Q2 2025 The AZEK Co Inc Earnings Call
being recorded. With that, I would now like to hand the call over to Eric Robinson with investor relations, Eric, you may begin. Thank you very much.
Eric Robinson: Thank you and good afternoon everyone. We issued our earnings press release in a supplemental earnings presentation this afternoon to the investor relations portion of our website at investors.azaco.com
Speaker Change: I would like to remind everyone that during this call we may make certain statements that constitute forward-looking statements within the meetings of the federal security laws including remarks about future expectations, beliefs, 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 that could cause actual results to differ materially. We do not undertake any duty to update such forward looking statements. [inaudible]
Speaker Change: 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 Gap.
Speaker Change: Good afternoon, and thank you for joining us. The Azek team delivered another strong quarter once again executing well in a dynamic market backdrop.
Speaker Change: In the second quarter of fiscal 2025, we achieved 9% year-over-year growth in our residential segment.
Speaker Change: This is driven by positive mid-single digit residential cell through growth along with our continued expansion of our channel presence and new product launches across our TimberTech, Azek Exterior and VersaTech brands.
Speaker Change: Through the first half of the fiscal year, we have grown our residential segment 13% year-over-year driven by high single-digit cell-through growth. We have grown our residential segment 13% year-over-year driven by high single-digit cell-through growth.
Speaker Change: Our focus on material conversion, product innovation, improving the customer journey, growing brand awareness, and channel expansion continues to drive our success in our market out performance.
Speaker Change: Our consistent ability to outperform the broader repair and repair model market highlights the effectiveness of our business model, the attractiveness of our products and the disciplined execution by the Azak team. [inaudible]
Speaker Change: During the quarter, Decker Allen accessory, net sales grew 11% year-over-year with each of the product lines growing high single digits to double digits.
Speaker Change: Experiors, net sales grew 2% year over year as that business has experienced relative stability while navigating a slower R&R and new construction market.
Speaker Change: During the quarter overall, we saw solid residential south through growth numbers in January , a slower February followed by a stronger march which has continued into April . [inaudible]
Speaker Change: We expanded our Adjusted EBITDA margin by 40 basis points year-over-year to 27.5% while continuing to invest in our long-term growth initiatives and vertically integrated recycling network.
Speaker Change: During the quarter, we also made investments in merchandising, display and samples to support our geographic channel and shelf expansions.
Speaker Change: We also delivered strong residential segment adjusted EBITDA growth of 11% year over year and expanded our segment adjusted EBITDA margin by 60 basis points year over year to 28% inclusive of these investments.
Speaker Change: For those new to the story, I want to take the opportunity to briefly highlight Azek's unique growth and margin expansion strategy and the compelling fundamentals behind our sustained out performance.
Speaker Change: Azek is well positioned to capitalize on the large in growing ship from traditional materials such as wood to low maintenance, high performance and sustainably engineered building materials across the outdoor living and exterior categories.
Speaker Change: As an example, wood and engineered wood represents more than 75% of decking, 60% of rail, and 50% of exterior trim units sold annually.
Speaker Change: We have a proven multi-year track record of driving above market growth, margin expansion, and cash generation through various market cycles.
Speaker Change: Azek's product offerings include industry-leading brands like Timbertech, Azek Exteriors, and VersaTech.
Speaker Change: with award winning innovation, a resilient business model, and a clear strategy focused on material conversion, product leadership, channel expansion and sustainability. We are targeting double digit long term growth and sustained margin expansion.
Speaker Change: Over the last seven years through fiscal 2024, we have delivered a 15% compounded annual growth rate in our residential segment.
Speaker Change: Our proposed merger with James Hardy enhances our strategy to accelerate material conversion, provide our contractors and customers with expanded solutions.
Speaker Change: Benefit from significant synergies, accelerate our growth and deliver even greater value for our shareholders.
Speaker Change: Together we are creating a premier growth platform with leading brands across citing, decking, railing, trim and accessories.
Speaker Change: This platform will unlock significant wood and other material conversion opportunities across a large and expanding addressable market.
Speaker Change: In addition to the growth platform, I just described, Azek brings a category leading outdoor living portfolio, one of the largest and most effective sales organizations in the industry, and a vertically integrated recycling network.
Speaker Change: James Hardy is a leader in sighting and similarly has a compelling material conversion grow story.
Speaker Change: and a strong focus on contractors, customers, and branding. It has an even larger sales force and a strong proven track record.
Speaker Change: All true shareholder value comes from customer value, and the combination of R2 companies will allow us to provide a more complete solution and create more value and growth for our current and future customers.
Speaker Change: Early feedback from our customers and contractors has been overwhelmingly positive. We've heard many of them express the value of partnering with an innovative manufacturer for their home exteriors and outdoor living needs. [inaudible]
Speaker Change: We are highly confident that together we will unlock $125 million in cost synergies and $500 million in incremental sales synergies with the potential for even greater upside as we integrate our complimentary capabilities and scale.
Speaker Change: These benefits would be on top of the already compelling growth, margin, and free cash flow profile of the Performa Company.
Speaker Change: While we remain confident in our standalone business, this combination provides our chair holders and even greater opportunity to realize significant long term value.
Speaker Change: As always, our people remain at the center of our success and I want to thank the Azak team for their outstanding work and focus as we execute through this exciting period
Speaker Change: Azek's long track record of growth and outperformance, margin expansion and value creation would not be possible without the dedication, collaboration and support of our team members and business partners.
Speaker Change: I would once again like to express my sincere gratitude and I know we are all energized by the significant opportunities ahead.
Speaker Change: I will now shift to an update on ASAC strategic initiatives.
Speaker Change: R2024 and 2025 new product launches, including Timbertech Harvest Plus Decking.
Speaker Change: Timbertech, Reliance Rail, Timbertech Fulton Rail, and Trim Logic, High Recycle Content Exterior Trim are ramping up well. Contractor and dealer feedback has been highly positive and we have expanded our shelf presence.
Speaker Change: with new and existing partners as part of our recently completed 2025 early buy negotiations.
Speaker Change: Each of these new products allow us to expand our addressable market and address a wider range of price points, consumer needs, and drive increased wood conversion.
Speaker Change: Investments in these new product platforms continue during the quarter, modestly impacting our second quarter margins. We expect these start-up investments to moderate in the second half of the fiscal year as we scale and position these new product platforms to drive future growth.
Speaker Change: Recycle Materials represent the largest raw material input we use to manufacture our products. And today we believe we are the largest vertically integrated recycler of PDC in the US.
Speaker Change: As we continue to grow and scale our recycling infrastructure, we're excited to welcome northwest polymers to the Azak team. Northwest polymers is an industry leading post-industrial and post-consumer plastic recycler based in Oregon. Northwest polymers is an industry leading post-industrial and post-industrial and post-consumer plastic recycler based in Oregon.
Speaker Change: The acquisition expands Azek's in-house capacity in the western part of the US to source and process recycled materials to support our long-term growth strategy and margin expansion objectives.
Speaker Change: Our continued investment support our goal to further increase recycle content in our products, reduce input costs, and reduce our greenhouse gas emissions over time.
Speaker Change: We are also proud to be named to Barron's 100 Most Sustainable US Companies List for the first time ever.
Speaker Change: Moving to our outlook, we continue to see steady demand across our outdoor living portfolio. Our residential cell-through trends in March grew high single digits, improving from a softer February and April has trended positively with double digit cell-through growth.
Speaker Change: While our contractor backlogs remain stable at approximately seven weeks in our surveys highlight a steady market, the contractors and dealers responding to our surveys have expressed some concern about the uncertain macro environment and the potential impact on future behavior of their customers.
Speaker Change: We exit at the quarter which channel inventory levels once again below historical averages and we will continue to focus on maintaining a conservative level of inventory in the channel.
Speaker Change: On the margin front, we continue to see positive momentum through our recycling extension, sourcing savings and continuous improvement initiatives. These actions position us to sustain our margins over the time.
while simultaneously investing in our new product introductions. [inaudible]
Speaker Change: channel expansion and brand building to support our long-term growth trajectory. We are a domestic manufacturer with primarily locally sourced raw materials and expect a limited direct impact from the recently announced tariffs.
Speaker Change: We are reaffirming our fiscal 2025 guidance, reflecting strong residential segment net sales growth and strong residential segment adjusted EBITDA growth.
Speaker Change: While we have seen mid-single digit to double digit residential south thru growth recently. Thank you very much.
Speaker Change: We acknowledge that there is uncertainty in the broader economy. We believe we can continue to outperform the market and if the market gets weaker we are well positioned to continue delivering against our adjusted EBITDA targets. [inaudible]
Speaker Change: Our fiscal 2025 guidance considers residential cell through gross scenarios in the low single digit to mid single digit rings in the second half of the fiscal year, while still maintaining conservative channel inventory positioning. [inaudible]
Speaker Change: Our track record over the past several years demonstrates our ability to navigate varied economic cycles while continuing to grow, underscoring our ability to manage through uncertainty.
Speaker Change: We've been operating in an environment for more than two years that has been negative for the repair and remodel and new construction markets.
Speaker Change: We expect Azek's differentiated model to remain resilient, backed by strong momentum from our growing brand awareness.
Speaker Change: New product platforms, continued shelf gains, and a unique focus on material conversion driven by our differentiated technology and digital investments.
Speaker Change: These elements combine with our industry leading sales force and best in class customer service as well as our strong focus on R&R pro contractors and differentiated segments has led to our consistent out performance of the market.
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Speaker Change: We are well positioned to sustain and further expand our margins and we are close to achieving our annual 27.5% adjusted EBITDA margin target well ahead of our fiscal year 2027 milestone. Thank you very much for your time.
Speaker Change: We are confident in our ability to deliver results in fiscal 2025 and deliver sustained value for our shareholders.
Speaker Change: I will now turn the call over to Ryan to discuss our financial results and outlook in more detail [inaudible]
Ryan: Thanks Jesse, and good afternoon everyone. Thanks for joining us today. Azek's second quarter performance is another strong validation of our discipline execution as we continued to outperform a choppy repair in the model market through targeted growth initiatives and operational rigors.
Ryan: In Q2, we delivered residential segment net sales growth of 8.6% year-by-year and drove mid-single digit overall sell-through in line with our expectations.
Ryan: We continue to see stable demand trends with no significant shifts in customer behavior
Your date over 1000 new contractors have joined our loyalty program.
Ryan: During the quarter, digital indicators such as website sessions and contractor reads who double digits the every year. Feedback from our survey of nearly 2000 contractors and dealers showed consistent and positive sediments, so also highlighted some concern about macroeconomic uncertainty potentially laying on growth expectations.
Ryan: We delivered strong margin performance in the quarter with adjusted even on margins reaching 27.5%, a 40 basis point improvement year-to-year and ahead of both guidance and consensus.
Ryan: Our demand and operations were steady through the quarter and our team executed well while investing in key growth initiatives.
Ryan: Our balance sheet remains strong and flexible, and we generate a solid free cash flow in what is typically a seasonal usage quarter.
Ryan: We are re-affirming our four-year FIFO 2020 2021 Outlook based on our strong first-app execution visibility into our early bimonementum and conservative channel inventories that remain position below historical averages.
Ryan: The majority of our supply chain is US-based, and we believe we are well-positioned to navigate in current or future tariffs.
Ryan: For the second quarter of fiscal 2025, we delivered consolidated net sales of $4.52 million, an increase of 8% year-over-year
Ryan: RQQ net sales were driven by positive mid-single-digit residential cell-to-grow along with continuing expansion of our channel presence and new product launches across our deck, rail and accessories and experience businesses.
Ryan: QQ Gross Profit was 168 million, an increase of 11 million year-to-year, and Gross Margin was 37.1%
Ryan: QQ adjusted gross profit was 171 million, an increase of 10 million year-to-year, an adjusted gross profit margin was 37.8 percent.
Ryan: The adjusted gross profit margin decline was driven primarily by the previously mentioned cost related to new product expansion, channel expansion and investment in the weakness in our commercial segment grant and product business.
Ryan: Gap SGNA expenses increased 5 million year-to-year to 88 million, primarily driven by acquisition related expenses due to the proposed merger with James Hardy. [inaudible]
Ryan: Adiosid SGNA expenses increased one year every year to 71 million, primarily driven by marketing and branding investments.
Ryan: Adjusted even up for 2K, increased 11 million, or 10% year-over-year to 124 million. Adjusted even a margin for the quarter, expanded 40 basis points year-over-year to 27.5%.
Ryan: Net income for 2Q increased year-rear by 5 million to 54 million, or 37 cents per share, adjusted net income for 2Q increased year-rear by 7 million to 66 million, adjusted the rooted EPS increased 6 cents year-rear to 45 cents per share.
Ryan: Now turning to our segment results. Residential segment net sales for 2Q were $437 million, up 9% year-over-year driven by the previously mentioned self-through growth, channel expansion and new products.
Ryan: Residential segment adjusted a bit of for 2Q25 was 122 million up 11% year-to-year Residential segment adjusted a bit of margin was 28%.
Ryan: Commercial segment net sales for the quarter worked 15 million, down 4% year-over-year, primarily due to the weaker demand in our spring products business.
Ryan: Commercial segment adjusted even better for the quarter was 1.9 million, a decrease of 1 million year-to-year, again primarily driven by weaker demand and increases in material and book off.
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 by 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 equivalence of 147 million and approximately 373 million available for future borrowing under our revolving credit facilities.
Ryan: Working Capital Defined as M&P Plus Accounts Receivable, minus Accounts Payable, plus $300 million, up $4.8 million a year per year. We ended the quarter with close debt of $5.38 million, which included approximately $99.00 million of financial aid fee. We ended the quarter with close debt of close debt of close debt of close debt of close debt
Ryan: Net debt was $3.92 million, and our net leverage ratio stood at 1x at the end of our second quarter.
Ryan: Net Cash from Operating Activities with 47 million during the second quarter, an increase of 62 million year-rear [inaudible]
Ryan: Capital expenditures for the quarter were approximately 46 million, including the 25 million facility purchases for NPA, and we deployed 7.2 million capital to acquire a new regional recycling operation to support our long-term recycling capabilities and ambitions.
Ryan: For the second quarter, free cashflow was 1 million, an increase of 35 million year-to-year. [inaudible]
Ryan: Our capital allocation priorities remain the same as we previously communicated, primarily investing in our business goals organically and in organically.
Now let's turn to our outlook.
Ryan: For 4-year 2025, we are reaffirming our guidance with consolidated and that sales between $1.52 billion to $1.55 billion .
Ryan: representing 5% to 8% year-by-year sales growth with consolidated adjusted EBIT of between 4 and 3 million to 4 and 18 million, representing an increase of 6% to 10% year-by-year.
The residential are guidance for net sales of one point. [inaudible]
Ryan: 4.52 billion to 1.479 billion representing 6% to 8% year-over-year growth
Ryan: with adjusted EBITDA between $392 million and $4.6 million, representing approximately 7% to 11% year-rear growth.
Ryan: Are planning a function considers residential cell through gross scenarios in the low single-digit, to mid single-digit range for the remainder of the fiscal year while maintaining its burrowed-up channel inventory positioning? [inaudible]
Ryan: Once again, we have yet to see a slowdown in filter growth, but are acknowledging a macro-internative.
Ryan: A few other assumptions for fiscal 2025 to share include the following. We are expecting a capital expenditure range of 110 million to 120 million. The increase is driven by the 25 million dollar opportunistic purchase of our straight and pay facility that is included in our fiscal second quarter. [inaudible]
Ryan: We expect appreciation in the range of 98 million to 102 million, and finally, we are expecting an effective tax rate for the full year between 25% to 26%.
Ryan: So the second half of fiscal 2025, we expect net sales grows a 0% to 4% year-to-year on a consolidated basis, and 0% to 5% year-to-year in the residential segment.
Ryan: Our planning assumptions consider residential, sell-through growth scenarios in the low, committed single-digit range, year-to-year, and normal inventory seasonality in the second half per fiscal year. We expect to end the year with channel inventory levels once again below historical averages. We expect to end the year with channel inventory levels.
Ryan: Adjusted EBITDA is expected to grow 1% to 8% in your year on a consolidated basis, and adjusted EBITDA margin is expected to be in the range of 27.2% to 28%.
Ryan: To help with modeling recall, we will be wrapping approximately $35 million of sales impact in the prior year from the timing of channel purchases ahead of the July 4th holiday into the 3rd quarter of 2024 from the 4th quarter. We expect fiscal 3rd quarter consolidated net sales in the range of $4.13 million to $4.29 million.
Ryan: Consolidated adjusted EBITDA is expected to be between 115 million to 123 million and adjusted even a margin is expected to be in a range of 27.8% to 28.7%.
Ryan: Our residential segment guidance for the quarter is 396 million per quarter and 10 million in net sales, with segment of justice you could have between 112 million to 119 million.
Ryan: We are assuming residential Celtic growth in the low single digit to mid single digit range in the third quarter. We are expecting an effective tax rate reduction by 25% to 25%
Ryan: All right. Turn around. Turn around. It's my turn. Look back and then turn around. It's my . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ryan: Despite facing some macro uncertainty, we are well positioned to execute for the remainder of fiscal 2025 and beyond. For additional planning assumptions to assist with modeling fiscal year 2025, please refer to a supplemental earnings presentation we have posted on our special relations website. Now, I'll turn the call back to Jesse for some closing remarks.
Jesse: Thanks, Ryan. Over the last 10 years through fiscal year 2024, we have delivered a 12% compounded annual growth rate in our residential segment with significant increases in profitability.
Jesse: We are incredibly excited about Azek's future as we look to combine with James Hardy.
Jesse: Together, we will be able to provide a better value for our customers.
Jesse: Grow the business faster and operate more efficiently, leading to greater shareholder value.
Jesse: Our focus has always been about building a great business that benefits our customers, our employees and our shareholders, and we are excited about the journey ahead. We have built a great company, and I know that the next phase will be even better. [inaudible]
with that operator, please open the line for questions.
Thank you very much. Thank you. Thank you.
Jesse: Thank you and ladies and gentlemen at this time if you would like to ask a question today you need to hit star followed by the number one on your telephone keypad.
Jesse: We do ask that you limit yourself to a single question when you are given the opportunity to speak. Thank you.
Speaker Change: Our first question for today comes from the line of Kevin Hughes with Truist.
Your line is large.
Speaker Change: Thank you, Keith Hughes from Truist. A question on the guide in the second half. Got some loads of data numbers up there. Can you talk about what you're expecting, decking your railing versus which two areas in the second half?
Speaker Change: We're not giving specific guidance on that. I think as you look at an aggregate how we've performed.
Speaker Change: to date and how we performed in the second quarter, Decker Allen accessories has clearly been outroeing exteriors, and I think it comes down to...
Speaker Change: you know the exposure difference between both geographic and and markets.
Thank you. Bye.
Speaker Change: Okay, I'll just take one more here on cost. There's been to talk of PVC quite a little bit. If you could talk about your cost bracket in your term, what it, what it looks like for the next several months.
Speaker Change: Keith, by the way, we do know your name so it's great to hear from you Keith. I think you were asking about the cost bucket. I think the way to think of our cost structure right now, and Ryan, please comment, but I think the general comment is, things have been pretty steady. Thank you very much.
Speaker Change: In aggregate, there are some items that are being impacted by some supply chain things call it additives.
Speaker Change: and some of the small items that are impacted by tariffs. And so, you know, we're seeing some modest inflation that we've all set through price.
Okay, thank you.
Thank you for your question.
Speaker Change: Our next question is from the line of Michael Rehaut with JP Morgan. Your line is live.
Andrew Azeon: Power, everyone, this is Andrew Audion from Michael Rehaut, I appreciate taking my questions.
Andrew Azeon: I should not ask in terms of how it relates to the expected sales synergies of the combined company. Is there any additional power you can provide on the strategy knowing that it's a little early now, but of the integration of the teams and how the sales force will be organized?
Andrew Azeon: Yeah, as you point out, it's really early, so we're not prepared to talk about any specifics there, but here's what I would reaffirm.
Andrew Azeon: Right, that we've talked about. I think number one we see significant sales synergies through the combination. And each business has a very, very good downstream sales force. [inaudible]
Andrew Azeon: that's driving absolutely terrific activity. And, you know, sort of number one, the most important thing is as we go through this process is that we sustain our focus on our customers.
Andrew Azeon: and if you extrapolate that out, you should assume that there's going to be a fair amount of stability.
in the sales organization, stability with our distribution. Thank you very much.
Andrew Azeon: and a real focus on how we drive more material conversion. I think the second point is as we've gotten into this, we're probably even more confident on some of the sales energies.
Andrew Azeon: There's just a terrific opportunity in certain downstream segments to sell more to contractors and builders.
Andrew Azeon: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Thanks for that, Jesse. I guess my second question is in terms of acquiring additional recycling assets, how much of that part of your focus is going forward and what does the environment look like for that, and what kind of incremental cost reduction and recycling capacity do you expect to achieve from that?
Speaker Change: Yeah, I think on the last call, we highlighted that from where we stood.
Speaker Change: At that moment, we saw about an incremental $40 million as kind of the next milestone.
Speaker Change: of cost savings on our recycled journey. We're going to continue to invest both to meet our volumes.
Speaker Change: but also to have supply and regional supply to continue to realize that incremental cost savings.
Speaker Change: In terms of the specific acquisition we made, that's really setting us up for 2026 as
Speaker Change: You know, there's lags as we qualify. We may see some benefit in 25, but that's really around a cost in this year that will benefit us in 26 as we localize our recycling around Boise.
Speaker Change: Understood. All passing on. Thanks so much for taking the questions. Thank you.
Thank you.
Speaker Change: Our next question is from the line of Matthew Bouley with Barclays. Your line is what?
Speaker Change: Hello, you've got Elizabeth Langenon for Matt today. I was just wondering if you could touch on, you know, what you're seeing across you.
Speaker Change: your retail and pro-channels, and you know if you could kind of categorize the demand across each category or what you're seeing. If there's any regions that kind of have relative strength or weakness.
Speaker Change: Yeah, I'll ask John Skelly to take that. Go ahead, John . All right, John , thanks. Yeah, so again, we are seeing...
John Skelly: Growth across both categories, we continue to see slightly higher growth in the pro channel versus retail channel but within retail again we continue to see positive momentum from a point of sale perspective. [inaudible]
John Skelly: You know, regionally, regionally across the business, both in retail and the pro-channel, you pretty, pretty good results across the U.S. A little bit of weakness, slight weakness in the North and Northeast. They were very severely impacted by weather early in the spring. We have seen a nice rebound in activity since some of that weather is cleared. [inaudible]
Thank you very much.
Speaker Change: And then, I know that you've mentioned that tariffs are pretty limited in impact given that your supply chains are predominantly domestic. But would you be able to quantify that? You know,
John Skelly: What kind of what you are expecting and if there's any in terms of the cadence of that impact through the back half of the year as well. [inaudible]
John Skelly: Yeah, with the current tariff exposure on an annualized basis, it's anywhere between $12 and $15 million. We sourced roughly $100 to $120 million outside the US. On our fiscal year, we kind of planned that as more of a four to six million impact in the year, which we were able to price against with modest increases.
John Skelly: Yeah, and we would expect that, you know, that particular type of pricing will carry through in the subsequent years to, you know, have us continued offset any of those types of increases.
Thank you very much.
Thank you.
Great, thanks. Thank you for your questions.
Speaker Change: Our next question is from one of Tim Wojs with Baird, Your Line Is Life.
Hey guys, here's a good afternoon. Good afternoon.
Somebody put an H in there.
Jesse: So I guess really the question I have is I was just kind of hoping you could kind of expand a little bit Jesse on.
Jesse: Just some of the customer reactions to the James Hardy and the Azak combinations. You can just kind of expand a little bit on what you're hearing from them and maybe some early opportunities on the sales energy side.
Speaker Change: Yeah, so I'm going to use, you know, my wife, Linda and I have done a, you know, a number of remodels in the Midwest and in those remodels, we have used general contractors.
and think of them as they are the core contractors. [inaudible]
Speaker Change: for James Hardy, right? They do exteriors, they do broad remodels, and those contractors are well familiar with James Hardy. In each of those instances, they were installing wood decks. They were installing wood decks. They are well familiar with James Hardy. They are well familiar with James Hardy.
Speaker Change: and because they were working with me, and my wife turned into one of our best salespeople, we had them move towards Timbertech and Azek types of materials.
Speaker Change: Now, that's an isolated incident. There are meaningful numbers of contractors that install sighting.
Speaker Change: that have communicated that they historically have either installed wood decks. [inaudible]
Speaker Change: or an alternative decking material. And I would say that there's a very specific instance of a contractor that was installing, installing hearty that called us and said, hey,
Speaker Change: You know, you know, I'm a hearty installer, I should be calling you because I was going to put a wood deck on this job.
Speaker Change: and it happens to be for a hearty executive. And so we're starting to get those sorts of...
Speaker Change: of Communications, and then the flip side is also true where...
Speaker Change: We have channel partners that are communicating to us that they're really excited about.
Speaker Change: the combination, so long-winded way of saying we are hearing directly from both contractors.
and Channel Partners,
Speaker Change: on that, and John Sir, John , you want to elaborate anymore? Yeah, I mean, Tim, we've obviously been visiting with customers across the country, and the feedback was, you know, first off, you guys did a really nice job of keeping it quiet. We hadn't even thought about it.
Speaker Change: but now that it's been announced, it's obvious to us. So I think it's been really nice to see the validation from the point of view of the customer that they see the strategic combination benefits. It's obvious to them they get it and they're excited to start working with us together. Thank you very much.
Speaker Change: Okay, okay, no, that's great. And then just on the sell-through side of the back half of the year, the load in the single digit for me. Thank you.
I think that was probably a little bit.
Softer, then maybe what we saw last quarter. Softer,
Speaker Change: Is that preemptive in your mind just trying to kind of bake in a kind of more volatile macro or is that something that you're actually seeing in the in the order book? We are not seeing that. So, you know, as as I said on on the prepared remarks.
Speaker Change: You know, think of it as high single digit year to date April , which double digit . . .
Speaker Change: We just think what we're trying to communicate is within our guide
Speaker Change: You know, you know, you should we're assuming, you know, low to mid single digits within our guide
Speaker Change: Now, we can, you know, we can go down even a bit below that closer to zero, cell through, and still be within the guide. And so, even though we're not seeing it, what we're trying to communicate,
is just the resilience of our guide.
Speaker Change: and you know, we, you know, in order, our sell-through was just an added development to the underlying market. So all of our growth programs are intact, etc., the market would have to go...
Speaker Change: You know, negative and you know, negative in a decent way. [inaudible]
Speaker Change: for us to have cell through that goes negative. And so, that's all of us. It's not even preemptive, it's just giving you our assumptions. Cell through continues, then, you know, at the current rate, then...
Okay, okay, great, thanks, everybody. All right.
Thank you. Bye.
Tim, thanks for your question, apologies for the name. [inaudible]
Phil Ng: Our next question is from line of fill ink with Jeffries.
Your line is live.
Hey guys, this is Maggie Young for Phil.
Speaker Change: Um, I guess kind of going off that last question about the sell-through, you know, that guide against the sales guide for zero to five percent sales growth and resi.
Speaker Change: maybe implies some additional inventory destocking from here, which inventories are already trending below historical level so
Speaker Change: Maybe if you could just talk about how the channel is positioning themselves on inventory at this point, particularly given some of the macro uncertainty out there.
Speaker Change: Yeah, I think as we've sat on the call, we have been conservative.
Speaker Change: really over the last couple of years, but we work with our channel.
Speaker Change: to make sure that we are appropriately staging inventory. John , actually, do you want to press upon that a little bit? Yeah, sure, so again, you know, from our standpoint, we're in the, we've finished early by in a great position. Thank you very much.
Speaker Change: and we put a fair amount of inventory in the channel. And while we're currently seeing the strong sell-through that we commented on, again, we always want to put ourselves in a position where we can provide great service without putting too much inventory in the channel. So, with an outlook that we shared with you of low to mid-single digit sell-through, if you operate under that assumption, we're going to be conservative on inventory levels. . . . . . . . .
Speaker Change: and not have as much inventory in the channel as when we have double-digital through. [inaudible]
Yeah, and so just one comment on your question.
Speaker Change: There's always seasonality in our business where we stage product and it flows through et cetera.
You know, there is not access inventory in the channel. [inaudible]
Speaker Change: And even if we went down to zero sell-through or towards zero sell-through.
Speaker Change: All of our numbers account for a sub-historical amount of inventory in the channel. So I think it's important to note...
Speaker Change: that we are including any inventory in all of our numbers and so you don't have to worry that there's going to be another shoe to drop if things decelerate. So I think that's an important distinction. They're, you know, we're in a normalized. [inaudible]
below historical norm inventory level on channel.
Speaker Change: Okay, great. That's really helpful. And then I got my second question.
Speaker Change: You've been seeing a lot of progress on your recycling target. Maybe you could talk about the opportunity out there being...
Speaker Change: Part of a larger organization to expand or accelerate those efforts and how you're thinking about the related margin opportunity there.
Speaker Change: What I would say is we've laid out cost targets as part of the merger.
Speaker Change: It considers a bit of SG&A optimization. It also considers the opportunity we're going to have just in terms of logistics and supply chain. I would say in our planning assumptions, we don't really have...
Incrementally increased...
Benefit from Recycle above and beyond.
Speaker Change: what we had in our plan. Now, having said that, I think that's going to be an interesting thing as we move into the future. At a minimum, it's going to be a customer value as one of the best recycle streams we have is vinyl PVC siding.
Speaker Change: And so in so much as, you know, there is repairing a model that removes that product.
and that's part of the channel relationships. Thank you.
Speaker Change: that James Hardy has, I think that will be a terrific sustainability opportunity and a terrific opportunity for us to really do the right thing for the environment. I'm not sure at this point that there would be a financial benefit to that.
Got it.
Thanks for all the colors. Thank you very much.
Speaker Change: Thank you for your questions. Our next question is from the line of Susan Maklari with Goldman Sachs, your line is life.
Speaker Change: Hi, everyone. This is Charles Ferrod and for Susan. Thanks for thinking of my question and congratulations, strong quarter. Thank you very much.
Speaker Change: First, I want to ask a little bit about the low-to-mid single-digit sell-out assumptions for the back-ass. Can you talk about how do you expect this to compare to the broader R&R market? And then when you consider your long-term outlook for double-digit annual net sales growth over the coming years, can you talk about your confidence to achieve this, even if the R&R markets remain stupid, considering the organic initiatives and the potential benefit from the merger? Thank you.
Yeah, so let me reiterate, we are not saying. We are not saying.
that shell through is going to decline. [inaudible]
Speaker Change: What we are doing is giving you the modeling capability to assume some slowdown.
Right, and I think it's important that our guide...
Speaker Change: is contemplating, and it's really a guide that's kind of low single digit to mid single digit self-rule which is different than what we've seen.
Speaker Change: Now relative to the on-on-on markets overall, we had assumed a flat-on-on-on market. [inaudible]
Speaker Change: really for the last two years and last year we grew 12 percent. [inaudible]
Speaker Change: And this year, our guide is in the mid to high single digit range. And what that adds up to is, once again, what we're guiding you to is...
Speaker Change: You know, give or take seven percentage points over the underlying R&R market. Once again, we delivered more than that last year. So our target is always
Double digits over the underlying R&R market.
Speaker Change: When we go out for our guide, we assume that, you know, it'll be seven percent. [inaudible]
Speaker Change: So in other words, if you go to that, if we're assuming only 2% self-ru in the back half, that would mean the R and R markets would need to decline
Speaker Change: Givertake, you know, 5% on a year-over-year basis. So that's the simple math there. And then in terms of the confidence moving forward, we've had three years of a flat to declining R&R market.
Speaker Change: You can take a look at our growth stack during that time. As we move in the next year, we certainly feel if anything even better on a stand-alone basis than we have in the past given the new products we've launched.
Speaker Change: and then if you add to that the potential synergy that we get through a combination, you know, we, there's certainly scenarios where, you know, we are meaningfully hired, then where we are now relative to our overall growth rate. So hopefully that answers your question.
Thank you very much. Thank you. Thank you.
Speaker Change: And then second, you know, it was great to see the continued success from channel expansion and new products. Can you maybe expand on those channel wins and, you know, the adoption of new products across both retail and wholesale through the quarter? And you know, given the macro on Trinity, are you seeing shift in the tone from channel partners about their willingness to ramp on inventory into the season stronger? Yeah.
you know part of the season for Disney products.
Thank you. Thank you.
Speaker Change: This is John , I think that was three questions with one, but I'll try. So I think the first question, you know, from a from a shelf space gain and channel perspective. Thank you.
Speaker Change: as I mentioned earlier, we had a highly successful early by-period where we achieved additional shelf-sized gains as we've talked about before and our new partnership with Capitol Lumber continues to pay dividends. We've had a really great start with that new channel partner and we're seeing the benefits of that.
Speaker Change: From a product, new product perspective, very well received. Again, we launched as a reminder, we launched new rail products as well as some new decking products. We're currently ahead of our expectations in terms of the launch of those products. Thank you very much.
and many more. Thank you. Thank you.
Thank you for your questions.
Speaker Change: Once again, ladies and gentlemen, if you would like to ask a question, remember it's star followed by the number one on your telephone keypad, and again we do ask that you please limit yourself to a single question when you're given the opportunity to speak our next question is from the line of Ryan Merkel with William Blair, your line is live. Thank you very much.
Ryan Merkel: Yeah, hey everyone, I wanted to dig in a little bit on the 3Q Revenue Guide.
but coming in a little bit below the street. [inaudible]
Ryan Merkel: And, you know, down year over year, but, you know, I think that's because of the 35 million last year to accomplish you.
Ryan Merkel: But just, you know, put some context to it because April's up double digits, you know, the sell-through is low single digits to mid single digits, but, you know, you're guiding down 3% roughly year by year to just help us a little bit with that.
Ryan Merkel: Yeah, and Ryan can chime in too. I think you hit it on the head, it's just timing of when product ships, right, so last year...
Ryan Merkel: We had the way Fourth of July fell a little bit more shift into the third quarter.
Ryan Merkel: This year, a little less, we'll ship into the third quarter and we'll be in the fourth quarter. So I think it's important to look at our guide as a back half guide.
Ryan Merkel: and once again, you know, they're staging a inventory, there's drawdown inventory, which is normally how this business operates. But in general, I think you answered your own question, which is it's really the timing of when the product ships. [inaudible]
Got it, all right, thanks, Bethanam.
Thank you for your question.
Speaker Change: Our next question is from the line of Mike Dahl with RBC Capital Markets. Your line is live.
Christophe from Mike, Eric, Um,
Speaker Change: It sounds like demand trends have remained pretty solid quarter day, but because there ain't anything, because there ain't no way to point out on the mix front. Are you seeing any, any pressures there emerge? And if I sneak just a quick follow up, the contractor backlogs, where, where are they at today. Thanks.
Speaker Change: Yeah, I mean, I'll take it quickly. We've continued to operate.
Speaker Change: There's nothing meaningful, you know, shifting there and then contractor backlogs, you know, we're steady with our last survey. In fact, they may have creeped up just a little bit, but in general, they're pretty much right on, you know, where we would expect them to be at seven weeks. Thank you very much.
I appreciate that.
Thank you for your question.
Speaker Change: Our next question is from a line of Reuben Garner with Benchmark, Your Line Is Life.
Thank you, good evening guys.
I wanted to ask...
Speaker Change: Ask about your concerns about affordability in the context of some of the other components that go into a deck whether it be the substructure or some of the hardware that. [inaudible]
Speaker Change: that comes from overseas, is that how big of a concern would, you know, significant price increases in those portions of the deck be for you guys, I guess.
Thank you. Thank you.
Speaker Change: Yeah, so you hit on the right products in terms of where we're feeling the tariff impact.
Speaker Change: and as Jesse mentioned earlier we've taken your price in certain areas to offset some of that pressure. What we have done in certain situations is not taken in certain product lines, not taken the full amount of the tariff increase to remain competitive. [inaudible]
while trying to offset in other areas. [inaudible]
Speaker Change: Yeah, I would just say in general, the way the tariffs are falling right now. [inaudible]
Speaker Change: and there are certain exemptions without being specific, you know, in general, for our types of jobs.
Speaker Change: with the exception of certain rail products that are imported from certain countries. In general, I don't know that there's been a large impact from tariffs and our types of jobs.
Great, that's helpful and good luck guys Great, thank you [inaudible]
Jesse: Thank you for your question, and ladies and gentlemen that will close out our Q&A session for today. I'd like to turn it back over to Jesse for any closing comments.
Speaker Change: Yeah, I want to take a moment to thank all of our shareholders and analysts that have worked over the years to understand our business and to be great partners.
Speaker Change: You know, we as management rarely complement our shareholders and our analysts but I think I can speak for the team by saying our analyst community and our shareholders have really impressed us.
Speaker Change: and impressed us with their and your professionalism. And it's been really...
Speaker Change: It's been really good to see your understanding of the business.
Speaker Change: As always, I'd like to thank our partners and customers for their trust and support [inaudible]
Speaker Change: and once again, like to thank the Azek team for being the best team in the industry and for working incredibly hard and always doing the right thing and putting our customers first. Thanks again, it's all of you for joining us and we appreciate your continued support of Azek. Take care, thanks.