Q1 2025 The AZEK Co Inc Earnings Call
Welcome to the ease of companies first quarter fiscal 2025 earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
Be advised that today's conference call is being recorded.
Speaker Change: I'd now like to hand, the conference over to Eric Robinson. Please go ahead Eric.
Speaker Change: 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 Dot co dot com.
Speaker Change: The earnings press release was also furnished via 8-K on the Sec's website.
I'm joined today by Jessie Zheng, our President and Chief Executive Officer, and Ryan <unk>, Our Chief Financial Officer, and Treasurer, I would like to remind everyone that during this call. We may make certain statements that constitute forward looking statements within the meaning of the federal securities laws, including remarks about future expectations beliefs.
Speaker Change: Estimates forecasts plans and prospects.
Speaker Change: Such statements are subject to a variety of risks and uncertainties as described in our periodic reports filed with the Securities and Exchange Commission.
Speaker Change: Could cause actual results to differ materially we.
Speaker Change: 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.
Speaker Change: These non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Speaker Change: Reconciliation of such non-GAAP measures can be found in our earnings press release and supplemental earnings presentation, which are posted on our website.
Speaker Change: Now, let me turn the call over to <unk> CEO Jesse thing.
Speaker Change: Good afternoon, and thank you for joining US we are pleased to report a good start to fiscal 2025 with first quarter results again, demonstrating the effectiveness of our growth initiatives.
Speaker Change: And disciplined operational execution, our residential segment grew net sales by 22% year over year, driven by double digit sell through growth in the quarter and expanded market presence across our deck rail and accessories.
Speaker Change: And exteriors product categories during the quarter deck rail and accessories sell through grew at a double digit pace with each of the product lines within the portfolio growing double digits exterior sell through grew high single digits as we saw some market stability during the quarter.
Speaker Change: Our focus on wood conversion product innovation, improving the customer journey growing brand awareness and channel expansion continues to drive our success and our performance.
Speaker Change: We also delivered strong residential segment adjusted EBITDA growth of 24% year over year and expanded our segment adjusted EBITDA margin by 40 basis points year over year to 23, 7%, while making investments in new products and channel expansion to drive future growth.
Speaker Change: Hey, Zax multiyear track record of success would not be possible without the dedication collaboration and support of our team members and business partners and I would like to express my sincere gratitude.
Speaker Change: We continue to make progress against our key strategic initiatives, our 2025, new product launches, including timber Tech Fulton rail timber tech reliance rail versus attacks exceeds siding and trim logic are being well received in the market and will allow us to address a wider range of price points.
Speaker Change: And consumer needs to drive wood conversion.
Speaker Change: These new products are generating excitement from our contractor and dealer partners with our rail and siding products being stocked in a number of new locations ahead of the busy part of the season.
Speaker Change: During the quarter, we invested in and began ramping up production of these products modestly impacting our first quarter margins.
Speaker Change: We expect these startup investments to continue during our second quarter as we scale and position these terrific new product platforms to drive future growth.
Speaker Change: We also continue to see strong demand for our advanced PVC vintage and landmark decking collections, which have the best aesthetics and fire resistance in the industry.
Speaker Change: We recently completed the majority of our seasonal early buy negotiations with our pro channel partners and continue to strengthen these relationships. We believe we have once again expanded our presence in the market and gained initial stocking positions for our new products.
Speaker Change: Our recently announced distribution partnerships expand our reach in the western United States and Canadian markets.
Speaker Change: We're excited about the growth opportunity these present to better position us to service the pro contractors in these geographies and we look forward to our ongoing success with all of our key channel partners.
Speaker Change: During the second quarter, we are making incremental investments to support these channel and product expansions, including incremental merchandising and digital tools to enhance the customer experience.
Speaker Change: We also continue to invest in our recycle capabilities and acquired a regional PVC and polyethylene recycling operation.
Speaker Change: Indiana during the first quarter.
Speaker Change: This acquisition not only expands our waste material sourcing network, but also expands our capabilities to process hard to recycle materials through unique recycle segregation and processing technologies.
Speaker Change: We are excited about the capabilities and capacity. This acquisition offers as we continue to expand our usage of lower cost recycle streams.
In December timber Tech was named one of SaaS companies 2024 brands that matter in the benchmark brands category.
Speaker Change: Prestigious recognition celebrates timber tech success in marketing, it's innovative decking and railing products in ways that resonate deeply with consumers redefining expectations around outdoor living.
Speaker Change: This year, we also celebrate the 25th anniversary of <unk> trim, the product that pioneered the PVC trim category for 25 years. It has set the standard for durability low maintenance and design flexibility offering a superior alternative to wood.
Speaker Change: We will be celebrating this unique milestone and many industry events this year, including the upcoming NIH be international Builders' show and J L. C alive.
Speaker Change: While the outlook for the broader housing and repair and remodel markets remain uncertain, we continue to see consistent demand for our outdoor living product portfolio.
Speaker Change: We continue to see positive residential sell through growth positive demand signals from digital metrics and customer surveys and contractor backlogs in the six to seven week range.
Speaker Change: We ended the quarter with channel inventory levels. Once again conservatively below historical averages and we have ample manufacturing capacity to effectively service our customers.
Speaker Change: We see positive momentum on our margin initiatives as we drive our continuous improvement programs recycle initiatives and sourcing savings.
Speaker Change: These margin initiatives put us in a good position to sustain and expand margins, while making investments to drive new product growth channel growth and brand awareness.
Speaker Change: Given the solid first quarter performance, we are modestly raising the top and bottom end of our fiscal full year 2025 outlook.
Speaker Change: Our planning assumptions reflect residential segment net sales growth in the range of 6% to 8% year over year and residential segment adjusted EBITDA growth of 7% to 11% year over year.
Speaker Change: Overall on a consolidated basis, we expect to grow our net sales in the range of 5% to 8% year over year and adjusted EBITDA in the 6% to 10% range as we see a modestly dilutive impact from our commercial business.
Speaker Change: Our fiscal 2025 planning assumptions continue to assume a relatively flat repair and remodel market and mid single digit residential sell through growth for the remainder of the year driven by <unk> specific growth initiatives.
I'm excited to welcome Brian later, our new Chief Financial Officer, and Treasurer to today's call.
Speaker Change: Brian has been a trusted partner since joining me as that gained nearly three years ago.
Speaker Change: He brings extensive financial experience and a deep understanding of our business having most recently served as the CFO of our residential segment. Many of you have met Ryan and he's already making a significant impact.
Speaker Change: I'm confident in his ability to lead our financial organization and support our continued growth.
Speaker Change: We also wish our former COO and CFO, Pete Clifford well as he starts his next journey.
Speaker Change: Did a great job of setting up the business and the finance team for future success I know Peter is lessening and we sincerely want to thank him for his contributions to the as that company.
Speaker Change: I will now turn the call over to Ryan to discuss our financial results and outlook in more detail.
Ryan: Thanks, Jessie and good afternoon, everyone. Thanks for joining us today.
Ryan: I am honored to step into the role of Chief Financial Officer, and thrilled to expand my finance leadership at such an exciting time for the company.
Ryan: I look forward to continuing to collaborate with Jesse and the team to execute our business and financial strategy as we shape the future of the industry and continue to drive growth and long term value for our shareholders.
Ryan: Before we get into first quarter results I wanted to share some perspective on the operating environment.
Ryan: And Nick order, we experienced double digit sell through growth as a result of continued customer demand for our products and execution of the is that growth playbook.
Ryan: This includes material conversion channel expansion efforts downstream initiatives, new product releases and improving the consumer journey. We had a successful early buy process and are pleased with our results. We believe we drove shelf space wins and expansion within the pro channel building on momentum from previous years.
Ryan: From a channel inventory perspective, we ended the quarter down roughly 15% from historical average days on hand.
Ryan: As for demand indicators positive momentum continued across the Kpis, we track our pro contractor and dealer surveys indicated that outlook sentiment improved in current project backlogs are in the six to seven weeks range.
Ryan: On the digital side, our engagement efforts remain effective.
Ryan: Saw robust growth in website sessions.
Ryan: Contractor leads and sample orders year over year.
Ryan: As a reminder, our fiscal first quarter is traditionally our lowest production quarter and our production levels were relatively consistent year over year.
Ryan: During the quarter, we started ramping production to support several new product launches in fiscal year 2025.
In addition, we prepared our new facilities the commission additional capacity for our exteriors and rail businesses in the second quarter.
Ryan: Material input costs remained stable and our residential business and we continue to execute our traditional annual recycling product configuration sourcing and <unk> programs.
Ryan: This positions us well to drive ongoing margin expansion.
Ryan: In terms of SG&A, our results reflect a more normalized spend profile year over year with modestly lower sales and marketing costs as a result of lapping prior year expenses associated with our customer and branding event.
The strength of double digit residential sell through growth and continued execution of our merger and programs helped us deliver strong results in the first quarter.
Ryan: For the first quarter of fiscal 2025, we delivered consolidated net sales of $285 million.
Ryan: Our first quarter net sales were driven by double digit sell through growth and the expansion of our channel positions, partially offset by a $3 million net impact from the divestiture of our <unk> business and our commercial segment.
Ryan: First quarter gross profit was $104 million, an increase of $13 million year over year and gross margin was 36, 3%.
Ryan: First quarter adjusted gross profit was $107 million, an increase of $12 million year over year and adjusted gross profit margin was 37, 4%.
Ryan: Adjusted gross profit margin decline was driven primarily by the previously mentioned costs related to new product expansion lower plant utilization levels and weakness in our commercial segment Scranton products business.
Ryan: GAAP SG&A expenses decreased by $2 million year over year to $75 million.
Ryan: The decrease is primarily driven by a normalization of marketing expense as well as modest reductions in administrative costs.
Ryan: Adjusted SG&A expenses increased by $2 million year over year to $64 million.
Ryan: Adjusted EBITDA for the first quarter increased by $11 million or 20% year over year to $66 million <unk>.
Ryan: Adjusted EBITDA margin for the quarter increased 30 basis points year over year to 23, 1%.
Ryan: Net income for the first quarter decreased year over year by 7 million to $18 million or <unk> 12 per share.
Ryan: As a reminder, the prior year period included the $38 5 million gain on sale from the <unk> divestiture, which we are now lapping.
Ryan: In addition, our tax rate came in favorable at seven 5% versus 39, 9% from prior year, primarily driven by tax benefits related to a higher proportion of stock options exercised and the removal of the tax effects related to the sale of the <unk> business.
Ryan: Adjusted net income for the first quarter, which excluded the Viacom divestiture gain on sale in the prior year increased year over year by 10 million to $25 million.
Ryan: Adjusted diluted EPS increased seven <unk> year over year to <unk> 17 per share.
Ryan: Now turning to our segment results residential segment net sales for the first quarter were $272 million up 22% year over year, driven by the previously discussed timing of channel partner purchases residential.
Ryan: <unk> segment adjusted EBITDA for the first quarter was $64 million up 24% year over year.
Ryan: Residential segment adjusted EBITDA margin was 23, 7%.
Ryan: Commercial segment net sales for the quarter were $13 million down 23% year over year, primarily due to the sale of the Viacom business last fiscal year and weaker demand in our products business commercial segment adjusted EBITDA for the quarter was $1 5 million a decrease of $4 million year over year.
Ryan: Again, primarily driven by the disposition of the <unk> business weaker demand and increases in our material input costs.
Ryan: We have taken appropriate pricing and cost actions in this business to offset the pressure and expect to return to more traditional margin levels in the third and fourth quarters of fiscal 2025.
Ryan: From a balance sheet and cash flow perspective, we ended the quarter with cash and cash equivalents of $148 million at approximately $373 million available for future borrowings under our revolving credit facility.
Ryan: Working capital defined as inventory plus accounts receivable minus accounts payable was $243 million up $18 million year over year.
Ryan: We ended the quarter with gross debt of 534 million, which included approximately $95 million of financial leases.
That was $386 million at our net leverage ratio stood at onex at the end of the first quarter.
Ryan: Net cash from operating activities was $14 million during the first quarter, an increase of $30 million year over year.
Ryan: Capital expenditures for the quarter were approximately $22 million and we deployed $11 million of capital to acquire a new regional recycling operation to support our long term recycling capabilities and ambitions.
Ryan: For the first quarter free cash flow was negative $8 million, an improvement of $26 million year over year.
Ryan: 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 pursuant to our existing share repurchase authorization.
Ryan: Now, let's turn to our outlook.
Ryan: So sticking with our prior assumptions we are following a relatively flat R&R market for the full year 2025.
Ryan: We are raising our net sales planning assumptions by $10 million on the bottom and top end of the range, reflecting the stronger first quarter demand at the midpoint of our updated planning assumptions residential net sales are expected to grow roughly 7% year over year in fiscal 2025.
Ryan: We continue to plan residential sell through in the mid single digit range for the remainder of the fiscal year.
Ryan: This update our planning assumptions for fiscal 2025, or 152 billion to 155 billion in consolidated net sales and 403 million to $418 million and adjusted EBITDA.
Ryan: Our net sales planning assumption range would imply roughly 5% to 8% year over year growth and roughly 6% to 10% year over year growth in adjusted EBITDA.
Ryan: Our residential segment planning assumptions for the year is 145 2 billion Q1 $479 billion in net sales and 392 million to $405 million and segment adjusted EBITDA, representing 6% to 8% net sales growth year over year, and 7% to 11 <unk>.
Ryan: <unk> segment adjusted EBITDA growth.
Ryan: A few other assumptions for fiscal 'twenty five to share include the following.
Ryan: We are expecting our capital expenditure range of $85 million to $95 million consistent with our publicly stated capex target of approximately 5% to 7% of revenue as.
Ryan: As we have mentioned in the past we may choose to go above this range at an opportunistic scenarios, such as purchasing property or assets that fit into our long term strategy.
Ryan: And finally, we are expecting a GAAP tax rate for the full year between 25% to 26%.
Ryan: For additional planning assumptions to assist with modeling fiscal year 2025. Please refer to the supplemental earnings presentation, we have posted on our Investor Relations website.
Ryan: For our fiscal second quarter, our consolidated guidance for the quarter is $437 million to $448 million in net sales and $115 million to $120 million and adjusted EBITDA. Our consolidated net sales guidance range would imply 4% to 7% year over year growth and 2% to 6%.
Ryan: Year over year growth in adjusted EBITDA.
Ryan: Our residential segment guidance for the quarter is $422 million.
Ryan: $432 million in net sales and $114 million to $118 5 million and adjusted EBITDA.
Ryan: Our net sales guidance range would imply 5% to 7% year over year growth and 3% to 7% year over year growth in segment adjusted EBITDA.
Ryan: We are assuming residential sell through growth in the mid single digit range in the fiscal second quarter we.
Ryan: We are expecting an effective tax rate of approximately 26% for the quarter. We expect our commercial segment will have one more quarter of margin pressure and that the actions. We have taken will normalize at our fiscal third quarter and return margins back to expectations in the back half of fiscal 2025, we continue to target segment <unk>.
Ryan: The EBITDA margin in the 20% range for this business.
Jesse Thing: We are well positioned to execute in the fiscal second quarter and the remainder of fiscal 2025 with that I'll now turn the call back to Jesse for some closing remarks.
Jesse Thing: Thanks, Ryan in closing we're off to a good start in fiscal 2025, and we're confident in our ability to navigate the current market dynamics and deliver strong financial performance. We continue to lead with innovative sustainable solutions across our entire portfolio, while remaining focused on our final.
Jesse Thing: <unk> priorities delivering profitable double digit net sales growth and margin expansion, all while investing in the future and creating long term value for our shareholders.
Jesse Thing: With that operator, please open the line for questions.
Speaker Change: Ladies and gentlemen, we will now begin question and answer session. We ask that you. Please limit your input to one question and one follow up at this time I would like to remind everyone to ask a question press star followed by the number one on your telephone keypad. One moment. Please for your first question.
Speaker Change: Your first question comes from the line of Susan Macquarie. Please go ahead.
Speaker Change: Good afternoon, everyone. Thanks for taking the questions.
Speaker Change: Can restore Jesse with maybe talking about the demand and you mentioned that sell through was up double digits in the quarter you did take up the guide for the annual revenues and yet the <unk>.
Speaker Change: Fuel outlook still implies mid single digit sell through for the year can you just help us bridge, how youre getting to that and were there possibly could be some conservatism.
Speaker Change: Yeah. Thanks for the question Susan if you just step back and you think overall the way we plan. Our year is we have an assumption right now that the underlying growth rate.
Speaker Change: Of the market is give or take zero of R&R and then we stack on top of that.
Speaker Change: What we can see as our growth programs, which we put at mid single.
Speaker Change: Digits.
Speaker Change: Q1 came in as we highlighted better than that.
Speaker Change: As the guide, but it's still really early to assess 2025, and so the way to think of it.
Speaker Change: As we are just holding to our core assumptions that the.
Speaker Change: The market is flat and that will be able to deliver 5% to 7% above that so the way to think of it as there's just really no change in the underlying assumptions, but we felt it appropriate to adjust for.
Speaker Change: The one quarter Thats already completed.
Speaker Change: Okay. That's helpful. And then maybe just turning to the new products. You mentioned that there are some investments that are going in there just anything we should be thinking about in terms of the cadence over the next couple of quarters and how we should think about the momentum to that those products will start to gain in the coming quarters.
Speaker Change: Yes.
Speaker Change: At a high level I think you're in a stage right now where we're starting up the ramp of these products and so there's some inefficiencies there and then specifically.
Speaker Change: Have a new.
Speaker Change: We have a new facility, that's making vinyl rail for us and so that starts up and has been running with effectively no shipped volume.
Speaker Change: Until recently, so youre left with a bit of extra costs before you see the revenue and I think as you think about the way those new products flow through the system. It will be on a very normal cadence of just the rest of the core business, which is that.
Speaker Change: We start taking orders we began shipping this quarter.
Speaker Change: To stage the inventory and.
Speaker Change: And then obviously it starts selling through and being replenished as we move into the out quarters.
Speaker Change: Okay. Thanks for the color and good luck with everything I appreciate it thanks Susan.
Speaker Change: Your next question comes from the line of Michael Rehaut with Jpmorgan. Please go ahead.
Speaker Change: Thanks.
Michael Rehaut: Good afternoon, everyone. Thanks for taking my questions.
Speaker Change: Thanks, Mike wanted to start with.
Mike: The acquisition.
Like another kind of tuck in in your efforts around.
Mike: Augmenting our recycling capacity.
Mike: I just wonder in terms of.
Mike: What.
Mike: That might.
Mike: And how that might impact the income statement. This year into next year does it change at all your the upside potential in terms of.
Mike: What you expect to get from <unk>.
Mike: Further recycling benefits.
Mike: Is it kind of just in some ways add to the visibility of the plans you've laid out over the life.
Mike: Going forward.
Mike: Hey, Mike It's Ryan I think it adds to kind of plans we have laid out in the past so with our recent acquisition I think it's exciting on multiple fronts. We gained new technology that allows us to separate a lower grade mix polymer materials that we werent able to do in the past second it adds additional recycling sourcing streams and then third we still have a mixture of what we can convert.
Mike: Internally and then what we source this adds additional capacity to allow us to move to that internal recycled conversion faster, which provides headwind or tailwind to the future peer.
Mike: Periods in terms of savings.
Speaker Change: Alright, great I appreciate that.
Mike: I guess secondly.
Mike: Jeff you talked a little bit about.
Mike: Just kind of sticking to the.
Mike:
Mike: Mid single digit roughly at sell through and kind of the algorithm. How you think about the end markets for the full year.
Mike: At the same time, obviously first quarter came in a little bit better than you were hoping for.
Mike: Just wanted to get a sense of.
Mike: If youre thinking about perhaps.
Mike: How are you thinking about share gains or.
Mike: How youre executing in the market relative to the broader market.
Mike: If there was any specific channels and markets or regions, where you perhaps here potentially.
Mike: Potentially gaining some share any kind of color around <unk>.
Mike: Neither distribution channel product or region would be really helpful.
Speaker Change: Yeah, I'll try to provide some insight so it starts with some of my prepared comments right. So if you think about.
Speaker Change: Our growth stack. One is we talk about in particular in this quarter and recent quarters pro shelf gains and that really is.
Speaker Change: Is an outcome of having the right products, having the right sales coverage, having the right contractor coverage and then doing a better job of supporting our dealer base as they look at growth opportunities. So you could you could perceive that our position in the market and approach.
Speaker Change: And all.
Speaker Change: Is expanding now hopefully we're doing that in a growing market. So I think it's important to recognize when we look at share. It is how much of what can we get how can we make sure we are well positioned.
Speaker Change: For future growth, so I think that equation in particular as we've gone through this year versus previous year.
Speaker Change: Previous years is probably.
Speaker Change: A bit stronger.
Speaker Change: This year than last year, but kind of in the same ballpark I think the second component, which is interrelated that.
Speaker Change: Is we're launching a.
Speaker Change: A few different platforms into the market as we speak two different rail platforms.
Speaker Change: No.
Speaker Change: Our siding platform and wood conversion trend platform.
Speaker Change: And as you launch those platforms. It helps you get a position at a dealer base, but it also helps you start to do a better job of getting share of wallet.
Speaker Change: And providing a more complete solution to your contractor.
Speaker Change: I think we're seeing some benefit.
Speaker Change: Actually, but that's really a much longer.
Speaker Change: Much longer process as you get some product in the channel and then you work with your contractors to continue to have them fully.
Speaker Change: So for US is as we look at.
Speaker Change: What types of initiatives.
Speaker Change: We feel like both of those are in particular contributing this year underlying all of that we've got a downstream sales force and a pretty active set of marketing activities.
Speaker Change: And that's consumer by consumer where you happen to engage better or are they recognize your brand. It's a lot harder to get at that accept that.
Speaker Change: We do believe it's additive so.
Speaker Change: Those are the elements that we've talked about in the past and I think they are.
Speaker Change: They are very much intact.
Speaker Change: As.
Speaker Change: As we look at the last quarter this current quarter and subsequent future quarters.
Speaker Change: Great. Thanks.
Speaker Change: Quick one if I could any exposure to tariffs on the supply chain that may or may not come out when you think about Canada or Mexico.
Yes, I think with our recent growth this year, we source up to about $120 million of material and products internationally.
Speaker Change: Exposure to Mexico, and China are modest in Canada as well so in the current form we think it would have a relatively small impact on our year.
Speaker Change: Yes think of it as very low volumes to Ryan's point.
Speaker Change: Single digit millions out of.
Speaker Change: Both Canada, I'm, sorry out of out of Mexico, and China and then.
Speaker Change: Our sourcing in Canada that particular types of products. We have there we have other alternatives. So for me to go that route.
Speaker Change: Perfect. Thank you so much.
Speaker Change: Our next question comes from the line of key cute.
Kyle Hughes: Apologies keep Hughes of Truest. Please go ahead.
Cute: Thank you.
Speaker Change: It seems like several months, you've been stringing together double digit sellout and decking and railing was January as strong as what you saw in the December quarter.
Speaker Change: Yes, I mean, the challenge of kind of talking about month to month.
Speaker Change: At this at this point in the season is you don't want to over index on on one week here and there.
Speaker Change: Having said that January was consistent with.
Speaker Change: Both our guide, but also what we've seen historically so.
Speaker Change: Read into that that January sell through.
Speaker Change: It didn't create any kind of a concern and we left there feeling comfortable.
Speaker Change: Okay great.
Speaker Change: And then the residential guide for.
Speaker Change: For the fiscal year.
Speaker Change: How much are the new products new share wins, you discussed in early buy period.
Speaker Change: Much.
Speaker Change: How much of the year is that going to contribute.
Speaker Change: Yes, I mean, it's a good question the way the way we think of.
Speaker Change: Our call it.
Speaker Change: Shelf expansion is we had some we had some really good pro shelf expansion as we've talked about.
Speaker Change: Last year.
Speaker Change: That has a natural carryover.
Speaker Change: Obviously that starts.
Speaker Change: February March April we're getting the benefit of that as we speak and then with the new wins.
Speaker Change: The new expansion will start seeing the benefit of that as we flowed this quarter. So the way to think of it as if you do it.
Speaker Change: If you do it consistently and ends up being more of a consistent.
Speaker Change: Expansion since we've been doing it.
Speaker Change: Over the last three years and then.
Speaker Change: Incrementally you should think of as I mentioned.
Speaker Change: On the earlier question that Youll start to Youre seeing a little bit on the new product flow now youll see more and more of that as we flow through the year and it gets adopted and obviously it depends on the type of product but in.
Speaker Change: In General you just see a gradual expansion theres a bit of inventory, but then a gradual expansion as as we work our way through the year.
Speaker Change: Okay. Thank you.
Speaker Change: Appreciate it thanks Keith.
Speaker Change: Your next question comes from the line of feeling of Jefferies. Please go ahead.
Speaker Change: Hey, guys congrats on the new role and good job on the good quarter guys.
Speaker Change: Sure.
Speaker Change: First thing.
Speaker Change: Perhaps jesse.
Michael Rehaut: <unk> been making a bigger push onto the railing side can you talk about that process of leveraging perhaps some of your exclusive distributions and the level of engagement you're seeing.
Michael Rehaut: You do have a few platforms you called out on the railing side from new products, just kind of help us think through what that opportunity could present this year and beyond.
Michael Rehaut: Yes, I think we called out on our prepared remarks in the last quarter that.
Michael Rehaut: Something like a vinyl rail presents almost $300 million of market opportunity in steel rail.
Michael Rehaut: Presents additional opportunity and that there is much more 40, I'm sorry, 60% of the market in rail is wood and vinyl rail if done right.
Michael Rehaut: Can help facilitate.
Michael Rehaut: Wood conversion can you start with the macro of what the overall opportunity is.
Michael Rehaut: As as you as I think most folks know when we deal with are.
Michael Rehaut: Distribution partners.
Michael Rehaut: For the majority of our product lines, we have been exclude.
Michael Rehaut: Exclusive.
Michael Rehaut: There were times as.
Michael Rehaut: Where we didn't have the right railing portfolio.
Michael Rehaut: In particular vinyl rail.
Michael Rehaut: Sure.
Michael Rehaut: We had certain distributors that.
Michael Rehaut: <unk> had a had a need to source from other suppliers I think as we've worked our way through in collaboration with our channel.
Michael Rehaut: Where it makes sense, which is the vast majority of our channel partners almost all.
Michael Rehaut: We have we have now become the supplier of that distribution partner for vinyl and steel rail so.
Michael Rehaut: So we're getting out of market segment or.
Michael Rehaut: Our channel partners.
Michael Rehaut: Our current channel partners.
Michael Rehaut: Are a key part of making sure that we cover in the market appropriately and then obviously are our 200 person sales force is downstream working with dealers and contractors to generate demand so and the way I would just sum all that up and the way to think of it is we've had really good growth.
Michael Rehaut: In the product categories, we've talked about deck rail and accessories, we continue to see nice growth in decking.
Michael Rehaut: This will just be another additive component that ensures strong growth in and are railing business as we move forward and we had really good growth last year without these products and so.
Michael Rehaut: We expect that that growth rate to continue.
Speaker Change: Just where are you from an attachment rate pinpoint on the railing side at this point.
Speaker Change: We don't disclose specifically.
Speaker Change: Attachment gets.
Speaker Change: A little wonky, but think of it is.
Speaker Change: In general I would say, we're less than 20% kind of mid to high teens, depending on the geography now that doesn't mean attachments should be 100%.
Speaker Change: But I think the more important thing for us is understanding where when there is a a job being completed where someone has had to go to a different alternative product to either get the right visual or the right cost position and what can we do to make sure that our dealers and our.
Speaker Change: <unk> can meet the consumer needs and so we certainly with the new products, we launched expect incrementally have some benefits.
Speaker Change: We can increase.
Speaker Change: The solution set that we provide to our consumers.
Speaker Change: Got it.
Speaker Change: <unk> for 25 your guidance are you baking any incremental price increases in the marketplace that there was some out there and then based on your winter by thus far I. Appreciate that you guys manage channel pretty considerably how does that inform you in terms of this year are.
Speaker Change: How are your channel partners expecting sell out in the mid single digit range or perhaps even a little more upbeat.
Speaker Change: Yeah, I'd say first on the pricing part similar to what we communicated on the last call. We did some modest price increases on decking and other products and then we offset that with modest gross to net adjustment on our ishares business. So for the full year, we expect kind of flat to modest price increase and then from an early buy perspective, I think we were encouraged by the <unk>.
Speaker Change: I think we drove some nice shelf space wins and expansion in the pro channel I think building on momentum from previous years.
Speaker Change: Had both our dealer and contract or <unk> in the last quarter and kind of sentiment and outlook from those were extremely positive and there is a lot of excitement for our new products in the financial year.
Speaker Change: Okay I appreciate all the great color guys. Thank you.
Speaker Change: I appreciate it thanks Paul.
Speaker Change: Your next question comes from the line of Matthew Bouley Barclays. Please go ahead.
Speaker Change: Yes.
Matthew Bouley: Hey, good afternoon, everyone.
Speaker Change: So wanted to ask on the new product growth investments.
Speaker Change: Just kind of a high level question on how you're thinking about the balance of these gross growth investments here. So.
Speaker Change: Are these investments I guess kind of greater than what you had previously envisioned this year or is this kind of in line with the plan is it greater than prior years or I guess, what I'm getting at is this something that you're kind of pushing more on to take advantage of the growth backdrop that you have today. So just any more color along those lines. Thank you.
Speaker Change: Yes, I would say.
Speaker Change: It's no different than new products in prior years. Besides the fact, we added new capacity to do that so on the vinyl rail side, we actually acquired a facility to do that so that's not an incremental line returning on an existing factory. Similarly on our exterior side for siding, we added an entire new facility and Alex but thats coming online. So those are a little bit more disproportionate then.
Speaker Change: Just turning on a line of an existing factory.
Speaker Change: I think thats.
Speaker Change: And that was contemplated during <unk> and planning session. So I think it's pretty consistent with our guidance.
Speaker Change: Okay got it thank you for that Ryan and then.
Speaker Change: Yes, I wanted to ask on capital lumber.
Speaker Change: Capital now included in the guide is I think it wasn't last quarter any of that happen in Q1 versus Q2. So just anything there on the model, but then higher level I'm just curious how that ramp is going now on the west coast. There. Thank you.
Speaker Change: I mean, the way to.
As we highlighted we expected a.
Speaker Change: Phil.
Speaker Change: In the first half of the year.
Speaker Change: That Phil is materializing now it didn't.
Speaker Change: It was contemplated.
Speaker Change: As as.
Speaker Change: As we talked about in our last guide and also the way to think of that as you know that's still it's got a sell out and and its positioning of inventory. So we in general were not going to adjust our guide because it Phil we're going to make sure you understand kind of the staging part of it but it's got a sell through which will.
Speaker Change: Happen.
Speaker Change: In subsequent quarters, and then relative to.
Speaker Change: The expected benefit and support.
Speaker Change: That.
Speaker Change: They are provided in addition to our existing <unk>.
Speaker Change: Distribution network.
Speaker Change: It's very much been as expected, it's been very collaborative and as we look.
Speaker Change: To both shelf expansion and improve service to our existing customers.
Speaker Change: That is very much on track and we're excited by the opportunity that's there.
Speaker Change: As I think Ryan highlighted on his his comments, we are making some incremental investments there.
Speaker Change: To support.
Speaker Change: The ongoing expansion of our position in the marketplace and I would just make one little highlight a lot of the areas that.
Speaker Change: That are covered by our western distributors.
Speaker Change: Domain and capital in particular.
Speaker Change: Have.
Speaker Change: Have a concern for.
Speaker Change: For hardening against fires and obviously there is some.
Speaker Change: A lot of tragic stuff has happened recently.
Speaker Change: And.
Speaker Change: But in general there has been a focus.
Speaker Change: On making sure that we're providing the right products too.
Speaker Change: To make sure that we try to reduce the impact of of these kinds of natural disasters and.
Speaker Change: Particularly our western distribution.
Speaker Change: Is is.
Speaker Change: Actively making sure that they support their consumers and understanding the options that we provide and the potential benefit of those options as we've got a ignition resistant product in a class a plane set of products that they can support that.
Speaker Change: Got it thanks, Jesse good luck guys.
Speaker Change: Your next.
Speaker Change: <unk> comes from the line of Ryan Merkel William Blair. Please go ahead.
Ryan Merkel: Hey, everyone I wanted to ask on <unk> margins, they are coming in a little bit below what I was thinking and Jesse you mentioned investment in the new products any way to quantify that and I'm just trying to clarify if there's anything else impacting the margins in the second quarter or if it's just the investments that youre, making.
Ryan Merkel: Yes, I would say its a few things that we've kind of already highlighted so first there was the new products facility ramp up the underutilization that was driven by that.
Ryan Merkel: Our first quarter is traditionally our lowest volume and that inefficiency some of that gets capitalized on the balance sheet and impacts our second quarter. So that traditionally rolled off in our second quarter as we returned to more volume levels.
Ryan Merkel: The third thing is we do expect one more quarter of pressure on our screen products business the pricing and cost actions. We took place really won't have an impact till the second half of the year and then Jess you just alluded to it but some of those commercial investments to support our new partners, whether that's training displays merchandising those things also will hit us in the second quarter that do not repeat moving forward in the back half of the.
Ryan Merkel: Year.
Ryan Merkel: Yes, and Ryan over I mean over the years, you've heard us talk about.
Ryan Merkel: The impact of lower utilization quarters on the subsequent quarter.
You should think that that is clearly part of this our utilization was.
Ryan Merkel: In Q1 was the lowest it's going to be.
Ryan Merkel: And.
Ryan Merkel: We've already ramped up that utilization in Q2, and we will see some of the benefit in Q3 from Q2 utilization.
Ryan Merkel: Got it alright for Jesse answered My second question, which was gross margins year over year in the first quarter were down a little more than I thought, but it sounds like Q2, and the rest of the way the utilization comes up that we should go back to expansion or how should we think about the progression of gross margins.
Ryan Merkel: I would say that's correct, our first quarter being the lowest and then second quarter, we improved sequentially and then that doesn't create a headwind on the balance sheet for our third and fourth quarter, where volume and utilization is at its highest so I think that would be the natural progression in the back half and Bruce.
Ryan Merkel: Got it alright, thanks, I'll pass it on.
Appreciate it thanks, Brian.
Speaker Change: Your next question comes from the line of Mike Dahl RBC capital markets. Please go ahead.
Mike Dahl: Hey, Thanks for taking my questions.
Mike Dahl: I don't want to go back to kind of some of the moving pieces.
Mike Dahl: And with.
Jesse Thing: Both <unk> and <unk> Jesse can you I know you already expected some load and not necessarily from capital book from your retail win and then <unk> and <unk>.
Speaker Change: So can you just give us an update on what actually impacted.
Speaker Change: <unk> in terms of the load and then Theres a few moving pieces in <unk>, if I recall between kind of capital and then also one of your retail.
Speaker Change: Stocking positions phasing out.
Speaker Change: So just if you could help us kind of quantify on a net basis, what those moving pieces in terms of the new business ramps from your other retail position capital versus the phasing out of.
Speaker Change: The other big box stocking position, yes, yes, so just on.
Speaker Change: On the retail front the way I would.
Speaker Change: Think of it as we're moving forward, we do expect.
Speaker Change: Given our position in the marketplace to continue to see.
Speaker Change: Growth, but as you point out as we transition to be fully in stock in one retailer and transition, which we've already done to not be in stock and the other retailer those too and affect balance out. So you should think of that as as.
Speaker Change: Yes.
Speaker Change: Our normalized progression is as.
Speaker Change: We move through the season and then as you look at.
Speaker Change: As you as your question on on Q1.
Speaker Change: Way to think of it is if you if you think about.
Speaker Change: Double digit and it's really strong double digit which means it's north of 10% sell through growth.
Speaker Change: That accounts for.
Speaker Change: Give or take.
Speaker Change: The beat that we talked about or think of it as well.
Speaker Change: Incremental.
Speaker Change: Sales above what we guided and.
Speaker Change: And then if you think of that remaining.
Speaker Change: Give or take 10% high single digit.
Percentage.
Speaker Change: That is a combination of the staging you highlighted in particular, making sure that we've got.
Speaker Change: The product stage for our new distribution combined with a little bit of normalization call. It a couple of days of.
Speaker Change: More inventory.
Speaker Change: As we came in a bit lower than we wanted at the end of last year. So on the margins you should think of it as is.
Speaker Change: The elements, we talked about there's really not much you can start getting down to single digit million parsing, but in general.
Speaker Change: <unk>.
Speaker Change: That's what it is and as Ryan pointed out on the commentary we're at 15 <unk>.
Speaker Change: Sent below.
Speaker Change: Where we were on a historic basis.
Speaker Change: And then as we look at Q2, it's nothing more than.
Speaker Change: No.
Speaker Change: Assuming a 5% to 7% growth on top of last year.
Speaker Change: Means it's a very normalized process and as I said theres, some theres things that offset in and go up and down in there but in general you should think of Q2 is.
Speaker Change: The combination of early buy.
Speaker Change: We will be very normalized combined with sell through and that gets you to our Q2 guide.
Speaker Change: And once again as we do this if we if we do end up having to ship a little bit more inventory.
Speaker Change: End of the quarter or Theres always some stuff on the border plus or minus.
Speaker Change: That's all relates to the totality of the guide.
Speaker Change: Okay. That's very helpful. And then I guess, just second question you alluded to kind of the tragedy.
Speaker Change: Turning out in la.
Speaker Change: Obviously from a longer term standpoint, there is an awareness dynamic.
Speaker Change: Your product plays into but from a near term standpoint, that's been a pretty fast growing region for you in terms of the West coast in General. So is there any is there any sort of near term disruption any quantification.
Speaker Change: As you look at kind of the very near term <unk> or <unk> that you are contemplating here.
Speaker Change: Yes.
Speaker Change: In general that as you point out.
Speaker Change: And I've got some friends that at houses there in and around and so obviously our heart goes out.
Speaker Change: People that have experience.
Speaker Change: That kind of a tragedy and the elimination of major neighborhoods and obviously.
Speaker Change: None of that is positive.
Speaker Change: I think from an aggregate standpoint, we're large enough and diversified enough.
Speaker Change: That.
Speaker Change: As always I would call it ups and downs, whether it's weather or.
Speaker Change: Hurricanes or that sort of stuff that in general in aggregate because of our geographic diversification, there's not one specific geography that has a disproportionate impact so.
Speaker Change: We don't expect.
Speaker Change: Have a meaningful impact.
Speaker Change: From that situation.
Speaker Change: Got it okay. Thank you.
Speaker Change: Your next.
Speaker Change: Your next question comes from the line of John Lovallo of UBS. Please go ahead.
John Lovallo: Hey, guys. Thank you for taking my questions as well.
Speaker Change: Ryan I think you noted that the capital allocation priorities remain unchanged, but maybe just a couple quick ones on capital allocation no share.
Speaker Change: <unk> during the quarter and I know you've talked about being opportunistic I mean, how do you see the opportunity for share repos as we move through the year.
Speaker Change: I'd say <unk> is typically our lowest cash generation quarter of the year and we also retired some debt at the end of fiscal Q4 dollars 24.
Speaker Change: With recycle acquisition, we made.
Speaker Change: And we actually have a couple of other opportunities we are looking to pursue in the near term potentially.
Speaker Change: The strategy would be the same for the year I think it would just be weighted a little bit more normal to the back half of the year like we would have done previously last year. If you recall, we had the proceeds from the Viacom divestiture and <unk>, which were utilized and obviously didn't repeat this year, so I think that.
Speaker Change: No change in strategy, just probably a little bit of phasing on the timing.
Speaker Change: Okay understood and then what are you guys seeing on the M&A front, what type of deals or looking most attractive to you right now.
Speaker Change: Yes.
Speaker Change: Obviously, we did.
Speaker Change: One recycled deal.
Speaker Change: I think as I think Mike asked the question, it's really important we put ourselves in a position to be able to meet increased demand.
Speaker Change: And.
Speaker Change: And to localize our supply chains around our factories.
Speaker Change: So we're certainly looking at.
Speaker Change: Additional the potential for additional recycle.
Speaker Change: Assets that would help us localize in and expand our capacity in a similar way.
And then.
Speaker Change: As we look out.
Obviously, we laid laid out the market.
Analysis in our Investor day, you've seen our expansion in a number of different areas.
Speaker Change: We'll continue to look for solid tuck in.
Speaker Change: Type acquisitions that provide a.
Speaker Change: Our consumer and contractor base.
Speaker Change: With a broader array of solutions that that help them.
Speaker Change: We really like our current focus our current.
Speaker Change: Yeah.
Speaker Change: Our methodology for growth in our current market position. So we are for the most part just looking at how do we augment that with additional tuck in acquisitions.
Speaker Change: Okay. Thank you.
Speaker Change: I appreciate it.
Speaker Change: Your next question comes from the line of Trey Grooms of Stephens. Please go ahead.
Trey Grooms: Hey, good afternoon, Thanks for taking my question.
Speaker Change: So.
Speaker Change: I guess looking back to the.
Speaker Change: Earlier in 2004.
Speaker Change: The demand for premium or higher end products, where you guys primarily play had been holding in much better versus the entry level.
Speaker Change: Has that continued to be the case or have you seen any change as you look at where you're seeing the outperformance in demand with your overall sell through continued to be pretty strong.
Speaker Change: Yes, I would just frame it as.
Speaker Change: As we look across both the portfolio and all the different types of channels that we plan.
Speaker Change: We've seen pretty.
Speaker Change: Good growth in all of our segments at this stage. So I don't know that I can draw a specific.
Speaker Change: Hardline distinction.
Speaker Change: Aside from the pro continues to be.
Speaker Change: Busy the pro continues.
Speaker Change: To expand and find new jobs.
Speaker Change: And we continue to see the benefit of that.
Speaker Change: Ross the entirety of our portfolio.
Speaker Change: Alright, Thanks, Jesse and then.
Speaker Change: Maybe one for Ron.
Speaker Change: Inventory levels.
Speaker Change: You guys inventory specifically remains.
Speaker Change: Nicely in check so how do you how do you feel about your inventory levels as we move into the busier decking season is it about where you'd like it based on your demand expectations and then of course, especially in light of lower than normal channel inventory or is there any adjustments are needed as we kind of.
Speaker Change: Into the building season.
Speaker Change: I think as we exited the calendar year here with our physical <unk> results. We did build some inventory from our year end, that's really just prepping to ship early buy in our second fiscal quarter and really to balance production to the extent that we can.
Speaker Change: I think there's really any other major changes to that from a full year perspective, we would still look at targeting roughly flat year over year on the inventory level, but I think given.
Speaker Change: Kind of the phasing maintaining our four week lead times and ensuring product availability to the channel.
Speaker Change: Really why we build in <unk> and then we completed as the season starts.
Speaker Change: Got it Super helpful. Thanks, a lot best of luck.
Speaker Change: Thank you appreciate it thanks.
Teton Montara: Your next question comes from the line of Teton Montara BMO capital markets. Please go ahead.
Speaker Change: Good afternoon, and thanks for taking my question.
Teton Montara: So maybe to start with can you talk a little bit about your strategy on the siding.
Speaker Change: Right.
Speaker Change: They are going to see a couple of established players out there. So kind of can you talk about kind of what's the strategy and kind of what are you targeting in siding.
Speaker Change: Yes.
Speaker Change: So in general if you step back and you look at our exteriors business. It is an accent on top of.
Speaker Change: Of the various siding players right. So we've got corners and tram and.
Speaker Change: And.
Speaker Change: Column wraps that sort of stuff right. So so our exteriors business targets.
Speaker Change: There's a disproportionate amount of wood on these accidents that go into on top of siding. So our focus is to drive wood conversion.
Speaker Change: On an act Senate basis, that's been our exterior strategy now as you as you think about the most recent products. We've launched eight I'll think of it as a premium.
Speaker Change: Alternative too.
Speaker Change: That installs like vinyl siding.
Speaker Change: On a premium super premium alternative for those folks that were.
Speaker Change: Want that either premium accident or premium look.
Speaker Change: And want to take advantage of the technology that we have to achieve that premium and so so the way to think of it for US obviously, it's a huge market.
Speaker Change: It's a it's an accent.
Speaker Change: <unk> product or a very kind of wood replacement high end niche.
Speaker Change: Siding product.
Speaker Change: That we believe there is a market for and it's consistent with our current contractor base.
Speaker Change: They are not it grows beyond.
Speaker Change: A niche product.
Speaker Change: Well that remains to be seen but.
Speaker Change: For us.
Speaker Change: A small.
Speaker Change: Tiny niche of that market is additive to our new product growth in that exteriors business.
Speaker Change: Understood. That's very helpful and then just.
Speaker Change: As a follow up can you just remind us where you are with the HDD to MTBE sort of.
Speaker Change: Conversion and then on the recycle PVC side as well both for decking and exteriors.
Speaker Change: Yeah.
Ryan Merkel: So Ryan please chime in but so on the on the transition.
Ryan Merkel: From HD to LD, we continue on that transition so everyday that goes by we're cutting lines over.
Ryan Merkel: We've been pretty methodical on that so we're probably more than half converted.
Ryan Merkel: And we continue to convert now as we've done that.
Ryan Merkel: One of the areas, where we're going to see some of the best savings is in the way in which we process the LD and so what I would say now that we're converting into using <unk>.
Ryan Merkel: Higher percentage of L D.
Ryan Merkel: We need to do a better job of processing, the LD internally to fully realize the cost savings and and so we're certainly seeing savings right now.
Ryan Merkel: Since last year to this year.
Ryan Merkel: We made meaningful improvements in terms of our ability to process that lower cost material internally.
Ryan Merkel: And we expect as the year progresses as we move into next year that there'll be a meaningful unlock in our ability to process.
Ryan Merkel: The next set of recycled materials, and so from where we sit now theres a long cost reduction pipeline ahead of us.
Ryan Merkel: We continue to use and process that material better.
Ryan Merkel: And then on the on the PVC side.
Ryan Merkel: We continue to incrementally ramp up the percentage of PVC.
Ryan Merkel: On all of our lines, we've gotten to a really good spot on on our exterior business, we've gotten to a good spot on our decking business.
Ryan Merkel: We've got a similarly, we've got a kind of cost reduce.
Ryan Merkel: The raw material flow and how we process that recycling obviously the acquisition. We just did will be helpful in that.
Ryan Merkel: And then as it as we start to continue to.
Ramp up the percentage of PVC.
Ryan Merkel: Got to make some minor modifications to the lines, which we'll be doing over the next 12 months to allow us to continue that step up.
Speaker Change: Brian I don't know if you've got anything more to add.
Ryan Merkel: I heard it all.
Ryan Merkel: Perfect. Thank Jesse good luck.
Ryan Merkel: Thanks.
Speaker Change: Your next question comes from the line of Trevor Allinson of Wolfe Research. Please go ahead.
Trevor Allinson: Hi, good afternoon, and thank you for taking my questions I wanted to revisit the margin question asked earlier and maybe a little different way in the past you guys had talked about doing in the neighborhood of 100 basis points of EBITDA margin expansion per year. This youre guiding to a little bit less than that is that just primarily a function of your 100 basis points of margin expansion.
Trevor Allinson: <unk>, usually as soon as you get closer to 10% top line growth or some of these other factors that you guys have talked about whether it be some of the inflation in Scranton or some of these new products that you're bringing on is that having as big of an impact on the margin year over year, there as some of the lower leverage versus that 10% growth rate.
Trevor Allinson: I would say, it's actually a combination of everything you mentioned so first off when we talked about 50 to 100 basis points that typically is at full volume and sales growth expectation and then second this year with all the new product launches facility startups planned underutilization as well as the headwind on our screen products business.
Trevor Allinson: And kind of why we had.
Trevor Allinson: <unk> had a lower number for the year, so nothing's really changed on the strategy I think it's just given the lower sales outlook versus the 10% to 12% growth and then those factors would contribute to why we're modeling less than 100 basis points.
Trevor Allinson: And I think the only thing I would add is.
Trevor Allinson: Margin expansion, you would love for it to be perfectly linear quarter to quarter.
Trevor Allinson: And as Ryan pointed out some of that is with respect to investments and ramp up and some of that is really timing on some of the cost savings and so as we move through the back half of the year.
Trevor Allinson: It's not only utilization.
Trevor Allinson: <unk>.
Trevor Allinson: The ramp up of the new products. We also will start seeing some of the benefit and particular as we move to the back end of the year into next year.
Trevor Allinson: Some step ups in some of our cost programs.
Trevor Allinson: So in general we.
Trevor Allinson: We have an ability to control our margin ramp up as you've seen.
Trevor Allinson: We're going to continue to expand margins.
Trevor Allinson: And it's at this stage, it's a it's a mix of what we highlighted and also just timing of our cost reduction ramps and just to reiterate.
Trevor Allinson: Obviously as we looked at our five year target.
Trevor Allinson: We're we're pretty much on.
Trevor Allinson: On track to get there earlier, and we feel really confident about our ability to get there.
Trevor Allinson: Much earlier than we talked about.
Trevor Allinson: Yes. It makes a lot of sense appreciate all that color and then for a second question I. Appreciate it's small small part of your business, but can you kind of quantify what the inflationary.
Trevor Allinson: <unk>, great and what kind of impact that had on your margin in the first quarter and then what sort of pricing are you guys expecting to push here in the back half of the year to cover that.
Yes.
Trevor Allinson: From the material side right.
As when we sold the Viacom business in the prior year, we used to source the machine sheet directly from them to build the product now it's a source piece of a lag on the balance sheet caught up with that so that was the majority of the headwind on.
Trevor Allinson: Margin side from the Scranton products business, and then from a pricing perspective on trend products. It's a really a low single digit increase but given the backlog of that business. It takes a quarter and a half to two to materialize. So the reality of that doesn't start impacting us until our third and fourth quarter of the fiscal year.
Speaker Change: Got it makes sense I appreciate all the color and good luck moving forward.
Trevor Allinson: Thank you.
Trevor Allinson: Thank you I believe that.
Trevor Allinson: The last question we had.
Trevor Allinson: Really appreciate everyone's participation.
Trevor Allinson: We look forward to talking to and seeing many of you over the next few weeks that are at the various events, including Ibs. So with that thank you. So much and we look forward to talking to you have a great evening.
Trevor Allinson: Ladies and gentlemen that concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Trevor Allinson: Please wait the conference will begin shortly.
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