographic variations that you would expect this early in the season.

Jesse G. Singh: Yes.

Jesse G. Singh: I think as Pete pointed out on his comments.

Jesse G. Singh: <unk>.

Jesse G. Singh: Given our position in the marketplace.

Jesse G. Singh: On a relative basis, we expect that just the nature of our of our expansion that retail will be accretive to our growth and I think we certainly.

Jesse G. Singh: <unk> seen that and we continue to see that and expect to see that moving forward and we've had really nice growth within.

Jesse G. Singh: Then the pro channel now now there is some modest geographic within the pro channel I'd say there is some.

Jesse G. Singh: Modest.

Jesse G. Singh: Geographic variations.

Jesse G. Singh: That you would expect this early in the season, but in aggregate it it's that double digit that we talked about.

Jesse G. Singh: But in aggregate, it's that double-digit number that we talked about. Across product lines, if you look out over the last 18 months or so, you would have seen, in a lot of cases, our exteriors business, or in multiple cases, our exteriors business, outgrowing the sell-through on our deck rail and accessories business. And so we will have quarter-to-quarter variations. I think in this quarter that we just reported, we're showing our deck rail and accessories business outgrowing our exteriors business within the quarter. And so that's just how it shakes out this quarter.

Jesse G. Singh: Across product lines, if you look out over the last 18 months or so you would have seen.

Jesse G. Singh: And a lot of cases, our exteriors business.

Jesse G. Singh: Orange.

Jesse G. Singh: Multiple cases, our exterior business outgrowing.

Jesse G. Singh: The sell through on our deck rail and accessories business and so we will have quarter to quarter.

Jesse G. Singh: <unk>.

Jesse G. Singh: I think on this quarter that we just reported.

Jesse G. Singh: We would we're showing our decoration accessories business outgrowing our exteriors business.

Jesse G. Singh: Within the quarter and so that's just how it shakes out this quarter.

Michael Jason Rehaut: Okay, great. I appreciate that. And I guess, looking forward, you know, kind of with the adjustments that you've had to make to the inventory over the past few years with the restatements. Just want to get a sense of how you kind of alluded to or highlighted the investigation and you put out all the different preliminary numbers about how it's affected past profitability, you know, on a go forward basis, you know, and particularly as it relates to the margin profile that you've thought of. Just want to be crystal clear, I guess, that whatever was kind of uncovered over the past, you know, two or three years or more, that It appears that way, but I just wanna make sure that that's kind of fully understood if there's any other nuances to the business that maybe weren't apparent prior to this.

Speaker Change: Okay, Great I appreciate that and I guess.

Michael Jason Rehaut: Looking forward.

Michael Jason Rehaut: Kind of with the.

Michael Jason Rehaut: Adjustments that you've had some may make to the inventory over the past few years with the risk.

Michael Jason Rehaut: Our restatements just wanted to get a sense for you kind of alluded or you highlighted the investigation and.

Michael Jason Rehaut: You put out all the different preliminary numbers about how it's affected the past profitability.

Michael Jason Rehaut: On a go forward basis.

Michael Jason Rehaut: And particularly as it relates to.

Michael Jason Rehaut: Sure.

Michael Jason Rehaut: <unk>.

Michael Jason Rehaut: Margin profile that you've thought of just want to be crystal clear I guess.

Michael Jason Rehaut: That you know.

Michael Jason Rehaut: Whatever was kind of uncovered over the past two or three years or more.

Michael Jason Rehaut: That whatever structure was or numbers that were out there.

Michael Jason Rehaut: Really effect.

Michael Jason Rehaut: The way you think about the business going forward. It appears that way, but just wanted to make sure that that's kind of fully understood. If theres any other nuances to the business that <unk>.

Michael Jason Rehaut: Maybe.

Michael Jason Rehaut: Werent apparent prior to this.

Peter G. Clifford: Mike, this is Peter. The only impact on 2024 right now is the FIFO impact of $4 million. There really was no disconnect, actually, in 2024. The FIFO impact is purely in it due to the fact that the inventory being restated causes the rollback period for us to be recomputed from a FIFO perspective. So the $4 million charge that we have absorbed in our year-to-date 2Q results is the only impact that we see on our cost structure moving forward. Yeah, and just to...

Peter: Mike This is Peter.

Peter G. Clifford: The only impact on 2024 right now is the FIFO impact of $4 million. There really was no disconnect actually in 2024.

Peter G. Clifford: The FIFO impact is purely.

Peter G. Clifford: And it.

Peter G. Clifford: Due to the fact that the inventory being restated.

Peter G. Clifford: As is the rollback period for us to be re computed from a FIFO perspective, so the $4 million charge that we have absorbed in our year to date <unk> results is the only impact that we see to our cost structure moving forward.

Peter G. Clifford: Yeah, and just to highlight, you know, our business, the way it's running now, you know; we're really happy with how it's running. And, you know, this particular issue, while unfortunate, is really historical in nature, as Pete pointed out, with the exception of the FIFO conversation.

Speaker Change: Yeah, and just a.

Speaker Change: To highlight.

Speaker Change: Our business the way it's running now.

Speaker Change: We're really happy how it's running and.

Peter G. Clifford: This particular issue while unfortunate.

Peter G. Clifford: Is really historical in nature as Pete pointed out with the exception of the FIFO conversation. So moving forward, we feel really good.

Jesse G. Singh: And so, you know, moving forward, we feel really good about the margin structure and what we're guiding to. And, you know, don't expect any additional impact aside from what we've called out in our future numbers. And I think the key here is, you know, the team uncovered it, we dealt with it, and we're in the process of documenting it and doing what's appropriate. And it really doesn't have an impact on future business.

Jesse G. Singh: About the margin structure, and what we're guiding to and.

Jesse G. Singh: Don't expect.

Jesse G. Singh: Any additional impact aside from what we called out on our future numbers.

Jesse G. Singh: The key here is the.

Jesse G. Singh: The team uncovered it we dealt with it.

Jesse G. Singh: And we're in the process of documenting it and.

Jesse G. Singh: Doing what's appropriate and it really doesn't have an impact on our future business.

Speaker Change: Great. Thank you.

Speaker Change: Appreciate it thanks, Mike.

Operator: Your next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open.

Jesse G. Singh: Your next question comes from the line of Mike Dahl with RBC capital markets. Your line is open.

Michael Glaser Dahl: Good evening. Thanks for taking my questions. Just back on the margin discussion. Can you just give us an update on what you're seeing in terms of your kind of cost basket and your thinking about, you know, deflation, inflation, or price cost in total?

Michael Glaser Dahl: Good evening, Thanks for taking my questions.

Michael Glaser Dahl: Just back on the margin discussion.

Michael Glaser Dahl: Can you just give us an update on what youre seeing in terms of your cost basket.

Michael Glaser Dahl: How you're thinking about deflation inflation or price cost in total.

Peter G. Clifford: Yeah, Mike, this is Peter. Everything we can see on the commodity side is stability. I think that is the word on the input cost side that I would use. As Jesse mentioned, we're approaching the completion of phase one here with the last line going into Boise, which is positioning us to start to get some more meaningful leverage on a conversion cost per pound basis as that plant continues to ramp up and get more volume and become more productive, which helps the entire system out.

Michael Glaser Dahl: Yes, Mike This is Peter everything we can see on the commodity side is stability I think is the word on the input cost side that I would use.

Peter G. Clifford: As Jesse mentioned.

Peter G. Clifford: We're approaching the completion of phase one here with the last line going into Boise.

Peter G. Clifford: Which is positioning us to start to get some more meaningful leverage on a conversion cost per pound basis as that plant continues to ramp and get more volume and become more productive and helps the entire system out.

Peter G. Clifford: And then from a pricing perspective, really no surprises. We anticipated our pricing in the market to be approximately flat this year. And through two quarters, that's what we can see. And we don't see a different pattern in the back half of the year.

Peter G. Clifford: And then from a pricing perspective really no surprises, we anticipated our pricing in the market to be approximately flat this year and through two two quarters Thats, what we can see and we don't see a different pattern in the back half of the year.

Michael Glaser Dahl: Okay, I got it. Thanks. And then, but just back on the investigation, I appreciate the car you've given me. Maybe can you just go into a little bit more detail about, describing the scope or depth of the investigation that's giving you kind of the confidence or maybe the scope of the employee's responsibility, what the motivation may or may not have been behind just specifically this being an inventory or COGS issue, and then in your initial documentation, have you been in touch with the SEC Yeah, just some context on

Speaker Change: Okay got it thanks.

Michael Glaser Dahl: But just back on the.

Michael Glaser Dahl: The investigation.

Michael Glaser Dahl: I appreciate the color.

Michael Glaser Dahl: Kevin.

Michael Glaser Dahl: Maybe can you just go into a little bit more detail about.

Michael Glaser Dahl: Describing the scope or depth of the investigation, that's giving you kind of the confidence or maybe the scope of the employees' responsibility what the motivation may or may not have been behind just specifically.

Michael Glaser Dahl: This being an inventory or Cogs issue and then in your initial.

Michael Glaser Dahl: Documentation have you been in touch with.

Michael Glaser Dahl: FCC or other regulatory bodies.

Michael Glaser Dahl: You can share at this point.

Peter G. Clifford: Yeah, just some context on, you know, it's a former employee that started with the business back in 2016. They left in March.

Michael Glaser Dahl: Yes, just some context on.

Peter G. Clifford: It's a former employee that started with the business back in 2016, they left in March.

Peter G. Clifford: On our very first close after that employee left, a new accountant performed a traditional account reconciliation per our policy and procedure, identified a discrepancy during the close, immediately communicated that up through the channel, and the chain got to me. I got on a plane, went and investigated it, immediately communicated to Jesse the issue, which immediately turned into communication to our audit committee and our chairman. At that time, our audit committee initiated an independent investigation.

Peter G. Clifford: Our very first close after that employee leaving.

Peter G. Clifford: New accounting performed traditional account reconciliation per policy and procedure.

Peter G. Clifford: Indentified a discrepancy during the close.

Peter G. Clifford: Immediately communicated that up through the channel and the chain got to me I got on a plane and investigated it immediately communicated the Jesse the issue.

Peter G. Clifford: Immediately turn to communication to our audit committee and our chairman.

Peter G. Clifford: At that time, our audit committee.

Peter G. Clifford: That investigation is substantially complete here this week, and so it is clearly laid out what we feel like their appropriate impact ranges are, you know, by year. And based upon that information, in the process of assessing that, we really came to the conclusion that restatement was the proper outcome. And we filed the 8K today to inform the SEC, as well as our intentions to restate our financials for 2021, 2022, and 2023. And in the first quarter of 2024.

Peter G. Clifford: <unk> an independent investigation.

Peter G. Clifford: That investigation is substantially complete here this week.

Peter G. Clifford: And so it is clearly laid out what we feel like theyre appropriate impact ranges are.

Peter G. Clifford: By year.

Peter G. Clifford: And based upon that information in the body of assessing that we really came to the conclusion that restatement was the proper outcome.

Peter G. Clifford: And we filed the 8-K today to inform the SEC as well as our intentions to to restate our financials for 2021 2022 and 2023.

Peter G. Clifford: And the first quarter of 'twenty four.

Speaker Change: Okay got it thanks.

Operator: Your next question comes from the line of Rafe Jadrosich with Bank of America. Your line is open.

Peter G. Clifford: Your next question comes from the line of Jed <unk> with Bank of America. Your line is open.

Rafe Jason Jadrosich: Hi, good afternoon. Thanks for taking my questions. Peter, I just appreciate all the detail you've provided so far on the inventory side. Just to sort of explicitly ask explicitly, is there, um, which part of the financials do we have sort of 100% confidence are correct and don't need restatement? And is there any cash or cash flow impact?

Rafe Jason Jadrosich: Hi, good afternoon, thanks for taking my questions.

Rafe Jason Jadrosich: Peter I appreciate all the detail you've provided so far on the inventory side just two two.

Rafe Jason Jadrosich: Through as explicitly as there.

Rafe Jason Jadrosich: Okay.

Rafe Jason Jadrosich: Which part of the financials.

Rafe Jason Jadrosich: Pardon me, sending confidence are correct and don't need restatement and is there any cash or cash flow impact.

Rafe Jason Jadrosich: Uncertainty around the cash balances and then just like on the FIFO accounting definition is the is this just related to inventory accounting before 24 that you have to take higher Cogs on in 2004 due to the FIFO accounting or are there still kind of accounting issues sort of running up into into March.

Peter: Yeah, again there'll be no.

Rafe Jason Jadrosich: Accounting issues or cost accounting impact.

Rafe Jason Jadrosich: Beyond our year to date <unk> results and again, you want to think of it as your FIFO calculation is based upon a rollback of your inventory that you have on hand, obviously with the information we would've been using before which had inventory overstated.

Rafe Jason Jadrosich: When you restate that inventory becomes lower rollback becomes shorter and that in essence, you should think of it Ralph as it moved.

Rafe Jason Jadrosich: Favorable FIFO from 'twenty four into 'twenty, three and that's really the impact of a $4 million that we're feeling in our year to date results that we wouldn't have anticipated at our last guide.

Rafe Jason Jadrosich: Okay. Okay. Okay.

Rafe Jason Jadrosich: And then I think your question relative.

Rafe Jason Jadrosich: Cash.

Rafe Jason Jadrosich: It doesn't have any impact on cash on hand or any of that.

Rafe Jason Jadrosich: Sort of accounting, it's really a statement of inventory in past years.

Rafe Jason Jadrosich: It's also important to just communicate the investigation what it concluded there was no evidence of any one else been input.

Rafe Jason Jadrosich: Implicated.

Rafe Jason Jadrosich: Or any scope beyond sort of inventory and cost of goods sold it was a long formal employee.

Rafe Jason Jadrosich: And everything that we can see from the investigation conclusion.

Rafe Jason Jadrosich: They did not benefit in any way in terms of.

Rafe Jason Jadrosich: Any cash flow or payments or anything like that so this.

Speaker Change: This is a self contained issue.

Rafe Jason Jadrosich: Okay. That's helpful and then just on the and on the residential.

Rafe Jason Jadrosich: Guidance raise I think youre, raising the revenue $20 million.

Rafe Jason Jadrosich: EBITDA is going up 9 million, but I think thats inclusive of a $4 million headwind from the inventory change plus another $4 million to $5 million in loading costs.

Rafe Jason Jadrosich: Am I thinking.

Rafe Jason Jadrosich: About that right is that sort of implies very high incremental margin almost 100%.

Rafe Jason Jadrosich: Just how should we think about that high incremental margin and doing the math right on the guidance raise.

Peter: Yes, I mean youre doing.

Rafe Jason Jadrosich: The flow through on analysis properly I mean, as we've kind of said over the last two quarters.

Rafe Jason Jadrosich: When we.

Rafe Jason Jadrosich: Every incremental dollar of sales bring us an incremental pound of production, which we get.

Rafe Jason Jadrosich: Meaningful leverage on right now, it's an incremental pound to get recycle savings on it as an incremental pound to get deflation on.

Rafe Jason Jadrosich: I'm not going to commit money at rates that are 100% flow throughs of targets.

Rafe Jason Jadrosich: Targets for us going forward.

Rafe Jason Jadrosich: I said that look our own expectation for the back half of the year was if we got upside it would probably be closer to 40% to 50%.

Rafe Jason Jadrosich: Okay.

Speaker Change: Thank you I appreciate all the color.

Rafe Jason Jadrosich: Your next question comes from the line of John Lovallo with UBS. Your line is open.

Rafe Jason Jadrosich: Hey, guys. Good evening. This is actually Spencer Kaufman on for John Thank you for the questions.

Rafe Jason Jadrosich: The first one how much of retail strength in the quarter was driven from.

Rafe Jason Jadrosich: Business wins versus Quantico, organic and then just thinking about the entire portfolio did you guys see any material differences in demand across different price points.

Rafe Jason Jadrosich: Yes.

Rafe Jason Jadrosich: On the latter.

Rafe Jason Jadrosich: On price points I'd say, it's it's too early to tell.

Rafe Jason Jadrosich: Seen nice demand.

Speaker Change: Really across the portfolio. So I don't know that we can give any color.

Rafe Jason Jadrosich: On mix at.

Peter: At this point, obviously, it's something we look at and then relative to the <unk>.

Rafe Jason Jadrosich: Difference between call it same store versus incremental adds.

Rafe Jason Jadrosich: We saw nice growth in particular on the deck rail and accessory side.

Rafe Jason Jadrosich: Within the same.

Rafe Jason Jadrosich: Same footprint in addition to.

Rafe Jason Jadrosich: The expansion that we experienced in retail.

Peter: So I would say the growth is really an outcome of.

Rafe Jason Jadrosich: Both.

Speaker Change: Okay fair enough.

Rafe Jason Jadrosich: Pricing was flat in the first half and I think it is expected to be flat in the back half here you guys saw the view that pricing can become a more important part of the growth I'll go over time.

Rafe Jason Jadrosich: Yes.

Rafe Jason Jadrosich: As we've said on previous calls so I think as we approach 2025, I think we would expect to return back to more.

Rafe Jason Jadrosich: Traditional pricing opportunities on an annual basis.

Rafe Jason Jadrosich: Your next question comes from the line of Adam Baumgarten with Zelman and Associates. Your line is open.

Rafe Jason Jadrosich: Hey, guys good evening thank.

Rafe Jason Jadrosich: You mentioned you have the possibility at some point for inorganic growth, maybe you could give us a sense for kind of what types of products and I'm, assuming that's in residential but any additional color there would be great.

Peter: Yeah, well certainly our focus is continuing to build out the.

Rafe Jason Jadrosich: The residential business.

Rafe Jason Jadrosich: The.

Rafe Jason Jadrosich: The Investor day in 2022.

Rafe Jason Jadrosich: Laid out.

Rafe Jason Jadrosich: We thought was a pretty good growth algorithm.

Rafe Jason Jadrosich: But we also laid out.

Rafe Jason Jadrosich: The areas that we would define as as core and adjacency.

Rafe Jason Jadrosich: And if you just look at our track record.

Speaker Change: We for the most part have.

Rafe Jason Jadrosich: Have.

Rafe Jason Jadrosich: Acquired tuck in acquisitions acquisitions, where we can benefit from their existing customer base, but we can also.

Rafe Jason Jadrosich: Take the product and move it in.

Rafe Jason Jadrosich: Into our existing channels and really leverage that and we've done that recently with within tax and structure.

Rafe Jason Jadrosich: We've done that over a long period of time with the ultra locks.

Rafe Jason Jadrosich: Acquisition and so.

Rafe Jason Jadrosich: That kind of a.

Rafe Jason Jadrosich: Our feel of.

Rafe Jason Jadrosich: Of.

Rafe Jason Jadrosich: What we would look at.

Rafe Jason Jadrosich: I think is.

Rafe Jason Jadrosich: It gives you a good sense of the opportunity in and then clearly there is there's opportunities within the supply chain.

Rafe Jason Jadrosich: We've continued to take advantage of the opportunity, we see to expand our capability and recycling and so those those are.

Rafe Jason Jadrosich: Directionally.

Peter: The areas that that we would look at I think the most important takeaway is we really like our business model, we're really well set up to continue to drive.

Rafe Jason Jadrosich: Above market growth in our core so anything we do is really going to be around strengthening the core and making sure that we set ourselves up for continued growth in the segment that we love, which is the segment that we plan.

Speaker Change: Got it thanks, and then just back to the sell through being up double digits, maybe if you could put a finer point on how much you think the composite decking market is growing versus that number.

Rafe Jason Jadrosich: Yeah.

Speaker Change: I don't know that I have a.

Speaker Change: A great sense of that.

Rafe Jason Jadrosich: If you look over the last give or take 12 months.

Rafe Jason Jadrosich: Think what you would have heard.

Rafe Jason Jadrosich: Is in general probably give or take around 5% and we've been growing 5% over that.

Rafe Jason Jadrosich: I think unfortunately, we're in a market where you make judgments on market growth looking backwards.

Rafe Jason Jadrosich: But I certainly think there is enough data to show that as a market segment.

Rafe Jason Jadrosich: We.

Rafe Jason Jadrosich: The composite decking area deck rail and accessories is it's outgrowing the underlying R&R market and I think it just highlights the resiliency and the continued material conversion.

Speaker Change: Got it thanks.

Rafe Jason Jadrosich: And that concludes the question and answer session I'll turn the call to Jessie Zheng for closing remarks.

Speaker Change: Really appreciate everyone, taking the time once again in the evening.

Rafe Jason Jadrosich: To have a discussion with us.

Rafe Jason Jadrosich: As always reach out with questions. We look forward to having ongoing dialogue and chatting with you again next quarter, Thanks and have a great evening.

Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect your lines.

Peter G. Clifford: [inaudible]

Rafe Jason Jadrosich: Please wait the conference will begin shortly.

Peter G. Clifford: Yeah, again, there will be no accounting issues or cost accounting impact beyond our year-to-date 2Q results. And again, you want to think of it as your FIFO calculation is based upon a rollback of your inventory that you have on hand. Obviously, with the information we would have been using before, which had inventory overstated, when you restate that inventory, it becomes lower, the rollback becomes shorter, and that, in essence, you should think of it, Rafe, as it moved favorable FIFO from 24 to 23, and that's really the impact of the $4 million that we're feeling in our year-to-date results that we wouldn't have anticipated at our last.

Rafe Jason Jadrosich: Okay, and then I think your question relative to cash doesn't have any impact on cash on hand or any of that accounting stuff. It's really a statement of inventory in past years.

Peter G. Clifford: Yeah, I think it's also important to just communicate the investigation when it concluded that there was no evidence of anyone else being implicated, you know, or any scope beyond sort of inventory and cost of goods sold. It was a long-term former employee. And everything that we can see from the conclusion of the investigation is that they did not benefit in any way in terms of any cash flow or payments or anything like that. So this is a self-contained issue.

Rafe Jason Jadrosich: Okay, that's helpful. And then just on the residential guidance raise, I think you're raising revenue by 20 million, and EBITDA is going up 9 million, but I think that's inclusive of a 4 million headwind from the inventory change, plus another 4 to 5 million in loading costs. Am I thinking about that, right? It sort of implies a very high incremental margin, almost 100%. Just how should we think about that high incremental margin? And am I doing the math right on the guidance raise? Yeah,

Peter G. Clifford: Yeah, I mean, you're doing the flow-through analysis properly. I mean, as we've kind of said over the last two quarters, every incremental dollar of sales brings an incremental pound of production, which we get meaningful leverage on right now. It's an incremental pound to get recycling savings on. It's an incremental pound to get deflation on. I'm not going to commit, Rafe, that 100% flow-through is a target for us going forward. We kind of said that, look, our own expectation for the back half of the year was that if we got upside, it would probably be closer to 40 to 50%.

Rafe Jason Jadrosich: Thank you. I appreciate all the calls. Your next question comes from the line of John Lovallo with UBS. Your line is open. Hey guys, good evening.

Rafe Jason Jadrosich: [music].

Operator: Your next question comes from the line of John Lovallo with UBS. Your line is open. Hey, guys. Good evening. This is actually Spencer Kaufman. I'm on behalf of John. Thank you for the questions. The first one, how much?

John Lovallo: Yeah, on the ladder. Unknown Attendee, on Mix at this point.

Jesse G. Singh: Obviously, it's something we look at. And then relative to, you know, the difference between, call it, you know, same store versus incremental ads, we saw nice growth, in particular on the deck rail and accessories side, within the same footprint, in addition to, you know, the expansion that we've experienced in retail. So I would say the growth is really an outcome of both. Okay, fair enough.

Jesse G. Singh: Yeah, as we've said on previous calls, I think as we approach 2025, I think we would expect to return to more traditional pricing opportunities on an annual basis. Now, your next question comes.

Jesse G. Singh: Okay.

Jesse G. Singh: Yes.

Jesse G. Singh: [music].

Jesse G. Singh: Okay.

Jesse G. Singh: Yes.

Jesse G. Singh: Yes.

Jesse G. Singh: [music].

Jesse G. Singh: Sure.

Jesse G. Singh: [music].