AZEK - Earnings call 1 2024 | The AZEK Company Inc.

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Operator

Welcome to the AZEK Company's First Quarter Fiscal 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Eric Robinson. Please go ahead, Eric.

Eric Robinson

Thank you, and good afternoon, everyone. press the a our Investor investors.azekco.com. earnings this earnings website our to afternoon Relations issued release supplemental and presentation at We portion of earnings X-K furnished The was SEC's the website. via release press on also the that today plans the this Clifford, Chief securities Officer. I call, expectations, make Peter federal would we joined Officer; Chief remind meaning to statements and our by Chief estimates, may Operations our beliefs, I'm remarks Executive and constitute Singh, including everyone within and about like the of Officer prospects. forward-looking statements Financial Jesse laws, that certain during future forecasts, Such to statements Securities subject a materially. differ the could and our in and variety of that are as described uncertainties with to reports Exchange results filed actual periodic Commission risks cause

update statements. duty not any We do undertake such forward-looking to

a during be we in call, believe measures be such useful measures, our discuss These GAAP. on be Reconciliations in evaluating is our release financial considered earnings non-GAAP should posted in isolation for can of measures found website. which non-GAAP non-GAAP today's Additionally, can performance. as results our prepared substitute in accordance not with press which we will or

turn Jesse AZEK's over call Singh. me to let Now the CEO,

Jesse Singh

again results joining for The afternoon, thank year-over-year. an increase and quarter, Good you XX% in fiscal including AZEK delivered team first us. XXXX once strong our net sales

adjusted substantially XX.X%, and sales production gross year-over-year, to by driven strong performance year-over-year performance. margin percentage XX% EBITDA business, increased more the margin recently divested grew net normalized by Vycom Excluding strong residential expanded levels. driven Adjusted and points EBITDA XX

having delivering and the is we members on and is best and that values success best for our team their want and the all for expanded believe by the take our industry. to moment I best dedicated our that in customers. a to employees of our wins, partners team focus partners driven committed of core thank experience One the

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

EBITDA net now residential increased sales and segment adjusted EBITDA Commercial Residential business, and business year-over-year. the segment highlight corporate the the of XXX% Residential and our all segment. excluding costs segment increased adjusted XX% performance strong core year-over-year includes

the products. Residential Accessories the initiatives. execution experienced both in our growth the growth from pro our Deck, channels benefited quarter, Rail, saw and segment as strong We Within residential and retail exteriors we of in

We framing also TimberTech in saw orders interest solution. aluminum including for strong new our our opening substructure products, new

with year, from performance outdoor over our quarter believe the wood model, the material conversion strength business supported we last away that our combined product and categories. Exteriors During ongoing the above-market living and of our both in

segment market our end Over last Residential demand been which has has XX the driven for XX% year-over-year months, products. our by grown

the structural of actions volatility. QX cumulative Like have are years last the market over seeing XXXX, and benefits the we we supply few chain significant taken during of and

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

used and issues, recycled supply offset all improved our leading We increased our efficiency, design, priced aggressively of margins. to have the our our to management use also improve to chain integrated system product materials, expanded AZEK

traditional disruption now years XXX supply combination down and in through issues XX.X% masked and increase that percentage business, our operational of by our our adjusted supply basis we to meaningful have by as XXXX, a points inventory our our chain believe initiatives. of progress The these inventory. EBITDA margin we After of margin reduction at opportunity during first a year we factory channel XXXX in in more chain of utilization As we months and the a an the recalibration within have initiatives managed cadence. highlighted fiscal multiple X Day returned of we Investor to was to

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

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

We are of product in of outside to a process increase will new manufacturing the facility us capacity expand our and our Pittsburgh Exteriors business completing offerings. that allow

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

than very as worked by first sustainability, category market ensure based only high line year functionality, quarter PVC This innovation, or fire A design At the exited is the days of to driven on functional provide solutions product the We TimberTech IBS we a Innovative channel Materials as with our quarter channel format. will as is show in interactive the recycled aesthetic And brand demand builder has Awards products At Class PVC levels. with inventory service friendliness. range proprietary an market. sustain historical that we in to consumer the decking, upcoming high one in reinforces the premium problems. From rating. percentage our averages that always, Show, partners only hand. recognized Builder position its Decking the the the #X finalist being shipped previous XXXX Advanced in unique to based show, product and the uses International of the broad channel and decking a on on on of fiscal It Best lower products we a our a and Most our and and high products a our current during of Building perspective,

agreements and the or we dealer subsequent again These pro and and once pricing our shelf QX. for shipping most orders. of future process shelf position in market. expanded During We calendar early-buy position, our expectations orders the gains fiscal in channel a for preseason incrementally XXXX, had successful quarter, negotiated started including have

have to the progress continue and We have year, demand. both think Residential had business. outlook. double-digit XXXX about our be to the And we our for strong that of in we've it's establishing As sell-through in the flattish incorporated ourselves growth into we and increase seasonal we in we look cautious market normal prudent assume to forward feel good the about Year-to-date, R&R season. made remainder optimistic a moving in preparation the upcoming

ended QX We inventory at meaningfully average. channel than the historical lower levels

QX normal Our and of spring channel our a the assumes spring process guidance revenue outcome for our buying negotiation. includes

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

XX.X% raising the year. with our range that our XXXX We XX.X% year, year-to-date, driven fiscal combined have for adjusted and the experienced for are the expectations margins will our between we outlook demand by EBITDA

the of to confident as long-term realizing overall remain strategy. potential ability our as be and step deliver journey our to our business. We execute short- another will ambitions in we in a our continue XXXX

will financial on turn the results over I to now our to our outlook. call additional Peter some and context provide

Peter Clifford

good Thanks, everyone. Jesse, afternoon, and

at portion highlighted earnings of of the Eric our a uploaded website. As beginning we supplemental the Investor have call, the Relations presentation on

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

sell-through, conversion average We consistent down AZEK development 'XX. fiscal the days product to new last XQ on in growth the approximately XX% continued the historical gains. strong initiatives, on of sell-through of shelf is hand. and double-digit channel downstream playbook, growth the inventories experience First, continue material This including space versus we expansion ended execution result channel quarter with efforts, quarter, with

surveyed dealers base steady a the quarter. environment learned our quarters, to demand the that past the Consistent with ground. remained indicators broad we understand pro and we in on of contractors What and is sentiment

just X pre-pandemic of contractors above reported weeks, project backlogs Our levels.

of From a sentiment and both recorded for quarter. contractors the dealers in sentiment is quarter. our last end modestly the contractors our views perspective, both the at dealers more and positive Current similar

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

data in Total POS products of the accretive our continues channel. sale Finally, as These remained experience store pro results partnerships, retail above strength growth the retail the well to opportunity point us retail demand of growth healthy of our the in sell-through. front the continued in year-over-year. retail for or as channel our underscore POS

From in drove Normalized up last quarter. the in drawdown as an inventory levels quarter production quarter cost experienced strong operating were utilization in and levels year. first year-over-year lapping substantially the absorption expected production the after perspective, the

recycling We initiatives. execute product to annual savings material These and incremental And sourcing our front, structurally input continue combined deliver traditional configuration continue us tailwinds. and gross cost to on to margins. enabled the provide material levers different

'XX. our first a savings, terms normalized The combination results relative In of execution quarter. and with growth, residential us our in material drive XQ strong strong to double-digit coupled helped of initiatives results recycling conversion sell-through SG&A, spend costs of profile the more reflect

this reflect prior quarter. EBITDA 'XX, the XQ and As all a All 'XX reminder, Residential for for corporate year includes expenses. numbers adjusted segment the XQ comparable fiscal change

of result, closing In Vycom addition, on X announced November a X, includes month performance. impact of fiscal the XXXX approximately segment on the the transaction XXXX. operations of the Vycom Commercial occurred And previously as

with the of To during October. X approximately month in Vycom approximately $X assist profitability net was breakeven sales million and modeling, were ownership

the As Vycom, the remaining partitions. distributes divestiture of segment Commercial a the bathroom manufactures and of reminder, with and lockers portion fabricates

quarter sales above was of guidance XXXX, first year-over-year our by to increased our net consolidated we which $XXX In million, the expectations. XX%

XX% of the impact the up sales were divestiture, year-over-year. net our Excluding Vycom

Vycom net XX%, partially the our in business impact our being Commercial $XX growth first our up driven The the was by quarter Residential of business million by from segment. sale offset

December year as expense Effective of gross of change to quarter. calculation. have revised prior definition first reflect include comparable for numbers profit we this the in depreciation XXXX, and the quarter the XX, of XXXX presented the adjusted All

million. into profit year-over-year increased profit Taking million. $XX to XQ by million to gross $XX increased this year-over-year $XX XQ XX% consideration, or $XX million or 'XX gross XX% by adjusted

utilization X,XXX gross plants, increase adjusted to product both savings. benefits sourcing XX.X%. material driven adjusted at recycling Our profit by configuration and execution was percentage initiatives higher margin net our profit sales, points from in finish gross stronger of and increased The continued year-over-year primarily basis

due million SG&A EBITDA EBITDA XX.X%. expenses marketing million stock-based was quarter The offset year-over-year The for rate basis continued increased by margin lower quarter $XX and Adjusted of awareness, increased X,XXX increased points $XX higher in XXX% bulk to by or year-over-year costs. increase year-over-year investment for $XX primarily to adjusted brand by million. partially compensation $X the personnel million. the and to to first the

to or million Adjusted quarter share. $X.XX income of $XX $XX adjusted income quarter increased by million for to $XX increased first diluted per per first share. $XX million net the $X.XX for by or the EPS Net million

excluded sale the business adjusted income. we Vycom net the if $XX.X reminder, on our a million divestiture As of from gain the related to

margins XX% turning quarter first were the up approximately Now came segment quarter million, EBITDA XXX% for to segment up XX.X%. sales Residential up first points year-over-year. at EBITDA basis $XXX in Residential net was million, for year-over-year X,XXX to adjusted Residential segment the our results. year-over-year. segment adjusted $XX

at Commercial for segment year-over-year. XX% for quarter million, quarter the due sale business. of of $XX segment million a $X.X adjusted sales to the business. the net of the came disposition our was EBITDA in were by $X.X the million driven down year-over-year, Commercial decrease primarily Vycom or The Vycom decrease primarily

at From million borrowings under facility. were our leverage approximately Capital of a quarter. year-over-year. approximately cash ratio and million, with $XXX million, accounts and negative equivalents $XXX ended first was million net million, cash as receivable accounts cash balance million approximately available year-over-year. defined million was operating was quarter end finance quarter down and debt of the down of $XXX quarter, revolving perspective, $XXX the Net which $XX gross payable, leases. of the X.Xx credit $XX the first year-over-year. capital, we from Net our future ended sheet a activities for $XX million decrease Working debt of inventory expenditures $XX flow $XX quarter We the plus million minus cash million million, during $XXX $XX stood with for the at included and

the decrease was free cash $XX quarter, a million. first at of For year-over-year $XX negative flow million,

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

a agreement, program million repurchase the authorization the approximately million be received company $XXX delivered As the about repurchase XXXX. the completed, later million. with After $XXX we previously accelerated is no our to ASR announced, share remaining the than shares under was balance program. X.X Under initiated February share

previously our we've reminder, priorities the communicated. capital a As as allocation same remain

have We excess our business, inorganically. to we in will shares organically opportunistically. we the and both will invest flow, continue to repurchase extent to And cash look

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

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

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

past, the in fall, and for dealer mentioned period we've make off year's the of kicks decisions season. time in the year space Buy it As the the in Early shelf selling the our following is partners which

Once high product drove selling begins similar be again, short lead service sell-through earnest in we we the reaches believe the conservatively shelf space continue space These perspective, we to wins recent were pleased years. the expansion and manage with realized an as and we wins in performance, will traditional and channel shelf while maintaining and shelves season. to inventory From times. our

the we the able our associated in environment. the cautiously season more data our demand for Overall, around season increased the prepare goods we need contractor update dealer see on changes our surveys, Quarter-over-quarter, optimistic in react and be the selling demand with expectations to finished to inventory consistent to in and but season to market are to sell-through. quickly and

side, the production by will positively On levels, fiscal higher second margin be quarter utilization absorption. the cost impacted and increased

focus to in lower drive the continue well benefit input We quarter. the costs see as our of on benefits gross to as will our recycling which sourcing margins initiatives, continue to from

sales On for our XXXX. to and to SG&A, will planning through move support updated we continue assumptions let context, initiatives. that fiscal growth With organic me marketing

billion With sale, imply to full billion our drivers, visibility EBITDA and seen adjusted increasing first demand date, would outperformance we and $X.XXX our to million. between in in adjusted year net quarter range our the to consolidated guidance sales to growth are guidance our to sales full $XXX year-over-year EBITDA. $X.XXX and and between coupled increasing growth XX% Vycom to $XXX increased XX% Adjusting for million for to year net range with the our X% year-over-year margin XX%

to year $XXX billion our Our adjusted representing planning is mentioned XX% sales EBITDA, net segment, assumptions combining $XXX XX% year-over-year and the XX% for reporting in with corporate $X.XXX expenses growth $X.XXX EBITDA Residential growth to adjusted to X% segment segment to billion million earlier. as segment sales and in million when Residential

million, to stated and strong the of this a other to between expenditure initiatives. A include range with $XX few we following: enabling continue invest margin approximately us X% We're marketing to assumptions consistent of awareness growth-oriented capital gross CapEx performance, year brand expecting in revenue. our target expect X% sales, $XX million of to

depreciation expecting million. approximately $XX of $XX are million to We

targeting a approximately are of to working for the capital $XX million We million reduction $XX year.

year the XXXX, We are for expecting XX% a GAAP tax finally, year rate generation. for And deliver to year fiscal flow free cash we to the of strong of full full expect XX%. another

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

the some turn the me second provide we environment we for our Before to expect. quarter, that guide context let for

we XQ. in for year. we modestly sheet are coming range. seen more own XQ we quarter, half In of inventory on the for Traditionally, down to the meaningfully XXXX, XQ have mid-single-digit our in before own For balance expecting to down expect second the the our inventory come growth stage sell-through

to Taking guidance call With these million to Jesse now of $XXX effective the million $XXX million in our to quarter. turn in $XXX million quarter the the adjusted some factors back EBITDA. for and revenue consideration, rate that, We remarks. for closing into are is XX% approximately tax an I'll expecting $XXX for

Jesse Singh

to partners and Pete. AZEK Thank thank for that would your dedicated you I our dedication. channel the and like members, Thanks, contractors support and again supplier company. team contribution

us in. that exteriors material outdoor conversion plays AZEK large excited fast-growing about markets the ahead are long-term and of living in opportunity We home and the

capability. show Residential has to remarkable Our resiliency and continued growth segment

compound fiscal annual years delivered XX% a last XX% XX has over rate growth the since business XXXX. of and The

and have that, our the our for please Our approximately target of questions. we our margin in and date realized line our execution to driving increase and strategic operator, of sales of objectives annual double-digit With margin open to growth financial EBITDA initiatives the expanding net confidence XX.X%. benefits growth adjusted long-term our

Operator

from first with Keith Our comes the Instructions] line [Operator Hughes question of Truist.

Keith Hughes

quarter. that's Some guide. for and inventory that's my assume in With if also exteriors a guess strong single-digit and difference an higher in where revenue really questions rates implication I second your where decking. good build, the between here sell-through, the could talk and coming you is I guide results about any lie. there's growth

Peter Clifford

Yes, Keith. This the is Peter. question. Thanks for

parts X So there.

As I hand. little on of pre-pandemic mentioned the exited inventory 'XX in XX% historical what we from a down It's with than lighter the we quarter prepared about kind remarks, first of days expect. channel

mid-single-digit at of would So cost assumption top that Buy be Early that's sell-through part kind equation of of staging on just the of normal the customary. kind

question, we last exteriors as Rail much exteriors a to both well was And an Accessories. recalibration as second didn't the the much perspective. item. a if positive Keith, almost really of clarify, you exclusively inventory On have reminder, on impact we growth & year, decking a seeing recall, are Deck, It just of from

Keith Hughes

some And know follow-up some the quarter to you've shelf won for that guidance? out space a just big numbers in Is role, these that. in I role, a second playing meaningful box. Okay. one

Peter Clifford

know that that year. would modest that don't right, it of kind there a of we I impact, I is call the but won business middle meaningful,

half probably the of fourth of here year, we last have really and it's and net the year more probably a So but in third year-over-year modest. quarter in pickup the benefited first

Operator

Jefferies. the And our of next line question Phil Ng comes with from

Philip Ng

for it sales marketplace think your I sales call resi about on thinking the are Congrats And How at guidance rest in you much season? full side contribution if Are X.X% I back roughly, quarter segment your a and outlook. you the for that? driving a guys. the for it, and the we we of year the kind in price of on XQ, seeing peak Residential sell-out Can year. traction? what demand guess, you implies should your busy growth anticipate? Pete, help strong a there's unpack, I look of by much what's out increase

Peter Clifford

Yes. X a implying the The months about X over the of months. math changes of there inventory for channel last kind assumed sell-through mid-single without X% kind we on lot are just of the you year, of digits in

pricing, quarter. same as answer far it's last As as the

about half Pricing of view and price some with in is year. We programmatic the hasn't the talked traditional that took back changed. initiatives actions, Our annual for those year. washed we basically pricing backside some the of last negligible

Philip Ng

helpful. the are improvement you a guys all from you we seeing that That's for about. guys doing And talked margin Okay. -- have standpoint, then hoped and

You're guiding year. to, the call full for it, XX.X% EBITDA margin

long-term is target maybe us XX.X%. closer? And have drivers perhaps some Your closer of It a to is upside Help a there or are may like maybe pace kind seems potential the big upside there there's faster what for the little being there about get of think anticipated? we little there. than

Jesse Singh

Yes. Jesse Phil, here.

one. certainly drive we good to a that expected have point margin. Your an is We opportunity continue to would

what I that us think highlighted was point gets the XXXX in XX.X%. at we to opportunity a Investor XXX Day basis

of think should against that. You

or against or giving year. moving not consider remarks normalized year We XX.X% continue average we're give then specific guidance forward. opportunity on margin I my prepared basis What that, highlighted basis is you in confident more We're a give point on XXX should and of XXX that, per take, in expansion to and incredibly see, take, points the to beyond. 'XX

our number and we of made efficiency, us margin, are to I that believe increase continue productivity a progress areas. And room certain helping to us with use still and the for with to drive we there's different of against the down to a operational recycled that continue lot as increase happy that initiatives drive as we've in are of think

we'll continue term. of a give I'll a So beyond. you 'XX by and we year opportunity just an But as long on progress, over points XXX basis to saying see better view summarize we the

Operator

our comes from of line from the And next question Barclays. Matthew Bouley

Matthew Bouley

kind production of to ask simply line to the difference the guide the R&R lot kind guidance be, Does bottom And a Obviously, the and would there between bridge guess little bit shelf as of Is out the the is top you there's prior material you be raised on higher. in way feel a would a new it line. a Altogether and kind the chop it tracking able the space. I of little result, guys question additional wins? space of is conversion guide? bit like better? the

those together, pieces between Just and kind difference guide. new the prior of put the guide all

Jesse Singh

start Yes. in. and chime a level, high at Pete I'll let

in we out As said strong growth really to now double-digit we're prepared our at -- and the had we that now. remarks, point

when in you our you quarter was driven. sell-through so that results and that, primarily And the clearly, have saw first

case, an assumption. that's call it, in coming on happened So months that, that as complete, of element sell-through X X% you has our already sell-through, against

have roughly And X-quarter then take QX, a guide, pickup there's sell-through you mid-single-digit beyond QX, at if with we modest that incremental in But assumption. our some QX, line that. look that just that's

out, we're benefit still that part gain. And of from assumption baseline that is is that under you as we R&R so some pointed the tweaks, of incremental of market operating that modest space there's products. plus the point, space see in. that we're against our new shelf that vantage our from our is that incremental conversion. continued but we and contribution the initiatives Part a flattish of of see Part And

allows to basis. to us points X over think X that's what I said call it, stack, underlying And R&R we've the

if is look we're play forward. it our talking certainly in we through the that the a you guide, much about, really a in guide not as although just basic fundamentals we're So step-up that changing

Matthew Bouley

it. Got

Okay.

heard probably I I sell-through. POS channel you, but here. top your think me Second And one, that think actually say that's correct at another item I above if the is to I unique you AZEK retail pro misheard

seeing your retail specifics to what going products just of we're your there for world? the in could around new differently and business yes, of into elsewhere on the some what's sort go you So retail just of kind relative

Jesse Singh

Yes.

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

continue to are about, Those add force equation. talked our to additive are overall elements, we growth and as continue all new our invest We that to in we products. sales

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

Operator

[Operator Ryan the Instructions] Our line William question comes of Blair. next Merkel with from

Ryan Merkel

Wanted to start on the margins.

guidance think deck, increased unpack just in the I Can of the part mentioned margins range. you as on you visibility that a little bit?

Peter Clifford

This have as is mentioned, obviously, kind Peter. every Ryan. and the about outdeliver quarter guide. Yes, Look, our hopefully we you critical of plans look pretty comparisons to comp internally is to overdrive 'XX. we when But think XQ

in going or was Buy variance was for as us to done seeing it important clarity on sort the orders January. really and so booked the largest of as of through well be see Our get completely that month visibility to getting be XQ, Early

as as saw we year. in sheet the firmer the Those we saw that's of quarter to what the to look things combined with us start year. balance into we well of -- the lagged. We backlog. our half Obviously, deflation our is picture going confidence our rollback, X think really every mix, give I So back get like a get

Ryan Merkel

Got it.

it sort is for decking curious, is impressive That ask it been to have should housing a macro. then Okay. Or boost maybe us that housing that makes how I'm in And like is tougher I improve, business? the your will, And many way? does question a we And really Jesse. reason not sensitive to your of if turnover turnover? a think of think sense. results of

Jesse Singh

It's an interesting question.

perspective and R&R few correlation ago highlighted a turnover last that gotten in XXs the has they years. think I this. One of the what housing days a issued the research And companies the on between to few was

expanding us, see say business so for are seeing what we and about people investing live. they what business And people we're to they what we are continue where We're that's is a live. transactions. about that I housing not a is where would And

we certainly, within macroeconomic environment. think live I the

we're nature as believe should growth, mid-single-digit that's driven below business R&R underlying And the and really so we're guiding market. And sitting flat here to that we sell-through the being where is this by be. of

and guide market to We're an of residential consumer that this where that us if accelerate. in that determined R&R certainly, of continue close sentiment underlying our think housing opportunity get with when to back by So growth to opportunity year. to an growth consistently. to We a that's kind it's really to R&R on gives that market double-digit we're driven the But underlying by normalizes for numbers whether getting position, market, more guiding there's current or that, turnover. pretty R&R obviously, certainly

Operator

And our with comes question of next from line JPMorgan. the Michael Rehaut

Michael Rehaut

And congrats far. on results Great. so the

you're wanted and the I about make looking sure XQ First, XX%. to half residential back just and for results properly appreciating into half. guide sales, look the I'm first When you at at full year

to in for in that's in mid-single of roughly guiding the in And the believe, first quarter the the quarter, I XX%, second I XX% 'XX second. the you're full and, against about first digits believe, X% So sell-through year. and

of you XX if the own get sell-through inventory this roughly kind delta, residential of of guidance. for be and of percentage say, the any sense restocking? So some to trying versus I just channel but a growth earlier, between share hit year let's gains How of much your points that apologize on might

Jesse Singh

Yes.

QX. digits. our looking sure give at, said and what I've strong our right. double guide got growth was make exactly We between I'm We in didn't for the is The me XX% year. the sell-through numbers Residential numbers X% Let

XX%. -- higher assume So than it's you should that's

equation, So I the think equation. part that's one of one certainly

next it's where then we have as the the And second orders Mike, simply, what stage we a over quarter, we're we is quarter on -- for X months. doing hand remaining

is on and hand guide of have. the have the we visibility we inclusive currently the So orders

we be then conservatively to that from way through. flat inventory point our year-over-year are for remaining work in we that with our going And as inventory X work just as that through way quarters, extrapolating sell-through we're we X.X% on on, flat the changes

think quarters we see quarter it's appropriately So QX in hand. in the that out, X is the a remaining larger then what number in a first break a guide what on if -- of with we and number you conservative certain

pointed to out, the a inventory be as last Pete days-on-hand than effectively able to service than And is level year. required market we QX basis lower with lower exited than of on a and

get service we assuming be addition do sell-through the of the able to equal in that months, for some that to next sell-to. such, to to will back As market X need

Michael Rehaut

Jesse. appreciate I that,

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

Peter Clifford

Peter. This Michael. is Yes,

better from the one having lever assumed. that we the talked what wasn't And budget modestly meaningfully of than better own about really there margin for really modestly As we're a line we quarter, was first top our kind plan and perspective. on different or only any

We've conversion the just have sourcing we've and and commodities. to seize pretty done against beyond whether pretty on speaking, volumes with continued the leveraging opportunity above generally recycling, initiatives it's So well utilization spend. been cost it's well executing whether stronger just you basket, broad

expected. strong statement, pretty just in the and general as consistent was really came first So the it a quarter, what in and with we we was execution

Jesse Singh

year. second then last it's quarter as underutilization the at are lapping we some And guide, from -- you certainly look

out it think called last year. I we

And to say me, in in we're getting quarter, have not want of second had underutilization. don't million front close the second I so benefit quarter $XX meaningful And but certainly, Pete, that the the we fully pretty I number of deflation. of it's lapping the experienced to in from benefit

do that, some execution So Peter, of the in have you know to benefit. the front second has -- top if addition don't to of additional you? on want I you in that itself quarter

Peter Clifford

yes. Yes, yes,

previously. communicated have We

year's the about through loud flowed was million of about a we balance impact. statement. basically that that $XX the sheet 'XX, a to half income We For had said deflation out

here in obviously, get you'll So the in half helps. you've really the or half already of got, second other if and that the quarter, first quarter equivalent that, that

Operator

Tim from of with And Baird. question comes line our next the Wojs

Robert Schultz

Schultz on really just like side. your at is guide original second expectations? looking raised versus for than has Robert anything Tim is guidance upside the your But changed for half, second there looks you've expectations. It better QX This actually and the then quarter

Jesse Singh

think is I what Basically, need No. we just mentioned a half season. see appropriate. to assumption to the relative earlier. the it's the of We conservative highlight what -- to year back We

So continue we R&R half in back the to year. flattish market assume a the of

feel Now wait on got of flow those initiatives. some see we've we've behind wait positives we see got to to scenes, incrementally, through, and some the certainly to to we've But our the got season.

Peter Clifford

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

Robert Schultz

that And is what's driven the sentiment remarks that modestly you November? in positive kind quarter. the then do changed late positivity you has more than really And mentioned for seeing of you're Got incremental contractors dealers in and What think prepared since both market? last it.

Jesse Singh

believe Well, in third consumer, older. second house, we or maybe remodel we value that repair tend one, consumer has has skew things. over an their and a Number a said the segment, of be on that play a a as consumer little on that that segments throughout, of just and this house, our couple they We've also we've tend segment. is our highlighted type to believe that we asset highlighted we right, in typically, impact to a more in years -- a market the have that affluent

look the this if to stability you or months were think the there a concern few back to a asset value. and certainly relative -- at the year was even last potential economy time, uncertainty a of I lot more So was there on

look sentiment from the contractor the and in in think at dealer and I asset-based as people the they sentiment is macro of economy more particular, see base our too the segments, right? not that dissimilar

Housing still invest And jobs in high. there. at values in and The a continue their people market are is record have holding homes. to

that's backdrop. the so And

or worry the for about hear colder surveys and from our basic channel whether those off back for element it. think most validated backlog. our people other other our feel country, activity -- elements And to is anytime tail the a we reflected the of not season really going think into they're a think and you see on contractors I have part our part, And I and And base good, I that that have improved, then from base. we is what believe and contractor move modestly

own perspective. continues the feel possible also a that ringing, their And the good phone's they're on folks backlog, I show what's the digital in future. our then engaging data about from to and really activity,

Operator

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

John Lovallo

that contractor Jesse, one maybe backlogs. the last follow-up on a about just

I stable X X any Is weeks there change think guys they that's for there pretty X giving about at you now. confidence? quarters been have or more

Jesse Singh

data -- similar the the surveys. over almost of very the I sentiment would few the guess, over I and is over a last, say last year

that has Some may have we -- of froth normalized. the felt is

I now at of And really Pete for and and change so most which X varied that weeks to X we're the above-average backlog has now. contractors. It's mentioned right? X right sitting range. in backlog, that, And between X think there's an elements

and number beyond But their same also backlog. assumption that's ask weeks their the the general, you incrementally of And being contractors positive. more we backlogs as growth of just what of number those see in sentiment of or

normalized, cautiously and good word of affects -- us activity them. view using more we're much the ahead what's So good business, the stable optimistic combination ], pretty that a [ of

John Lovallo

helpful. And continued comp out called and That's of you quarter, in I investment. stock Okay. in higher then the think terms SG&A Pete,

think to way this I move slight return about positive year the and right next SG&A a and maybe year, is about as to through we think leverage year, maybe deleveraging then As mean, XXXX? it still we this in into operating

Peter Clifford

probably that XX year, pretty of to bps kind a year got back leverage years, leverage kind from most that this double I with would on get we'll year beyond neutral per we SG&A. I to of think a digits. SG&A And more 'XX feel we passionately look think perspective getting of growth at then as back to

Operator

from Sachs. of question our Susan And Goldman next comes with Maklari line the

Susan Maklari

Exteriors side the on again. is question first My

Can facility, it the a a you that how bit quarter. think, and part coming online that mentioned in should you it about You what facility talk could I more about in of growth started Pittsburgh outside think for mean and that new we the business?

Jesse Singh

Good question. Yes.

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

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

Susan Maklari

helpful color. then gears And shifting bit. Okay. That's a

cash As seeing further to and that's your the appetite ASR? can bit for and on about of business or deals? changes M&A the your you perhaps priorities you talk a Any repurchases the generation this updates any think there what of year some you're for the that, pipeline expected post the about for appetite

Peter Clifford

Yes. of it, of Sue. Ultimately, from flow. ops take as repurchases do we free cash I'll the as piece look, well flow year strong expect cash another of

dislocation. our the the repurchases in also And we we generation be at later consider be, to right this if withholding debt looking times, I'll opportunistic additive think at cash of I with repurchases through year, ambitions continue if us to You should I at balance But being any would think retirement. we year even expect to year. to call some our share exceed possibly saw it programmatic the

Jesse Singh

there's the got be alter it's the to we opportunities. an be terms of selective certainly focus, evaluate deck do in anything terms in our continue believe that we're to terms moving on then the we've market in time, market. always opportunity always product will build in going as what chatting we to of that margins, We're very But investor and continue talked do not want to forward. right of to appropriate We appropriate M&A with an folks. we'll front, And out about, way. portfolio to We're our in

as want against pointed business, generating out. be of then to how in will on cash. year, we to opportunities. cash, gives a M&A both now way as a highlight a and or of at options good on we'll a us fair even the the lot continue a recognize Pete we lot is look balance And we that to have as relative selectively throughout we business ASR, deploy post organically optionality position of got we've a which I it underneath of terrific business, we sheet right position move this And that fair the amount amount as manage the balance to the appropriate in now generate on sheet to the

Operator

Capital Mike next the from our comes RBC Markets. with line question And Dahl of

Michael Dahl

maybe of one been just but my lot answered, A have questions more.

horse and Sorry But the the indicators, no kind sentiment, to digital that you're suggest if about cadence. implied recently. beat could the hear changed I of really anything on comments, talking improved has

The second still relatively guide is half modest. implied

about right seeing in you're conditions what your second way you're So the this moderate seeing in be Early is the to that holds, season? i.e., to that that versus half, what your the today implies ultimately would Buy if upside think guide guidance

Jesse Singh

double-digit seen sell-through would we of seen time. I Yes. it, have I -- way that period growth. we've word reasonable for a And the

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

Michael Dahl

it. Got

on I might that wins additional as share in year pro the of the opportunities nice some the through in that layer gone had through of last you've of months, that you side you're you've obviously, couple terms anything then, additional And kind Okay. retail past or wins guess, or seeing articulated. year?

Jesse Singh

Yes.

As the a go call, space, and ourselves in of year, positioning the this products on we time typical shelf mentioned on new negotiation through we marketplace. pretty it's the

most to opportunity. thing As and our I of through important conversion things a in to And it, us terrific you discussions. it's really And expand we drive opportunity will. in and marketplace. really more really, mentioned, conversion discussions feel our I the to be I brand, think to broader to that the We marketplace. on the That able want created continue marketplace. the mentioned have really, just if we've for think more drive gone expand an is want -- opportunity. want in we just as We supercharge And about drive the to Pete incremental to an for growth we outcome good call is those us these the continue

Operator

Rafe And our final America. question today Jadrosich with from Bank of comes

Rafe Jadrosich

$XX the Can neutral. just the you the I from Great. million I for at midpoint. growth? neutral, $XX It look year, it's bridge it's us is at growth that million think think help Peter, about like is guide sounds costs. about EBITDA I if SG&A price

that to $XX bridge us help you can million? Just

Peter Clifford

piece $XX Yes, as the about mean before, we half of Rafe. That's I of million that. of the This Peter. first of a year. underutilization you got communicated had is in kind

the You've sales of Those biggest being by million deflation pieces. the of close and are the the additional got, let's disposition offset flow-through the $XX Vycom macro, sort -- at a call business. the it, of to rest on

Rafe Jadrosich

your Got it. change guidance... just That's the on very in And then helpful.

Jesse Singh

progressing if X years. We we -- if of this. Rafe, highlight, stress opportunity And last ahead and lot have been But over to a I we could surface the just still tried us. under the just have -- also of I

underutilization has kind of supply the some some And underneath. was combination the cost chain having of what of masked elevated and of

then And it's sorry. business cadence, which out. a effect, normal the I'm more of let what in the capability is can so just, come highlighting underlying Pete's

had You another question.

Rafe Jadrosich

That's helpful. really

And last think from are going the on change I sales going then midpoint. midpoint are up, EBITDA I sales guidance $XX going in around quarter, at the think, think, the Just $XX at million up million. is up, I

margins it's understand the to why where getting is high it's us so on high. like just Can relative help incremental since you're that been really the sales So you [indiscernible]

Jesse Singh

right wanted about adjusting always Obviously, activity. think I off out, the would to business about before past, risk cards It's we we our pointed as it ability good the constraints. XX% really felt benefit. closer constraints those of we more now. And activity we've talked XX%. sales drive at I And to to to the already look would probably we're But I amount had. margins XX% a that, X. Pete base there's as see incremental higher in incremental incremental on that separate our we or off then of an have that took of there's few flow-through the the took some

much But business. core of margin visibility underlying better we the much, capability on the have

based So see just I execution what we if the There's business. have the sales sales. up would on even incremental separate guided certainly can side benefit the core we see would some we guided up, from margin X. of incremental had just been on But the not

Peter Clifford

more, If the And which we're extra add, means where means impact. now we're we're I'd plants. leverage more right production, means getting activity, in just in It which means an extra sales environment deflation. extra extra recycling recycling buying

now So that position in of incremental revenue. flow-through It's enviable right very supportive XX% get a whenever we're rate. we additional pretty

Rafe Jadrosich

That's Great. at the helpful. Show. really guys Builder See you

Operator

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

Jesse Singh

joining Appreciate for Thank again once you us. it.

discussion I journey, is As about a we the of a this great our appreciate wins, value feel all the we really and a us, evening. really team feel time ahead have Have that the and mentioned the evening. taking of core best We this you team. to on good call, and view good we about have of this we opportunity as

Operator

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

The AZEK Company Inc. (AZEK) 6 Feb 242024 Q1 Earnings call transcript