James Hardie Industries plc

Welcome to the James Hardy Fiscal Fourth Quarter 2025 Earnings Conference Call. After prepared remarks by management, there will be an opportunity to ask questions. Please limit yourself to one question. If you have additional questions, please rejoin the queue. I would now like to hand the call over to Joe Olespire, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and thank you to everyone for joining today's call. Please note that during the course of prepared remarks and Q&A, management may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on slide two for more information. Forward-looking statements made during today's conference call and in the presentation materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars, and any comparisons made are to the corresponding period in the prior fiscal year. Now, please turn to slide three, where you will find the agenda for today's call. I am joined by Aaron Erter, Chief Executive Officer of James Hardy, and Rachel Wilson, our Chief Financial Officer. Aaron will begin our prepared remarks by reviewing our FY25 accomplishments, discussing our focus and outlook into FY26, and detailing our progress against key strategies in North America. Then he will provide an overview of our core business opportunity and speak to the long-term outlook of our organic business before discussing our combination with the AZEC company. Rachel will then review our financial results for the fourth quarter and discuss FY26 guidance before turning the call back over to Aaron to conclude prepared remarks. At that time, we will move to Q&A. I'm now pleased to hand the call over to our Chief Executive Officer, Mr. Aaron Erter.

Thanks, Joe. Before I begin, I would like to thank our team around the world whose dedication and hard work enables us to continually delight and win with our customers, doing so with an uncompromising commitment to safety. Together, we are living our company's purpose of building a better future for all and working towards accomplishing our mission to be the most respected and desired building products brand in the world. I also want to welcome those new to our call along with our longstanding participants. We look forward to sharing James Hardy's compelling investment profile and detailing how we execute on creating significant value for all shareholders. Given the expanded participation on today's call, our prepared remarks will be a bit longer than usual as I intend to review some of the key aspects of our competitive positioning that are critical for developing an understanding of James Hardy's value proposition. These include the substantial runway of our material conversion opportunity against vinyl and wood, the unmatched resilience and beauty of our innovative and differentiated product offerings, our localized manufacturing, unrivaled by any other siding player, and instrumental to the growth plans of our largest, fastest-growing customers, and, of course, our purposeful strategies to create demand across the value chain. winning over homeowners, contractors, and customers with our value proposition and fostering loyalty to the James Hardy brand. So with that, let's begin on slide four. We delivered solid business and financial results in the fourth quarter, and our fiscal year 2025 performance reflects our commitment to invest to scale the organization and grow profitably, even in a more challenging market environment. We are executing on our growth strategy and are confident that our actions are driving outperformance in our markets and positioning us well to sustain this outperformance. We are winning by partnering with our customers and contractors and delighting homeowners. This success propels our organization forward and fuels my optimism about the future of James Hardy. We have the strongest team in the industry and the right strategy to go after a material conversion opportunity. We are well positioned to compete directly with substrates like vinyl and wood. Our products offer a highly compelling value proposition that spans our full customer value chain. Our focus across the value chain involves demand creation and building brand awareness, developing innovative designs and aesthetics for homeowners, and working closely with our contractor, dealer, and distributor partners as we accelerate material conversion across our end markets. We continued to invest strategically and growth despite the challenging demand environment and have delivered robust profitability while strengthening our position in the market. Consequently, we are well positioned to accelerate outperformance when demand improves. In late March, we announced that together with the ASAC company, we are creating a leading growth platform and building products. Later on, I'll share the strategic and financial reasons why this is the right combination at the right time. Our full-year business results demonstrate the inherent strength of our unique value proposition and the underlying momentum in our strategy against a softer market environment. We deliver 2.95 billion standard feet of volume in North America. within the range we guided to a year ago, despite softer in-market demand than we had originally anticipated. Our North America EBIT margin of 29.4% shows how we generate savings through the hardy operating system and quickly and decisively prioritize consistent high return investments in organic growth and organizational scale. This result exceeded our initial commitment for profitability. In a difficult North America market environment in FY25, we generated $2.9 billion in North America sales, along with $1 billion of EBITDA, resulting in a 35% EBITDA margin. And finally, we generated $644 million of adjusted net income, again driving performance that exceeded the commitments we made last May. thanks to purposeful execution by each of our business teams around the globe. As we turn our focus towards continuing our material conversion mission, I reflect with pride on the resilience our teams have shown as our industry faces persistent headwinds. More recent, broader macroeconomic uncertainty could further impact the cost of home construction and weigh on consumer sentiment, influencing demand. As a result, in North America, which represents approximately three quarters of our total net sales, we are prudently planning for market volumes to contract in FY26, including a fourth consecutive year of declines and large-ticket repair and remodel activity. Despite near-term headwinds, The strength of our brand and the attractiveness of our value proposition to customers has and will enable James Hardy to structurally grow through expansions and contractions. We will continue to capitalize on these strengths as we navigate through the current backdrop, focusing on outperforming our end markets to drive top and bottom line in FY26, consistent with our prior planning assumptions. In Australia and New Zealand, which constitutes a low double-digit percentage of our total net sales, our strategy remains consistent and focused. We are leveraging innovation to accelerate material conversion against brick and masonry, and we are optimizing our network for future growth. While the Australian market similarly remains challenged due to affordability issues, we continue to grow our strong category share across our end markets, and we will outperform in what we anticipate will be a relatively flat market environment in FY26. The APAC business has positioned itself well for a recovery in end market demand, and we have great confidence that we will take full advantage when the opportunity comes. In Europe, which also contributes a low double-digit percentage of our total net sales, our markets remain challenged, and our expectation for a more gradual path to recovery for Germany, our largest European market, remains unchanged. However, we continue to focus on our core strategy of driving double-digit sales growth and high-value products, which we achieved in both the fourth quarter and throughout 2025. We have a solid plan to expand our margins in Europe, comprised of purposeful investment to drive operating leverage alongside sales growth and to generate cost savings by optimizing our production footprint and driving efficiencies. Across our businesses, we remain committed to outperforming the markets in which we participate and have purposeful strategies that ensure we deliver on these commitments year in and year out. These plans are grounded in capturing the material conversion opportunity and driving value for our customer partners. Now, please turn to slide five, where I will review our recent performance and accomplishments within our North America single-family exteriors business. We delivered upon our North America volume guidance this year despite challenges across our end markets. During FY25, multifamily, which has been a low double-digit percentage of segment volumes the past two years, saw a significant market correction. But we outperformed, despite our volumes falling over 20%, lapping record performance from FY24. Multifamily remains an attractive long-term segment for us beyond this near-term normalization and market activity. Interiors, which is around 10% of segment volumes, declined as well, falling high single digits as the discretionary interior remodeling market remained soft. The vast majority of our North America business that is neither multifamily nor interiors is growing. This represents our siding, trim, and soffit products across both repair and remodel and single-family new construction. This growth reflects the encouraging results of our long-term purposeful strategic actions to grow our share with the national home builders and expand our presence in key repair and remodel geographies. Our growth in FY25 through market declines proves we are executing on our plan to win in these large material conversion opportunities. This outperformance in single-family exteriors is attributable to strategies like leveraging innovative product solutions such as Color Plus. Our Color Plus offering remains strategically important across both single-family new construction and repair and remodel, and our focused efforts and investments enable double-digit growth in FY25. For those new to James Hardie, our ColorPlus products come pre-finished using proprietary technology, offer a virtually limitless range of color options, and like all our products, they are engineered for climate. Simply put, there is no other product like this on the market. The value proposition of ColorPlus enables contractors and home builders to create beautiful, distinguished homes with superior aesthetics customization and durability, in addition to offering time and cost savings. 4DR's strategy is winning against vinyl within repair and remodel by strengthening our presence in the Northeast and Midwest, two regions ripe for material conversion through the residing of aging homes with appreciated values that remain clad with other substrates. We are again leveraging our ColorPlus technology, highlighting fiber cement's unique product attributes, and harnessing our clear advantage over other hard-siding products in the marketplace. In the Northeast and Midwest, we have grown ColorPlus volumes at high single-digit CAGR over the last five years, compared to in markets that were flat to down. Key to our success. has been our ability to rapidly onboard new contractors to the Alliance, our loyalty program that we will continue to grow and enhance over the coming years. Approximately 40% of new contractors added this year were introduced to the program by a customer sales representative, a clear proof point of how we have amplified our commercial efforts by leveraging our deep partnership with our customers, leading to not just hundreds, but thousands of feet on the street. Importantly, as we accelerate sales with siting and decking contractors to capture the vast opportunities that lie ahead, the size and strength of our sales force and the alignment with our customer sales teams underscores our supreme confidence in achieving our commercial synergy commitments. Nobody in the industry has a sales force like James Hardy. Turning to new construction, we continue to achieve success in deepening our partnerships and supporting home builders' growth objectives. Over the last year, in a clear demonstration of the appreciation for our innovative product solutions and unrivaled business support, we have announced multi-year national hard siding and trim exclusivity agreements with the following. Meritage Homes, MI Homes, David Weekley Homes, Stanley Martin Homes, Castle Rock Communities, Drewmark Homes, CBH Homes, Davidson Homes, and McKinley Homes. Our customer drive, our innovation focus, and our broad product range continually deliver material conversion wins. Beyond our home builder exclusivity agreements, We have demonstrated success in accelerating our material conversion opportunity and new construction from Vital to James Hardy Fiber Cement. Let me share a few examples around how we are doing this. In many cases, we went on the absolute value proposition alone, as home builders see that buyers are motivated by the resilient beauty of our products. In other cases, we are increasingly reducing overall switching costs by innovating through ColorPlus and around the installation process. In parts of the Midwest, and specifically with our statement collection, we are piloting products that are quicker and easier to install and thus reduce the on-the-wall costs. The early results are highly encouraging and demonstrate the potential to unlock a large range of addressable homes more affordable price points. By highlighting and enhancing the James Hardy value proposition, we've become increasingly successful at convincing large home builder partners to convert from vinyl to fiber cement. Our builder partner Van Meter Homes, who many of you saw at our investor day, recently dropped vinyl from their designs in favor of fiber cement, highlighting our ability to meet the desires of home buyers across different price points and innovate to improve the installed cost of our product. Please turn to slide six. I'd like to take this opportunity to reiterate that we remain well positioned to execute on the growth objectives we outlined at our Investor Day last June. They are to drive long-term profitable growth in our organic fiber cement business and to take advantage of the significant material conversion opportunity in front of us. Within repair and remodel, long-term market fundamentals are highly supportive with over 35 million homes age 20 to 40 years, the prime age for replacing or improving exterior siding. Ten million vinyl homes alone have been built over the past 30 years. Or an easy way to think about the tremendous opportunity is almost 80% of the homes in the United States today are not sided with fiber cement. And in new construction, the fiber cement category has grown structurally for decades, with further opportunity to expand in the decades to come. This is particularly true with large builders seeking to drive further value for the homeowner with aesthetics and durability of the product, differentiate increasingly standardized homes through customization of exterior visuals, and to achieve labor savings through innovative solutions such as our pre-finish ColorPlus technology. We often talk about our path for value creation, and we see immense material conversion opportunity as the fuel for our growth engine. But to capture this opportunity requires the elements we have refined over the years. Creating demand across the value chain by being the brand of choice, providing customers with innovative solutions, and supporting the growth of our partners through unrivaled business support and localized manufacturing. I had the pleasure of visiting with hundreds of valued customers and business partners at the International Builders Show in late February, where we showcased many of our new and innovative product offerings. Our focus on innovation continues to resonate with our customers, and we believe our winning solutions will accelerate our material conversion efforts. New products like our Timber Hue, Artisan Lap, and Statement Essentials products give contractors and homeowners additional innovative design solutions. We're also targeting material conversion wins against brick and stucco with products such as Hardy Architectural Panel, adding incremental runway on top of what has been our core focus and wood look siding. In North America, we remain steadfast in our commitment to driving double-digit revenue growth over the long term, which is built on low single-digit underlying market growth, approximately four points of outperformance versus our end markets through time, and an expectation to grow value faster than volumes by an additional mid-single digits. It also remains our expectation that organically we will expand our North America EBITDA margin by 500 basis points. enabling us to triple our EBITDA. We have stated this path will not be linear. However, we are highly confident we will achieve our objectives over the long term. James Hardy Fiber Cement has achieved enviable success over just the three decades since introducing our products to the North American market. And we estimate that our products now clad more than 11 million homes. Our conviction and our long-term aspirations is rooted in the boundless opportunity ahead of us and our ability to capture it as we aim for 25 million homes by 2035. We're proud to have been trusted by all who have chosen Hardy as the first impression for anyone who visits their home, but also as the first line of defense against the elements, moisture, pests, and fire. to protect what matters most, and we will be unwavering in what we see as the driver of our past and future success in North America fiber cement, the value we provide to all participants across the value chain, homeowners, contractors, and customers. Now, please turn to slide seven, where I'll talk about the next chapter of growth for James Hardy, built upon the strong foundation of the organic fiber cement business that I've just reaffirmed. In late March, we announced that together with the Azak Company, we are creating a leading growth platform in building products. I'll share the five key strategic and financial reasons why this is the right combination at the right time. Our stated criteria for investing in inorganic growth has been that any opportunity would need to accelerate our current strategy increase our value proposition to our current customers, and be financially attractive over the long term. This opportunity clearly satisfies each of these three criteria. At James Hardy, we are homeowner-focused, customer and contractor-driven. In essence, this means that the driving force of our business is delivering winning solutions across the customer value chain. With AZAC, we expand this successful approach into the highly attractive outdoor living category with a fast-growing, highly profitable business built on industry-leading teams, multi-year strategic investments, differentiated products, and best-in-class execution. Net-net, together, we will create a leading platform for growth. Once combined, we will offer a comprehensive solution of leading exterior brands, which positions us to benefit from material conversion opportunities in the context of a total addressable market more than twice the size of ours today. The financial profile of the combined company is best in class, with further enhancements to growth, profitability, and cash flow through the delivery of identified cost synergies and tangible commercial synergies with meaningful room for upside. In summary, this transaction will accelerate James Hardy's strategy, increase value to our customers, and deliver significant long-term financial value creation. And with respect to timing, we expect to close the transaction in the coming months. Turning to slide eight, I would like to provide more color on our commercial synergy opportunity. Our largest opportunity lies at the contractor level. The importance of the contractor and our respective presence with these business partners cannot be understated. We believe the breadth and strong loyalty of our respective contractor bases will be crucial to our ability to accelerate material conversion with each other's contractors across our collective product portfolio. Let me talk a little more about how this would work. Consider a contractor that is already using one of our products in a particular category, say fiber cement siding, but a different substrate in another product category, like wood decking. We can run our tried and true material conversion playbook to accelerate growth with these contractors who have already been sold on the value proposition of fiber cement and will now be selling homeowners on the benefits of both James Hardy siding and TimberTech decking. We will also introduce our contractor partners to categories and products they may not have historically participated in, demonstrating the financial benefits that these can offer. One of our key criteria for M&A was the ability to offer greater value proposition to our existing customers We think our contractors who do one product with us but not the other will see the power of expanding the scope of their business and partnering with two of the leading brands in all of repair and remodel. In any scenario, we see this as an acceleration of our respective current strategies, underpinning our confidence in delivering substantial synergies through material conversions. The feedback on this combination from our dealer customers has been consistently enthusiastic. Our core focus on bringing differentiated solutions to our business partners is resonating through the feedback we are hearing, reinforcing our confidence in the shared opportunity to accelerate growth through material conversion and increased penetration of our products in the market. We look to earn incremental shelf space at new and existing dealer locations. With James Hardy in nearly five times as many dealer locations as Azak today, there is meaningful runway to expand Azak's presence on the shelf, which would increase brand visibility and product availability to contractors nationwide, further supporting the incremental growth at the contractor level. We believe that dealers will recognize the attractiveness of a combined product offering, make decisions that align to the needs and wants of their most loyal contractor customers, and place value on the simplicity that SKU harmonization could offer, particularly in promoting products like PVC trim. Our dealer partners will also help facilitate synergy capture at the contractor level, acting to amplify the reach of our sales force. and playing an important role in converting contractors to James Hardy, Azac, and TimberTech. As a combined organization, we believe this cohesive relationship can be improved, allowing for more at-bats with contractors. Moving to the home builder, where we have been demonstrating the momentum of our strategy, with several major exclusivity wins over the course of the past year. James Hardy's position with large homebuilders has never been stronger. ASAC has not had an on-purpose effort in this channel until only recently, illustrating the expansive opportunity that exists to introduce ASAC's many exterior product categories into our partnerships. We continue to observe consolidation in our industry, notably with national retailers looking to expand their business with the pro-contractor. With our portfolio at closing consisting of the leading brand in siting, the leading pro contractor brand in decking, and the two leading brands in PVC trim, our valuable relationships with contractors position us as an important strategic partner that anyone seeking to grow with a pro. We have an existing presence and Azac, too, has already found success in expanding its retail business. We see more opportunity as a combined organization to bring our value proposition into these important retailers. And in wholesale, we look forward to continuing to drive growth for our value distribution partners, strengthening relationships forged over many years and maintaining best-in-class business support through our localized manufacturing. In summary, We have line of sight into the commercial opportunities ahead and remain confident that we will capture at least $500 million of baseline revenue synergies with clear opportunities for incremental upside. Turning to slide 9, I would also like to reinforce the significant, clear, and credible cost synergy opportunity ahead for the combined company. We are underway with a rigorous integration and value capture planning process, which is supported by a dedicated integration management office and best-in-class advisors. We are prioritizing fast cost synergy delivery and quick wins, though we've chosen to take a prudent approach to the timing of our targeted synergy delivery. We would expect cost synergy savings related to administrative functions to be executed more rapidly. This includes savings from eliminating duplicative back office functions, systems integrations, and consolidating some of our facilities. We're also looking for quick delivery of savings from freight optimization and shared procurement of packaging and indirect items such as safety equipment and insurance. Lastly, we see a smaller but still meaningful opportunity to capture synergies from improving alignment and driving continuous improvement in our R&D commercial and marketing operations, but are committed to preventing any disruption to our customers. We will act with care and do so over a longer timeframe, as building upon our strength as a unified sales organization is key to the delivery of our commercial synergies. We have tremendous confidence in the integration execution given the similarities of both companies' cultures, goals, and operating models, and expect to progress as planned towards our target for $125 million of cost synergies. Turning to slide 10, the financial profile of the combined company is best in class with further enhancements to growth, profitability, and cash flow through the delivery of clear and credible cost synergies and tangible commercial synergies with meaningful room for upside. In addition to growth in operating cash flows from our strong organic runway and synergy opportunities, Reductions in capital spending requirements should also drive an acceleration in our free cash flow. We have invested ahead of volume purposefully in our North America business, considering our substantial runway for material conversion and confidence in our organic revenue opportunity. Today, our existing footprint is sufficient to fully service anticipated demand, placing us collectively in a strong position over the next few years. The sustainability of our strong cash flows extends beyond purposeful investment. The combined business post-achievement of run rate synergies is expected to generate annual free cash flow of greater than a billion dollars. We will use our strong cash flows to support organic growth to rapidly deleverage and to fund capital return to shareholders. Now, I'll turn it over to Rachel to review our results in more detail and discuss our outlook. Rachel?