James Hardie Industries plc

Welcome to the James Hardy Fiscal First Quarter 2027 Earnings Conference Call. After prepared remarks by management, there will be an opportunity to ask questions. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I would now like to hand the call over to Bill Seymour, VP of Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining today's call. I'm joined today by Aaron Erter, CEO of James Hardy, Ryan Latta, CFO of James Hardy, and John Skelly, President and General Manager of James Hardy North America Building Products. Before we begin the call, please note that during prepared remarks and Q&A, We may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on slide two of our earnings presentation for more information. Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. In addition, non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of non-GAAP measures discussed today can be found in our earnings presentation, which is posted on our website. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars, and any comparisons made are to the corresponding period in the prior fiscal year. Organic net sales comparisons exclude the impact of the ASIC acquisition. With that opening, I'm pleased to hand the call to Aaron.

Thanks Bill and thank you all for joining us today. In my remarks, I'll cover the highlights of our fiscal first quarter, discuss our strategy and outlook, and then hand it to Ryan for a detailed walkthrough of the financials and our guidance. We're off to a good start to the fiscal year. First quarter results were ahead of our expectations, led primarily by better than expected organic growth in our fiber cement business. Performance that came against an economic and housing macro backdrop that remains uncertain. Our team stayed focused on what we can control, strong execution and serving our customers at a high level. We entered the year with a clear set of priorities. Return fiber cement to growth, outperform the market across our portfolio, expand adjusted EBITDA, achieve cost and revenue synergies, and drive a step up in free cash flow to support deleveraging. One quarter in, we're pleased with our progress against each of these priorities. Let me get into the highlights of the quarter. Net sales for the quarter were above the high end of our original guidance range with pro forma growth of 12%, strong outperformance versus the market. Adjusted EBITDA was also above the high end of our guidance range. As you saw in our results today, starting in Q1, we are excluding share-based compensation expense and adjusted EBITA and other non-GAAP financial measures. We believe excluding stock-based comp provides a clearer view of our underlying performance and makes us more comparable to our peers. Thank you for joining us today. Back to the results. Our outperformance in the quarter was broad-based, but it was led by our fiber cement business, where organic growth of 20% came in ahead of our expectations. Three things primarily drove the beat. First, strong execution against our growth initiatives, including Color Plus, Statement Essentials, and Trim Over, where we're seeing continued proof points on material conversion, particularly in the Northeast and Midwest. Second, strengthen two parts of the market where we are particularly strong that have held up better than the rest. The higher end of the market including repair and remodel and multi-family new construction. Third, we lapped the inventory destock from a year ago. Our strong execution and progress in fiber cement are encouraging as we head into the balance of the year, even as the market environment remains uncertain. In deck rail and accessories, Underlying demand remained healthy with nearly double-digit sell-through that re-accelerated through the quarter driven by strong consumer demand and incremental shelf space across the platform. We're encouraged by the continued strength in timber tech driven by wood deck conversions, mixed shift to more premium products and commercial synergy momentum. The Australia, New Zealand and Europe businesses performed well both growing revenue double digits and outperforming in a challenging macro environment. We made progress on debt pay down in the quarter redeeming 400 million of unsecured notes ahead of their 2028 maturity. This keeps us well on track toward our net leverage target of approximately 2.4 times at the end of this fiscal year and less than two times by fiscal Q2 2028. Turning to the integration, commercial synergy momentum continues to build. We're seeing broad-based wins across our combined sales force, strengthening our conviction in the fiscal 2027 125 million run rate commercial revenue synergy target. Last quarter, we highlighted two examples, Lansing Building Products and CBUSA. And as you saw earlier this week, we announced an expanded nationwide partnership with Boise Cascade, one of the largest US wholesale distributors of building materials. This agreement makes Boise a national distribution partner across our entire portfolio, from Hardy Siding and Trim to Azac Exteriors and, for the first time, TimberTech Decking and Railing. In addition to the expanded partnership with Boise, we have expanded our partnership with six major regional distributors, Capital, Dixie, Lumbermans, ParkSite, Woodgrain, and Wolf. now carrying the full line of the Hardy portfolio they will now become fiber cement partners in addition to their existing decking partnerships extending our reach into the repair and remodel market These expanded partnerships are a validation of our strategy and the culmination of months of planning to bring together James Hardy's industry-leading exterior building products with the best-in-class national distributor and best-in-class regional distributors. These expanded partnerships also mark a significant step forward toward achieving our revenue synergy target. On cost synergies, we remain ahead of schedule while under budget for cost to achieve without sacrificing service or execution. Our combined sales force gathered for a company-wide sales meeting in Chicago in late May, bringing our legacy Hardy and ASAC teams together under one roof for the first time. One company, one sales force, one culture with a shared playbook. At 500 Strong, We believe we have the largest and best sales force in the industry, and the early results reflect that. We also continued extending the Hardy operating system across the AZAC manufacturing network, resulting in improved productivity, tighter procurement discipline, and better cost visibility across the combined plant footprint. These examples are the best of both companies coming together in practice. As a reminder, our $23 billion exterior total addressable market in North America remains heavily underpenetrated by more resilient materials, yielding a $17 billion plus conversion opportunity. We're executing against five pillars to capture it, and I'll touch briefly on each. First, material conversion. We continue to see contractors switch competitive decking to timber tech, and longtime Hardy Siding contractors add composite and PVC decking to their offering. There are approximately 60 million decks in the U.S., and the vast majority are wood. These two-way wins remain a meaningful contributor to above-market growth. Second, channel expansion. We continue to scale Hardy into TimberTech and Azac Strong Accounts in the north and TimberTech into Hardy Strong Accounts in the south, adding new stocking locations across the combined footprint this quarter. Third, innovation and new product development. Our combined product and R&D teams remain focused on solutions that accelerate material conversion. Applying the AZAC innovation playbook to fiber cement with products like Timber Hue, which offers authentic wood grain finishes in eight colors. Fourth, brand preference. Brand search volume and customer sample orders, a leading indicator of future demand, both continue to grow at a healthy clip in the quarter, reinforcing our position as one of the most recognized brands in our categories and supporting sustained share gains over time. And fifth, simplifying the consumer journey. Our replatform website continues to improve how homeowners research, compare, and connect with our contractor network. Together, these five pillars remain the core of how we win in North America, and we're pleased with our progress across each of these this quarter. Let me give you an update on our fiber cement growth plan. As discussed last quarter, our focus remains on the Northeast and Midwest where repair and remodel wood and wood look siding alone represents an approximately $1 billion conversion opportunity. and where AZAC gives us immediate channel relevance and established footprint, strong relationships and complementary products. The expanded statement and statement essentials rollout is gaining traction, continuing with double digit growth in the Midwest East pilot and is now live in an additional five regions. Building on that momentum, we opened two new expanded statement partner stocking locations on the East Coast, improving service and availability of the full collection across our pilot markets with Color Plus Mix continuing to grow. At the same time, we've expanded our Hardy Pro Lab, are mobile contractor training units to drive statement essentials adoption across the broader Midwest and Northeast footprint. And we're seeing that training translate into sell-through. Our three conversion priorities remain unchanged. Converting vinyl siding, winning against wood, and expanding our presence in premium products. On vinyl, we are accelerating penetration in the Northeast, Midwest, and the Carolinas, backed by expanded Color Plus rollout and contractor training. On wood, fire resilience, especially in the West, continues to be an increasingly important part of the conversation as building codes evolve, insurance requirements tighten, and homeowners place greater emphasis on durability and risk mitigation. Finally, TimberHue and our enhanced artisan lineup, our premium higher priced, higher margin lines are gaining traction with custom builders and high-end remodelers. Let me close my remarks with a quick word on the external environment before I hand it to Ryan. The housing macro backdrop remains uncertain and broadly similar to what we discussed last quarter. Mortgage rates remain elevated and builder confidence and consumer sentiment remain cautious. Housing starts have converged down toward permits over the quarter. And as I touched on earlier, we are seeing a divergence by price band with the middle to upper tiers where we participate more significantly, holding up better than the rest of the market. In our outlook, we are not assuming housing industry conditions improve from here. We are focused on what we can control in our own execution, and we remain committed to our fiscal 2027 priorities. Market outperformance, a return to growth in fiber cement, attainment of cost and revenue synergies, adjusted EBITDA expansion, and significant growth in free cash flow and further deleveraging. Let me turn it over to Ryan, who will walk you through our financial results and outlook in more detail.

Thanks, Aaron. Total net sales for the first quarter were $1.47 billion, growing 64% on a reported basis and 12% on a pro forma basis above the high end of our original guidance range. As Aaron mentioned, starting this quarter, we're excluding share based compensation expense from adjusted EBITDA and our other non-GAAP measures. We'll continue to break share-based compensation out as a separate line in our reconciliation tables so investors can see the impact clearly in both current and prior periods. Adjusted EBITDA was $422 million with margins of 28.6% above the high end of our original guide, with and without the share-based compensation exclusion, reflecting volume leverage and the benefit of our cost actions. A few modeling notes. Adjusted corporate and unallocated R&D was $32.3 million in the quarter. Keep in mind a portion of our cost synergy benefits continue to run through that line. Our adjusted effective tax rate was 21.7% in line with expectations. Weighted average diluted shares were approximately $584 million in the quarter and we expect share count to remain broadly consistent throughout the year. Adjusted net interest was $64.8 million in Q1, and we expect it to normalize around $60 million per quarter for the remainder of the fiscal year. Adjusted EPS was $0.36, up 13%, with growth diluted by the increase in shares from the AZEC consideration. As we discussed last quarter, we continue to convert customers as part of our commercial synergy program, and some of those wins involve buying back existing channel inventory. These are investments tied to specific conversion wins, not a reflection of underlying demand, and we'd expect to see these investments continue as we close out more of our commercial synergy pipeline. On costs, we continue to expect approximately 80 to 100 million of cost pressure in fiscal 2027, primarily raw materials, freight, and energy, with roughly two-thirds of that impact in North America. The pricing actions we announced in late April are directly offsetting this pressure and we're pleased with the execution and realization to date. Our raw material cost assumptions have improved modestly, but we're seeing offsetting pressure in freight where elevated spot rates and network dynamics are running above our original planning assumptions. We are actively working on contracting a higher percentage of our freight lanes to help reduce this pressure. Oil prices have moved below our planning assumptions but refined products like diesel have not seen the same relief. We are holding our assumption of 80 to 100 million of cost pressure in fiscal 2027 and we're continuing to watch this closely given the volatility. Separately, the 25 million in annualized fiscal year 2027 savings from our Fontana and Somerville plant closures along with continued HOSS savings across sourcing, productivity, and formulation are tracking as planned. In siding and trim, net sales were $859.8 million, up 34% with organic growth of 20%, ahead of our expectations and led by fiber cement. Adjusted EBITDA margin was 33.5%, reflecting volume leverage, pricing, and continued plant cost savings from our manufacturing footprint optimization work. Sell-through was strong exiting the quarter, outpacing shipments, driving volume leverage, and bringing channel inventory to healthy levels. In deck rail and accessories, net sales were $305.1 million, a decline of 5%. The year-over-year sales comparison reflects the planned channel inventory normalization we discussed last quarter, not a change in the underlying health of the category. Sell-through improved sequentially each month, and we exited the quarter with channel inventory and days on hand at healthy levels. We continue to see strong engagement with TimberTech and AZEK across both legacy AZEK and legacy Hardy accounts, supporting our confidence in the long-term material conversion opportunity. Adjusted EBITDA margin was 27.1 percent. In Australia and New Zealand, US dollar net sales were 153.3 million, up 26 percent with EBITDA margin of 34.9 percent. This reflected strong volume growth, disciplined cost management, and the benefit of FX. In Europe, net sales were 156.4 million, up 15% with EBITDA margin of 19.4%, reflecting continued expense management, improved manufacturing efficiency, solid fiber gypsum and fiber cement demand, and the benefit of FX. Free cash flow in the quarter was $254 million, driven by higher profitability, lower capital expenditures, improved working capital, and a continued reduction in acquisition and integration related costs. As Aaron mentioned, we redeemed $400 million of senior bringing net leverage down to 2.7x on track towards the leverage targets Aaron reiterated. Turning to our outlook for the second quarter and fiscal year 2027. Before I jump in, it's worth flagging as you think about modeling the next few quarters. The distribution changes Aaron discussed create real upside to both the current year and long term and we've built what visibility we have into our guide. The moving pieces here are mostly on sell-in as new and legacy distributors transition at the same time. Given that, we'd expect some quarter-to-quarter noise there over the next couple of periods. Sell-through though, we expect to remain strong through the transition. We'll also incur some costs along the way. Marketing, sales support, and other transition-related investments as we onboard new partners and wind down legacy relationships. Additionally, beginning with our second quarter results, we have fully lapped the ASIC acquisition. So going forward, we will not reference pro forma or organic growth metrics for quarterly comparisons. In Q2, we expect net sales of $1.485 billion to $1.575 billion or growth of 14.9% to 21.9%. We expect adjusted EBITDA of $420 million to $455 million. Given our first quarter performance, we are raising our full year outlook. We now expect sales of 5.564 to 5.723 billion or growth of 5.9 to 9% on a pro forma basis for the full year fiscal 2027. We now expect adjusted EBITDA of 1.536 to 1.625 billion. This outlook reflects the flow through the first quarter performance and the current expectations for the incremental contribution from our new distribution partnerships. We continue to plan the back half prudently against an uncertain macro backdrop. We expect free cash flow to exceed 500 million for the full year and capital expenditures to be approximately six to seven percent of net sales. With that, I'll turn the call back to Aaron.

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

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

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

Yeah. Hey, Brian, thanks for the question. I think many of you know, we've talked about fiber cement coming into this year being our number one priority. And the Q1 results, they're very encouraging. With that said, we're not satisfied. I think that as we think about the, you know, I like to bucketize the three main reasons why we're seeing fiber cement grow, why we saw it in Q1, is I'd really frame it as the execution of our strategic initiatives, the destock comp, and the rest being really price and mix. And let me dive a little bit more into thinking about our strategic initiatives. We've talked a lot about color plus and that being a big focus of ours as we think about really getting after repair and remodel, namely in those areas that have been under under penetrated for us. We've done that with the expanded statement program, which now is live nationwide. We just had two more locations at it in Baltimore and Chicopee, Massachusetts. and then we've talked a lot about the trim over and that being a way for us to really get after vinyl siding and we continue to make really good progress a year into this pilot we continue to see encouraging results in the pilot regions we keep wheeling this out to more and more contractors one of the things that i know you've seen and that we put out there is is really our pro labs which are mobile training centers really to take contractors through what trim over is and why it can be easier for them to install and why they can make more money we've had you know 50 events in q1 and we've done you know we've trained over 1200 contractors out there the other thing that we're really seeing is you know the multi-family business that's about 15 of our volumes that has taken off for us in q1 and then if you look at our growth regions you know areas that we really are concentrated in areas like the Carolinas these are more affordable price point metros they're really running ahead of the the national market the other thing I would say is we've had competitors not able to serve the market We've been able to take advantage of that. So a lot of this has to do with, say, number one, to bucketize it. It's execution of our initiatives. The team has done an outstanding job. The other thing, you know, we talked about the easier comp and then price being the last. So that's how I would bucketize it. As we look at the sell-through as well, and we haven't talked a lot about sell-through, that is something that our teams are concentrated on. It's something that our teams are incentivized on. Our sell-through for fiber cement really accelerated each month, with June being our strongest with up 19%. So those are the reasons, Ryan, why we would say fiber cement is up about 20%. So a good quarter for us, but like I said, we're not satisfied.

That's great. Thanks for all that detail, Aaron. And then my next question, just on the guide for 2Q, the revenue in both segments is well above what most of us were thinking. Any way to parse out the assumptions for sell through and channel load? Any help you can give us to put that in context?

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

Yeah if you think about the Q2 side from a deck rail and accessories perspective you know we're up over 40% year over year Easiest way to think about that is, you know, we did the channel inventory normalization here in Q1. We saw really strong sell through above estimated demand in Q1, and that's continued into the quarter so far that we've seen through July. So you're kind of having an upside due to that. And then there is about a third of it that's related to loading in our new distribution partners. So those are the two major drivers on the DRNA side. And then when you think about siting in trim, you know, as we mentioned, we saw a stronger Q1. We saw a stronger sell through. And from an inventory perspective, we're in a very good position with our channel partners. So we feel confident that that execution will continue in Q2 here.

Got it. Thanks for passing on.

Thanks, Ryan. Your next question comes from the line of Brooke Campbell Crawford with Baron Joey. Your line is open. Please go ahead.

yeah good evening thanks for taking my questions and just the first one on on the implied second half group hello just checking to make sure you can hear me yeah we we got you all right great yeah just checking on the implied second half group EBITDA looks to be kind of down a couple of percent and when you normalize last year's stock comp so just trying to check any specific dynamics there that would sort of drive that Declan, year over year, just given the really strong first half, or is it just, you know, planning for the worst here?

Yeah, look, Brooke, I think as you can probably appreciate, you know, as we look at the full year guide and, you know, the second half, you know, is a sequential step down from H1 is really normal seasonality. The other piece is certainly the uncertainty as we look to the back half of the year. So I think more than anything, we're being prudent as we look at the back half of the year.

Yeah, I think the only other thing I'd add, right, as we announce those distribution changes, there are some costs that we call it out. That is included in kind of a guide right now to the best of our knowledge. So that does have a little bit of pressure there. And then as you recall, you know, DRA seasonally that October through December period is always the lowest quarter. So with sales being down pretty substantially, you do feel some pressure on margin order typically.

That's great and just my second one around the trim over method obviously and doing pretty well with traction there do you mind just providing like a little bit of history my understanding is that's been around for quite a while and you know for whatever reason Hardee's in the past has not really promoted that more broadly across the US so you know was there any sort of risk that previously

Yeah, Brooke, you broke up there and I think we've covered this maybe on a few calls before. If we think about trim over, you know, certainly in some of the areas where Hardy has been around with high production, this type of installed methodology has been around. What we wanted to do is make sure when we brought this out and wheeled this out, you know, from a national standpoint, We took the time needed to test this out fully and it took us a couple years to do that. So we felt comfortable and that's why we see this as an advantage for certain contractors that are going against vinyl. uh again from a trim over methodology standpoint of what it allows you to do is cut down on your labor costs and be able to install Hardy uh you know at a faster rate so contractors can go out there and do more jobs and they can make more money so this has been around this pilot for us that we wheeled out about a year now as I mentioned before we keep seeing success with this and we keep willing it out to more regions of the country

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

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

yeah hey Keith really good question look we're extremely excited about what we announced with Boise and some of the other regional uh distributors look as you know Boise is a scaled national two-step distributor and we've had a deep and proven relationship with Boise with our fiber cement business which was effectively national even before this agreement uh was signed so we're building on a partnership that has What has already been proven that works? We know what Boise can do. We think they're one of the best in the business. The other thing is just moving to a full line exclusive relationship. That's really, you know, three things for us. It concentrates the man behind a single national partner that is now fully aligned with James Hardy. and AZAC and TimberTech portfolios rather than really splitting attention across competing lines. And I think that's really important because we talk so much about our large sales force of having 500 plus people. If you put Boise sales force with that, call it 600 plus people and you put them together, that's a really formidable type of force that's going out there and selling our whole exterior lineup. and look it really pairs Boise's national region logistics with our own downstream demand generation as I mentioned before so we're driving pull through at the dealer and contractual level while Boise's handling distribution but they're also driving pull through as well and look you know I think the the other thing that is is really obvious Boise now has every reason to grow our brands and actively convert volume because their success is directly tied to ours and I think that's the best type of partnership out there so we're really excited about it to answer your question uh who's the game more look we have some pretty ambitious targets joint targets with Boise and we think we're going to be able to continue to grow the fiber cement business and certainly the timber tech business and the azac business is going to be relatively new uh so right off the bat we think we'll see gains there But one thing to keep in mind is we closed on the deal with ASAC. This has been part of our plan. You know, there's a few different chess pieces that we have planned here, you know, since when we signed the deal. This is one of them and helps us be able to grow our business, our collective business and helps us to really accelerate our revenue synergies out there. But more than anything, we think signing with Boise, we think with these regional partners is going to help us service our customers better. And that really is the key point there.

One other question if I may, Siding and Trim had an excellent price mix growth, high single digits. Is that something that you think we'll maintain at that level for the rest of the fiscal year?

Yeah, Keith, the way I think about it, look, we have from Siding and Trim, you know, fiber cement, we're about five and a half from a price standpoint, roughly, you know, the half a point from a mix. And that's really the growth that we've seen in Color Plus. We think it's more of like a three and a half to four type of range when we look through the rest of the year. Okay, thank you. Sure.

Your next question comes from the line of Keith Chow with MST Marquis. Your line is open. Please go ahead.

Thank you. Keith, you there? Keith, I don't hear Keith. Maybe we'll come back to him. Hello. Hello. Can you hear me? There you are. There you are. We must be having some delay. Here we go. Thank you.

Hey, Keith. Hey, Aaron. Hey, Ryan. Thanks for taking my question. Sure. First one, just to follow up, Ryan, on some of the comments you made earlier, I think you said, and please correct me if I'm wrong, but the growth you're expecting in decking rail and accessories in the second quarter, up 40% versus last year. I think you mentioned a third of that is related to movements in the channel. So let's just talk in round number terms, but that's probably roughly 15 million bucks at EBITDA, which leaves you somewhere close to $30 million as an underlying improvement for DRNA. Now, understanding that there is seasonality into that business into the end of the year, so, you know, your uh your september comp is typically september quarter is typically low but then you know that improves into december is it fair to assume that that 30 million dollar ebitda improvement in the second quarter can be annualized going into the full year or is that being way too aggressive

I would probably say that's a little bit aggressive, right? I mean, your Q1 results, you saw the decline driven by the lower sales number and then us intentionally pulling down production and having, you know, slightly less absorption. You know, Q2 kind of gets back to a little bit of a higher flow through due to that incremental volume. So I think you probably need to do more of like a two to three quarter average, just because using 2Q with all that additional volume is probably a little bit too much.

Okay thanks Ryan and then I think at the last result you mentioned you were going to potentially at least try and quantify some of the um the costs associated with all of these distribution changes and you know I certainly appreciate that it's not necessarily the easiest thing to do but on the cost side when you're funding Boise to make some of these changes and potentially some of the other distribution partners what level of costs do you expect to incur uh in the third and fourth quarters for this financial year and Will those costs be taken above the line or below the line, please? Thanks very much.

Yeah, so Keith, what I would say from a cost standpoint, I mean, and also from a sales standpoint, there's a lot of puts and takes there. Best we know, we've embedded in our guide from a sales and cost standpoint.

you know one thing that's a little unique as they call it on the call is if there is a channel of inventory buyback you know we would call that out separate the guide does not contemplate that fully you know as you transition you wait to see how it burns down and what kind of inventory transfers between locations um so that would be something we would call out we did to the next guy if it was material and i know we called it out that if there was any impact in q1 we would let you know it was pretty incredible it was under a million so we didn't call it out specifically from uh some of the synergy wins that we had in the first quarter

Okay, that's great. Thanks. Thanks very much. Thanks, Keith.

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

Well, Aaron, what a way to celebrate your one-year anniversary for the ASAC deal with such strong results. Congratulations to the team. Thank you, Phil. I guess first off question perhaps for Ryan you know you gave us some color for 2Q with some load-in dynamic on decking in particular any more consideration does that have an impact perhaps in the back half in terms of your sales because your implied sales guidance for both decking and siding is flat so I don't know if there was any pull forward that will impact the back half from that dynamic and is the load-in largely just decking is there any siding consideration so just kind of give us some caller on the back framework calling for flat sales.

You think of kind of the loaded in Q2, right? It's primarily on the decking DRNA side. There is a modest amount of fiber cement, but it's a pretty small number. You know, with some of the other distribution partners that we called out this week as well, you know, there will be some loaded in fiber cement that may impact the back half of the year, depending on timing. So, you know, any time loaded happens, right? You know, you can get a little bit of an impact on pull forward, which is why and David Weissman. Thank you.

You know, to kind of flush out some of this noise, Ryan, how you're thinking about sell out for decking or siding for this year?

Yeah, I don't think we quantified the full year amount, but I know when we started the beginning of the year, we said we expected mid-single digit sell through in the DR&A side. And we continue to expect that. I mean, the trend we've seen in Q1 was extremely positive. It built, you know, each month it built from April on throughout the end of the quarter. and then you know we have preliminary kind of July results and uh we continue to see right around that double digit number in July so we fell uh we feel pretty good about kind of the mid-single digits for the remainder of the year on the decking side and then I don't know if you want to hear a comment on the fiber cement side yeah look we talked about Q1 and what we saw from a sell-off fiber cement and you know we said it's nine uh nine percent up and you know our June uh end of June it was 19 percent up so

is very encouraging for us.

Okay and then Aaron you kind of teased about this already on the commercial synergies perhaps coming in better than you expected. I think initially when you guys gave us the framework it didn't count for you know any wins on a two-step distribution with a guy like Boise. You know would that be incremental and is there any way to kind of size up perhaps maybe not just this year like 12 to 18 months out with some of these Moves you've made on the distribution side, how much potential upside you could generate on the commercial synergies top lines perspective?

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

Yeah, Phil, I think we talked a little bit about this last call. Again, I think the customer permission and reception Thank you for joining us today. with a combination of Boise plus the enhanced relationships with new regional distributors. It could allow us to get there faster. It could allow us to achieve the capture slightly ahead of schedule, but we're still comfortable with what we've laid out in terms of total opportunity.

Yeah. Hey, Phil, just to remind you and everyone else, the way we bucketize these when we think of commercial synergies are really national dealers, retail, independent lumberyards, distribution, regional and national builders, and then you're looking at contractors. So those are some of the areas that John and his team are going after and seeking those opportunities each and every day. Okay, appreciate the color guys.

Thank you.

Sure. Your next question comes from the line of Peter Stein with Macquarie. Your line is open. Please go ahead.

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

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

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

Yeah certainly just for all of you on the call our Hardy operating system is really our version of lean and so that started out with our manufacturing plants and has really extended to other areas you know areas like procurement we think about formulation so we have a target level of savings that we go out and get after uh you know every single year that is on track um you know everyone is involved in the Hardy operating system but really Ryan Kilcullen who who leads our operations uh spearheads that for us and our plants are running extremely well uh even when we saw lower volumes they ran well and as you can imagine getting more volume has helped them to run even better so we continue to see progress there as we think about synergies and around cost synergies and some opportunities we have. We've talked for some time about really implementing the Harvey operating system within the legacy ASAC plants. So Ryan and his team have done that and we're already seeing really solid results. When we think about efficiency, when we think about downtime, that's been something, even though those plants ran well, now we have a unified system across our entire network.

Thank you, Aaron.

Thank you. Your next question comes from the line of Tim Voyish with Baird. Your line is open. Please go ahead.

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

Yeah, Tim, we'll hand that over to John to answer that.

We're already in the process of doing that. And again, we expect that curve. and we leveraged that knowledge, got trained on the timber tech value proposition and that enabled us to move very quickly and drive really strong growth with that conversion. So we expect us to see that again. Some of the other regional distributors that we've taken on that will add fiber cement siding There'll be a similar training process around game-starting value proposition and then the joint sales targeting from the commercial organizations, joint marketing across the marketing organizations to drive that downstream pull-through demand.

Okay. Okay, very good. And then, Ryan, just on the cost inflation, I think the 80 to 100 million is the same as it was last quarter. How much of that did you did you feel in the first quarter and how much is baked into the second?

Yeah, we probably felt probably I don't think we qualified it, but I would say 20 to 25 million in Q1 and mainly on the freight side there. Right. So a lot of the raw materials would be hung up on the balance sheet just the way the inventory is brought in. But from a freight perspective, that was immediate. And as you see, even when rates come down, freight doesn't drop fast. So that was kind of the major driver there. I mean, we have seen a little bit of relief on the commodity and actual raw material side. But as we call it out, the freight piece, you know, we're running at a higher volume. And then there is some general discrepancies in the freight market right now. So those spot rates are higher than normal. So we're working actively to try to contract more of our freight lanes under contract versus spot. So we do actively work that kind

OK, great. See you guys in September. Thank you. Thanks.

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

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

Yeah. So in the original guide that we would have released at fiscal year end there, it was about 50 million of shared base comp. You know, I think in Q1 we got out about 15 million. So I think you could probably use that kind of as a run rate based on the current valuation of the stock. So I think that I would kind of plan on it as that annualized from Q1.

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

Yeah, I mean, it's embedded in our guide. I mean, I think the way to look at it from a four year standpoint is, is we took our B and we rolled that forward. And then we kept the back half relatively flat, if you will. And you know, the other piece of that that you see is going to be the puts and takes from the two step distribution changes.

Got it. Thank you very much.

Welcome. Your next question comes from the line of Matthew Booley with Barclays. Your line is open. Please go ahead.

Hey, good evening, everyone. Thank you for taking the questions. Questions on the kind of balance of sort of your own organic growth initiatives and then the commercial synergies. So basically, where are you on those commercial synergies in the first half of the year, Q1 and Q2? I know you kept the full year at 125 and said there might be some Some upside, but if I'm kind of rank ordering them, I guess when we look about your growth here relative to the market, commercial synergies, some of your initiatives like Color Plus, Trimover, etc. What do you think is kind of the most powerful couple of drivers that are leading Thank you.

Yeah, great question. Look, we haven't given exactly what those commercial synergies are, you know, quarter by quarter, as you can imagine, and John talked a little bit about this. They're fluid as it relates to when they happen. I mean, what we can reaffirm is, you know, the $125 million exit run rate, and certainly we think there could be possibly upside to that. So from a commercial synergy standpoint, you know, that's how it would have talk about that as far as how we bucketize you know what is having the greatest impact you know i mentioned for q1 a third a third a third you know basically of three different buckets and that's strategic initiatives you know obviously we we had a little bit of help from the comp from the d stocking and certainly then price as well uh but we really are seeing strong execution on our initiatives particularly in fibrous cement around areas like color plus we mentioned the expanded statement collection which is just getting started we talked about the trim over and these are things yes we're seeing the benefits in one quarter uh but these are sustained growth items for us as we think about our strategy moving forward got it okay no thank you for that Aaron um secondly uh

you know given you know what you just guided for Q2 and and your comments about inventory and it sounds like that there's um this is probably didn't really happen but my question is on often in this industry when you have price increases you might see some pre-buys and things like that and so just you know given you had a couple uh price announcements during the quarter there did you see any kind of unusual inventory swings uh related to that thank you yeah we really didn't and and we're sitting i mean broadly speaking i mean i can say this across our segments we're at a normalized inventory level absolutely all right great thanks guys good luck thank you thank you

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

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

yeah as far as from a dollar volume standpoint i mean we would say it was roughly you know 40 to 50 million dollars from a destocking standpoint and when we talked about our growth in in fiber cement we talked about those components you know really being roughly you know a third a third a third of that type of 20 percent growth okay great and then uh just another one just in terms of the definitional changes to adjust the EBITDA

in relation to the old FY27 guidance. Can you just confirm, was that under the same definition or is the definition changed in this new guidance?

So the original guide included stock based comp in our adjusted EBITDA. So now it would be excluded moving forward. So I think the easiest way to restate the original guide would just basically add 50 million of stock comp back from the low to the high end of the guide at every point. So that would be the major change. I think given where the stock value is today, you know, some of that will go up a little bit. And that's why I think we realized about 15 million in the quarter. I think annualizing that's a safe bet for the remainder of the year. But that's the major change. There was about $50 million you could float through at any point in the guide.

Okay, good. Thanks, guys. Thank you.

Your next question comes from the line of Raif Yadrasic with Bank of America. Your line is open. Please go ahead.

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

Yeah, I would say the major piece is, you know, we called out the freight issue that we, you know, we're seeing on the spot rate kind of just availability. The other piece is really just driven off of investments in these distribution partners. You know, that's everything from sales to market activity to ensuring the right, you know, like great setups there. So that's the major driver there. And then, you know, as the back half, as we said, right, I mean, Q3, that October to December period is always the lowest from a DRNA perspective. So

you know as it is like with volumes up the flow throughs are still a little bit higher you're not investing at the same rate these investments kind of hit us from Q2 on so that's why you see that partial decline okay that's helpful and then following up on the decking and railing the sell through up double digit you call that a shelf space taking some incremental shelf space can you just give a little bit more color on where that's happening It does look like there's been some placement at Home Depot. Wondering if there's been more expansion at retail or if there's specific channels where you're seeing that. Thank you. Yeah, we'll let John answer that.

So what you see is in the quarter, that's prime season. And so we landed a lot of additional shelf space gains during last year's early buy season. And so what you're seeing is that's when you actually get those conversions, right? That's when you place the inventory into the channel. And then once you drive the So there's new gains in addition to the core business which continue to operate at a very high level. That's what led to some of the outperformance itself through core business performing and then pulling through the product at the gains that we got through early by is what drove that double digit.

Okay.

I think that's, thank you. We have reached the end of the question and answer session. Thank you for attending. You may now disconnect.