JELD-WEN Holding, Inc.

Marks, there will be a question and answer session. To ask a question, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to James Armstrong, Vice President of Investment Relations. Please go ahead.

Thank you, and good morning. We issued our first quarter 2024 earnings release last night and posted a slide presentation to the investor relations portion of our website, which can be found at investors.jeldwin.com. We will be referencing this presentation during our call. Today, I am joined by Bill Christensen, Chief Executive Officer, and Julie Albrecht, Chief Financial Officer. Before I turn it over to Bill, I'd like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our forms 10-K and 10-Q filed with the SEC. GELDWIN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix to our earnings presentation. With that, I would like to now turn the call over to Bill. Thank you, James.

And thank you, everyone, for joining our call today. I'm pleased with the progress we're making on our transformation journey, and we continue to focus on strengthening Jeldwen's foundation. While there are various near-term market challenges, we remain confident that we can deliver improved future performance. Let me start by first thanking all of our associates for their continued commitment as we work together to meet our customers' expectations while also taking important actions to bolster our financial performance. Additionally, I want to thank the new senior leaders that recently joined our team. Within their first 100 days, they've rolled up their sleeves to learn the business, visit our facilities, and quickly add value to our transformation journey. I know they will help us achieve the short- and long-term goals we have for Gelbwin. Today, I will initially share a brief overview of first quarter results and discuss some of the actions we've completed. I'll then hand it over to Julie to discuss our financial results in more detail before returning to discuss future actions in our transformation journey, provide our updated 2024 financial guidance, and then take your questions. I'll begin with our first quarter highlights on slide four. Despite the continued challenging market environment, first quarter sales and EBITDA were in line with our expectations as the positive impact from our ongoing productivity actions helped mitigate the anticipated headwinds from soft demand in both North America and Europe. In early April, as part of our ongoing activities to streamline and simplify our manufacturing footprint, we announced the closure of two North America windows facilities. While these were difficult decisions, it's critical that we continue taking the actions needed to improve GELDWIN's financial results. I'll talk more about one of these decisions in a few minutes. Turning to slide five, we continue to make solid progress on our transformation journey, including actions to fix our foundation. Focusing on our people, during the first quarter, we took important steps to strengthen our culture. In January, we gathered 130 of our top leaders from around the globe to align our vision and goals for the year. We also discussed how we will work together to execute on our transformation actions, including both cost reductions and top-line growth initiatives. We also began training more than 1,600 senior leaders about the skills and behaviors we expect, along with giving them the tools to succeed in building a values-based organization. Shifting to performance. During the first quarter, we maintained our focus on improving cost efficiency. As I just mentioned, we recently announced our decision to shut two facilities, our Vista California composite windows facility and our Hawkins, Wisconsin wood windows facility. These closures are part of our plan to simplify and streamline the business with a focus on quality of sales and asset utilization. Together, the closure of these two facilities is expected to deliver at least 11 million of annual EBITDA savings. I'm also pleased that we are increasing our CapEx spending to enable and deliver on operational improvements. In the first quarter, our capex increased approximately 10 million year over year with much of this additional capital funding projects that are part of our transformation journey. Examples include projects that help us use materials more efficiently and increase automation and production processes, all resulting in driving costs out of our business while also improving quality. We continue to be in the early innings of our transformation journey. However, we are pleased with the progress. I am proud of our team for their continued hard work and dedication in making Gelduin a stronger and more profitable company that we all know it can be. I'll now turn it over to Julie to discuss the financial results.

Thanks, Bill. Looking at slide seven, Our first quarter revenues were $959 million, down 11% from the prior year. This decrease was driven by a reduction in our core revenues due mostly to the expected market-driven volume declines in both North America and Europe. Our adjusted EBITDA was $69 million in the first quarter, down $10 million year over year, and leading to an adjusted EBITDA margin of 7.2%. Our Q1 margin was just 10 basis points lower than the prior year's first quarter, showing how our productivity is helping to offset the impact from lower volume mix. As you see on slide eight, our first quarter revenue decline was driven by lower volume mix of 12%, with marginal positive impacts from price and foreign exchange translation. As we mentioned in our February earnings call, Our first quarter volume mix in North America included an approximately $30 million headwind from unusually high backlog at year-end 2022 that increased our first quarter 2023 sales. Excluding this impact, our first quarter 2024 volume mix decline would have been approximately 9%. I'll provide additional comments about our North America and Europe market trends shortly. On slide nine, you see that our first quarter adjusted EBITDA decreased by $10 million year over year. Despite significant volume mix headwinds, we generated solid profit contributions from improved productivity and also benefited from higher other income. Moving to our segment results on slide 10. In the first quarter, our North America segment generated $680 million of sales which was a decline of 11% from year-ago levels. This was driven by a reduction in core revenues of 12% due to lower volume mix. Excluding the impact of the unique backlog in last year's first quarter, North America's volume mix decline would have been approximately 7%. North America's adjusted EBITDA decreased to $61 million from $79 million in last year's first quarter, while margins fell 130 basis points to 9%. This decline was due to the lower volume mix that I just mentioned. In Europe, we generated $279 million of revenue and $15 million in adjusted EBITDA in Q1. Core revenues decreased by 12% year over year, driven by lower volume mix of 14%. Adjusted EBITDA declined by $3 million, leading to margins of 5.2%. The decremental impact from lower volume was mitigated by solid productivity improvements. Now turning to the market outlook on slide 11. I'll provide some high-level comments on our market outlook, then we'll cover additional details on slide 12. Starting with North America, due mostly to continued uncertainty around U.S. interest rates, we now expect North America volumes to be down by mid-single digits in 2024 versus our previous forecast of a low single-digit decline. We anticipate that new single-family home construction will be higher by low single digits. However, the outlook for repair and remodel activity remains challenging. and we currently expect R&R activity to be down by mid to high single digits. The European market continues to remain under pressure and is experiencing higher than anticipated demand weakness due to the ongoing macroeconomic and geopolitical challenges. Overall, we anticipate volumes in the region to be down by low double digits versus our previous forecast of a high single digit decline. Residential construction markets remain soft across Europe, and we continue to expect that these volumes will be down by high single digits. Additionally, commercial project volumes are slowing in Europe, and this demand is expected to decline by low double digits versus our previous outlook of mid single digits. Given the changes in our market outlook since we updated you in February, I want to provide additional details on the current market dynamics. So turning to slide 12, I'll start with North America. As many of you know, single family housing starts are improving slightly year over year. With existing home sales still sluggish and little inventory in the market, buyers are turning to new construction to fill the gap. The largest builders are driving much of this improvement with much of the demand coming from entry-level homes. While this is a positive for our doors business, we are underrepresented with the largest home builders in our windows business. As such, our North America business is not seeing as much lift from single-family construction as the overall market data would suggest. Our team is working on the opportunity to increase our windows sales where there is potential growth with this market trend. Bill will describe a specific example of this in a few minutes. The repair and remodel market continues to be weak, and the softness is greater than we expected three months ago. A combination of slow real income growth and continued high mortgage rates is causing consumers to delay large projects. Finally, while our multifamily and Canada projects business is only around 10% of our North America sales, these markets are facing much sharper declines than we anticipated due to the uncertain interest rate outlook. We believe that we are doing better than the market overall, but we are seeing sales in these markets down by around 20%. Turning to Europe, the market continues to be soft across all countries. Commercial construction activity remains weak, and the updated forecast now shows 10 to 15 percent declines in commercial projects, while permits are already trending down 12 percent year over year. Like in North America, European commercial construction activity is being delayed due to continued high interest rates. Residential housing also remains challenged, with housing starts down by high single digits with weakness in almost every region. I'll now turn it back to Bill to talk about our transformation journey.

Thanks, Julie. Staying consistent with what we have previously said, we are taking a two-pronged approach to improve Geldwin. As we show on slide 14, our short-term focus remains on strengthening the foundation of our business. We continue to make progress on reducing our operating costs and improving our operational performance. However, we have a lot more work to do on getting the basics right, like quality and delivery. In addition to this short-term focus, we continue to assess opportunities to grow our business, and we commit to only invest where we have the right to win. While this review is ongoing, we do see opportunity for profitable organic growth across our current portfolio. This includes the premium, multifamily, and high performance areas that we currently participate in but can do more. Turning to slide 15, my three focus areas continue to be people, performance, and strategy. Our transformation journey is currently focused on people and performance. As we spoke about last quarter, we are investing more in our culture. including training around important behaviors such as safety, continuous improvement, and accountability. We are then measuring our progress and closing the loop with feedback from our teams. Shifting to performance, our numerous initiatives include a balanced focus on both growth and cost reduction actions. As I've mentioned before, we began with approximately 800 projects in the pipeline and have completed more than 300 projects to date. Through our disciplined process, we continue to refresh our project funnel as we still have many opportunities to improve. Focus areas remain commercial excellence, manufacturing network optimization, automation, and leveraging our scale to improve sourcing among many other smaller initiatives across the organization. I would like to highlight a few specific examples in the subsequent slides. On slide 16, you see a growth project that our North America Windows team is working on. As Julie mentioned in her market update, our team identified an opportunity to address our underrepresentation in a growing part of single-family home construction. After meeting with the top builders throughout the country, we heard consistent themes. They need shorter lead times, higher service levels, and less callbacks from window installations. To address this, we developed our Windows Stock and Service Program. This project leverages things we do well in various parts of our Windows business and brings an offering to the traditional channel that meets their needs. We are starting small with this program, only targeting select regions, with partners that understand the value that we are providing, and as such our revenue and EBITDA projections remain modest. However, we see significant potential to expand this program as we continue to focus on providing what our customers find valuable. Turning to slide 17, another example of our transformation journey, which I mentioned briefly at the beginning of the call, is the closure of our Vista California manufacturing facility, and along with it, the exit of our Oralign composite window business. Despite significant efforts from our teams, Oralign was not achieving our business plan objectives. Following a critical review of the product line, we did not see a reasonable path to get to an acceptable level of profitability. As a result, We are in the process of winding down the business and expect the site closure to be completed by the end of this year. An important part of this process included doing a postmortem review so we can improve similar activities in the future. Finally, as part of our transformation journey, we're reviewing products and customers to identify opportunities to improve the quality of our sales where margin profiles are well below expectations. While some of these decisions may have a negative impact on our near-term financial results, these are critical actions to increase future shareholder value. I now want to discuss our 2024 guidance. As you see on slide 19, and mostly driven by weaker than expected macroeconomic conditions, we are lowering our revenue and adjusted EBITDA guidance for the year. Specifically, we are lowering our revenue guidance to between 3.9 and 4.1 billion from 4.0 to 4.3 billion previously. Our core revenues are now expected to be down 5 to 9% versus our previous expectation of flat to down 7%. This change is underscored by three main facts. Continued high interest rates leading to increasing project delays in both North America and Europe. A slower seasonal demand ramp up in the second quarter, especially in our North America retail business. And finally, as part of our transformation journey, we are proactively evaluating our product mix and may give up certain short-term sales to drive higher long-term profitability. We are lowering our adjusted EBITDA guidance due to our updated revenue outlook. We now expect our 2024 adjusted EBITDA to be in the range of $340 to $380 million versus our previous range of $370 to $420 million. Our updated EBITDA guidance reflects the impact of lower expected revenue at a 25% to 30% decremental rate. Though we are reducing our revenue and adjusted EBITDA guidance, I'll highlight that the EBITDA margin of our new guidance midpoint is 9%, an improvement from 2023. This is a good example of how our continued focus on cost efficiency is mitigating the current market headwinds. I'd also like to provide some information about our expected second quarter sales and EBITDA. The largest driver to our updated full year revenue guide is a lower seasonal demand ramp up in Q2 than initially expected. Specifically, we were originally forecasting a sequential increase in Q2 sales of approximately 10%. Our revised outlook now calls for a mid-single-digit sequential increase. In addition, our second quarter EBITDA will include one-time costs of approximately $10 million due to the closure of two North America window facilities that we announced in early April. Now back to our full year outlook. We continue to be on track for the $100 million of cost savings this year. which is a combination of approximately $50 million of carry-forward benefits from last year's actions and new initiatives that will be completed this year. As we look at the phasing of earnings this year, we continue to expect benefits from our cost savings actions and investments to ramp up throughout the year. Considering the timing of both our sales and productivity actions, we expect to deliver approximately 40% of our EBITDA in the first half of the year and the remainder in the second half. On slide 20, you see our updated cash flow outlook for the year. Due to our lower sales and EBITDA expectations, we now expect that this year's operating cash flow will be approximately $325 million before we incur an estimated $100 million of non-repeating cash expenses to fund portions of our transformation journey. We expect our free cash flow to be approximately $50 to $75 million, which reflects both our strong commitment to investing in Jalewyn's future and our ability to self-fund these investments with operating cash flows. Let's turn to slide 21. Before I wrap up, I want to give a quick update on Tawanda. As noted in our 8K last week, we have filed a motion to vacate the court-ordered divestiture of our Tawanda operations. In light of changed industry and market factors, we believe the divestiture of Tawanda is no longer warranted, and we are asking for relief from the initial ruling. We believe this motion is in the best interest of the company and our shareholders, but there are no assurances that the motion will be granted. This is the only update we will provide at this time. Despite the difficult macroeconomic conditions that we are facing, we continue to make strong progress on our transformation journey, which will set Sheldwen up for success as the market improves. While our near-term demand outlook is challenged, our long-term view has not changed, and we believe the underlying fundamentals for North America and European housing remain very positive. We take our commitment seriously, and one of our commitments has been transparency and clarity with our investors. Because of this, we believe now is the right time to adjust our guidance based on the softer than anticipated market conditions. I remain confident and optimistic about the number of long-term value-creating opportunities available within our business. We appreciate your continued interest, and I'll now turn it over to James to move to Q&A.

Thanks, Bill. Operator, we're now ready to begin Q&A.

At this time, I would like to remind everyone, in order to ask a question, simply press star, then the number one on your telephone keypad. Please limit yourselves to one question and one follow-up question. Your first question is from the line of Phil Ung with Jefferies. Please go ahead.

Hey, guys. I guess my first question is, morning, your outlook where you're reducing your top-line guidance EBITDA makes sense just given the uncertain macro backdrop. But, Bill, I think you called out, you know, less of a seasonal uplift, particularly in the retail channel. Can you unpack that a little bit? Because I was under the impression perhaps even last quarter inventory levels were quite low already. And then just give us a little more context in terms of how we should think about some of the business that you pruned this year that might be a drag from a top line perspective, at least in the near term this year.

Sure, Phil. So clearly we've called out the weaker R&R ramp up in Q2 as a headwind. that is larger than expected when we plan for the year. So that's the first message, and that's mainly US-focused R&R business. If you look at inventories and our view on inventories, it's actually staying pretty neutral. So we don't see big swings. It's just a lower uptake across the market. So that's clearly based on our relatively large share in R&R. clearly a headwind. And I think we all know what the reasons are. Consumer sentiment is still very guarded. Big ticket items are on hold. There's interest rate uncertainty. It's an election year, and, and, and. So I would say with that, that's the view, and that's why we're calling it down now, because we're not seeing the uplift. I would say on the pruning side, we are actively looking at the mix of our portfolio and the profit levels of that portfolio mix. And we've made some decisions specifically within our Windows business, for example, to really stop doing certain lines of business where we were not seeing the profit levels that were expected and that we would want longer term. So we've done away with some window business. And in addition to that, the reload of some of that window business that we had expected to backfill with other lines has not materialized. Some of that is a slow uptake on the R&R side, but just in general, we haven't completely met our expectations of backfilling some of the weaker business. that we've pushed out. And so this has a pretty significant piece of the volume call down for the year as we look forward, Phil. So I think those are kind of the two big levers. R&R weaker, pruning in the windows business, and we are looking at other areas as well, obviously, to prune the portfolio, but that's specifically ongoing as we speak.

Bill, and any color in terms of how to size the pruning dynamic for you guys this year?

Sure. You know, I would expect, you know, it's kind of between 50 and 100 million of top line headwind. What about from an EBITDA standpoint? Is it neutral to positive? Well, there's going to be two dynamics there. Number one, it's a dilutive margin. So that would be positive. But obviously, we need to make sure that we can take the fixed costs out of the structure as we roll forward.

Yeah, one more thing to add there on the cost and the impact to EBITDA this year, and I think Bill mentioned this in his remarks, specific to the two windows actions that we announced in early April, we do have about $10 million of one-time cost that will run through our adjusted EBITDA. They're related to various aspects of inventory kind of write-downs and adjustments and that kind of thing. So that is specifically a headwind in the second quarter. That is a headwind to full-year EBITDA and Q2 EBITDA. And then other than that, generally these moves are accretive to our margins.

And Julie, on that $100 million, is that, since it's one time in nature, are you stripping that out in your adjusted EBITDA guide?

Yeah, it was $10 million of one-time costs in the second quarter that will be included in adjusted EBITDA. So we do have other one-time costs related to those site closures as well as other types of restructuring that we're doing that we do adjust out of adjusted earnings, but particularly just kind of per our policy and our internal governance, we have about $10 million of those one-time costs that are negative to Q2. That's one part of the call down of Q2 in the full year.

Okay. That's helpful. And just one last one for me on the costs out and, you know, improving the foundation of the business, encouraging to see that, Bill, you're reiterating the $100 million target, despite perhaps a weaker demand backdrop. Any risk on that, just given software volume is usually not a great thing for productivity savings? And then I noticed CapEx was reduced a little bit. Was that more timing related or you're throwing back on some growth initiatives? And just lastly, any opportunity to kind of pull forward some of these cost savings in a weaker demand environment?

Yeah, so let me try and hit those, Phil. So I'd say that, you know, we are digesting significantly more CapEx than we have in the past. So the organization is getting used to scaling up our CapEx. So we're pushing as much through as we can. Let me put some numbers behind that, Phil, so you can understand kind of the magnitude. We feel still high level of conviction on the $100 million. We have about 300 projects that are already delivering benefits. So 100 that rolled from last year into this year and 200 additional roughly this year that we've gotten to the goal line. Think about it 80-20. So there are a lot of smaller projects in there, but our machine room is really getting effective at pushing these through. And we still have more than 700 active projects. So as we look forward, we see still a pretty robust pipeline of self-help initiatives. And clearly, some of it is replacing some of the sales that we're losing. We've talked about some of the initiatives that we're working on in the past, but a lot of these are still cleaning up the foundation and just really driving quality, safety, delivery initiatives, because there's still a lot of room to improve within our network. So we feel confident in the $100 million, a lot of work that has been ongoing, and as I said, the $300 million uh projects at the goal line give us a high level of conviction that we're able to deliver on that i think the call down on capex is our organization digesting and we're going to be you know pushing hard on any acceleration options but right now we feel that's more realistic based on what we're seeing kind of tracking over the last three to six months okay appreciate all the color guys thank you you're welcome

Your next question is from the line of Susan McLary with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone.

Hey, Susan.

Good morning, Susan. Good morning. I just want to go back to thinking about the cadence on the margin performance for this year. It does seem like you're expecting to gain some momentum. incremental momentum on the cost initiatives as we think about the back half versus the first half of the year. I guess, can you just talk a bit about what drives that confidence, how you're thinking about those benefits coming through, and then any thoughts on the margin that we could see as an exit rate for this year? Just, you know, any color there would be helpful. Thank you.

Yes, Susan, I'll start, and then I'll hand off to Bill. He can add a little more color. But I guess, first of all, you know, our outlook for first half versus second half margins has shifted a little bit based on the new guidance and, again, updated from what we talked about in February. So kind of part of that is the fact that we had expected that our first half margins would be relatively flat year over year. And now we do expect that to be down slightly, kind of like by 100 basis points or so. Again, that's like first half. this year versus first half second year, and that is solely driven by this drop off in the second quarter. And again, just to reiterate that, that's a combination of slightly lower volumes in Q2, and that flow through, as well as these one-time costs related to some of these windows site closures. Again, that's about $10 million. Then in the back half of the year, we continue to expect margins to improve year over year. by about 100 to 150 basis points. That gets us all to this about 9% for the year. So the back half is really driven by those better margins, really driven by better comps from a volume mix perspective. So we do expect second half sales to be down slightly year over year, but that's a better comp than the down kind of 10%, 11% in the first half of this year. And then you layer in the timing of our productivity and cost savings, and that we expect to be kind of roughly 30, 70, first half, second half. So just as some of these projects from last year and new ones this year kind of continue to ramp up, we do expect more of that cost savings in the back half of the year. So it's really all those dynamics that impact the 40, 60 phasing of our EBITDA and the again, that ramp up improvement of margins in the back half of this year.

Okay, that's great color. Thank you. And then, you know, you mentioned also in your remarks the opportunity to perhaps gain some more exposure with the builders, especially maybe the big builders. Can you talk a bit more about some of those initiatives, how you think about, you know, gaining that momentum in there and how it could come together?

Yes, sure, Susan. So if you look at where the market is moving, clearly it's on the lower end new construction because people that need a house at that level have to buy a house. So there's, I would say, less interest rate sensitivity, even though rates are clearly a headwind. And as that area of the market starts to move, we're clearly seeing solid growth on interior doors, which you would expect, but we're definitely underrepresented on windows. And one of the things that we're trying to do is really figure out if we're selling a door in through our partners, how can we also augment that with windows? So, as, as I've said, in my prepared remarks, we've been spending a lot of time with our customers really trying to figure out what are the problems that we can help them solve and how can we relate to that? We do have a pretty solid offering, I'd say at the lower end. of our window portfolio on the vinyl side which is a pretty good fit for this segment and the white glove service is really allowing us to meet their demands put a specific team internally on solving those problems and really focus on delivering and pulling that through this is going to take a while obviously until we're backed into the job we're pulled through the channel the start becomes far enough along that we're installing windows, so think six to nine months out. So we're well into next year before this has a pretty significant effect to start rebalancing the doors and the windows portfolio share in this segment.

Okay. Thank you for the color and good luck with everything.

Thank you, Susan. Thanks, Susan.

Yeah.

Your next question is from the line of John Lovallo with UBS. Please go ahead.

Good morning, guys. Thanks for taking my questions. The first one is, can you break out the impact from volume versus mix in that 12% core revenue decline on a consolidated basis? And then any color from North America and Europe would be helpful as well.

Yeah, so I can maybe start on a high level. So clearly the headwind, maybe if I zoom out, John, just remember what we were saying, price-cost, we want neutral. And that's still our expectation for the full year. You know, price is challenged in certain areas, but we still feel that that's an appropriate guide. Being neutral, we were making progress in Europe in Q1, and obviously there was a higher volume headwind there. I would say it's more balanced in North America, but we feel pretty comfortable, at least from a price cost, as to what we're doing in the market. On the volume, I'll let Julie give you some additional color on that.

Yeah, sure. That 12% volume mix decline was really maybe like 60-40 volume mix. And with most of that, call it mixed headwind in North America, that's really an average selling price dynamic like we just talked about. So you think about the average selling price of an interior door where we're having very strong unit volume growth. But the average selling price is lower than, let's say, our premium windows and windows overall. And so we are seeing a top line mix decrement, let's say, from some of that mix in North America. And very much less so in Europe. Really, in Europe, it's really all volume related. But definitely a top line mix challenge with, again, the product dynamics we've just been talking about in North America. Then at the top level, that ends up being about a split like 60-40 unit volume versus mix.

That's helpful. And then, you know, maybe just following up on that, pricing in North America was negative here, negative one. It sounds like that that could be ASP related. Now, is that a mix between exterior versus interior, some more interior doors, or is there anything else going on there, you know, within that mix equation?

Hey, John, thanks for the question. We typically wouldn't dive into that kind of detail on pricing at a segment level. I just say, in general, if we kind of look forward, we're pleased with where price cost is. Clearly, there's some input cost on the factor side that we can't ignore. Labor inflation, benefits inflation, and that's clearly what we're working towards to offset through our productivity and our transformation initiatives. So I'd say it's still kind of price-cost neutral for the year. That's what we see, but we wouldn't want to jump into any specific segment pricing details for obvious reasons.

Okay. Appreciate it, guys.

All right. You're welcome.

Your next question is from the line of Jeffrey Stevenson with Loop. Please go ahead.

Hi. Thanks for taking my questions today. So could you provide any more color on how North America volumes trended throughout the quarter and whether volume declines accelerated as the quarter progressed from the challenging R&R demand fundamentals you cited today?

Yes. So I would say if we just try and keep it at a macro level here, Jeffrey, as we said, the anticipated reload in Q2 has been a lot softer than expected. This is, I would call it, unusual. just because a lot of our retail partners look to load their inventory for a late spring and summer build season. We're not seeing that. I'd say that's the main difference as we look out. Clearly, the commercial projects are significantly weaker than we had initially anticipated, but those are pushouts typically linked to interest rates that are staying high, and project owners are waiting because they feel at least a lot of them feel that they could wait and get better financing in the future on these projects. So we're seeing significant delays. It's a smaller piece of our business still is relevant. If you combine kind of our multifamily, which is the VPI business that we've spoken about and a lot of stuff that we're doing in Canada, which is, uh, project-related that we kind of put into this bucket. So I would say in general, it's the R&R business and the headwind that is significantly, say, worse than expected. But outside of that, there's nothing unusual. And I think we'll just keep it at that level. It's probably more appropriate.

Okay. Well, definitely understood. And we've heard that mid-end window and door categories are under the most pressure since the low end is benefiting from production builder growth and the hiring, you know, construction activity is holding in okay. Would you agree with that, Bill? And could you talk maybe more about your outlook for a good, better, and best product?

Well, yeah, I wouldn't necessarily confirm that the higher end is okay. I would say that we also are seeing headwinds at the higher end. If you think about wood windows, you think about our La Cantina business, which is, you know, aluminum systems going into very high end homes. There's clearly weakness. I would throw that in of kind of the project type of weakness we're seeing. So this is down double digit, even more in certain areas. So clearly I'd say the high end is weak and If it's weak now, it's going to stay weak for a while until the starts recover and product is being built in. Clearly, the low end is moving. We've talked about we're mixing well on interior doors. We're underrepresented on our windows business. So I'd say the high end weak projects, also commercial, very weak, low end moving, great growth on doors, challenged on windows based on us being underrepresented in that segment.

Understood. Thank you.

You're welcome.

Your next question comes from the line of Stephen Ramsey with the Thompson Research Group. Please go ahead.

Hey, good morning. This is actually Brian Barasan for Stephen. Thank you for taking my question. Hey, Brian. Hey, Brian. Good morning. On the outlook again, maybe just touch a little bit more on maybe the specific data points you see out there to adjust the guidance. I know you've talked a lot about it on this call, but I only ask because most of it really seems macro-driven. And it's kind of been interesting to see which companies this quarter are adjusting guidance or not when the impacts kind of seem more broad based across the industry and not necessarily company specific. So just curious what you saw that said you need to adjust guidance when others might not have.

Yes. So I would say it's not only macro. Let me just call your attention to our portfolio pruning, which we had called out. So there's two things. Number one, we're stepping out of our oral line composite window business, but we are also pruning additional lines within our windows portfolio because we were unhappy with the level of profit that these areas were delivering. You roll that all up, call it between 50 and 100 million of top line headwind this year. So that's the one bucket. I think macro, I would say, you know, we've talked a lot about the macro headwinds that exist. Clearly we are, we have a pretty solid position in the R&R segment, which has not yet rebounded as we had expected in Q2. And that's what we already see. So we want to make sure we're being as transparent as possible with the capital market and calling it as we see it. This is not going to be a straight line recovery. It's very choppy. I think everyone would agree with that in the market. But in addition, which I think is an important point, we're taking some sales out of our P&L because we don't like the quality. And clearly, we've got to adapt our cost structure, which we're already doing to it. But on the backside, when the rebound occurs, we'll have a much better package of product that we're selling into the market. And that's why we're making these decisions now, even though it's a tough market to be calling off sales in a down environment.

Got it. Not very helpful. Maybe thinking back when the recovery happened. maybe into 25. I know it's a far way away. A lot can happen until then. But just trying to think how some of the automation, other self-help margin improvement projects you guys have that will play out into 2025 if volumes do come back, kind of giving you the added tailwind of kind of the volume leverage on top of the initiative's benefits on their own. I don't know if there's any thoughts there on how impactful that could be to margins on that outlook. Thank you.

Yeah, you're welcome, Brian. So I think Number one, that should be pretty significant because we're doing a couple of things. I mean, we're taking costs out of the structure, but we really feel that based on some of the changes that we're making, which include automation and some efficiency projects, we will be able to deliver at or above the expected volumes that we have in the next couple of years with the infrastructure that we will then have in place. a pretty significant upside. We're talking a lot about decremental margins based on the current macro reality, but you flip that around on the upside and you're talking 25 to 30% lift on additional sales, which will be pushing through the existing infrastructure. So we really are moving towards that future state again with a focus on making sure we like the quality of sales that we have in our portfolio. We're making the tough decisions to adapt the cost structure but also to weed out the product portfolios that we don't like and that we need to take action on. And so these things are kind of, I'd say, accumulating in this year. If we talk about the projects in our pipeline, as I referenced to Phil's question, we have still 700 initiatives that we're working through. And a lot of these are really focused on making sure the strength of the foundation for the recovery is very solid. Just a view on recovery, clearly our view is that things should get better in 25 in North America, and definitely Europe is going to be challenged in 25. And I think that's the very high level based on how we see the market and where things are. It's going to be, I think, better in 25 for North America, still challenged in Europe. Thank you very much. You're welcome.

Once again, if you would like to ask a question, simply press star, then the number one on your telephone keypad. Our next question is from the line of Matthew Boulay with Barclays. Please go ahead.

Good morning, everyone. Thanks for taking the questions. Sticking on the topic of the pruning, I guess, is it realistic to think that the portfolio as it stands now is sort of the starting lineup that you want to go with? Or if we are in kind of a choppier end market backdrop for an extended period here, is there potential that there could be additional to come as you sort of review all your product lines? Thank you.

Yeah, Matt. So thanks for the question. So we're definitely not at, I'd call, a future state today. We still have work to do. And there's two things that we're looking at. Number one is we're assessing our cost to serve and making sure we're doing our homework so we're as efficient as we can be meeting our customers' needs around quality and delivery. But at the same time, we're also assessing what is the quality of that sales mix in today's cost to serve environment, but also in the future state. And if we don't see a clear path to profit, like with Oralign, we're going to be making the tough decisions And we're going to be stopping this, you know, and I think this is one of the things where the organization is starting to realize that the accountability is critical. And if we set up a business plan, and I would suggest that there still is an overconfidence in our culture at Sheldon, we need to hold ourselves accountable. And if we don't have a plan to correct, assuming we're missing, we need to get there or we're going to make the tough decisions. So I would suggest this is new for the organization. These are tough decisions, but required based on us not delivering the results that we committed to. And this is, I think, a strong signal of where we want to take this organization and that we're willing to take our medicine on some of these areas where we really haven't delivered as we said we should have. And we want to make sure it's very visible, Matt, to the capital market so everyone knows exactly what we're doing, why we're doing it. And so we can kind of continue, I would suggest, our view of being very open and transparent about what we need to do and, hey, calling ourselves offsides if we don't hit our targets but making the tough decisions.

Gotcha. Okay. Thanks for that, Bill. Second one. On the topic of price cost, I know you don't want to get into specifics on the individual product lines, but in terms of calling it neutral for the year, I mean, clearly price was negative in North America in the first quarter. You mentioned you're still seeing inflation in several areas. So was price cost positive in Q1 and is the expectation that it would kind of drift a little lower through the year? or just any kind of color on, you know, or any additional detail, I guess, on what would keep price cost neutral given these moving pieces. Thank you.

Yeah, sure. Yeah, our price cost was just slightly negative in the first quarter, like $2 million. So I think, you know, plus or minus a little bit, we'd call that neutral. So I'd say generally speaking, and, you know, Bill's already mentioned, I mean, we clearly continue to see inflation specifically in areas like labor and benefits, really as we expected. And then, you know, again, puts and takes around material costs and transportation, et cetera, in both of our regions. So, again, in this environment, our goal is to be raising price appropriately to cover inflation and our costs. And so, you know, I think like you see in the first quarter, I mean, North America was slightly negative. Europe was slightly positive on the top line for price. Net-net, there was just a very minor negative impact year over year to EBITDA. And, again, that's what we're really working towards as we move through the year.

All right. Thanks, Julie. Thanks, Bill. Good luck.

Thanks, Matt.

Your next question is from the line of Mike Dahl with RBC Capital Markets. Please go ahead.

Thanks for taking my questions.

I wanted to ask about the implied second half sales. I think you characterized it and the guide would suggest that sales would be down slightly year on year. I think the pruning that you've articulated alone might account for like a 2% year on year headwind, which would put the organic X pruning more like Is that the fair characterization? And I know comps get easier, but that does seem to imply some market improvement in the second half, which maybe is less visible today. Maybe just elaborate on that.

Yeah, sure. And you're right about the pruning being, you know, kind of in that 1.5% to 2% range as we kind of move on a full year basis. You know, I think, you know, basically with the reset of our second quarter sales, like we've been mentioning, And then you think about the seasonal ramp up from there, Q3, and then what we expect for Q4. You know, it all kind of nets into this, you know, kind of now slightly lower year over year outlook for the second half. We did, and I think you may have just mentioned this, we did have a, this is a slightly easier comp when we look at the second half of last year. But it's very, you know, that's, you know, kind of very, I'd say, nominal from a comp perspective. So, you know, we do expect, you know, a slight improvement to half sales this year over first half. But again, it's all, you know, nothing too dramatic there.

Got it. Okay. Thanks. And then my second question is just on ORLINE specifically, and I appreciate that this was an initiative that started under a prior management team, but it's pretty new. I mean, the full ramp was really just in 2020, and at the time it was touted as a pretty big growth opportunity over time. So, you know, kind of short of four years later, shutting it down is is notable. So, Bill, I know you probably still have work to do on the postmortem, but can you give us just maybe a little more insight on what specifically happened? Did the market shift in terms of materials? Did you just not get the traction with certain sales channels? Can you dive a little deeper into what really went wrong that ultimately led to this decision? Sure.

So a couple of things. The project had had a number of delays internally. So it had been kind of born a long time ago and was moving through, but at different rates of speed. When we entered the market, clearly there was an expectation that we'd be able to gain share in a segment that exists, but is well managed by competitors of ours. And our traction in the sales channel was below our expectations, which led obviously to lower volume growth. And that led to, you know, business case red flags coming up. We also had some pretty significant input cost increases as we progressed through, I'd say our maturity curve. And so we had lower volume, higher input costs, and that created a pretty significant challenge to make the business case work. And this is one of those things where we're still obviously reviewing it. But as I said, it's pretty easy to see if this can get to the goal line or not. And clearly, our decision was we're not going to get there, and we need to redirect capital and resources to the other 700 projects that are creating significant value within our portfolio. This is, I think, a tough, well, it is a tough decision, but I would reflect good news for the culture that we're trying to create at Child One, which is holding ourselves accountable and making decisions.

Thank you.

You're welcome, Mike. Have a good day.

This concludes the question and answer session of today's call. I will now turn the call back to James Armstrong for any closing remarks.

Thank you all for joining our call today. If you have any questions, please reach out, and I'm happy to answer. This ends our call, and please have a great day.

This concludes the JLWIN First Quarter 2024 Earnings Conference Call. Thank you for joining. You may now disconnect.