Q1 2027 James Hardie Industries PLC Earnings Call

Speaker #1: Welcome to the James Hardie Fiscal First Quarter 2027 Earnings Conference Call. After prepared remarks by management, there will be an opportunity to ask questions.

Operator: Welcome to the James Hardie fiscal first quarter 2027 earnings conference call. After prepared remarks by management, there will be an opportunity to ask questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I would now like to hand the call over to Bill Seymour, VP of Investor Relations. Please go ahead.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I would now like to hand the call over to Bill Seymour, VP of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Thank you, operator, and thank you to everyone for joining today’s call. I’m joined today by Aaron Erter, CEO of James Hardie; Ryan Lada, CFO of James Hardie; and John Skelley, President and General Manager of James Hardie North America, Building Products.

Bill Seymour: Thank you, operator, thank you to everyone for joining today's call. I'm joined today by Aaron Erter, Chief Executive Officer of James Hardie, Ryan Lada, Chief Financial Officer of James Hardie, and John Skelly, President and General Manager of James Hardie North America Building Products Group. Before we begin the call, please note that during prepared remarks in Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on slide two of our earnings presentation for more information. Forward-looking statements made during today's conference call and in the earnings material speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements.

Speaker #2: Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on slide 2 of our earnings presentation for more information.

Speaker #2: Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Speaker #2: Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. In addition, non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Bill Seymour: In addition, non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of non-GAAP measures discussed today can be found in our earnings presentation, which is posted on our website. Also, unless otherwise indicated, our materials and comments refer to figures in US dollars, and any comparisons made are to the corresponding period in the prior fiscal year. Organic net sales comparisons exclude the impact of the AZEK acquisition. With that opening, I'm pleased to hand the call to Aaron.

Speaker #2: Reconciliations of non-GAAP measures discussed today can be found in our earnings presentation, which is posted on our website. Also, unless otherwise indicated, our materials and comments refer to figures in US dollars, and any comparisons made are to the corresponding period in the prior fiscal year.

Speaker #2: Organic net sales comparisons exclude the impact of the ASIC acquisition. With that, I'm pleased to hand the call to Aaron.

Speaker #3: Thanks, Bill, and thank you all for joining us today. In my remarks, I'll cover the highlights of our fiscal first quarter, discuss our strategy and outlook, and then hand it to Ryan for a detailed walkthrough of the financials and our guidance.

Aaron Erter: Thanks, Bill, thank you all for joining us today. In my remarks, I'll cover the highlights of our fiscal Q1, discuss our strategy and outlook, then hand it to Ryan for a detailed walkthrough of the financials and our guidance. We're off to a good start to the fiscal year. Q1 results were ahead of our expectations, led primarily by better than expected organic growth in our fiber cement business. Performance that came against an economic and housing macro backdrop that remains uncertain. Our team stayed focused on what we can control, strong execution, and serving our customers at a high level. We entered the year with a clear set of priorities, return fiber cement to growth, outperform the market across our portfolio, expand adjusted EBITDA, achieve cost and revenue synergies, and drive a step-up in free cash flow to support deleveraging.

Speaker #3: We're off to a good start to the fiscal year. First quarter results were ahead of our expectations, led primarily by better-than-expected organic growth in our fiber cement business.

Speaker #3: Performance that came against an economic and housing macro backdrop that remains uncertain. Our team stayed focused on what we can control: strong execution and serving our customers at a high level.

Speaker #3: We entered the year with a clear set of priorities: return fiber cement to growth, outperform the market across our portfolio, expand adjusted EBITDA, achieve cost and revenue synergies, and drive a step-up in free cash flow to support deleveraging.

Speaker #3: One quarter in, we're pleased with our progress against each of these priorities. Let me get into the highlights of the quarter. Net sales for the quarter were above the high end of our original guidance range, with pro forma growth of 12%—a strong outperformance versus the market.

Aaron Erter: One quarter in, we're pleased with our progress against each of these priorities. Let me get into the highlights of the quarter. Net sales for the quarter were above the high end of our original guidance range, with pro forma growth of 12%, strong outperformance versus the market. Adjusted EBITDA was also above the high end of our guidance range. As you saw in our results today, starting in Q1, we are excluding share-based compensation expense and Adjusted EBITDA and other non-GAAP financial measures. We believe excluding stock-based comp provides a clearer view of our underlying performance and makes us more comparable to our peers. We have also heard from a number of our investors that they would like to see this change. We appreciate that input.

Speaker #3: Adjusted EBITDA was also above the high end of our guidance range. As you saw in our results today, starting in Q1, we are excluding share-based compensation expense in adjusted EBITDA and other non-GAAP financial measures.

Speaker #3: We believe excluding stock-based compensation provides a clearer view of our underlying performance and makes us more comparable to our peers. We have also heard from a number of our investors that they would like to see this change, and we appreciate that input.

Speaker #3: We will continue to break out SBC as a separate line item in our reconciliation tables, so investors can clearly see the impact of this change.

Aaron Erter: We will continue to break out SBC as a separate line item in our reconciliation tables so investors can clearly see the impact of this change. Back to the results. Our outperformance in the quarter was broad-based. It was led by our fiber cement business, where organic growth of 20% came in ahead of our expectations. Three things primarily drove the beat. First, strong execution against our growth initiatives, including ColorPlus Statement Collection and trim-over, where we're seeing continued proof points on material conversion, particularly in the Northeast and Midwest. Second, strength in two parts of the market where we are particularly strong that have held up better than the rest, the higher end of the market, including repair and remodel and multi-family new construction. Third, we lapped the inventory destock from a year ago.

Speaker #3: Back to the results. Our outperformance in the quarter was broad-based, but it was led by our fiber cement business, where organic growth of 20% came in ahead of our expectations.

Speaker #3: Three things primarily drove the beat: first, strong execution against our growth initiatives, including ColorPlus, Statement Essentials, and Trimover, where we're seeing continued proof points on material conversion, particularly in the Northeast and Midwest; second, strength in two parts of the market, where we are particularly strong, that have held up better than the rest: the higher end of the market, including repair and remodel, and multifamily new construction; third, we lapped the inventory destock from a year ago.

Speaker #3: Our strong execution and progress in fiber cement are encouraging as we head into the balance of the year. Even as the market environment remains uncertain, in deck, rail, and accessories, underlying demand remained healthy, with nearly double-digit sell-through that re-accelerated through the quarter.

Aaron Erter: Our strong execution and progress in fiber cement are encouraging as we head into the balance of the year, even as the market environment remains uncertain. In deck, rail, and accessories, underlying demand remained healthy, with nearly double-digit sell-through that re-accelerated through the quarter, driven by strong consumer demand and incremental shelf space across the platform. We're encouraged by the continued strength in TimberTech, driven by wood deck conversions, mix shift to more premium products, and commercial synergy momentum. The Australia, New Zealand, and Europe businesses performed well, both growing revenue double digits and outperforming in a challenging macro environment. We made progress on debt paydown in the quarter, redeeming $400 million of unsecured notes ahead of their 2028 maturity.

Speaker #3: Driven by strong consumer demand and incremental shelf space across the platform, we're encouraged by the continued strength in TimberTech, driven by wood deck conversions, mix shift to more premium products, and commercial synergy momentum.

Speaker #3: The Australia, New Zealand, and Europe businesses performed well, both growing revenue by double digits and outperforming in a challenging macro environment. We made progress on debt paydown in the quarter, redeeming $400 million of unsecured notes ahead of their 2028 maturity.

Speaker #3: This keeps us well on track toward our net leverage target of approximately 2.4 times at the end of this fiscal year, and less than 2 times by fiscal Q2 2028.

Aaron Erter: This keeps us well on track toward our net leverage target of approximately 2.4 times at the end of this fiscal year and less than two times by fiscal Q2 2028. Turning to the integration, commercial synergy momentum continues to build. We're seeing broad-based wins across our combined sales force, strengthening our conviction in the fiscal 2027 $125 million run rate commercial revenue synergy target. Last quarter, we highlighted two examples, Lansing Building Products and CBUSA. As you saw earlier this week, we announced an expanded nationwide partnership with Boise Cascade, one of the largest US wholesale distributors of building materials. This agreement makes Boise a national distribution partner across our entire portfolio, from Hardie Siding and Trim to AZEK Exteriors and, for the first time, TimberTech Decking and Railing.

Speaker #3: Turning to the integration, commercial synergy momentum continues to build. We're seeing broad-based wins across our combined sales force, strengthening our conviction in the fiscal 2027 $125 million run-rate commercial revenue synergy target.

Speaker #3: Last quarter, we highlighted two examples: Lansing Building Products and CBUSA. As you saw earlier this week, we announced an expanded nationwide partnership with Boise Cascade, one of the largest U.S. wholesale distributors of building materials.

Speaker #3: This agreement makes Boise a national distribution partner across our entire portfolio—from Hardie siding and trim to ASAC exteriors, and for the first time, TimberTech decking and railing.

Speaker #3: In addition to the expanded partnership with Boise, we have expanded our partnership with six major regional distributors: Capital, Dixie, Lumbermans, Parkside, Woodgrain, and Wolf.

Aaron Erter: In addition to the expanded partnership with Boise, we have expanded our partnership with six major regional distributors: Capital, Dixie, Lumbermen's, Parksite, Woodgrain, and Wolf. Now carrying the full line of the Hardie portfolio. They will now become fiber cement partners in addition to their existing decking partnerships, extending our reach into the repair and remodel market. These expanded partnerships are a validation of our strategy and the culmination of months of planning to bring together James Hardie's industry-leading exterior building products with the best-in-class national distributor and best-in-class regional distributors. These expanded partnerships also mark a significant step forward toward achieving our revenue synergy target. On cost synergies, we remain ahead of schedule, while under budget for cost to achieve, without sacrificing service or execution.

Speaker #3: Now carrying the full line of the Hardie portfolio, they will now become fiber cement partners in addition to their existing decking partnerships, extending our reach into the repair and remodel market.

Speaker #3: These expanded partnerships are a validation of our strategy and the culmination of months of planning to bring together James Hardie's industry-leading exterior building products with the best-in-class national distributor and best-in-class regional distributors.

Speaker #3: These expanded partnerships also mark a significant step forward toward achieving our revenue synergy target. On cost synergies, we remain ahead of schedule and under budget for cost to achieve, without sacrificing service or execution.

Speaker #3: Our combined sales force gathered for a company-wide sales meeting in Chicago in late May, bringing our legacy Hardie and ASAC teams together under one roof for the first time.

Aaron Erter: Our combined sales force gathered for a company-wide sales meeting in Chicago in late May, bringing our legacy Hardie and AZEK teams together under one roof for the first time. One company, one sales force, one culture, with a shared playbook. At 500 strong, we believe we have the largest and best sales force in the industry, and the early results reflect that. We also continued extending the Hardie Operating System across the AZEK manufacturing network, resulting in improved productivity, tighter procurement discipline, and better cost visibility across the combined plant footprint. These examples are the best of both companies coming together in practice. As a reminder, our $23 billion exterior total addressable market in North America remains heavily under-penetrated by more resilient materials, yielding a $17 billion-plus conversion opportunity. We're executing against five pillars to capture it, and I'll touch briefly on each. First, material conversion.

Speaker #3: One company, one sales force, one culture, with a shared playbook. At 500 strong, we believe we have the largest and best sales force in the industry, and the early results reflect that.

Speaker #3: We also continue to extend the Hardie operating system across the ASAC manufacturing network, resulting in improved productivity, tighter procurement discipline, and better cost visibility across the combined plant footprint.

Speaker #3: These examples are the best of both companies coming together in practice. As a reminder, our $23 billion exterior total addressable market in North America remains heavily underpenetrated by more resilient materials.

Speaker #3: Yielding a $17 billion-plus conversion opportunity. We're executing against five pillars to capture it, and I'll touch briefly on each. First, material conversion. We continue to see contractors switch competitive decking to TimberTech.

Aaron Erter: We continue to see contractors switch competitive decking to TimberTech, and longtime Hardie Siding contractors add composite and PVC decking to their offering. There are approximately 60 million decks in the US, and the vast majority are wood. These two-way wins remain a meaningful contributor to above-market growth. Second, channel expansion. We continue to scale Hardie into TimberTech and AZEK strong accounts in the north, and TimberTech into Hardie strong accounts in the south, adding new stocking locations across the combined footprint this quarter. Third, innovation and new product development. Our combined product and R&D teams remain focused on solutions that accelerate material conversion, applying the AZEK innovation playbook to fiber cement with products like TimberHue, which offers authentic wood grain finishes in eight colors. Fourth, brand preference.

Speaker #3: And longtime Hardie siding contractors add composite and PVC decking to their offering. There are approximately 60 million decks in the U.S., and the vast majority are wood.

Speaker #3: These two-way wins remain a meaningful contributor to above-market growth. Second, channel expansion: We continue to scale Hardie into TimberTech and AZEK Strong accounts in the North, and TimberTech into Hardie strong accounts in the South.

Speaker #3: Adding new stocking locations across the combined footprint this quarter. Third, innovation and new product development. Our combined product and R&D teams remain focused on solutions that accelerate material conversion.

Speaker #3: Applying the ASAC Innovation Playbook to fiber cement with products like TimberQ, which offers authentic wood grain finishes in eight colors. Fourth, brand preference: brand search volume and customer sample orders are leading indicators of future demand. Both continue to grow at a healthy clip in the quarter, reinforcing our position as one of the most recognized brands in our categories and supporting sustained share gains over time.

Aaron Erter: Brand search volume and customer sample orders, a leading indicator of future demand, both continued to grow at a healthy clip in the quarter, reinforcing our position as one of the most recognized brands in our categories and supporting sustained share gains over time. Fifth, simplifying the consumer journey. Our replatform website continues to improve how homeowners research, compare, and connect with our contractor network. Together, these five pillars remain the core of how we win in North America, and we're pleased with our progress across each of these this quarter. Let me give you an update on our fiber cement growth plan. As discussed last quarter, our focus remains on the Northeast and Midwest, where repair and remodel, wood and wood look siding alone represents an approximately $1 billion conversion opportunity, and where AZEK gives us immediate channel relevance, an established footprint, strong relationships, and complementary products.

Speaker #3: And fifth, simplifying the consumer journey. Our re-platformed website continues to improve how homeowners research, compare, and connect with our contractor network. Together, these five pillars remain the core of how we win in North America.

Speaker #3: And we're pleased with our progress across each of these this quarter. Let me give you an update on our fiber cement growth plan. As discussed last quarter, our focus remains on the Northeast and Midwest, where repair and remodel, wood, and wood-look siding alone represent an approximately $1 billion conversion opportunity.

Speaker #3: And where ASAC gives us immediate channel relevance and established footprint, strong relationships, and complementary products. The expanded Statement and Statement Essentials rollout is gaining traction.

Aaron Erter: The expanded Statement and Statement Essentials rollout is gaining traction, continuing with double-digit growth in the Midwest East pilot, and is now live in an additional five regions. Building on that momentum, we opened two new expanded Statement partner stocking locations on the East Coast, improving service and availability of the full collection across our pilot markets, with ColorPlus mix continuing to grow. At the same time, we've expanded our Hardie Pro Lab, our mobile contractor training units, to drive Statement Essentials adoption across the broader Midwest and Northeast footprint, and we're seeing that training translate into sell-through. Our three conversion priorities remain unchanged, converting vinyl siding, winning against wood, and expanding our presence in premium products. On vinyl, we are accelerating penetration in the Northeast, Midwest, and the Carolinas, backed by expanded ColorPlus rollout and contractor training.

Speaker #3: We are continuing with double-digit growth in the Midwest East pilot, and it is now live in an additional five regions. Building on that momentum, we opened two new, expanded Statement Partner Stocking locations on the East Coast.

Speaker #3: We are improving service and availability of the full collection across our pilot markets, with ColorPlus Mix continuing to grow. At the same time, we've expanded our Hardie ProLab—our mobile contractor training units—to drive Statement Essentials adoption across the broader Midwest and Northeast footprint.

Speaker #3: And we're seeing that training translate into sell-through. Our three conversion priorities remain unchanged: converting vinyl siding, winning against wood, and expanding our presence in premium products.

Speaker #3: On vinyl, we are accelerating penetration in the Northeast, Midwest, and the Carolinas, backed by expanded ColorPlus rollout and contractor training. On wood, fire resilience—especially in the West—continues to be an increasingly important part of the conversation as building codes evolve, insurance requirements tighten, and homeowners place greater emphasis on durability and risk mitigation.

Aaron Erter: On wood, fire resilience, especially in the West, continues to be an increasingly important part of the conversation as building codes evolve, insurance requirements tighten, and homeowners place greater emphasis on durability and risk mitigation. Finally, TimberHue and our enhanced Artisan lineup, our premium, higher priced, higher margin lines, are gaining traction with custom builders and high-end remodelers. Let me close my remarks with a quick word on the external environment before I hand it to Ryan. The housing macro backdrop remains uncertain and broadly similar to what we discussed last quarter. Mortgage rates remain elevated, and builder confidence and consumer sentiment remain cautious. Housing starts have converged down toward permits over the quarter, and as I touched on earlier, we are seeing a divergence by price band with the middle to upper tiers, where we participate more significantly, holding up better than the rest of the market.

Speaker #3: Finally, TimberQ and our enhanced Artisan lineup are premium, higher-priced, higher-margin lines that are gaining traction with custom builders and high-end remodelers. Let me close my remarks with a quick word on the external environment before I hand it to Ryan.

Speaker #3: The housing macro backdrop remains uncertain and is broadly similar to what we discussed last quarter. Mortgage rates remain elevated, and builder confidence and consumer sentiment remain cautious.

Speaker #3: Housing starts have converged down toward permits over the quarter. And as I touched on earlier, we are seeing a divergence by price band, with the middle to upper tiers—where we participate more significantly—holding up better than the rest of the market.

Speaker #3: In our outlook, we are not assuming housing industry conditions improve from here. We are focused on what we can control in our own execution.

Aaron Erter: In our outlook, we are not assuming housing industry conditions improve from here. We are focused on what we can control and our own execution, and we remain committed to our fiscal 2027 priorities: market outperformance, a return to growth in fiber cement, attainment of cost and revenue synergies, adjusted EBITDA expansion, and significant growth in free cash flow and further deleveraging. Now, let me turn it over to Ryan, who will walk you through our financial results and outlook in more detail.

Speaker #3: And we remain committed to our fiscal 2027 priorities: market outperformance, a return to growth in fiber cement, attainment of cost and revenue synergies, adjusted EBITDA expansion, significant growth in free cash flow, and further deleveraging.

Speaker #3: Now, let me turn it over to Ryan, who will walk you through our financial results and outlook in more detail.

Speaker #2: Thanks, Aaron. Total net sales for the first quarter were $1.47 billion, growing 64% on a reported basis and 12% on a pro forma basis, above the high end of our original guidance range.

Ryan Lada: Thanks, Aaron. Total net sales for Q1 were $1.47 billion, growing 64% on a reported basis and 12% on a pro forma basis above the high end of our original guidance range. As Aaron mentioned, starting this quarter, we're excluding share-based compensation expense from adjusted EBITDA and our other non-GAAP measures. We'll continue to break share-based compensation out as a separate line in our reconciliation tables so investors can see the impact clearly in both current and prior periods. Adjusted EBITDA was $422 million, with margins of 28.6% above the high end of our original guide, with and without the share-based compensation exclusion, reflecting volume leverage and the benefit of our cost actions. A few modeling notes. Adjusted corporate and unallocated R&D was $32.3 million in the quarter. Keep in mind, a portion of our cost synergy benefits continue to run through that line.

Speaker #2: As Aaron mentioned, starting this quarter, we're excluding share-based compensation expense from adjusted EBITDA and our other non-GAAP measures. We'll continue to break share-based compensation out as a separate line in our reconciliation tables, so investors can see the impact clearly in both current and prior periods.

Speaker #2: Adjusted EBITDA was $422 million, with margins of 28.6%, above the high end of our original guide, with and without the share-based compensation exclusion, reflecting volume leverage and the benefit of our cost actions.

Speaker #2: A few modeling notes. Adjusted corporate and unallocated R&D was $32.3 million in the quarter. Keep in mind a portion of our cost synergy benefits continue to run through that line.

Speaker #2: Our adjusted effective tax rate was 21.7%, in line with expectations. Weighted average diluted shares were approximately 584 million in the quarter, and we expect the share count to remain broadly consistent throughout the year.

Ryan Lada: Our adjusted effective tax rate was 21.7%, in line with expectations. Weighted average diluted shares were approximately 584 million in the quarter. We expect share count to remain broadly consistent throughout the year. Adjusted net interest was $64.8 million in Q1. We expect it to normalize around $60 million per quarter for the remainder of the fiscal year. Adjusted EPS was $0.36, up 13%, with growth diluted by the increase in shares from the AZEK consideration. As we discussed last quarter, we continue to convert customers as part of our commercial synergy program. Some of those wins involve buying back existing channel inventory. These are investments tied to specific conversion wins, not a reflection of underlying demand. We'd expect to see these investments continue as we close out more of our commercial synergy pipeline.

Speaker #2: Adjusted net interest was $64.8 million in Q1, and we expect it to normalize around $60 million per quarter for the remainder of the fiscal year.

Speaker #2: Adjusted EPS was $0.36, growth diluted by the increase in shares from the ASAC consideration. As we discussed last quarter, we continue to convert customers as part of our commercial synergy program, and some of those wins involve buying back existing channel inventory.

Speaker #2: These are investments tied to specific conversion wins, not a reflection of underlying demand, and we'd expect to see these investments continue as we close out more of our commercial synergy pipeline.

Speaker #2: On costs, we continue to expect approximately $80 million to $100 million of cost pressure in fiscal 2027, primarily from raw materials, freight, and energy, with roughly two-thirds of that impact in North America.

Ryan Lada: On costs, we continue to expect approximately $80 to $100 million of cost pressure in fiscal 2027, primarily raw materials, freight, and energy, with roughly two-thirds of that impact in North America. The pricing actions we announced in late April are directly offsetting this pressure. We're pleased with the execution and realization to date. Our raw material cost assumptions have improved modestly. We're seeing offsetting pressure in freight, where elevated spot rates and network dynamics are running above our original planning assumptions. We are actively working on contracting a higher percentage of our freight lanes to help reduce this pressure. Oil prices have moved below our planning assumptions. Refined products like diesel have not seen the same relief. We are holding our assumption of $80 to $100 million of cost pressure in fiscal 2027. We're continuing to watch this closely given the volatility.

Speaker #2: The pricing actions we announced in late April are directly offsetting this pressure, and we're pleased with the execution and realization to date. Our raw material cost assumptions have improved modestly, but we're seeing offsetting pressure in freight.

Speaker #2: We're elevated spot rates, and network dynamics are running above our original planning assumptions. We are actively working on contracting a higher percentage of our freight lanes to help reduce this pressure.

Speaker #2: Oil prices have moved below our planning assumptions, but refined products like diesel have not seen the same relief. We are holding our assumption of $80 to $100 million of cost pressure in fiscal 2027, and we're continuing to watch this closely given the volatility.

Speaker #2: Separately, the $25 million in annualized fiscal year 2027 savings from our Fontana and Somerville plant closures, along with continued HAW savings across sourcing, productivity, and formulation, are tracking as planned.

Ryan Lada: Separately, the $25 million in annualized fiscal year 2027 savings from our Fontana and Somerville plant closures, along with continued HOS savings across sourcing, productivity, and formulation, are tracking as planned. In Siding and Trim, net sales were $859.8 million, up 34%, with organic growth of 20%, ahead of our expectations and led by fiber cement. Adjusted EBITDA margin was 33.5%, reflecting volume leverage, pricing, and continued plant cost savings from our manufacturing footprint optimization work. Sell-through was strong exiting the quarter, outpacing shipments, driving volume leverage, bringing channel inventory to healthy levels. In Deck, Rail, and Accessories, net sales were $305.1 million, a decline of 5%. The year-over-year sales comparison reflects the planned channel inventory normalization we discussed last quarter, not a change in the underlying health of the category.

Speaker #2: In Siding and Trim, net sales were $859.8 million, up 34%, with organic growth of 20%. This was ahead of our expectations and led by fiber cement.

Speaker #2: Adjusted EBITDA margin was 33.5%, reflecting volume leverage, pricing, and continued plant cost savings from our manufacturing footprint optimization work. Sell-through was strong exiting the quarter, outpacing shipments, driving volume leverage, and bringing channel inventory to healthy levels.

Speaker #2: In deck rail and accessories, net sales were $305.1 million, a decline of 5%. The year-over-year sales comparison reflects the planned channel inventory normalization we discussed last quarter, not a change in the underlying health of the category.

Speaker #2: Sell-through improved sequentially each month, and we exited the quarter with channel inventory and days on hand at healthy levels. We continue to see strong engagement with timber tech and ASEC across both legacy ASEC and legacy Hardie accounts, supporting our confidence in the long-term material conversion opportunity.

Ryan Lada: Sell-through improved sequentially each month. We exited the quarter with channel inventory and days on hand at healthy levels. We continue to see strong engagement with TimberTech and AZEK across both legacy AZEK and legacy Hardie accounts, supporting our confidence in the long-term material conversion opportunity. Adjusted EBITDA margin was 27.1%. In Australia and New Zealand, US dollar net sales were $153.3 million, up 26%, with EBITDA margin of 34.9%. This reflected strong volume growth, disciplined cost management, the benefit of FX. In Europe, net sales were $156.4 million, up 15%, with EBITDA margin of 19.4%, reflecting continued expense management, improved manufacturing efficiency, solid fiber gypsum and fiber cement demand, the benefit of FX. Free cash flow in the quarter was $254 million, driven by higher profitability, lower capital expenditures, improved working capital, a continued reduction in acquisition and integration related costs.

Speaker #2: Adjusted EBITDA margin was 27.1%. In Australia and New Zealand, U.S. dollar net sales were $153.3 million, up 26%, with an EBITDA margin of 34.9%. This reflected strong volume growth, disciplined cost management, and the benefit of FX.

Speaker #2: In Europe, net sales were $156.4 million, up 15%, with an EBITDA margin of 19.4%. This reflects continued expense management, improved manufacturing efficiency, solid fiber gypsum and fiber cement demand, and the benefit of FX.

Speaker #2: Free cash flow in the quarter was $254 million, driven by higher profitability, lower capital expenditures, improved working capital, and a continued reduction in acquisition and integration-related costs.

Speaker #2: As Aaron mentioned, we redeemed $400 million of senior unsecured notes in the quarter, bringing net leverage down to 2.7x, on track towards the leverage targets Aaron reiterated.

Ryan Lada: As Aaron Erter mentioned, we redeemed $400 million of senior unsecured notes in the quarter, bringing net leverage down to 2.7x, on track towards the leverage targets Aaron Erter reiterated. Turning to our outlook for Q2 and fiscal year 2027. Before I jump in, it's worth flagging as you think about modeling the next few quarters. The distribution changes Aaron Erter discussed create real upside to both the current year and long term, and we've built what visibility we have into our guide. The moving pieces here are mostly on sell-in as new and legacy distributors transition at the same time. Given that, we'd expect some quarter-to-quarter noise there over the next couple of periods. Sell-through, though, we expect to remain strong through the transition. We'll also incur some costs along the way, marketing, sales support, and other transition-related investments as we onboard new partners and wind down legacy relationships.

Speaker #2: Turning to our outlook for the second quarter and fiscal year 2027, before I jump in, it's worth flagging, as you think about modeling the next few quarters.

Speaker #2: The distribution changes Aaron discussed create real upside to both the current year and long term, and we've built what visibility we have into our guide.

Speaker #2: The moving pieces here are mostly on sell-in, as new and legacy distributors transition at the same time. Given that, we'd expect some quarter-to-quarter noise there over the next couple of periods.

Speaker #2: Sell-through, though, we expect to remain strong through the transition. We'll also incur some costs along the way—marketing, sales support, and other transition-related investments as we onboard new partners and wind down legacy relationships.

Speaker #2: Additionally, beginning with our second quarter results, we have fully lapped the ASEC acquisition. So, going forward, we will not reference pro forma or organic growth metrics for quarterly comparisons.

Ryan Lada: Beginning with our Q2 results, we have fully lapped the AZEK acquisition, going forward, we will not reference pro forma or organic growth metrics for quarterly comparisons. In Q2, we expect net sales of $1.485 billion to $1.575 billion, or growth of 14.9% to 21.9%. We expect adjusted EBITDA of $420 million to $455 million. Given our Q1 performance, we are raising our full year outlook. We now expect sales of $5.564 to $5.723 billion, or growth of 5.9% to 9% on a pro forma basis for the full year fiscal 2027. We now expect adjusted EBITDA of $1.536 to $1.625 billion. This outlook reflects the flow-through of the Q1 performance and the current expectations for the incremental contribution from our new distribution partnerships. We continue to plan the H2 prudently against an uncertain macro backdrop.

Speaker #2: In Q2, we expect net sales of $1.485 billion to $1.575 billion, or growth of 14.9% to 21.9%. We expect adjusted EBITDA of $420 million to $455 million.

Speaker #2: Given our first quarter performance, we are raising our full-year outlook. We now expect sales of $5.564 to $5.723 billion, or growth of 5.9% to 9% on a pro forma basis for the full year fiscal 2027.

Speaker #2: We now expect adjusted EBITDA of $1.536 to $1.625 billion. This outlook reflects the flow-through of the first quarter performance and the current expectations for the incremental contribution from our new distribution partnerships.

Speaker #2: We continue to plan the back half prudently against an uncertain macro backdrop. We expect free cash flow to exceed $500 million for the full year, and capital expenditures to be approximately 6 to 7% of net sales.

Ryan Lada: We expect free cash flow to exceed $500 million for the full year and capital expenditures to be approximately 6% to 7% of net sales. With that, I'll turn the call back to Aaron Erter.

Speaker #2: With that, I'll turn the call back to Aaron.

Speaker #1: Thanks, Ryan. Before we open it up to questions, let me leave you with a few thoughts. We're encouraged by our start to fiscal 2027—a good quarter, with strong outperformance and execution, in a market that remains uncertain.

Aaron Erter: Thanks, Ryan Lada. Before we open it up to questions, let me leave you with a few thoughts. We're encouraged with our start to fiscal 2027, a good quarter, with strong outperformance and execution in a market that remains uncertain. This solid performance gives us confidence as we move through the rest of the year, and we remain well-positioned when the macro backdrop improves. We look forward to sharing more with you at our Investor Day in New York on 15 September. If you need more information on this, please reach out to our IR team. Finally, I want to thank our team for their continued execution and discipline. None of this happens without you. With that, operator, please open the line for questions.

Speaker #1: This solid performance gives us confidence as we move through the rest of the year, and we remain well positioned when the macro backdrop improves. We look forward to sharing more with you at our Investor Day in New York on September 15.

Speaker #1: If you need more information on this, please reach out to our IR team. Finally, I want to thank our team for their continued execution and discipline.

Speaker #1: None of this happens without you. With that, operator, please open the line for questions.

Speaker #3: We will now begin the question-and-answer session. If you would like to ask a question, please press star one to raise your hand.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Merkel with William Blair. Your line is open. Please go ahead.

Speaker #3: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ryan Merkel with William Blair.

Speaker #3: Your line is open. Please go ahead.

Speaker #4: Hey, everyone. Nice quarter, and thanks for the question. I'd like to start with the North America fiber cement organic growth, up 20%. Aaron, I know an easy comp helped, but it's really impressive growth.

Ryan Merkel: Hey, everyone. Nice quarter, and thanks for the question. I'd like to start with the North America fiber cement organic growth up 20%. Aaron Erter, I know an easy comp helped, but it's really impressive growth. Can you just talk about why you beat your guide, what's working, and then why are we seeing the inflection now?

Speaker #4: So, can you just talk about why you beat your guide? What's working? And then, why are we seeing the inflection now?

Speaker #1: Yeah. Hey, Ryan, thanks for the question. I think many of you know we've talked about fiber cement coming into this year as being our number one priority.

Aaron Erter: Yeah. Hey, Ryan. Thanks for the question. I think many of you know we've talked about fiber cement coming into this year being our number one priority. The Q1 results, they're very encouraging. With that said, we're not satisfied. I like to bucketize the three main reasons why we're seeing fiber cement grow, why we saw it in Q1, is I'd really frame it as the execution of our strategic initiatives, the D stock comp, and the rest being really price and mix. Let me dive a little bit more into thinking about our strategic initiatives. We've talked a lot about ColorPlus, and that being a big focus of ours as we think about really getting after repair and remodel, namely in those areas that have been under-penetrated for us.

Speaker #1: In the Q1 results, they are very encouraging. With that said, we're not satisfied. I think that as we think about it, I like to bucketize the three main reasons why we're seeing fiber cement grow.

Speaker #1: What we saw in Q1, I'd really frame as the execution of our strategic initiatives, the destock comp, and the rest being really price and mix.

Speaker #1: And let me dive a little bit more into thinking about our strategic initiatives. We've talked a lot about ColorPlus, and that being a big focus of ours as we think about really getting after repair and remodel, namely in those areas that have been underpenetrated for us.

Speaker #1: We've done that with the expanded Statement Program, which is now live nationwide. We just had two more locations added—in Baltimore and Chicopee, Massachusetts.

Aaron Erter: We've done that with the expanded Statement program, which now is live nationwide. We just had two more locations added in Baltimore and Chicopee, Massachusetts. We've talked a lot about the trim over, and that being a way for us to really get after vinyl siding. We continue to make really good progress. A year into this pilot, we continue to see encouraging results in the pilot regions. We keep wheeling this out to more and more contractors. One of the things that I know you've seen and that we put out there is really our Hardie Pro Labs, which are mobile training centers, really to take contractors through what trim over is and why it can be easier for them to install and why they can make more money. We've had 50 events in Q1, and we've trained over 1,200 contractors out there.

Speaker #1: And then we’ve talked a lot about the trim-over, and that being a way for us to really get after vinyl siding. And we continue to make really good progress.

Speaker #1: A year into this pilot, we continue to see encouraging results. In the pilot regions, we keep rolling this out to more and more contractors.

Speaker #1: One of the things that I know you've seen, and that we put out there, is really our Pro Labs, which are mobile training centers—really to take contractors through what TrimOver is, and why it can be easier for them to install, and why they can make more money.

Speaker #1: We've had 50 events in Q1, and we've trained over 1,200 contractors out there. The other thing that we're really seeing is the multifamily business.

Aaron Erter: The other thing that we're really seeing is the multi-family business. That's about 15% of our volumes. That has taken off for us in Q1. If you look at our growth regions, areas that we really are concentrated in, areas like the Carolinas, these are more affordable price point metros. They're really running ahead of the national market. The other thing I would say is we've had competitors not able to serve the market. We've been able to take advantage of that. A lot of this has to do with, say, number one, to bucketize it's execution of our initiatives. The team has done an outstanding job. The other thing, we talked about the easier comp, price being the last. That's how I would bucketize it. As we look at the sell-through as well, we haven't talked a lot about sell-through.

Speaker #1: That's about 15% of our volumes. That has taken off for us in Q1. And then, if you look at our growth regions—areas that we really are concentrated in, like the Carolinas—these are more affordable price-point metros.

Speaker #1: They're really running ahead of the national market. The other thing I would say is, we've had competitors not able to serve the market, and we've been able to take advantage of that.

Speaker #1: So a lot of this has to do, I'd say, number one—to bucketize it—it's execution of our initiatives. The team has done an outstanding job.

Speaker #1: The other thing—we talked about the easier comp, and then price being the last. So that's how I would bucketize it. As we look at the sell-through as well, and we haven't talked a lot about sell-through, that is something that our teams are concentrated on.

Aaron Erter: That is something that our teams are concentrated on. It's something that our teams are incentivized on. Our sell-through for fiber cement really accelerated each month, with June being our strongest with up 19%. Those are the reasons, Ryan, why we would say, fiber cement is up about 20%. A good quarter for us, but like I said, we're not satisfied.

Speaker #1: It's something that our teams are incentivized on. Our sell-through for fiber cement really accelerated each month, with June being our strongest—up 19%.

Speaker #1: So those are the reasons, Ryan, why we would say fiber cement is up about 20%. So, a good quarter for us, but like I said, we're not satisfied.

Speaker #4: That's great. Thanks for all that detail, Aaron. And then my next question is just on the guide for Q2. The revenue in both segments is well above.

Ryan Merkel: That's great. Thanks for all that detail, Aaron. My next question, just on the guide for Q2, the revenue in both segments is well above what most of us were thinking. Any way to parse out the assumptions for sell-through and channel load? Any help you can give us to put that in context?

Speaker #4: That's what most of us were thinking. Is there any way to parse out the assumptions for sell-through and channel load? Any help you can give us to put that in context?

Speaker #1: Yeah, so I'll start out, and then I'll hand it over to Ryan here. If you think about our guide as we look at, for, of course, the full year, part of this is just letting our beat run through and then thinking about—as you can imagine, there's lots of puts and takes with what we announce as it relates to distribution.

Aaron Erter: Yeah. I'll start out, I'll hand it over to Ryan here. If you think about our guide, as we look at for, of course, the full year, part of this is just letting our beat run through, thinking about, as you can imagine, there's lots of puts and takes with what we announce as it relates to distribution, with the Boise partnership and some of our regional partnerships, also the transitions out there. That is really what we've added to the full year guide, but I'll hand it over to Ryan. He can talk more specifically to Q2.

Speaker #1: With the Boise partnership and some of our regional partnerships, and then also the transitions out there—so that is really what we've added to the full-year guide. With that, I'll hand it over to Ryan.

Speaker #1: He can talk more specifically about Q2.

Speaker #2: Yeah. If you think about the Q2 side, from a depth-relevant accessories perspective, we're up over 40% year over year. The easiest way to think about that is we did the channel inventory normalization here in Q1.

Ryan Lada: If you think about the Q2, from a Deck, Rail, and Accessories perspective, we're up over 40% year-over-year. Easiest way to think about that is, we did the channel inventory normalization here in Q1. We saw really strong sell-through above estimated demand in Q1, and that's continued into the quarter so far that we've seen through July. You're happening outside due to that. There is about a third of it that's related to loading in our new distribution partners. Those are the two major drivers on the DRNA. From an inventory perspective, we're in a very good position with our channel partners. We feel confident that that execution will continue in Q2 here.

Speaker #2: We saw really strong sell-through above estimated demand in Q1, and that's continued into the quarter so far, through July. So you're kind of having upside due to that.

Speaker #2: And then there is about a third of it that's related to loading in our new distribution partners. So, those are the two major drivers on the DRNA side.

Speaker #2: And then, when you think about siding and trim, as we mentioned, we saw a stronger Q1. We saw a stronger sell-through, and from an inventory perspective, we're in a very good position with our channel partners.

Speaker #2: So, we feel confident that execution will continue in Q2 here.

Speaker #4: Got it. Thanks, Sebastian.

Ryan Merkel: Got it. Thanks. Passing on.

Speaker #1: Thanks, Ryan.

Aaron Erter: Thanks, Ryan.

Speaker #3: Your next question comes from the line of Brooke Campbell Crawford with Barron Joey. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Brooke Campbell-Crawford with Barrenjoey. Your line is open. Please go ahead. Brooke?

Speaker #5: Hey, good evening. Thanks for taking my questions. Just the first one on the implied second-half group—hello? Just checking to make sure you can hear me.

Brooke Campbell-Crawford: Yeah, good evening. Thanks for taking my questions. Just the first one on the implied H2 group. Hello? Just checking to make sure you can hear me.

Speaker #1: Yeah. We got you, Brooke.

Aaron Erter: Yeah. We got you, Brooke.

Speaker #2: I can hear you.

Ryan Lada: We can hear you.

Speaker #5: All right. Great. Yeah, just checking on the implied second-half group EBITDA. It looks to be down a couple of percent when you normalize for last year's stock comp.

Brooke Campbell-Crawford: All right. Great. Yeah, just checking on the implied H2 group EBITDA. It looks to be down a couple of percent, when you normalize the last year's dot comps. Just trying to check any specific dynamics there that would sort of drive that decline year over year, just given the really strong H1? Is it just planning for the worst here?

Speaker #5: So, just trying to check—are there any specific dynamics there that would sort of drive that decline year over year, just given the really strong first half?

Speaker #5: Or is it just planning for the worst here?

Speaker #1: Yeah. Look, Brooke, I think as you can probably appreciate, as we look at the full-year guide and the second half, it is a sequential step down from H1.

Aaron Erter: Yeah. Look, Brooke, I think as you can probably appreciate, as we look at the full year guide and H2 is a sequential step down from H1 is really the normal seasonality there. The other piece is certainly the uncertainty as we look to H2. I think more than anything, we're being prudent as we look at H2.

Speaker #1: It is really the normal seasonality. The other piece is certainly the uncertainty as we look to the back half of the year. So, I think more than anything, we're being prudent as we look at the back half of the year.

Speaker #2: Yeah, I think the only other thing I'd add, right, as we announce those distribution changes, there are some costs that we called out on the call that we would incur that are included in the guide right now to the best of our knowledge.

Ryan Lada: Yeah, I think the only other thing I'd add, as we announce those distribution changes, there are some costs that we called out on the call that we would incur. That is included in kind of the guide right now to the best of our knowledge. That does have a little bit of pressure there. As you recall, DRNA seasonally, that October through December period is always the lowest quarter. With sales being down pretty substantially, you do feel some pressure on margin in that quarter, typically.

Speaker #2: So that does have a little bit of pressure there. And then, as you recall, DRNA seasonally—that October through December period—is always the lowest quarter.

Speaker #2: So, with sales being down pretty substantially, you do feel some pressure on margin in that quarter, typically.

Brooke Campbell-Crawford: That's great. Just on my second one around the trim over method, obviously doing pretty well with traction there. Do you mind just providing a little bit of history? My understanding is that's been around for quite a while and for whatever reason, Hardie's, in the past, has not really promoted that more broadly across the US. Was there any sort of risk that previous.

Speaker #5: That's great. And just on my second one, Ryan, the TrimOver method—obviously, doing pretty well with traction there. Do you mind just providing a little bit of history?

Speaker #5: My understanding is that’s been around for quite a while. For whatever reason, Hardie in the past has not really promoted that more broadly across the US.

Speaker #5: So, was there any sort of risk before?

Speaker #1: Yeah. Brooke, you broke up there. And I think we've covered this maybe on a few calls before. If we think about trim over, certainly in some of the areas where Hardy has been around with high production, this type of installed Methodology has been around what we wanted to do is make sure when we brought this out and wheeled this out , you know , from a national standpoint , we took the time needed to test this out fully , and it took us a couple of years to do that .

Aaron Erter: Yeah, Brooke, you broke up there. I think we've covered this maybe on a few calls before. If we think about trim over, certainly in some of the areas where Hardie has been around with high production, this type of install methodology has been around. What we wanted to do is make sure when we brought this out and wheeled this out from a national standpoint, we took the time needed to test this out fully, and it took us a couple years to do that. We felt comfortable, and that's why we see this as an advantage for certain contractors that are going against vinyl. Again, from a trim over methodology standpoint, what it allows you to do is cut down on your labor costs and be able to install Hardie at a faster rate.

Speaker #1: So we felt comfortable . And that's why we see this as an advantage certain contractors that are going across that are going against vinyl again , from a trim over methodology standpoint , what it allows you to do is cut down on your labor costs and be able to install Hardy , you know , at a faster rate .

Speaker #1: So contractors can go out there and do more jobs, and they can make more money. So this has been around, this pilot for us, that we rolled out about a year now.

Aaron Erter: Contractors can go out there and do more jobs, and they can make more money. This has been around, this pilot for us, that we wheeled out about a year now, as I mentioned before. We keep seeing success with this, and we keep rolling it out to more regions of the country.

Speaker #1: As I mentioned before, we keep seeing success with this, and we keep winning it out to more regions of the country.

Speaker #2: Your next question comes from the line of Keith Hughes with Truist. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Keith Hughes with Truist. Your line is open. Please go ahead.

Speaker #1: Thank you . First question with the new agreement with Boise , if you could talk , you know , big picture , longer term , what this does and what side of the business will it have a bigger impact on your Timbertech or Hardieplank or whatever your views are there Yeah .

Keith Hughes: Thank you. First question with the new agreement with Boise, if you could talk big picture, longer term, what this does and which side of the business will it have a bigger impact on, TimberTech or HardiePlank or whatever your views are there?

Aaron Erter: Yeah. Hey, Keith, really good question. Look, we're extremely excited about what we announced with Boise and some of the other regional distributors. Look, as you know, Boise is a scaled national two-step distributor, and we've had a deep and proven relationship with Boise with our fiber cement business, which was effectively national even before this agreement was signed. We're building on a partnership that has already been proven that works. We know what Boise can do. We think they're one of the best in the business. The other thing is just moving to a full line exclusive relationship does really three things for us. It concentrates demand behind a single national partner that is now fully aligned with James Hardie and AZEK and TimberTech portfolios rather than really splitting attention across competing lines.

Speaker #1: Hey, Keith. That's a really good question. Look, we're extremely excited about what we announced with Boise and some of the other regional distributors.

Speaker #1: Look , as you know , Boise is a scaled national two step distributor . And we've had a deep and proven relationship with Boise with our fiber cement business , which was effectively national , even before this agreement was signed .

Speaker #1: So we’re building on a partnership that has already been proven to work. We know what Boise can do. We think they’re one of the best in the business.

Speaker #1: The other thing is just moving to a full line, exclusive relationship. It does, really, you know, three things for us. The concentrates.

Speaker #1: The man behind a single national partner that is now fully aligned with James Hardie and the ZAK and TimberTech portfolios, rather than really splitting attention across competing lines.

Speaker #1: And I think that's really important because we talk so much about our large sales force of having 500 plus people . If you put Boise sales force with that , call it 600 plus people , and you put them together , that's a really formidable type of force that's going out there and selling our whole exterior lineup .

Aaron Erter: I think that's really important because we talk so much about our large sales force of having 500-plus people. If you put Boise's sales force with that, call it 600-plus people, and you put them together, that's a really formidable type of force that's going out there and selling our whole exterior lineup. Look, it really pairs Boise's national reach and logistics with our own downstream demand generation, as I mentioned before. We're driving pull-through at the dealer and contractor level while Boise's handling distribution, but they're also driving pull-through as well. Look, I think the other thing that is really obvious, Boise now has every reason to grow our brands and actively convert volume because their success is directly tied to ours. I think that's the best type of partnership out there. We're really excited about it.

Speaker #1: And look , it really pairs Boise's National region logistics with our own downstream generation . As I mentioned before So we're driving pull through at the dealer and contractor level while Boise is handling distribution , but they're also driving pull through as well .

Speaker #1: And look , you know , I think the other thing that is , really obvious , Boise now has every reason to grow our brands .

Speaker #1: And actively convert quality, because their success is directly tied to ours. I think that's the best type of partnership out there.

Speaker #1: So we're really excited about it. To answer your question, who's to gain more? Look, we have some pretty ambitious targets.

Aaron Erter: To answer your question, who's to gain more? Look, we have some pretty ambitious targets, joint targets with Boise, and we think we're going to be able to continue to grow the fiber cement business and certainly the TimberTech business and the AZEK business is going to be relatively new. Right off the bat, we think we'll see gains there. One thing to keep in mind is we closed on the deal with AZEK. This has been part of our plan. There's a few different chess pieces that we have planned here since when we signed the deal. This is one of them, helps us be able to grow our business, our collective business, and helps us to really accelerate our revenue synergies out there.

Speaker #1: Joint targets with Boise. And we think we're going to be able to continue to grow the fiber cement business. And certainly, the TimberTech business and the AZEK business are going to be relatively new.

Speaker #1: So right off the bat , we think we'll see gains there . But one thing to keep in mind , you know , is we closed on the deal with Azek .

Speaker #1: This has been part of our plan. You know, there are a few different chess pieces that we have planned here, you know, since when we signed the deal.

Speaker #1: This is one of them. It helps us be able to grow our business, our collective business, and helps us to really accelerate our revenue synergies out there.

Speaker #1: But more than anything, we think signing with Boise, we think with these regional partners, is going to help us service our customers better, and that really is the key point there.

Aaron Erter: More than anything, we think signing with Boise, we think with these regional partners, is going to help us service our customers better. That really is the key point there.

Speaker #1: One other question , if I may , on siding and trim had an excellent price . Mixed growth , high single digits . Is that something that you think will maintain at that level for the rest of the fiscal year Yeah .

Keith Hughes: One other question, if I may. Siding and trim had an excellent price mix growth, high single digits. Is that something that you think will maintain at that level for the rest of the fiscal year?

Aaron Erter: Yeah, Keith, the way I think about it, look, we have from siding and trim, fiber cement, we are about 5.5 from a price standpoint, roughly, a half a point from a mix, and that is really the growth that we have seen in ColorPlus. We think it is more of like a 3.5 to 4 type of range when we look through the rest of the year.

Speaker #1: Keith , the way I think about it . Look , we have from siding and trim , fiber cement , we're about five and a half from a price standpoint , roughly .

Speaker #1: You know , the half a point from a mix . And that's really the growth that we've seen in color . Plus , we think it's more of like a three and a half to four type of range .

Speaker #1: When we look through the rest of the year— Okay. Thank you. Sure.

Keith Hughes: Okay. Thank you.

Aaron Erter: Sure.

Speaker #2: Your next question comes from the line of Keith Chow with MST Marquee. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Keith Chau with MST Marquee. Your line is open. Please go ahead.

Speaker #3: Hey , Keith . Keith , are you there ? Keith .

Aaron Erter: Hey, Keith. Keith, you there?

Ryan Lada: Keith? I don't hear Keith. Maybe we'll come back to him.

Speaker #1: Keith, maybe we'll come back to him.

Speaker #4: Hello? Hello? Can you hear me? There you are.

Keith Chau: Hello. Can you hear me?

Ryan Lada: There you are.

Speaker #3: There you are .

Keith Chau: Hello.

Ryan Lada: There you are. We must be having some delay.

Speaker #1: We must be having .

Speaker #4: Some . There we go . Thank you Thank you Hey , Aaron . Hey , Ryan . Thanks for taking my question . First one , just to follow up , Ryan on some of the comments you made earlier .

Keith Chau: There we go. Thank you.

Ryan Lada: There you go, Keith.

Keith Chau: Hey, Aaron. Hey, Ryan. Thanks for taking my question.

Ryan Lada: Sure.

Keith Chau: First one, just to follow up, Ryan, on some of the comments you made earlier. I think you said, and please correct me if I'm wrong, but the growth you're expecting in decking, rail, and accessories in Q2, up 40% versus last year, I think you mentioned a third of that is related to movement in the channel.

Speaker #4: I think you said, and please correct me if I'm wrong, but the growth you're expecting in decking rail and accessories in the second quarter is up 40% versus last year.

Speaker #4: I think you mentioned a third of that is related to movements in the channel. So, let's just talk in round number terms.

Ryan Lada: Yes.

Keith Chau: Let's just talk in round number terms, that's probably roughly $15 million at EBITDA, which leaves you somewhere close to $30 million as an underlying improvement for DRNA. Understanding that there is seasonality into that business into the end of the year, your Q3 is typically low, but then, that improves into Q4. Is it fair to assume that $30 million EBITDA improvement in Q2 can be annualized going into the full year? Is that being way too aggressive?

Speaker #4: But that's probably roughly $15 million in EBITDA, which leaves you somewhere close to $30 million as an underlying improvement for DRNA.

Speaker #4: Now , understanding that there is seasonality into that business into the end of the year . So , you know , you're your September comp is typically September quarter is typically low , but then you know , that improves into December .

Speaker #4: Is it fair to assume that that $30 million EBITDA improvement in the second quarter can be annualized going into the full year? Or is that being way too aggressive?

Speaker #3: I would probably say that's a little bit aggressive , right ? I mean , your Q1 results , you saw the decline driven by the lower sales number and then us intentionally pulling down production and having the slightly less absorption , you know , Q2 kind of gets back to a little bit of a higher flow through due to that incremental volume .

Ryan Lada: I would probably say that's a little bit aggressive, right? In your Q1 results, you saw the decline driven by the lower sales number and then us intentionally pulling down production and having slightly less absorption. Q2 kind of gets back to a little bit of higher flow through due to that incremental volume. I think you probably need to do more of a two to three quarter average, just because using Q2 with all that additional volume is probably a little bit too much.

Speaker #3: So I think you probably need to do more of, like, a two- to three-quarter average, just because using Q2 with all that additional volume is probably a little bit too much.

Speaker #4: Okay , thanks , Ron . And then I think at the last result , you mentioned you were going to potentially at least try and quantify some of the , the costs associated with all of these distribution changes .

Keith Chau: Okay. Thanks, Ryan. I think at the last result, you mentioned you were going to potentially at least try and quantify some of the costs associated with all of these distribution changes, and I certainly appreciate that it's not necessarily the easiest thing to do. On the cost side, when you're funding Boise to make some of these changes, and potentially some of the other distribution partners, what level of costs do you expect to incur-

Speaker #4: And , you know , I certainly appreciate that it's not necessarily the easiest thing to do , but on the cost side , when you're funding Boise to make some of these changes and potentially some of the other distribution partners , what level of costs do you expect to incur in the third and fourth quarters for this financial year ?

Ryan Lada: Yeah

Keith Chau: in Q3 and Q4 for this financial year? Will those costs be taken above the line or below the line, please? Thanks very much.

Speaker #4: And will those costs be taken above the line or below the line, please? Thanks very much.

Speaker #1: Yeah . So so Keith , what I would say from a cost standpoint , I mean , and also from a sales standpoint , there's a lot of puts and takes their .

Ryan Lada: Yeah. Keith, what I would say from a cost standpoint and also from a sales standpoint, there is a lot of puts and takes there. Best we know, we have embedded in our guide, from a sales and cost standpoint.

Speaker #1: Best we know, we've embedded in our guide from a sales and cost standpoint.

Speaker #3: Yeah . The one thing that unique . I think on the call is if there is channel inventory buyback , you know , we would call that out , separate .

Ryan Lada: Yeah. The one thing that is a little bit unique that we caught on the call is if there is channel inventory buyback, we would call that out separate. The guide does not contemplate that fully. As you transition, you wait to see how it burns down and what kind of inventory transfers between locations. That would be something we would call out into the next guide if it was material. I know we called it out that if there was any impact in Q1, we would let you know. It was pretty minimal. It was under $1 million, we did not call it out specifically from some of the synergy wins that we had in Q1.

Speaker #3: The guide does not contemplate that fully. You know, as you transition, you wait to see how it burns down and what kind of inventory transfers between locations.

Speaker #3: So that would be something we would call out within the next guy . If it was material . And I know we called it out , if there was any impact in Q1 , we would let you know .

Speaker #3: It was pretty incredible, and it was under a million. So we didn't call it out specifically from some of the synergy wins that we had in the first quarter.

Speaker #4: Okay, that's great. Thanks. Thanks very much.

Ryan Lada: Okay. That is great. Thanks very much.

Speaker #1: Thanks , Keith

Keith Chau: Thanks, Keith.

Speaker #2: As a reminder , when asking your question , if you are muted locally , please remember to unmute your device . Your next question comes from the line of Phil Ng with Jefferies .

Operator: As a reminder, when asking your question, if you are muted locally, please remember to unmute your device. Your next question comes from the line of Phil Ng with Jefferies. Your line is open. Please go ahead.

Speaker #2: Your line is open. Please go ahead.

Speaker #5: Well, Aaron, what a way to celebrate your one-year anniversary for the Azak deal with such strong results. And congratulations to the team.

Phil Ng: Well, Aaron, what a way to celebrate your one-year anniversary for the AZEK deal with such strong results, and congratulations to the team.

Speaker #1: Thank you . Phil

Ryan Lada: Thank you, Phil.

Speaker #5: I , I guess first off question perhaps for Ryan . You know , you gave us some color for two Q with some load and dynamic on decking in particular .

Phil Ng: I guess first off, question perhaps for Ryan. You gave us some color for Q2 with some load-in dynamic on decking in particular. Does that have an impact perhaps in H2 in terms of your sales? Your implied sales guidance for both decking and siding is flat. I don't know if there was any pull forward that will impact H2 from that dynamic. Is the load-in largely just decking? Is there any siding consideration? Just kind of give us some color on the H2 framework calling for flat sales.

Speaker #5: Are there any more considerations that might have an impact, perhaps in the back half, in terms of your sales? Because your implied sales guidance for both decking and siding is flat.

Speaker #5: So I don't know if there was any that will impact the back half from that dynamic. And is the load-in largely just decking?

Speaker #5: Is there any siding considerations ? So just kind of give us some color on the back half framework calling for flat sales . Second .

Ryan Lada: Yeah. If you think

Speaker #3: You think you're kind of Q2 , right ? It's primarily on the decking side . There is a modest amount of fiber cement , but it's a pretty small number .

Phil Ng: both decking

Ryan Lada: If you think of kind of the load-in in Q2, right? It's primarily on the decking, DRNA side. There is a modest amount in fiber cement, but it's a pretty small number. With some of the other distribution partners that we called out this week as well, there will be some load-in in fiber cement that may impact the back half of the year depending on timing. Anytime load-in happens, right? You can get a little bit of an impact on pull forward, which is why I mentioned some quarter-over-quarter availability during the call earlier. That could be just timing as you look and wait and see. As you load in, you wait to see the sell-through. That could impact the back half slightly.

Speaker #3: You know , some of the other distribution partners that we called out this week as well , you know , there will be some load in fiber cement that may impact the back half of the year , depending on timing .

Speaker #3: So , you know , anytime . That happens , right , you can get a little bit of an impact on forward , which is why I mentioned some quarter quarter availability during the call earlier .

Speaker #3: But , you know , that could be just timing as you look at latency , as you look at you wait to see the sell through and that could impact the back slightly .

Speaker #3: But right now, you know, just given the backdrop from that perspective, we thought it was best to kind of keep the back half of the original guide.

Ryan Lada: Right now, just given the backdrop from a macro perspective, we thought it was prudent to kind of keep the back half as we originally guided. If things improve, we would have an opportunity to guide differently as we execute to year.

Speaker #3: And , you know , if things improve , we would have an opportunity to tag differently as we execute two year .

Speaker #5: Okay , so it sounds like it's more conservatism anywhere to kind of , you know , to kind of flush out some of this noise , right ?

Phil Ng: Okay. It sounds like it's more conservatism. Anywhere to kind of flush out some of this noise, Ryan, how you're thinking about sell-out for decking or siding for this year?

Speaker #5: And how you're thinking about sell-out for decking or siding for this year.

Speaker #3: Yeah . I don't think we want to find the full year amount , but I know when we started the beginning of the year , we said we expected to sell through in the RNA side , and we continue to expect that .

Ryan Lada: Yeah. I don't think we've quantified the full year amount, but I know when we started in the beginning of the year, we said we expected mid-single-digit sell-through in the DRNA side, and we continue to expect that. The trend we've seen in Q1 was extremely positive. Each month it built from April on throughout the end of the quarter. We have preliminary kind of channel I results, and we continue to see right around that double-digit number in July. We feel pretty good about kind of the mid-single-digits for the remainder of the year on the decking side. I don't know if you want to, Aaron, comment on the fiber cement side.

Speaker #3: I mean , the trend we've seen in Q1 was extremely positive and built , you know , each month and built from April on , throughout the end of the quarter .

Speaker #3: And then, you know, we have preliminary kind of results, and we continue to see right around that double-digit number in July.

Speaker #3: So we feel pretty good about kind of the single digits for the remainder of the year on the decking side. And then, I don't know if you want to comment on the fiber side.

Speaker #1: Yeah , look , we talked about Q1 and what we saw from a fiber cement . And , you know , we said it's nine 9% up and you know , our June end of June , it was 19% up .

Aaron Erter: Yeah. Look, we talked about Q1 and what we saw from a sell of fiber cement and we said it's 9% up and end of June it was 19% up. We continue to see strength there that is very encouraging for us.

Speaker #1: So, we continue to see strength there that, you know, is very encouraging for us.

Speaker #5: Okay . And then , Aaron , you kind of teased about this already on the commercial synergies . Perhaps coming in better than you expected .

Phil Ng: Okay. Aaron, you kind of teased about this already on the commercial synergies perhaps coming in better than you expected. I think initially when you guys gave us the framework, it didn't count for any wins on a two-step distribution with a guy like Boise. Would that be incremental? Is there any way to kind of size up, perhaps, maybe not just this year, but 12 to 18 months out with some of these moves you've made on the distribution side? How much potential upside you could generate on the commercial synergy top-line perspective?

Speaker #5: I think initially when you guys gave us the framework , it didn't count for , you know , any wins on the two step distribution with a guy like Boise , you know , would that be incremental ?

Speaker #5: And is there any way to kind of size up perhaps , maybe not just this year , like 12 to 18 months out with some of these moves you've made on the distribution side , how much of the potential upside you could generate on the commercial center synergies , top line perspective ?

Speaker #1: Yeah . So look what we've said on commercial synergies . We would exit the year , you know , $125 million . So certainly , you know , there can be some potential upside there .

Aaron Erter: Phil, look what we've said on commercial synergies, we would exit the year $125 billion. Certainly, there can be some potential upside there. We're not ready to call that yet. Why don't I do this? I have Jonathan Skelly in here, who leads our North American business, and he and his team are responsible for really going after and getting after these commercial synergies day in and day out. John can speak to a little bit about what we're seeing there.

Speaker #1: We're not ready to call that yet. But why don't I do this? I have John Scullion here, who leads our North American business.

Speaker #1: He and his team are responsible for really going after and getting after these commercial synergies, day in and day out.

Speaker #1: And Jon can speak a little bit about what we're seeing there.

Speaker #3: Yeah . So I think we talked a little bit about this last call . Again , I think I think the customer permission and reception has has exceeded our expectations , right ?

Jon Skelly: I think we talked a little bit about this in the last call. Again, I think the customer permission and reception has exceeded our expectations, right? I think we've been able to uncover more opportunities than we initially expected. Again, some of these things take time to actually get closed and turn into revenue. Having said that, I do believe that the targets we've laid out are highly achievable with the combination of Boise plus the enhanced relationships with new regional distributors. It could allow us to get there faster. It could allow us to achieve the capture slightly ahead of schedule, but we're still comfortable with what we've laid out in terms of total opportunity.

Speaker #3: So I think , I think we've been able to , you know , uncover more , more opportunities than we initially expected . But again , you some of these things take time to actually get closed and turn into turn into revenue , so having said that , I do believe that , you know , the targets we've laid out are highly achievable .

Speaker #3: You know, with a combination of Boise plus the enhanced relationships with new regional distributors, it could allow us to get there faster.

Speaker #3: It could allow us to , to achieve the capture of slightly ahead of schedule , but we're still comfortable with what we laid out in terms of total opportunity .

Speaker #1: Yeah . Hey , Phil , just , you know , to remind you and everyone else the way we bucketize these , when we think of commercial synergies are really national dealers , retail , you know , independent lumberyards distribution , you know Regional and national builders .

Aaron Erter: Hey, Phil, just to remind you and everyone else, the way we bucketize these when we think of commercial synergies are really national dealers, retail, independent lumber yards, distribution, regional and national builders, and then you're looking at contractors. Those are some of the areas that John and his team are going after and seeking those opportunities each and every day.

Speaker #1: And you're looking at contractors. So, those are some of the areas that Jon and his team are going after and seeking those opportunities.

Speaker #1: Each and every day .

Speaker #5: Okay. Appreciate it, guys. Thank you.

Phil Ng: Okay. Appreciate the color, guys. Thank you.

Speaker #1: Sure .

Aaron Erter: Sure.

Speaker #2: Your next question comes from the line of Peter Stein with Macquarie. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Peter Steyn with Macquarie. Your line is open. Please go ahead.

Speaker #6: Good evening , Aaron and Team . Thank you very much for your time . Aaron . Perhaps just another question around the distribution .

Peter Steyn: Good evening, Aaron and team. Thank you very much for your time. Aaron, perhaps just another question around the distribution. If you think about a couple of the factors that I'm sure was in your conversations and contemplations, service, incremental optimization of the supply chain, and then the potential to enable some of the next things that no doubt follow from here, as you just pointed out. How did you think about and how did Boise and the combination play into those different buckets, i.e., lifting service or incrementally improving ultimately the profitability of your supply chain?

Speaker #6: If you think about a couple of the factors that I'm sure was in your conversations and contemplations service , incremental optimization of the supply chain , and then the potential to enable some of the , the next things that no doubt follow from here as you just pointed out , how did you think about and how did Boise and the combination play into those different buckets ?

Speaker #6: Is it lifting service or incrementally improving? Ultimately, the profitability of your supply chain?

Speaker #1: Yeah . Look really good question there , Peter . We contemplated everything when we thought about this move . You know , obviously this was a huge move for us .

Aaron Erter: Yeah. Look, really good question there. Peter, we contemplated everything when we thought about this move. Obviously, this was a huge move for us. As I mentioned before, this is something that we have been thinking about over the last year. As you can imagine, our teams thought about everything. We also had a lot of comfort as we started out a couple pilots with TimberTech, with Boise. You think about within Pittsburgh, within Baltimore, and really exceeding expectations out there. Number one, and this was even before this move, and we looked at all our two-step distributor partners was, how do they service? We certainly took that as the number one factor out there. Then as you can imagine, all the other variables, and some of them you mentioned, we looked at.

Speaker #1: As I mentioned before, this is something that we have been thinking about over the last year. So, as you can imagine, our teams have thought about everything.

Speaker #1: You know , we also had a lot of comfort as we started out . A couple of pilots with Timbertech with Boise , you think about within Pittsburgh , within Baltimore , and really exceeding expectations out there .

Speaker #1: So, number one, and this was even before this move, and we looked at with all our two-step distributor partners, was how do they service?

Speaker #1: And , you know , we certainly took that as the number one factor out there . And then as you can imagine , all the other variables and some of them , you mentioned , we looked at

Speaker #6: Perfect . I won't use my follow up on a follow up , if I may . The other point topic , that's come up a few times in today's conversation is the highly operating system and the impact that you're starting to see from a manufacturing perspective .

Peter Steyn: Perfect. I won't use my follow-up on a follow-up, if I may. The other topic that's come up a few times in today's conversation is the Hardie Operating System and the impact that you're starting to see from a manufacturing perspective. Could you perhaps just allude or give us a little more detail on that and what you're seeing?

Speaker #6: Could you perhaps just allude to, or give us a little more detail on that, and what you're seeing?

Speaker #1: Yeah , certainly . Just for all of you on the call , our hearty operating system is really our version of lean . And so that started out with our manufacturing plants and is really extended to other areas , you know , areas like procurement .

Aaron Erter: Yeah, certainly. Just for all of you on the call, our Hardie Operating System is really our version of Lean. That started out with our manufacturing plants and has really extended to other areas like procurement. We think about formulation. We have a target level of savings that we go out and get after every single year. That is on track. Everyone is involved in the Hardie Operating System, but really Ryan Kilcullen, who leads our operations, spearheads that for us. Our plants are running extremely well. Even when we saw lower volumes, they ran well, and as you can imagine, getting more volume has helped them to run even better. We continue to see progress there.

Speaker #1: We think about formulation . So we have a target level of savings that we go out and get after . You know , every single year that is on track , you know , everyone is involved in the hardy operating system , but really , Ryan Kilcullen , who leads our operations , spearheads that for us .

Speaker #1: And our plants are running extremely well . Even when we saw lower volumes , they ran well . And as you can imagine , getting more volume has helped them to run even better .

Speaker #1: So we continue to see progress there as we think about synergies and around cost synergies and some opportunities , we have . We've talked for some time about really implementing the Hardy operating system within the legacy plants .

Aaron Erter: If we think about synergies and around cost synergies and some opportunities we have, we've talked for some time about really implementing the Hardie Operating System within the legacy AZEK plants. Ryan and his team have done that, and we're already seeing really solid results. When we think about efficiency, when we think about downtime, that's been something. Even those plants ran well. Now we have a unified system across our entire network.

Speaker #1: So Ryan and his team have done that , and we're already seeing really solid results when we think about efficiency , when we think about downtime , that's been something even those those those plants ran well .

Speaker #1: Now, we have a unified system across our entire network.

Speaker #6: Thank you . Aaron

Peter Steyn: Thank you, Aaron.

Speaker #7: Thanks .

Speaker #2: Your next question comes from the line of Tim Voigt with Baird. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Tim Wojs with Baird. Your line is open. Please go ahead.

Speaker #3: Hey , guys . Good afternoon . Nice job . Maybe just first question . When you guys have historically done two step distribution changes in the past , and I know they've been at a much smaller scale .

Tim Wojs: Hey, guys. Good afternoon. Nice job. Maybe just first question. When you guys have historically done two-step distribution changes in the past, I know they've been at a much smaller scale, but in your history, what is the typical kind of training period or training ramp for those sales forces to be kind of fully effective from kind of beginning to kind of when they're fully effective selling a product?

Speaker #3: But in your in your history , what is the typical kind of training period or training ramp for those sales forces to be kind of fully effective , you know , from , from kind of beginning to , you know , kind of when they're fully effective , you know , selling your product .

Speaker #1: Yeah, we'll hand that over to John to answer that.

Aaron Erter: Yeah. Tim, I'll hand that over to John to answer that.

Speaker #7: Yeah . I think , you know , in the Boise situation , clearly they've been selling composite decking for , for a long period of time .

Jon Skelly: Yeah. Tim, I think, in the Boise situation, clearly they've been selling composite decking for a long period of time. There's a lot of experience overall with the category. What we need to do is get them trained and armed and ready around the value proposition of TimberTech, right? We're already in the process of doing that. Again, we expect that curve to ramp up pretty quickly. A relevant data point, you'll recall when TimberTech converted Capital out west a few years back. Again, it was a very similar situation. They were already experienced in the category. We leveraged that knowledge, got them trained on the TimberTech value proposition. That enabled us to move very quickly and drive really strong growth with that conversion. We expect to see that again.

Speaker #7: So there's a lot of , you know , experience overall with the , with the category . And so what we need to do is get them trained and armed and ready around the value proposition of timbertech .

Speaker #7: Right. And so we're already in the process of doing that. And again, we expect that curve for input pretty quickly.

Speaker #7: A relevant data point , you'll recall when when Tibotec converted capital out west a few years back . Again , it was a very similar situation .

Speaker #7: They were already experiencing the category , and we leveraged we leveraged that knowledge , got trained on on the timber tech value proposition .

Speaker #7: And that enabled us to move very quickly and drive really strong growth with with that conversion . So we expect this to see that again , some of the other regional distributors that that we've taken on that will add fiber , cement , siding .

Ryan Lada: Some of the other regional distributors that we've taken on, though, Brad, Fiberon Siding, several of them were already in the siding category. They're, again, familiar with the category, there'll be a similar training process around getting started value proposition. The joint sales targeting from the commercial organizations, joint marketing across the marketing organizations to drive that downstream pull-through demand.

Speaker #7: Several of them were already in the siding category, so they're again familiar with the category, and a similar training process around starting value proposition.

Speaker #7: And then the joint sales targeting from the commercial organizations, joint marketing across the marketing organizations to drive that downstream pull-through demand.

Speaker #3: Okay , okay . Very good . And then and then Ryan , just on , on , on the cost inflation . I think the 80 to 100 million is the same as it was last quarter .

Tim Wojs: Okay. Very good. Then, Ryan, just on the cost inflation, I think the $80 to $100 million is the same as it was last quarter. How much of that did you feel in Q1, and how much is baked into Q2?

Speaker #3: How much of that did you feel in the first quarter? And how much is baked into the second?

Speaker #7: Yeah , we probably felt don't think we quantified it , but I would say 20 to 25 million in Q1 and mainly on the bright side there , right ?

Ryan Lada: Yeah, we probably felt I don't think we quantified it, but I would say $20 to $25 million in Q1, mainly on the freight side there, right? A lot of the raw materials would be on the balance sheet, just the way the inventory is brought in. From a freight perspective, that was immediate. As you see, even when rates come down, freight doesn't drop fast. That was kind of the major driver there. We have seen a little bit of relief on the commodity and actual raw material side. As we called out the freight piece, we're running at a higher volume, then there is some general discrepancies in the freight market right now. Those spot rates are higher than normal. We're working actively to try to contract more of our freight lanes under contract versus spot.

Speaker #7: So, a lot of the raw materials would be hung up on the balance sheet, just the way the inventory is brought in.

Speaker #7: But from a freight perspective , that was immediate . And as you see , even when rates go down , the freight doesn't drop fast .

Speaker #7: So, that was kind of the major driver there. I mean, we have seen a little bit of relief on the commodity and natural raw material side.

Speaker #7: But as we called out , the freight piece , you know , we're running at a higher volume . And then there is some , you know , general .

Speaker #7: There are discrepancies in the market right now, so those spot rates are higher than normal. We're working actively to try to contract more of our freight lanes under contract versus spot.

Speaker #7: So, we do actively work that kind of relief. But that's why we kept it at the $80 to $100 million for now.

Ryan Lada: We do actively work that kind of relief, that's why we kept it at the $80 to $100 million for now.

Speaker #3: Okay . Okay , great . See you guys in September . Thank you . Thanks

Tim Wojs: Okay. Great. See you guys in September. Thank you.

Ryan Lada: Thanks.

Aaron Erter: Thanks.

Speaker #2: Your next question comes from the line of Harry Saunders with E&P. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Harry Saunders with E&P. Your line is open. Please go ahead.

Speaker #8: Good morning . Good evening and thanks for taking my questions . Firstly , I know we've touched on this . Just wondering what the share based payment expense was previously assumed in the old guidance range before and perhaps sort of what what we could assume for the balance of the year , just as a run rate .

Harry Saunders: Good evening, Aaron and team. Thanks for taking my questions. I know we've touched on this. Just wondering what the share-based payment expense was previously assumed in the old guidance range before and perhaps sort of what we could assume for the balance of the year just as a run rate, please? Thanks.

Speaker #8: Please . Thanks .

Speaker #1: Yeah, go ahead, bro.

Ryan Lada: Yeah. Go ahead, Brad.

Speaker #7: Yeah . So in the original guide that we would have released at fiscal year end , there , it was about 50 million of share based comp , you know , I think in Q1 , we called out about 15 million .

Ryan Lada: Yeah. In the original guide that we would have released at fiscal year end there, it was about $50 million of share base comp. I think in Q1, we called out about $15 million. I think you could probably use that kind of as a run rate based on the current valuation of the stock. I think that I would kind of plan on it as that annualize from Q1.

Speaker #7: So, I think you could probably use that kind of as a run rate based on the current valuation, the stock. So, I think I would kind of plan on it as that annualized from Q1.

Speaker #8: Understood . Thank you . And just also wondering , I know we've touched on this as well a bit , but have you quantified the net stocking benefit given , I guess you're giving up some coverage as well ?

Harry Saunders: Understood. Thank you. Just also wondering, I know we've touched on this as well a bit, but have you quantified the net stocking benefit? I guess you're giving up some coverage as well elsewhere, but any net stocking benefit from the Boise and other deals, have you quantified that for Q2 and for the balance of the year, please?

Speaker #8: Elsewhere , but any net stocking benefit from the Boise and other deals , you know , have you quantified that for Q2 and for the balance of the year ?

Speaker #8: Please ?

Speaker #1: Yeah . I mean , it's embedded in our guide . I mean , I think the way to look at it from a full year standpoint is , is we took our beat and we rolled that forward .

Aaron Erter: Yeah. Harry, it's embedded in our guide. I think the way to look at it from a full year standpoint is we took our beat, we rolled that forward, then we kept the H2 relatively flat, if you will. The other piece of that you see is going to be the puts and takes from the two-step distribution changes.

Speaker #1: And then we kept the back half relatively flat, if you will. And you know, the other piece of that that you see is going to be the puts and takes from the two-step distribution changes.

Speaker #8: Got it. Thank you very much.

Harry Saunders: Got it. Thank you very much.

Speaker #1: Welcome .

Aaron Erter: Welcome.

Speaker #2: Your next question comes from the line of Matthew Bouley with Barclays. Your line is open. Please go ahead.

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

Speaker #9: Hey. Good evening, everyone. Thank you for taking the questions. I have questions on the kind of balance of your own organic growth initiatives.

Matthew Bouley: Good evening, everyone. Thank you for taking the questions. Question's on the kind of balance of sort of your own organic growth initiatives and then the commercial synergies. Basically, where are you on those commercial synergies in H1, Q1 and Q2? I know you kept the full year at $125 and said there might be some upside, but if I'm kind of rank ordering them, I guess, when we look about your growth here relative to the market, commercial synergies, some of your initiatives like ColorPlus, Trim Over, et cetera, what do you think is kind of the most powerful couple of drivers that are leading this level of growth? Thank you.

Speaker #9: And then the commercial synergies. So, basically, you know, where are you on those commercial synergies in the first half of the year?

Speaker #9: Q1 and Q2 , I know you kept the full year at 125 and said there might be some some upside , but if I'm kind of rank ordering them , I guess when we look about your growth here relative to the market , commercial synergies , some of your initiatives like color plus trim over , etc.

Speaker #9: , what do you think is kind of the most powerful couple of drivers that are leading this level of growth ? Thank you .

Speaker #1: Yeah , great question . Look , we haven't given exactly what those commercial synergies are . You know , quarter by quarter . As you can imagine .

Aaron Erter: Yeah. Great question. Look, we haven't given exactly what those commercial synergies are quarter by quarter, as you can imagine, and Jon talked a little bit about this. They're fluid as it relates to when they happen. What we can reaffirm is the $125 million exit run rate, and certainly we think there could be possibly upside to that with some of the new news we talked about. From a commercial synergy standpoint, that's how I would talk about that. As far as how we bucketize what is having the greatest impact, I mentioned for Q1, a third, a third, a third, basically of three different buckets. That's strategic initiatives. Obviously, we had a little bit of help from the comp, from the destocking, and certainly then price as well. We really are seeing strong execution on our initiatives, particularly in fiber cement around areas like ColorPlus.

Speaker #1: And John talked a little bit about this . They're fluid as it relates to when they happen . I mean , what we can reaffirm is , you know , the $125 million exit run rate .

Speaker #1: And certainly we think there could be possibly upside to that with some of the new news we talked about . So from a commercial synergy standpoint , you know , that's how I would talk about that is as far as how we bucketize , you know , what is having the greatest impact ?

Speaker #1: You know , I mentioned for Q1 a third , a third , a third , you know , basically of three different buckets .

Speaker #1: And that's strategic initiatives. You know, obviously we had a little bit of help from the comp, from the destocking, and certainly then price as well.

Speaker #1: But we really are seeing strong execution on our initiatives , particularly in fiber , cement around areas like power . Plus , we mentioned the expanded statement collection , which is just getting started .

Aaron Erter: We mentioned the expanded Statement Collection, which is just getting started. We talked about the Trim Over. These are things, yes, we're seeing the benefits in one quarter, but these are sustained growth items for us as we think about our strategy moving forward.

Speaker #1: We talked about the trim over , and these are things , yes , we're seeing the benefits in one quarter , but these are sustained growth items for us as we think about our strategy moving forward .

Speaker #9: Got it . Okay . Thank you for that . Aaron . Secondly , you know , given you know , what you just guided for Q2 and your comments about inventory , it sounds like there's this is probably didn't really happen .

Matthew Bouley: Got it. Okay. No, thank you for that, Aaron. Secondly, given what you just guided for Q2 and your comments about inventory, it sounds like that this probably didn't really happen, but my question is on, often in this industry, when you have price increases, you might see some pre-buys and things like that. Just given you had a couple price announcements during the quarter there, did you see any kind of unusual inventory swings related to that? Thank you.

Speaker #9: But my question is on often in this industry , when you have price increases , you might see some pre buys and things like that .

Speaker #9: And so, just, you know, given you had a couple of price announcements during the quarter there, did you see any kind of unusual inventory swings related to that?

Speaker #9: Thank you

Speaker #1: Yeah . We really didn't . And we're sitting . I mean , broadly speaking , I mean , I can say this across our segments , we're at a normalize inventory level

Aaron Erter: Yeah, we really didn't. We're sitting, broadly speaking, I can say this across our segments, we're at a normalized inventory level.

Speaker #9: All right . Great . Thanks , guys . Good luck . Thank you .

Matthew Bouley: All right. Great. Thanks, guys. Good luck.

Aaron Erter: Thank you.

Speaker #10: Thank you .

Matthew Bouley: Thank you.

Speaker #2: Your next question comes from the line of Daniel Sykes with Jarden. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Daniel Sykes with Jarden. Your line is open. Please go ahead.

Speaker #8: Hi , Aaron .

Daniel Sykes: Hi, Aaron, Ryan. Thanks for taking my questions. Just have two, really. Number one, just on the volumes, and obviously it's very strong with the double-digit growth in exterior products. I was just wondering whether you could quantify the destocking. I know you mentioned it was kind of a soft comp, but in the context of that double-digit growth, what was the destocking impact in there?

Speaker #11: Ryan , thanks for taking my questions . I just had two . Really . Number one , just on the volumes . I mean , obviously , you know , it's very strong with the double digit growth in exterior products .

Speaker #11: I was just wondering whether you could quantify the destocking. I know you mentioned it was kind of a soft comp, but in the context of that double-digit growth, what was the destocking impact in that?

Speaker #1: Yeah . As far as from a dollar volume standpoint , I mean , we would say it was roughly , you know , 40 to $50 million from a destocking standpoint .

Aaron Erter: Yeah. As far as from a dollar volume standpoint, we would say it was roughly $40 to $50 million from a destocking standpoint. When we talked about our growth in fiber cement, we talked about those components really being roughly a third, a third, a third of that type of 20% growth.

Speaker #1: And when we talked about our growth in fiber cement , we talked about those components . You know , really being roughly , you know , a third , a third , a third of that type of 20% growth

Speaker #11: Okay , great . And then just another one , just in terms of the definitional changes to adjusted EBITDA in relation to the old f y 27 guidance , can you just confirm was that under the same definition or is it is the definition changed in this new guidance

Daniel Sykes: Okay. Great. Just another one, just in terms of the definitional changes to adjusted EBITDA. In relation to the old FY2027 guidance, can you just confirm, was that under the same definition or is the definition changed in this new guidance?

Speaker #7: So, the original guide included stock-based comp in our adjusted EBITDA, so now it would be excluded moving forward. So I think the easiest way to restate the original guide would be to just basically add $50 million of stock comp back from the low to the high end of the guide at every point, so that would be the major change.

Ryan Lada: The original guide included stock-based comp in our adjusted EBITDA, so now it would be excluded moving forward. I think the easiest way to restate the original guide would just basically add $50 million of stock comp back from the low to the high end of the guide at every point. That would be the major change. I think given where the stock value is today, some of that will go up a little bit, and that's why I think we realized about $50 million in the quarter. I think annualizing that the same for the remainder of the year. That's the major change there was about $50 million you could float through at any point in the guide.

Speaker #7: I think , given where the stock value is today . You know , some of that will go up a little bit . And that's why I think we realized about 15 million in the quarter .

Speaker #7: I think that's a safe bet for the remainder of the year. But that's for major change. There was about $50 million.

Speaker #7: You could fall through at any point of the guide.

Speaker #11: Okay, great. Thanks, guys.

Daniel Sykes: Okay, good. Thanks, guys.

Speaker #1: Thank you

Ryan Lada: Thank you.

Speaker #2: Your next question comes from the line of Ralph Jarosik with Bank of America. Your line is open. Please go ahead.

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

Speaker #12: Hi . Good evening . Thanks for taking my question Just the obviously the the pretty big , big beat raise . Just the to to the segment margins going forward are coming down on a percentage basis for the full year for both siding and decking .

Rafe Jadrosich: Hi, good evening. Thanks for taking my question. Obviously the pretty big beat and raise. Just the Q2, the segment margins going forward are coming down on a percent basis for the full year for both siding and decking. Can you just talk about what the headwinds are there? Is that because of either inventory buyback or investments or mix? Just sort of bridge us to what's happening on a percent basis.

Speaker #12: Can you just talk about what the headwinds are ? There ? Is that because of either inventory buyback or investments or mix , just sort of bridge us to what's happening on a percentage basis ?

Speaker #7: Yeah, I would say the major piece is we called out the freight issue that we, you know, we're seeing on the spot rate and kind of just availability.

Ryan Lada: Yeah, I would say the major piece is, we called out the freight issue that we're seeing on the spot rate and kind of just availability. The other piece is really just driven off of the investments in these distribution partners. That's everything from sales to market activity to ensuring the right, like great set upstairs. That's the major driver there. As the back half, as we said, right, I mean, Q3, that October to December period is always the lowest from a D&A perspective. As it is, like with volumes off, the flows are usually a little bit higher. You're not investing at the same rates. These investments kind of hit us from Q2 on, so that's why you see that marginal decline.

Speaker #7: The other piece is really just driven off of the investments in these distribution partners . That's everything from sales to marketing activity to ensuring the right , you know , like , right setups there .

Speaker #7: So that's the major driver there . And then , you know , as a backup , as we said , right , in Q3 that October to December period is always the lowest .

Speaker #7: From a a perspective . So , you know , as it is like when volumes up the flow through usual , either you're investing at the same rate , these investments kind of Q2 on .

Speaker #7: So, that's why you see that decline.

Rafe Jadrosich: Got it. Okay. That's helpful. Following up on the TimberTech Decking and Railing, the sell-through up double-digit. You called out shelf space, taking some incremental shelf space. Can you just give a little bit more color on where that's happening? It does look like there's been some placement at The Home Depot. I'm wondering if there's been more expansion at retail or if there are specific channels where you're seeing that. Thank you.

Speaker #12: Okay . That's helpful . And then following up on the decking and railing , the sell through up double digit , you called out shelf space , taking some incremental shelf space .

Speaker #12: Can you just give a little bit more color on where that's happening? It does look like there's been some placement at Home Depot.

Speaker #12: I'm wondering if you could—if there's been more expansion at retail, or if there are specific channels where you're seeing that? Thank you.

Speaker #1: Yeah. We'll let John answer that.

Aaron Erter: Yeah. Well, Jon will answer that.

Speaker #7: Yeah . So what you see is , you know , in the quarter that's that's prime season . And so we landed a lot of additional shelf space gains during last year's early by the season .

Jon Skelly: What you see is in the quarter, that's prime season. We landed a lot of additional shelf space gains during last year's early buy season. What you're seeing is that's when you actually get those conversions, right. That's when you place the inventory into the channel, and then once you drive the sell-through with that double-digit sell-through, that's what gets you the reorder points. Those new gains, in addition to the core business, which continue to operate at a very high level, that's what led to some of the outperformance and sell-through core business performing and then pulling through the product at the gains that we got through early buy is what drove that double digit.

Speaker #7: And so what you're seeing is that's when you actually get those conversions, right? That's when you place the inventory into the channel.

Speaker #7: And then once you drive the sell through , well , with that double digit sell through , that's what gets you the reorder points .

Speaker #7: So those new gains in addition to the core business , which continue to operate at a very high level , that's what led to some of the outperformance in sell through .

Speaker #7: Core business performing. And then pulling through the product at the gains that we got through early buy is what drove that double digit.

Speaker #1: Okay I think that's .

Rafe Jadrosich: Okay. I think that's. Thank you.

Speaker #12: Thank you .

Operator: We have reached the end of the question and answer session. This concludes today's call. Thank you for attending. You may now disconnect.