Right. Well, good morning. I'm Anthony Pettinari, Citi's home building and building products analyst. We're very pleased to welcome from The AZEK Company, Peter Clifford, CFO, and Jon Skelly, President of the residential segment. You know, Peter, Jon, thank you for joining us. I think we'll jump, you know, right into questions. Certainly, you know, if anyone in the audience has questions, please jump in. Peter, can you start off and maybe talk about recent demand trends and maybe the sell-through that you've seen in January, February? Yeah. Consistent with our earnings call in December, you know, the sell-through environment's been really steady the last four or five months. It's been a continuation here into January. You know, that just in theme and pattern has been on a reported dollar basis, you know, modestly positive, and then on a unit basis, modestly negative, kind of down mid-single digits. When you think about sort of dealer destocking that you saw last year and sort of the restocking into the spring season, any way that you'd sort of characterize the, I don't know, dealer appetite to restock initially? Yeah. I think it's kind of bifurcated, and Jon can weigh in here as well. You know, with a lot of the dealers that might be publicly held, you're seeing a focus on cash and folks probably being a little bit more conservative and leaning more on the distributors' total inventory in the season. Then I would say, you know, for the independents, many of them that have been through many cycles, are not bothered and looking to hold, you know, inventory at kind of more traditional levels. On pricing, I mean, you've had two, three years of strong pricing with a number of pricing actions. Can you talk generally about how, you know, the approach to pricing and how pricing's held up in maybe a somewhat more, you know, soft demand environment? You know, we put out on our planning assumptions that on a full year basis, you know, we were looking to see probably four to five points of price realization on the year. Obviously, most of that is really heavily skewed to the first half of the year, as it was all carryover pricing from 2022. You know, out of the gates here, we said on our last call, we really haven't seen anything non-traditional in terms of the pricing activity in the first quarter, and nothing that would cause us to think about our planning assumptions any differently on sort of pricing for the year. We've been resolute. We don't expect list prices to move or change. You know, again, we're not seeing really anything meaningfully different on what we would call our gross margin. Outside of kind of, you know, near-term cost fluctuation, which has obviously been pretty intense over the last few years, is there a way that you think about sort of the long-term price trajectory for your products? Yeah. I mean, I think at the end of the day, this is a sector and a space that, you know, on an annual basis, we should be able to push a modest price increase to cover our merit increases and benefits inflation and those normal things. Right. Apologies if I missed this, but the level of price cost carryover that you expect for this fiscal year. Yeah. On a full year basis, it's about 4% or 5%. 4%, 5%. Got it. Got it. Then just maybe stepping back, as you think about your full year guidance, can you talk about some of the kind of underlying assumptions for the full year guidance? What could get you to the higher end? Yeah. At a macro piece, you know, our first assumption was, look, we've only got about 15% of our portfolio that's got exposure to new starts, and that's in the exteriors business. For that 15% that's got new housing starts exposure, our assumption was roughly down 15%-20% on that piece of the business. On the rest of the exteriors business is more R&R exposed. Our assumption was about double-digit down. Then we had our deck rail and accessories business at kind of down high single digits. Then, really our commercial business, which is about 10% of the portfolio, we had pegged at about mid-single digits down. In terms of the cadence of earnings between the first half and the second half is. Yeah. You know, the full year assumption of sell-through being down 10% on a uni- unit volume basis, that is consistent for the year. There is some noise created by sort of the inventory lapping with the fourth quarter of 2022. Net-net with the destock in the first quarter, we had kind of articulated about $85 million of negative volume pressure in the first quarter. We gave a range on the second quarter, the midpoint's about $65 million of headwind to volume. We would be modestly negative in the third quarter, that would be balanced and offset by the fourth quarter volume being positive. Again, the fourth quarter volume being positive is not a market assumption. That's really just the comp to the prior year where we took out a lot of inventory in the fourth quarter of 2022. Back half of the year volume, both on a production basis as well as sales volume, is approximately flat. Right. Again, kind of leads you to almost the entire volume, impact for the year is in the first half. Got it. Got it. The, your margins in the back half of the year exiting the year should be quite strong. I don't know if there's a lot of moving pieces there, but Yeah, there's actually only a couple elements. you know, if, you know, we didn't give a full year guide. We, you know, we gave our planning assumptions, but enough details that most folks would kind of correlate around the implied back half of the year of around $730 million and around $180 million of EBITDA, which is about 25% kind of quality of earnings. you know, the key and the levers to kind of walk from the first half to the back half is three things. first, we've got about $30 million of deflation, that begins to roll off the balance sheet really in month six. Almost all of that $30 billion is in the second half of the year that wasn't in the first half of the year, due to our balance sheet lag. Second one is, you know, production levels in the first half of the year are meaningfully down. I think we said on our call we were down about 47% in the first quarter and recovered modestly in the second quarter, but we'll still be down 30%+. There's a lot of period expense on the manufacturing side, due to that underutilization. That's about $20 million in the first half that doesn't reoccur in the back half of the year. The last piece is, you know, we had announced or communicated on our year-end call that the accounting change we made on inventory estimates would bring about $8 million of one-time cost in the first half of 2023. Again, that doesn't reoccur in the back half of the year. Lastly, again, it's not a market piece, but more of the seasonality of the business is there's about approximately $130 million more of revenue and in the back half of the year than the first half of the year, just given our third quarter being the main season. Got it. Got it. Can you talk about the Boise facility and you brought that on, you know, probably have some spare capacity there in terms of your strategy there and kind of how you go to market? Yeah. You know, I think, obviously that was a decision that you make three or four years out when you're gonna do a greenfield or a brownfield, new facility. You know, for us it was a reflection of the confidence and sort of the, you know, the eventual long-term opportunity in the space. Obviously it coming online at a time where there's a bit of destocking in the sector has made it a bit more painful. You know, when I think about Boise and the opportunity, if you think to 2024, you think to 2025, there's a tremendous opportunity to leverage that facility and get productivity out of it. Obviously, I had the start-up costs in 2022, which were about $8 million-$10 million, and you could really think of a lot of that underutilization in the first half of the year and the $20 million is largely, the Boise facility. For me, it's a huge tailwind as I think about 2024 and 2025 is if we get modest recovery in volumes in those years, I can probably cut my cost per pound in Boise by at least half, if not two-thirds. Yeah. It really gives us a tailwind to 2024 and 2025. Obviously, you know, some of the areas of the country that are under-penetrated just from a composite perspective are out west and in the northwest. It was critical for us to kinda have that manufacturing capability geographically out west. Can you talk a little bit about your exposure to pro and DIY channels, sort of where you sit versus the industry and maybe the commercial strategy in terms of growing, you know, both of those? Great. Yeah. Jon, you wanna? Yeah, sure. I mean, pro's always been the historic strength of the business. You know, within decking, we're equal to or probably a little bit, you know, larger from a revenue perspective versus, you know, the competition. There, you know, from a retail perspective, it's an area where we've been under-indexed, you know, historically. We've chosen a methodical investment approach around that business. If you kinda look over the last five years, retail's gone from about 5% of the business to now 10% or 11%. Steady, you know, increase in opportunity there. We see that continued opportunity in retail. We'll continue to invest against it and grow that as part of our share, while continuing to grow, you know, our core presence. you know, you had talked about the, you know, the core remodeling exposure is obviously much bigger than new residential. Are there any initiatives to grow new residential or is there any kind of like, you know, mix that you're thinking about or initiatives to? Yeah. Yeah. We have a number of initiatives with our sales and marketing organization. We do, you know, we do have, you know, a separate team that focuses on what we call the builder channel. You know, just that's a lot of core blocking and tackling on a regional basis. If you think about these national home builders, they don't actually make decisions on a national level. You have to sort of go market by market. We have dedicated teams, you know, focused on growing our share, you know, with those. You know, we participate pretty meaningfully around multifamily. We again, we have dedicated efforts around, you know, expansion, you know, within that channel. We have a real dedicated focus around the architect who, again, will service multiple aspects, whether that's a commercial opportunity, a custom build opportunity, or even a, you know, some of the architects who manage, again, the more production-style builders. Dedicated focus and efforts around growing our business in each of those channels. You know, coming out of the pandemic, you tend to see, especially with more of the production builders, the good category of decking being more important there as we kinda convert from historically what has been wood decks to our types of materials. That was an area that we had to constrain, you know, during the pandemic. We used more of our supply to be more towards our mid to upper tier products. Now with the additional capacity, with the availability of Boise, we're gonna have the capacity to be able to more aggressively, you know, use some of those more entry-level products to attract some of that business. You know, your biggest competitor I guess, is wood, but, you know, within the composite space, can you talk about competitive intensity? You know, you have a large publicly traded peer, and then maybe some second-tier players. I'm just wondering how that's changed. Competitively, as you stated, you know, the huge prize is wood conversion, right? I mean, we have dedicated, you know, focused efforts around driving that conversion, and we view that as the largest opportunity. Typically when we look at, you know, where our share gains are coming from, it's from there. In terms of our overall, you know, competitive, you know, positioning, the first place we're gonna differentiate ourselves is from a product perspective. We believe and have had external validation in terms of our aesthetics, right? I think, you know, we have a strategic advantage in terms of the look and the beauty of the product being most like wood. We're gonna sort of lead with that from a product perspective, and then we're gonna back it up with warranties and quality that our consumers demand. We have amongst the competitive set, we're unique in having two types of decking technology. We have both the capped composite, which is similar to our competitor, and then we have market leadership around our PVC products, which those are the most premium products in the market with the highest aesthetics. They're lighter, they're easier to install, they don't hold as much heat. There's some inherent product advantages, you know, with that technology. We have a little bit broader exposure than other competitors in terms of, you know, a very, you know, nice growth profitable exteriors business that complements our decking business. We're able to, you know, service a broader addressable market both through our decking outdoor living business and our exteriors business. That gives us a, you know, further differentiation. Again, we try to couple that with a very focused downstream effort. One of the things that we do a little bit differently, we invest a lot in feet on the street to drive pull-through demand. You know, working through the channels, working through distributors, retailers and dealers is important. Ultimately, we have a lot of focused efforts on getting more contractors to use our product and getting sticky with those contractors. That's a really important part to what we call the ground game in the business, which helps us grow our brand and grow our presence across the U.S. and Canada. You mentioned this, but can you touch a little bit more on the recycled content goals and to what extent that could be sort of a tailwind going forward? Yeah. When we think about, you know, the three kinda key components to recycling, right? On the capped composite side, we use, you know, nearly 100% recycled product in the capped composite product. Our opportunity there is really to move to lower cost recycling materials. You wanna think about, you know, our content right now is about 50% high density and 50% low density. We expect to exit this year to probably be middle of the fourth quarter, for us to kinda take that next step, in terms of content of that 70%-75% LD. We feel like, that's gonna provide a nice tailwind, additionally to margins in 2024. On the PVC decking side is the next kinda element. You know, it's not really about innovation, it's a continuation of iteration. We've been really good over the last several years at kinda taking four or five points of content up each year. We didn't officially publish a target for 2023, but you could think of 4% or 5% as probably a reasonable expectation for us. We entered this year at about 60% recycled content on the deck side for PVC. Again, we would think of that, you know, that target or that progress opportunity, you know, consistently over the next couple of years. We don't view entitlement as 70% or 80%. It's probably closer to 85% or 90%, and that's where we would eventually be trying to get to. Then the third piece is relates to our exteriors business. What's unique about the exteriors business and the product there is it's not capped. Obviously our decking products are capped. You don't really have any issues with the color of the recycled material. You can use any kind of PVC pretty comfortably and easily. The nuance for exteriors is it puts a focus on our ability to source pure white, you know, high quality recycled materials, which we've been doing aggressively. That's kind of the key there for us. We're in the 30s from a recycled content. The next milestone, not entitlement is, you know, get closer to 60 over the next couple of years. We're excited about the progress, you know, not only from the margin perspective, but I also say, you know, recycling is our best buffer against inflation. Obviously, it's critical to our sustainability story. you've had some partnerships to increase collection rates or getting recycled content. Yeah. You know, we think of recycling in kinda four swim lanes. You gotta source it, you gotta convert it, you gotta formulate it, and then you gotta embed it in your manufacturing. You know, in all four swim lanes and platforms for us, you know, we probably have never been better positioned. You know, we're constantly out finding new sources. I would say the bulk of our on the PVC side, you know, we're I think probably the only vertically integrated PVC recycler in the United States. So you know, we've got many, many relationships on post-industrial kind of scrap. In the last year and a half, we've been pretty aggressive on partnering on construction and demolition. You know, as well with the most recent partnerships announced, we're willing to find sources wherever we can to bring in high-quality PVC materials. You know, again, from a capacity perspective on our ability to convert, we're in really good shape. Obviously with the capacity that we have now on the manufacturing side, it really supports us to go even faster on both the formulation as well as the manufacturing inclusion. You know, you talked about wood substitution and maybe just taking a step back. I mean, you were seeing, you know, very strong growth and composite decking was seeing very strong growth, you know, prior to the pandemic. We had the pandemic and, you know, maybe pulled forward some demand, and you also have a record volatility in terms of lumber, you know, swinging high and then coming to back down and then going up again. Like, how do you think about sort of the underlying demand for composite decking and sort of, you know, exiting the pandemic? I guess the two questions are, you know, you talked about some goals at the Investor Day last year. If you think about trend growth for composite decking, and if we're sort of if we've lapped sort of the pull forward for the pandemic. On the lumber side, like when lumber was, you know, $1,500 versus, you know, $300, do you see like a real meaningful pull or is it just too noisy to impact? Yeah. Two bites there. You know, first on the, you know, well, let's call it the normalization or we reverted back to the kinda trend line. You know, one of the areas or ways that we've gotten kinda comfort on the business kind of resetting back to kind of more traditional level is, you know, we've looked at the decking business since the end of 2019 through the end of 2022. That would've included the vast majority of the destock. Really the growth rate, ex price, ex M&A on the decking side was about 28%. Obviously a CAGR of about 8%, which is kinda in line with how we've always articulated kind of the growth stack and the opportunity from an organic volume perspective. We do believe we've reset back to the trend line. Obviously this year is more of a macro issue. Your second question was on just kind of impact of wood prices as a general statement. Two things there, and Jon can weigh in here as well is one, as we've been under indexed a bit in retail, we've probably also been under indexed at the opening price point. Maybe arguably even a little bit in the good category, as our products have always kind of skewed more to the better, best and premium. That's where your consumer is more sensitive to price and probably the price of wood has played. I would kind of say we haven't seen that or felt that because of that nuance of our coverage. Second thing is, and this surprises many, I think we feel strongly in the business that actually wood prices being lower are a good thing for our business and a good thing for the industry in general that, you know, 25% of the cost of a project is the infrastructure underneath the deck, which is primarily wood. As wood comes in, it lowers the total cost of the project, which we think helps do more projects at a minimum or in certain cases probably allows the consumer to upsell or mix up in terms of the composite deck boards that they might pick on a project. Kind of rounding out the portfolio. I mean, you have a much smaller commercial business. I don't know if you can talk about sort of the drivers and profitability there and sort of maybe long-term thoughts on the business? It is about 10% of our portfolio. A lot of time has been spent over the last two years, kind of improving that business. We're proud of what the business is doing and the results that it's delivering. You know, we've kind of said long- term, we think it's probably about a 20% EBITDA business. It's been a little bit higher than that, but that's probably the right trajectory that's sustainable long- term. In the very near- term, some of the industrial markets that they serve are seeing the lag of sort of destocking hitting them now. It wasn't really pronounced in our 1Q results, but we do expect a little bit of choppiness in the second and third quarter. You know, again, the good thing is it's 10% of business. When we talk about, you know, channel destocking on the commercial side, it's, you know, $2 million or $3 million a quarter, not tens of millions. We kinda said on our call, you know, that if you said, you know, anything that's different in the full year planning assumptions, it's one, probably the residential's a little bit stronger than we anticipated. Two, I've got a little bit more deflation than anticipated. Three, you know, the commercial business is probably gonna be closer to 10% down, not mid-single digits. Whatever, you know, challenge we have there, you know, I'd probably use my deflation upside to offset. Yeah. Yeah. Can you talk a little bit about the capital needs of the business? I mean, you're coming off, you know, a big project in Boise. Yeah. We're really excited about, you know, free cash flow here this year and obviously even into next year. Our business is seasonal, you know, so we tend to be consumers of cash in the first half of the year, tend to generate all of our cash in the third and fourth quarter. As you look specifically at 23, we participated modestly in the repurchase program in the first quarter. We are sensitive to, you know, our leverage targets. You know, kind of said we'd really like to maintain a sort of two to 2.5 times. We certainly appreciate giving the macro, having a pretty strong balance sheet. I think in the second quarter, we kind of said just given the fact that, again, we're a consumer of cash in the second quarter, and our leverage ratio is probably gonna be at the high end of that 2.5, 2.6, that we probably won't participate in a meaningful way in the second quarter. With the profitability and cash flow in the third and fourth quarter, plus the $40 million of inventory we wanna take off the balance sheet year-over-year, that we would look to participate a lot more meaningfully in the third and fourth quarter. Is there kind of a free cash flow conversion target over the cycle or a way to think about that? You know, I think you'll see us next year, when we give our full year guide, that we will probably speak to an operating cash target or a free cash flow. In terms of the uses of cash, you had the StruXure acquisition and I think a few smaller bolt-ons. Can you talk about, you know, what that brought to the portfolio and then, you know, maybe financial criteria targets? Yeah. You wanna take the strategic fit? The strategic fit there is again, if you look at some of those core criteria, you know, that we talk about around the business. You know, wood conversion, you know, sustainability, high performance, high aesthetics, you know, that's what you get with somebody like a StruXure, right? They're, they're replacing, you know, wood pergolas that rot over time with a, you know, aluminum which is up to 50% recycled automated, you know, solution. you're taking an outdoor space, and you can turn it into an indoor space if you want, by closing the ceiling. All sorts of upgrade options in terms of heaters, lighting, televisions. I mean, you can really create a, just a beautiful, you know, outdoor living area, you know, with that product. It's incredibly complementary to our deck rail and accessory, you know, portfolio. It really is, you know, best in class in terms of, you know, their capabilities, their aesthetics, their brand. It was a, you know, just a really natural, you know, strategic fit, you know, for us. You know, the other acquisition we completed last year was INTEX. What that brought, you know, to us is a PVC rail solution, to complement our existing aluminum and composite rail. It's made out of the exact same material as the rest of our exteriors business. It just provides, you know, a really nice, you know, match, really nice pair with our exteriors portfolio. You know, we have the ability to offer a more broad portfolio around exteriors things. If you look at, you know, how you might use our trim around a garage, they make trellises out of our PVC material. They make, you know, different types of infills, custom infills for our railing, you know, solutions, you know, different types of brackets. There again, if you look at a lot of those exterior accent pieces on a home that historically have been made out of wood, we now get to convert that to our long lasting, you know, material, again, with that high recycled content that Pete talked about, you know, 30%, you know, going to 60%. Outdoor living and exteriors, you know, very, very close to the brand. You know, same technology in the manufacturing plants that we use, whether that be, again, plastics extrusions or aluminum extrusions. Trying to keep it really straightforward, really simple. It's just a great tool for ultimately for our contractors. Our contractor is engaged, you know, with the homeowner, out on the job. Okay, we've talked about your deck, we've talked about your rail. Would you consider putting a pergola on top? Are there some accent pieces, you know, that we could add? It just gives, you know, our contractors the opportunity to have a broader portfolio that they get to offer to that end consumer. Just, you know, from a criteria perspective, you know, just some of the other keys is obviously, you know, we're not looking to buy anything that's gonna be dilute to our residential kind of growth rates. You know, we're not naive that there aren't a lot of high growth, you know, 30% plus EBITDA companies out there that are selling at reasonable prices. That said, we're not looking for fixer uppers. I think, you know, things that are kinda mid-teens or better that we feel like we can actually get to above 20% EBITDA pretty quickly, you know, just with our our synergies and capabilities. Those are things that we'd be interested in. One question that we received was, you know, you talked about being maybe under-indexed to good and maybe over-indexed to kind of better best. You know, with a maybe inflation stressed consumer, are you seeing some level of sort of trade down within your own portfolio? Then as you think about sort of the broader universe of kinda remodeling products, categories, you know, how is the consumer sort of prioritizing, you know, decking and exteriors versus other kinds of projects? Yeah. Just first on sort of any mix down, we haven't seen any meaningful mix down during this year. You know, strangely, as we, you know, mentioned it, you know, the entry point products were what we didn't serve very well with capacity constraints. As we've kinda had that opportunity this year, you know, it's almost like a share pickup than necessarily a mix down. It's been kinda additive. I mean, and I think it's, you know, we're You know, again, we talked a little bit about, you know, the builder opportunity. You know, I think it's also important in the retail environment. We're pretty excited about the fact that we can actually sell the full portfolio, you know, with our higher service level and with our capacity. That, you know, that's positive for us. In terms of, you know, what we've seen, what we're seeing at the ground level in terms of prioritization on repair or remodel, consistent with what we talked about, again, we're seeing that steady sort of sell-through rate. We're seeing, you know, steady backlogs amongst our contractor base. We have not seen at this point any sort of reprioritization, you know, from the consumer from, you know, inside the house back to, you know, outside the house to the inside of the house. You know, we've seen, a nice level of consistency, you know, in terms of, a backlog and, you know, from our dealer surveys and from our contractor, you know, surveys, you know, again, it was, I would say, you know, slightly more optimistic this quarter than they were last quarter. You also look at, I guess web traffic or web hits on the site. Those have been encouraging into the spring. Yeah. Again, we look at both our internal, you know, metrics which are important, but then we just look generally speaking on, you know, just how many people, you know, type composite decking into Google, right? And, you know, unaided and you're continuing to see, you know, positive, you know, strength, and year-over-year growth, you know, on those, you know, just general parameters, right? So, again, we're early, we're early in the season here, right? You know, we're up three points in the first quarter. There's a lot of year to go. Just in terms of, you know, what we see from our surveys, what we see from our dialogue with customers, what we see from, our web traffic and overall, you know, web traffic, you know, those kind of leading indicators, you know, continue to, you know, to point towards the stability that we've been seeing in the sell-through. Great. Any questions from the audience? One question we're just asking all of our companies in terms of, and I think you've spoken to a few of them, but in terms of, you know, your exposure to mega trends or secular trends that could, you know, really reshape the, you know, the consumer over the next decade, you know, what do you think is most important for AZEK? To the extent that anything is sort of underappreciated about AZEK or about those trends and how they sort of maybe potentially benefit you. Yeah. I mean, the clear one, the obvious one for us is wood conversion, right? I mean, that's a core part of our strategy. It's a core part of our story. You know, again, if you just follow, you follow siding, you follow exterior doors as fiberglass, both of those product categories went through the exact same conversion rates. Now they're both sitting there and, you know, and, you know, 10%-15% of the market is wood and the rest is composite. You know, we're completely flipped over roughly, you know, 75%, 25%. That's just a core part of our purpose and our mission is to convert that as quickly as possible. You know, we do we also see, you know, technology is, you know, could be a key driver of business. That's when we look at somebody like StruXure and say, "Okay, you know, they're using technology to make a homeowner's life better," right? They're giving them a better solution. And there's a lot more that we can do around that in terms of having it be, you know, connected, you know, to the home, you know, via technology, right? Today there's rain sensors and temperature sensors where the, you know, the ceiling will automatically open or close, or the heater will, you know, will come on when it gets down to a, you know, a certain level. There's a lot of things that people can do with integrated lighting, both in the pergola around the deck, connected to the pool, where you can connect it, like, you know, to an application, on your phone or iPad. You know, we see, we see the opportunity to, you know, not only have, just beautiful products, but also to, you know, get more integrated over time with technology. Can I just add, I think, you know, one of the benefits that's permanent from the pandemic is the way people value their home and their outdoor living space. Even as people, you know, return to a hybrid model, there's still a lot of people working far more from home, and it's just placed a different value on the outdoor living space that's permanent, in my opinion, and I think that's gonna be something that we're gonna benefit from for a long time. Great. Great. Well, Peter, Jon, thank you. Yeah. Yeah. Appreciate it. Okay.