AZEK - Earnings call transcript Q2 2024

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Operator

Hello, and welcome to the AZEK Company's Second Quarter Fiscal 2024 Earnings Call. After the presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Eric Robinson. Please go ahead, Eric.

Eric Robinson

Thank you, and good afternoon, everyone. release press the a our Officer. website. I'm Investor investors.azekco.com, Chief earnings and earnings this earnings website Officer joined our via Operations and the to furnished Peter Singh, afternoon Relations press Executive today issued by release the Financial our supplemental and presentation at X-K Jesse We on also Chief SEC's Officer; was Chief portion our of Clifford, could certain statements would laws, prospects. Such call, and actual materially. differ make I expectations, filed statements and to risks we the within results that remind including forecasts, to in reports future securities as constitute described that this our plans during with that and a meaning like everyone cause variety of about Securities periodic to beliefs, federal are statements subject estimates, the forward-looking uncertainties may of remarks Commission Exchange We do duty any update statements. forward-looking to such not undertake

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

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

Jesse Singh

residential performance joining Thank double-digit AZEK driven and growth quarter this strong again outstanding today. once growth you the execution delivered initiatives. us with sell-through for company of by outperformed market The our

of net and our we in assumptions. on adjusted raising continue execution, fiscal ASAC results team resilience outlooks. to business and planning of to are year model, Based strength ahead our see performance continues our increased EBITDA XXXX and recent We and sales deliver our confidence momentum, the our

performance updated XX-Q on some we delaying the go I'd on we have to provide why more Form filing. and outlook, background like Pete our quarterly are into details Before our

Peter Clifford

good Thank evening, and everyone. you, Jesse,

took the gap accountant sub-ledger. the responsibilities an a and quarter a close inventory sheet from recently XXXX balance end March over our employee between certain who company's process, plant discovered During left and physical had inventory-related company

As of former a ultimately thorough and other outside The unsupported investigation cost value any were a diligent affected cost and employee found evidence there investigation bids the inventory that recording accounting other and the soon Committee independent advisers of [indiscernible] that counsel as the involvement of the identified increase entries of is sold. The Audit that sold. support than with had identified the indication the needed. recently decrease investigation been than have specific with accounts anyone employee we identified investigation goods employees. single issue, substantially we initiated management manual of the independent determined and other also no adjustments and journal by no departed a complete, now The

more please For see we today. Form the filed details, X-K

now no from an strengthen caused planned approximately We happening are underlying business. update Jesse impact restatement due against the XXXX. reflect XX caused year not by of back this results. I the to prevent is XQ $X fundamentals accounting hand revised underway confident our the that our in to of The the net are call to Actions our or progress controls for initiatives. to of on there entire impact emphasize financials provide a the internal to rollback, on businesses strategic to used want for preliminary 'XX process sales is impact the in year-to-date year-to-date which being inventory and and on the costs future. I FIFO fiscal estimates XQ previously additional million fiscal and reporting

Jesse Singh

issue team and that to support the of the raise thank and to members investigation. our matter acted like finance identify I'd the quickly

To that said operations, and reiterate we substantially no business strength investigation we earlier, underlying matter the impact our in increased on we the this confident confident XXXX the sales adjustments. are what of net the Pete for of are With complete, our outlook. understand fiscal has and scope updated

focused margin and execution beyond. continues expansion to above-market on year to growth XXXX fiscal and drive in Our remain team

residential the Over the has season. XX% and by segment for has XX% our residential XXXX, strong demand first last we contractor our grown XX product remains driven consumer ended channel, March portfolio. Through XX, the products demand and year-over-year XXXX months, our strong building grown as our year-over-year, enter for months residential segment X

and provide operations, strengthens innovation, our the several relationships and allows have last invested in to which to and best the position the our awareness, us world-class and continue years, our core customers. invest brand of we manufacturing as category service all to research will development Over our customer of and strengths advances leader

Our as contractors design being into leaders our X,XXX brand alike. recognized as and all is up channels. industry TimberTech of also program Sample orders strengthening are added by and year-to-date our well are products across several We've visit. website more than year-over-year loyalty TimberTech

our collection the example, For received of named Magazine's green Builders Award was XXXX XXXX Product Composite Sustainable TimberTech Plus Green HGTV list. new and Terrain Year

contractor alternatives. experiencing a solid from deck TimberTech and to superior substructure substructure. us, Composite new giving such aluminum our cable Terrain tech that incremental long-lasting productivity of growth our other horizontal are and This some railing and framing is as We innovations homeowners newest is wood product timber product driving

gain addition, and composite We're products the continue In to collections. the from first incremental decking ignition-resistant advanced receive and share and vintage our siding landmark to decking industry Marshal. designation new Fire railing in growth. Last California TimberTech State our an PBC drive month,

flame premium wildfire, the portfolio spread the communities collections. these to across standard of for of heat, other the a at U.S. features fire that sets industry In homes million addition the decking XX,XXX in across of beauty and this which combination ] of products typical flames help are most fire than to risk XX impacts of increase the from consumers resistance resistance. With and can AZEK's rating, more level performance embers these across hold compliance, wildfires. No new ignition-resistant rating Roy the [ A designation collections Class

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

growth and material conversion recent of will that in us gains support continue AZEK. incremental our We about to to TimberTech incremental momentum brand drives are and some the and allow XXXX, on build excited

We sales in new approximately position support and fiscal fourth incremental quarter the gains, we $X.X the our in have in have expect increasing to relevance and of million which to to invest consumer, new outlook. put channel. our embedded brand these the investments The updated TimberTech made us our a in products team, capacity the is contractor

costs continue and X,XXX conversion the expanded logistical our operation. The new Texas-based costs. expanding lowering initiative addition more usage a recycling of our reach [indiscernible] materials our footprint points our We recycling to country. adds on recycled and with we and program the and processing collection increasing capacity geographic our the recently front, operational to focus On sourcing circle new of adds the sourcing thoughout full has recycling than program. expands reduces transportation currently This network,

expansion Across continuous long-term network, decking Our management also our newer as initial [ system production and for manufacturing ] and leaning and wins. integrated our improvements our the improve drive recycling we of aggressively is margin component space to its efficiency initiatives. we recent planned facility utilization AZEK are is support to shelf build-out had manufacturing that nearing an This some Boise into our important phase.

and be growth market to we inventories remainder for remodel updated to assume continue a in over Channel that stable a remain to positive we continue dealers and and over and growth our and continued the continue demand remain outlook. The of sessions of expectations strong above-market balanced ability partners remain segment. with think margin XXXX. Internally, contractors their Contractor showed had sentiment sell-through to results in our indicators, residential X,XXX it drive optimistic show the recent are have growth healthy expansion. sample fiscal to flattish the year year, and survey Year-to-date, historical remainder through double-digit repair in website up. and able about is our of the look sell-through in outlook. averages. We to and and growth XXXX our is As of backlogs growth prudent orders mid-single-digit we contractor XXX our positive conversions awareness including and are double-digit key

our for objective. products have XX.X% margins. We our now performance, between strong we quarter XX.X% our expect by our year We to are will adjusted EBITDA second and visibility raising for driven year, and increased fiscal demonstrating demand our the for XXXX XX.X% year-to-date, range experienced our the outlook the to fiscal margins progress

to We outlook. will remainder are back XXXX the continue above-market context on over our for growth drive financial additional some provide of and now Pete the to and to continue that turn execute fiscal in results to will believe positioned XXXX. I well call to our we strategy

Peter Clifford

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

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

inventories experience new continue POS Retail is on we front continued product First, as remained to This execute continued opportunity as retail our the including point-of-sale double-digit versus the experience hand. the to initiatives. The approximately annual of the traditional with approximately shelf channel gains. We of in demand we days channel the down initiatives, well and the ended the results to our average underscore remained 'XX. quarter playbook, Commodity continue retail our continue sourcing pro sell-through, savings conversion channel result Grove perspective, and our on we retail channel. From above downstream fiscal continues growth and expansion XX% opportunities. ] [ stable, development configuration in of growth execution products year-over-year. historical AZEK the total our partnerships, to efforts, material and us sell-through for of in space an product sell-through in growth. These healthy data growth additional strength costs conversion operating recycling store prices see accretive

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

the Turning preliminary to results.

net second increased our from increased for and of driven XX% our building and the the year-over-year net year-over-year, comp double-digit quarter, consolidated sell-through products fiscal divestiture sales season. positioning excluding sales For demand results year-over-year. Residential the for $XXX increased XX% XX% segment million the to adjusted solid growth, net sales, by

million for consolidated and year-over-year excluding year-over-year. net $XXX.X For XX% the divested adjusted XX% sales, X net business ] results increased increased XXXX, the [ ended to Viacom months sales XX, March

in income range and million $XX [indiscernible], margin of XX.X% net profit million to and we For $XX net expect the the XX.X%. range of in to

expect facility. of and million with quarter the $XXX and cash EBITDA adjusted the of in EBITDA million cash credit $XXX of balance were adjusted approximately leases. gross XX.X% ended revolving $XX.X we $XXX our expenditures for cash $XXX the $XXX and $XX to to million of and margins the million ended quarter of approximately range We million $XXX which with million, sheet approximately million was XX.X%. From in million. quarter future debt the the included available perspective, for We range borrowings under flow and equivalents debt capital finance Net

our has repurchase year. under X.X March the approximately A year-to-date, we repurchase of open on authorization Fiscal During repurchased the approximately $XXX its share stock repurchased active company million, front XXXX, the reacquisition million totaling the and million $XX is to the million company X ended shares worth market, program of costs. XX, expect the months approximately the of on remaining Class $XX.X be shares. The for remainder common share

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

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

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

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

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

residential These expansion are with with a and coupled half for and X inventory market. From our we the generates double-digit to us and increased of the results a fiscal channel year Gap] And margin both visibility retail pleased fiscal to the continue seem to shelf first the channel space tailwind of to months demand over sell-through provides conservatively. [Audio with the our of wins, our wins to in impact manage channel. to drivers. from outperform 'XX coupled 'XX half second date, the continue confidence first in We and pro the perspective,

billion We and year full million consolidated $X.XX to full range year to net $X.XXX EBITDA between updated and billion the guide to sales are $XXX gross $XXX increasing charges, our our reduction accounting for which and in million million. The EBITDA a of our range range to guidance million between includes related increasing $X.X to Pro at FIFO adjusted $X the channel contemplated which sales. retail 'XX show were wins in fiscal margin rate half not will recent of first last as investment incremental and adjusted

to growth excited 'XX the are year We about beyond. opportunity and our this adds fiscal

million investment sales the approximately XX% the range in net guidance XX.X%. Adjusting sale, imply fiscal this for our X% impact margin XQ, our adjusted EBITDA Excluding second 'XX, to of be would $XXX the to from in growth Viacom of range channel consolidated XX.X% year-over-year. half would

segment Our adjusted X% assumptions is target stated range to in to CapEx include between the XX% segment 'XX $XXX consistent revenue. $XXX $XX planning to year million net of approximately billion and we residential the full share capital representing sales other between assumptions of for to X% $X.XX a EBITDA $XX of X% $X.XX million. A million, our for following: expenditure with sales, million of to expecting year billion few growth to year-over-year are

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

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

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

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

growth revenue key mid-single-digit X assumes in Our sell-through guidance range.

is to in $XXX guidance for quarter million to $XXX in the $XXX adjusted revenue $XXX million and Our million EBITDA. million

to an expecting quarter. With for remarks. now that, closing XX% rate are turn call the for some tax back We the I'll approximately of effective Jesse

Jesse Singh

our would channel express testament the and the of exceptional team members, that dedicated gratitude support company. to momentum their partners and my for thank I success execution. like team work I and supplier ASA's like contractors to again and are would to continued ASAC a and our commitment partners. hard

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

Operator

the of line Hughes Your Truist. Keith first from question comes with

Keith Hughes

is question sell-through. on My the

the discussing talk has think You're in could this a sell-through of here occur next double-digit you deceleration And in that's already April? couple from to if why you quarter, single started digit occurring? about over quarters. that

Jesse Singh

Just to over prudent last not would similar to R&R call, to a our answer has assume sell-through to our that it's that earnings and question, your market And occurred. we assume believe points X flat latter be growth that.

And around date. in I the that we continued double growth as level highlighted it's right what sell-through digits. too was much detail, that that, at look safe has most say that getting ended without to to we quarter think you recent into

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

Keith Hughes

fourth Okay. down quarter, just the then implied off? that And how revenue below move would there inventory the there? you would one In taking finally, that Is September just just quarter, is discussed. you topic. that second Or flattish be guidance again, the sell-through

Jesse Singh

Yes.

some that and last to think the and our as call, X%, inventory coming back conservative at we at quarter, days QX, be the to this of in that So we we've said to as XX% little is on average stays which going and that on talked year I even year, at modest if compared maybe the historical end decline hand average, second would inventory out it's expect sell-through you think on appropriate season, our build we assumes a the implied in our guide historical to us a look the bringing ending really back particular to year, higher. from down about all what to XX% ahead we're

Operator

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

Timothy Wojs

to Maybe last kind the guess what or anything new At on of is? ring-fence any over of I business similar seen the what the kind talked way there a is that that's there of is of years? couple size of incremental you business Jesse. there -- to just in Or start new? to wins kind some about, you've

Jesse Singh

is remarks, we've wins we've I look in the prepared costs some retail to in look confidence X%. we're by would incremental incremental called standpoint, the are we our XXXX, market of next able from a As and transition. And out the continue positions a think to we the highlighted I us give time I a Pro articulate both it in really sizing year, of we as to at lot gain with think that in associated to think the that position first as some good that at really outgrow be

it sizing specifically, for larger we've in about what is that us really the up something talked probably not XXXX. we're past sets So a but and than it's bit clearly,

Timothy Wojs

then kind And things? the given just really those thinking there business investments, channel of kind servicing, need is are types the Or about investments just new other of make structural rep, helpful. just That's where that that to you is? sales of

Jesse Singh

transition. as any the or a some cases, in it retail the channel. would to you gain either think In I time need you Pro meaningful support have that of --

And of forward. as would a so I as think transition it move cost, we

Operator

Philip question with comes of from Jefferies. next the Your line Ng

Philip Ng

high more that's these kind on really a balanced And simple little product? on channel? the doing of type would portfolio? as this retail a Jesse, Any on guess, of What Is more. year, the the to side exciting you gains? be share a Any guys that this color little gains Last sorry more good, some you the more better, that front news dig driving of was Any little think between is share the more side. best on of color of well. question. helpful end, gains. are I a the on if share some color

Jesse Singh

Sure.

as to continue expanding investment, we've made think terms then on we've retail downstream you execution about over meaningful as we've the balanced look think your portfolio, XXXX. And couple nicely will made of think think from force, product had premium I the our talked as that in both Pro think investments highlighted really segments I we the position on always we've California, the the increasing SG&A expansion last And has will market the down that we've in our we've last X I in consider and on the we've step-ups years, designation we're really to sales done a the I resistance drive you it player of of over side. on obviously, out that of in comes only believe and we more years. And that, the had last I question some there into and really mix, our investments the of continue market. And few the called a years. out that. over We've ignition the which

secure those products. position provide the entirety which mid-price so portfolio. the we're of includes obviously, the then point Obviously, shelves, more that really And premium. our it's in of to things And important able certain on the

next And gap that year, taking we only typically those the premium, category. we balanced, I you been but segments. in So would as grow good consider being steps underpenetrated in believe in and to in not we're it's parts close the but of better have more underpenetrated say, pretty the

Philip Ng

inventory is even amount the Jesse, they're to historical inventory then down moderating, you a conservatively inventory kind which has maybe that because the with XX% sounds sellout more want actually what perhaps coming we [indiscernible]. than XX% And to into you're they higher, And bullish fair conservatism like to sounds actually to and your guidance baked it like seeing. lot manage levels, in year, quite building channel below coming were normal, it of a not of it's more signaled

this kind want are channel is on partners this conservatism more your signaling just make point? sure what at end to I versus of So your

Jesse Singh

is important it's partners we to pretty too the to not have is last And work As necessary. What talked inventory about that put talked inventory able intent to They years with that our they be it product of we've their want would to is think much our channel want is channel. level appropriate terms consistent that of channel in service enough as customers, the on have they couple channel that investment. of service an as about our make more on ended XXXX, few we in we've return the behavior, I as I quarters, but levels has in normal. the really product impact over say an last absolutely don't been the sure

a just would And normal so pretty in say it's pretty conversation year. a I normal

think probably levels advocate lead And consistent gives the times lower lead the less in of if an have opportunity I our us lower an of service inventory anything, high to times with and execution we're channel. those that.

Operator

Next question comes from with Susan of the Goldman Sachs. Maklaro line

Susan Maklari

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

Jesse Singh

on It's has steady. we been whole relatively our highlighted the as surveys -- feedback,

we're is the we've at what think our activity. in a word I sense as R&R clearly, segment, interest geographic from the rates of variations. But down. to with for I we're in above is general, pretty general, there's opportunity growing consumer when I market, a R&R an a think would you acceleration there's steady, But seeing -- the highlighted. And I of there's flattish going certainly steady in set our weather continue least of benefiting to always would use activities and in rate feeling have certainly dialogue an market. some be a come or that And think rate,

is got use got if word And I you've in don't you. of know would know if And data there. don't front I any steady. comments the you've I incremental so that's the Pete,

Peter Clifford

from with weeks. is still Just quarter. side kind than last sentiment dealer from from expectations is the backlogs are X more incrementally the meat our quarterly partners, Contractor that channel modestly X set last quarter. positive our surveys on in the growth dealers of better to

steady to last really X of again, kind the quarters. X over So

Susan Maklari

That's right. And All great there? Okay. the that I color. exterior you turning had adding in that last maybe of then highlight specifically. I mentioned And capacity. would you know you're process quarter, anything to guess

update incremental how that's any on Just coming along and anything new?

Jesse Singh

why take don't ahead you Pete, No. go and that?

Peter Clifford

Yes.

Just for XX% first are and probably decking previously, XXXX. Again, here, XX% that as on capital about capacity we've this capacity and the of probably back talked in the we're Phase on handsets, utilization X half kind year deployed range XX% utilization some XX%. to of to to is business in Boise especially our steady is pretty whereas on expand of and approaching at capacity here completion we being

Jesse Singh

our as as high-end also It's is seated particular to on And get capacity move But say within days the expansion business. is online incremental in into Versitec on I continue it would some siding products. not kind that business. of play. that, traditional have the some us niche a our products, 'XX. [ I track. We're brought capacity was siding that we out, help we to capacity of certainly we continues it's our of that but our market is new Yes. grow ] in the that to And business capacity and a very pointed service as and siding exterior exteriors what early to And service certainly of only

Operator

Your Woodman's comes next Grooms, from Inc. question of the line Trey

Trey Grooms

to of to So it some year. these it's [ X looks going XX be X like excluding ]this expenses, the margin, XX

So guys knocking confident -- or And said that target -- and basically a you know XX.X%. door could that on you target the which not Jesse, that hit here was feel I XX% hitting of early, it long-term you your you're maybe. if

in look what it maybe that longer-term maybe like to maybe that target So update could and years? a what few would take

Peter Clifford

Yes.

of in points said on that. side, we XXXX XXX to we're that on of back laid or we tackling still recycling opportunity. as XXX points think us an if expansion. And configuration that had then, we've you incremental basis more go idea product we well see mid-innings As the think and basis about past, back Investor probably pathway I like our think about projects we and side, felt Day, the probably the again, ahead out of I in half I of

So we the still couple we've years, out over to like feel as headroom we got margins. look gross of expand next

Trey Grooms

maybe some in XQ? just that that It to would $X been million Or have FIFO Okay. And like impact, sounds all the well? in of is as housekeeping. going XQ be the

Peter Clifford

Yes. It's question. a great

from why as very kind providing of we're part of XQ. will modest XQ So the restate we're so likely numbers here year-to-date comfortable movements XQ, there on to year-to-date we results, but could be some

color provide. the that's I So can

Operator

from comes Barclays. Matthew Bouley with line the question Your of next

Matthew Bouley

we shelf comparison dynamic forward relative that and growth of kind somewhat get as the lumpy? to still XXXX? very to growth and future, year. But out to year-over-year about of quarterly strong the look comps reflected, quarters, inventory in from what AZEK's should cause sell-through been the remain sort of that growth match Or that forecast AZEK for to wins, earlier. you prior could just on the we normalized sell-through past out So industry we Obviously, think X destock beyond growth we your channel settle more the perhaps the quarter spoke plus will has as course, your

Jesse Singh

some out, you modest as so lapping. we had Yes, point

scenario. out But inventory the called in sell-through then, we range we're you kind XX really, under normal think in a of I since QX. it operating should assume that

seeing quarter, in movement at then look bit sell-through out So above that. a channel, to at coming being always assumption been our an sell-through we that of pretty QX. And only level we've delivered fourth the the and to of again, operating is compare once you what which sell as XQ closed. at the that's time this against little a and There's inventory X% growth XQ modestly of you're is filling in year, what basically normal and

you be points into as probably over the the that I focus this year. underlying X the next little a to think over and move think seen equation to year, market. And I roughly X R&R is higher you've market, our

execution. terms decking is range, in double-digit X If range. sell-through stack which My over top us on positive there's is that we're growth through and move that any the 'XX, points should our news as overall we In X of of gets guess X% to that. probably to we in X%

X% about. at And just I'll market we to talked above leave so that it X% the

Matthew Bouley

it. Got

about Okay. if do benefits product? I'm love just And else kind initiatives. Texas, to little of adding That's on sort also helpful, if some curious you operations a of called can recycled of comments new just sourcing But Jesse. margin what And got the of then to capacity and cooking in your would your for bit anything in secondly, will I mix spoke future, know the I of recycling capabilities. out you elaborate you you hear this the it.

Peter Clifford

Yes.

the from to side. perspective. Specifically, access an the is the to trim on some important the PVC We've obviously the is pure on got which recycling raw to Texas source We've got really us business. asset side plenty a inputs us conversion of white capacity opportunity premium of for of portfolio, to plenty

we're positioned think I side the well from recycling perspective. capacity a on really So

Jesse Singh

is I'd now running. of facility incremental Boise Matt, a thing, other in on just and only a volume the And 'XX, side solid utilization with some season an is out expectation with Yes. our call the clearly

I called running out utilization. That's up comments. think the appropriate ramping nicely. very that we an at It's in

ability service And And is a got we that Pete norms. And window recycle coming the standpoint, increase the focused our painted. and that expanding we're additional good our online not exteriors we historical we've out, an But really as moving where I really from in pointed going we're our about to exteriors us the line business high-quality on that [indiscernible] shortly always into think that's particular, moving aggregate an back market. our be to utilization recycle. opportunity get in gives percentage feel utilization a business, to towards there.

Operator

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

Michael Rehaut

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

Jesse Singh

Yes.

moving I that think we expect our basis, nature as we be Pete our pointed out forward. And expansion had just think to on expect really that, nice within given see accretive we growth. our in retail that channel. see we continue I to have certainly will of pro that on we've that the and the his relative marketplace, comments, And a the growth and to position seen

business in cases, deck, some geographic outgrowing pro months some multiple you say there's aggregate, seen, it's business. the product that we variations over there's exteriors early you about. Across that or our go double I'd have sell-through accessories in But rail cases, season. the the in digit business last Now exteriors or talked modest lot modest our so, the expect you would channel, out lines, look and within our would this on of a if in that

rail will quarter-to-quarter within and [ just reported, we I our -- exteriors that outgrowing quarter. we're business deck variations quarter so think accessories our ] And business this have the on showing we would we

And out how so that's shakes quarter. just this it

Michael Rehaut

And to the adjustments past that the looking Great. guess forward, to with make had I kind Okay. just I you've years few of the over appreciate with restatements. inventory that.

profitability investigation thought was the that's you all it the numbers that want put and crystal guess of were to that that highlighted a years basis, numbers or be fully weren't you of I about Just forward? kind about way, clear, sure this. for the understood just more, of prior past want the way the margin just nuances over relates to to doesn't X you or preliminary appears it's that, or maybe that uncovered you how X if the whatever and particularly business the any affect out kind think the there business to out affected really want kind structure It to going that there's that I past on other but make apparent go-forward as profile or to get whatever a sense alluded different of was

Peter Clifford

million. of be the to purely impact The $X causes restated FIFO disconnect for Peter. only due to FIFO right perspective. the no period impact now XXXX is FIFO was this impact XXXX. the There Mike, fact the is The in is us on inventory really a that actually being rollback from recomputed

So the see forward. is the our to moving $X XQ million we structure charge that impact we have results absorbed that our cost only year-to-date

Jesse Singh

we're in exception really highlight, unfortunate, it's conversation. FIFO out, running. how way our particular is Pete running it's this with happy really the issue, to now as the nature, just And the while business, of And historical pointed Yes.

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

Operator

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

Michael Dahl

the on back just on cost discussion. update in you're cost of in you're deflation, or total? an kind give thinking what inflation price and terms basket seeing Just your you Can margin of about us

Peter Clifford

we is cost input Everything Peter. can use. on is commodity the think, see this the stability, word is I Mike, that the side side Yes, would I on

approximately and perspective, be no the pricing more going basis see a us year. pound As entire this flat Jesse from on is back continues start more volume pricing quarters, and out. And with productive to the market into we we year, as the a meaningful ramp positioning Phase in Boise, the that's pattern see, plant the leverage mentioned, get that last helps become anticipated can don't X surprises. the and then of cost get really conversion system X more of which through half we're and what here some in to our to approaching that line per completion to different We a

Michael Dahl

been or back or about documentation, confidence the you detail employees' maybe just with kind of specifically in issue? And investigation. scope more And not have investigation on you the of Got may that's the this have into other or touch can this COGS describing go the Anything then or behind appreciate responsibility, bodies? I just or little may SEC a just being in the then the it. you an giving scope what initial the the Okay. color inventory depth point? your regulatory of motivation been bit you you've given. at Maybe can share

Peter Clifford

Yes.

back procedure, a the the a left me. I in channel March, Audit started [indiscernible] communication discrepancy they issue, Just Committee performed out got a our the that it, former and close that employee communicated is it's our immediately traditional the Committee investigation leaving independent week. and turned through which At reconciliation very to first complete to Chairman. up XXXX, investigated new here the Audit communicated of on our with some a got chain an a time, a and investigation. That plane that initiated context our identified this that in account business our immediately after substantially -- immediately policy close employee during for accountant

the inform of 'XX. the intentions we proper our and laid information first out XXXX ranges to XXXX of to filed by assessing the today what for to year. conclusion body that really and X-K restatement as And was and we SEC we the XXXX, that well so impact it clearly came appropriate financials feel the quarter outcome our the And as like based that are upon has restate the and

Operator

Rafe next of comes from Your America. Bank of question Jadrosich with line the

Rafe Jadrosich

just all inventory provided you've the far on appreciate so side. Peter, the detail

is And correct just through need have is any to flow restatement? around financials, on the the explicitly. do don't then Is or part like we And Just cash uncertainty there which impact or XXX% confidence to there sort accounting? are cash COGS on and to of balances? have cash accounting you March? to up take accounting that there 'XX into the before of related definition, Or running accounting issues this higher are due FIFO just inventory FIFO kind still 'XX in the of

Peter Clifford

information wouldn't restate based becomes have that 'XX really results rollback will $X essence, overstated. When favorable obviously, with 'XX you our year-to-date it Rafe, anticipated the inventory impact to it the we have million XQ should feeling you Yes. results. we of impact or shorter as issues guidance. upon rollback And your at in of using again, into on have inventory the that that becomes it you inventory, we're as from no you a be think accounting of would Again, before, want had our of that, is FIFO FIFO and think it, cost your there accounting and hand, moved which lower, the calculation year-to-date last in our been beyond that

Jesse Singh

think of your it any hand doesn't or sort cash on I then on to in past statement it's of And inventory that relative accounting, cash, really impact years. question have any of a

Peter Clifford

any everything that. former that in investigation conclusion or way any terms see like they anyone in can any It communicate just also of and did a benefit being there beyond when sold. cash inventory goods we It's scope that important it not anything long is or to the concluded of was no flow implicated from investigation and employee the or was evidence else cost payments of of sort

So a is this self-contained issue.

Trey Grooms

a million, the inclusive of $X is that's And $X to revenue another change million million in high million up the I helpful. inventory implies almost right? $X raise, think the think loading on million That's that, the headwind margin, just $XX plus going then but from Am residential Okay. very It costs. I I guidance you're $X raising about EBITDA incremental XXX%. thinking

think we guidance should margin? the how I And high about on am incremental Just the math raise? that doing right

Peter Clifford

target use We commit would the I'm for on Rafe, own of X brings incremental when we as be right of incremental you're look, was get last I XX% sales mean to the of -- on. It's deflation an production, which pound going upside, the savings said over said kind for recycled Yes. year XX%. an an I flow the that doing kind now. quarters, meaningful got mean we expectation of get to forward. incremental on pound we've every if not half going closer analysis to to it to the flow-through back leverage get we properly. It's probably dollar our pound incremental through XXX% that,

Operator

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

John Lovallo II

] [ for Spencer John. on actually is This Kaufman

organic? how price different then material did the one, was And entire of first driven points? much just wins strength thinking in any in the about portfolio, guys business see demand The from differences versus you retail quarter

Jesse Singh

Yes.

latter portfolio. point across really I'd the seen the nice on early tell. say points. to On price it's demand too We've

raw that within know I at growth, nice experience on on that we at. this something color deck accessories the call So rail look point. we footprint to the it's expansion between, Obviously, it, don't addition mix incremental we didn't and the same-store then side to retail. same relative adds in difference particular in versus the in And

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

Christopher Kalata

Fair Okay. enough.

was be half, the of important flat part here. Are I to and a over expected become more the back of you pricing can flat in in the the half growth that still it's algo first time? think Your view guys pricing

Peter Clifford

Yes.

basis. previous think we more calls, pricing we said I additional would on expect I annual on we've to XXXX, think back As approach to an as opportunities return

Operator

Zelman with comes & Your Adam the line question from next of Baumgarten Associates.

Adam Baumgarten

in possibility you residential. types additional there point mentioned assuming I'm would But at and you products, color for kind what some of a great. think the us growth. any inorganic I Maybe of could be give for sense if that's

Jesse Singh

acquired benefit have acquisition. a ] channels that. that that But Yes. at done define the as product was in you we residential our The to for also we, base, growth the record, is We've their just we the business. look period good adjacency. And out we track we algorithm. done Ultralox part, core [indiscernible] continuing with of And and if with existing but and most focus we Day our time acquisitions recently would over out our take long existing 'XX, where the structure. tuck-in [ also we've that build really certainly, into a laid out can Investor areas what laid move and Well, it leverage can thought and the from pretty customer acquisitions, we

our I I and feel And clearly, would the to and capability the within chain. opportunities We've so to of then what of we recycling. that you look supply at, take advantage think sense of expand gives there's we opportunity a kind opportunity think good the continued a see of

And so that would look those are we at. directionally the areas

drive really We're most to important think continue we really our the up takeaway set our business I above-market growth well like to core. is in model.

growth So really continued we that strengthening is to segment we core in the be planned. anything we do the ourselves and making set is that for that love, going the around we segment sure which

Adam Baumgarten

then if just a And versus sell-through to number? could how much growing Maybe up you put is it. the that the market you Got back point decking being finer on double digits. think composite

Jesse Singh

sense great don't have I of a that. know to

I think if you look over give XX months. the last take, or

-- I we're think resiliency just probably, around And [indiscernible], R&R heard think we've the think certainly that underlying the general, highlights a is deck rail growth accessories judgments conversion. X%, unfortunately, think, the what and there's where market material on enough in looking market give and to take, is, over we you you it data have as composite backwards. But outgrowing in segment, been make or I market and I would market. growing I a the X% show continued that

Operator

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

Jesse Singh

look questions. the We chatting you again forward again have time always, us, discussion the taking dialogue everyone once a quarter. to having with ongoing with appreciate Really a in to with next great as and have evening. reach out evening Thanks, and

Operator

for call. This concludes you joining. conference Thank today's

your disconnect lines. now may You

The AZEK Company Inc. (AZEK) 8 May 242024 Q2 Earnings call transcript