Guys, I'm Phil Ng, Jefferies Building Products Analyst. We're delighted to have the AZEK team here. Representing the company, we've got Pete Clifford, the CFO, Jon Skelly, who heads up the Residential segment, obviously the big growth driver for the company. Well, I guess to kind of kick things off, guys, the R&R market's been challenged this year, given, you know, existing home sales being under pressure, and rates are still pretty elevated. You guys have put up pretty impressive growth backdrop with sell-out actually growing. Just kind of walk us through what are some of the key drivers in terms of your ability to kind of grow in this environment, and perhaps actually even grow a little faster than your peers? Sure. Thanks for having us. So, you know, first and foremost, at a macro R&R level, we've seen more resilience in our category in outdoor living. And so we've seen a more consistent backlog environment with contractors. We've seen a lot more consistent engagement activity with consumers, you know, through our various digital channels. And it seems that the overall investment and spend in outdoor living as part of the R&R category has been stronger than, you know, perhaps some of the interior sectors. And so we've complemented a slightly better, you know, performance than we expected with our end markets with our growth drivers, our share gain activities. So, you know, we've been successful in driving, you know, shelf space conversions in the pro channel and the retail channel. You know, we've been successful with the launch of new products, and just continuing to drive, you know, wood conversion at an accelerated pace. So, between slightly better, you know, performance, you know, from a repair and remodel standpoint in our sector, and then our proven growth drivers, that that's led to the results that we've we've been talking about on our earnings calls. Super. On some of these initiatives that AZEK led in terms of increasing your penetration in the channel and in some of the new products, can you expand on, one, how that ramped and where you're just finding some inroads, and what's driving that? I mean, what are some of the great things you guys have done to kind of pick up share? Yeah, so certainly it starts with the quality and aesthetic of the products. So we're continuing to bring to consumers, you know, products where they don't have to compromise. They can get the low maintenance and long warranty of a composite product versus wood, but they get the natural, you know, beautiful wood look. A couple specific areas, you know, during the pandemic, we were at capacity, there were parts of the market, particularly entry-level, which we weren't able to service. So we've had, you know, good opportunity to go back and take some of that share we weren't able to service with the additional capacity that we've had in the business. That's certainly been helpful. We've been under-indexed in the retail channel. We've been successful in growing our share in that end market. And then just, you know, continuing to execute against our downstream demand initiatives, right? We've been growing our brand in the pro channel. We now have the strongest professional brand in decking. We continue that expansion in terms of consumer awareness and education to drive wood conversion. So again, it's that the combination of, you know, taking additional shelf space, pulling through the product, creating additional demand for the product, that's driving the results. Super. I think recent months or weeks, we've seen some signs consumer is weakening. Any, you know, intel internally, whether it's digital engagement, what your customers are telling you in terms of any choppiness that you're seeing out there or slowdown? We would still categorize demand as stable. So again, when backlogs, digital engagement, you know, quote activity at the dealer level, you know, we've seen stability, you know, there through season. That stability has continued. So we haven't, at this time, seen any weakening in those factors. So we're still, you know, in a position where, again, we're gonna categorize demand as stable from what we've seen, you know, throughout the beginning of the season. Okay, super. In recent weeks, concerns that rates are gonna stay higher for longer, and then your stocks obviously got hit with the broader group. In a higher rate environment, and existing home sales perhaps being more challenged, do you have enough AZEK company-specific and industry levers to drive growth in 2024? Sure. I mean, you know, as we've talked about before, Phil, I mean, we think that we can consistently outgrow the market, right? So we've walked through our growth algorithm, you know, it starts with repair and remodel growth. Repair and remodel, historically, highly resilient. Over a 10, 15, 25, 30-year period, you see, you know, pretty stable, you know, 4%-6% R&R growth. That we have seen a weaker environment for that this year, but again, we've been able to outgrow that through wood conversion and through initiatives, right? So that growth stack provides us opportunities to continue to grow this business regardless of where while stable, wherever R&R, you know, shakes out. So that's been beneficial. You know, within the interest rate environment, we're much more R&R levered as a business. It's the vast majority of what we do. And within that, not a lot of deck purchases. Our data suggests that it's you know roughly around 10% where people use financing for an outdoor remodel project. So financing is not you know a huge driver of activity within our business. So we're not obviously immune to interest rates with our exteriors business is more of a 50/50 split between you know new residential and repair and remodel. But again, we're a bit more insulated than if we were completely levered to new housing, which is obviously highly dependent upon interest rates. Gotcha. A question for Pete. When we think about this year, you've had some headwinds, whether it's a price cost, curtailing production. When we look out into 2024, what are some of the levers you have that could be a good guide and perhaps maybe appreciating some things that we should be mindful that potentially headwind? Yeah, so as we've talked about on the last two calls, we have some kinda known tailwinds to 2024. First one being, look, in the first half of 2023, we had a significant amount of underutilization as well as an accounting change impact. That collectively was about $20 million. That won't reoccur next year, in the first half of the year. And then secondly, we've talked about, you know, we would see about $50 million of deflation in 2023. About 30 of that would roll off the balance sheet and hit the income statement in 2023, and $20 million would sit on the balance sheet at year-end and roll off in 2024. So there's about $40 million, kinda line of sight, to upside year-over-year results. Now, in fairness, we haven't really finalized yet what our investment profile would be against that $40 million, but, clear line of sight to, again, about $40 million worth of one-time stuff that should benefit us, in 2024. As far as pricing, it's a little early to talk about pricing for 2024, but I would say, look, we're heading back to a more traditional pricing environment, after two years of pretty significant inflation. Is your view that, I mean, once again, you guys offer a high-performance product, whether it's your exterior or your composite decking business, that you should get a little pricing every year? Yeah, I think we've kinda said, given the strength of our brand, the quality of our products, and obviously the innovation and aesthetics, that this should be a space that you could push a modest price increase through the channel each year. Great. And from a profitability standpoint, your margins in the back half is really starting to showcase some of the initiatives you guys have done. And I think, you know, EBITDA margin's gonna shake out in the, call it, in the mid-20% range. When we look out, I mean, your longer aspirational target, let's call it 27.5%. Seems like you're making a lot of progress there. You know, could you get there a little sooner, and what are some of the things that you need to still accomplish to kinda get from A to B? Is it mostly on the operation formulation side, or you just need a little more growth? Yeah, I joked with our teams about six months ago that the questions would pivot from: Can you make 27.5% to can you beat 27.5% when we post our third quarter results? So look, 3Q gives us a lot of confidence that we're not only on track, we're probably modestly ahead. We feel really good about being able to achieve 27.5% in 2027. You know, I think 3Q as well allowed us to kinda demonstrate the progress that's really been made over the last two years that have been masked by a lot of inflation in the PVC markets primarily. And look, the pathway to how do we get to the remaining, you know, 250 basis points to 300 basis points here, over the next two or three years, is still in line with what we outlined at our Investor Day. The portfolio of actions are... Look, we've got a lot of runway around recycling, and that's really kinda three-pronged. You know, we can always increase the content of recycling our products. We can continue to move to lower cost, lower grades of recycling, and then obviously, our ability and efficiency to convert those materials as well. And then the next biggest bucket is really product configuration, and product design, and then obviously other levers like continuous improvement and likely getting some modest SG&A leverage as we grow the business nearly double-digit. Gotcha. You guys set out to get a billion pounds of recycled content, I think, target by 2026. Can you remind us where you are on an LTM basis, and what are some of the biggest hurdles from getting here to A to B? Is it just a technology standpoint? Is it a reformulation standpoint? What needs to happen for you to get from A to B at this point? Yeah, so as we finished 2022, you know, we were more than halfway there to the 1 billion pounds, in fairness, for 2026. Achieving that, part of that will hinge on sort of what the volume environment looks like in the next two years to three years. As far as the opportunity, again, in front of us and kinda what's the pathway, again, I think the simplest way to think about it is we've got opportunities to increase content. So think of our PVC deck boards, where we're in the low 60s, with the next ambition to get to 70%. As far as moving to lower grade, cheaper forms of recycled materials, think of our capped composite product, where we've got, you know, 90% recycled material in it already, but we have an opportunity to move from high density to low density, as a cheaper, shift in, material costs. And then lastly, as we continue to invest in Return Polymers and, some of our conversion facilities, just the efficiency and cost performance around those are still pretty significant. But from a technology standpoint, you guys feel pretty good in terms of- Yeah ... getting it from A to B? Again, I think, the benefit for us is it's more about iteration than innovation. And that's what allowed us, has allowed us the last several years to make, really steady progress each year, on all fronts. Pete, since I got you, I care about free cash flow, and I think you do as well. You've been investing on growth the last few years. Give us a little flavor on how to think about how much headroom you have from a capacity standpoint, and as you kinda grow from here, the capacity ramp and how you're thinking about deploying that free cash flow you're gonna be generating. Yeah, look, I think the priorities still remain the same. Our you know, the number one investment we're gonna always continue to make is in organic growth and driving capacity to match that organic growth opportunity that's outsized. Second, we're gonna continue to invest CapEx around margin expansion products that help us get to 27.5% or above. Third, you know, hopefully, there's a bit of a normalization here in 2024, and the M&A markets start to come back, that we do think we can be an intelligent acquirer and add to our portfolio. And then in the very near term, you know, supporting share repurchase program is a significant priority for us here, especially in 4Q. Super. On the M&A front, I mean, what are you seeing? How's the pipeline, higher multiples? Where are some of the opportunities that you look to tap into going forward? Yeah, look, we cultivate a lot of our own deals. We're not a big, you know, auction participant, so, you know, that cultivation is, is done. A lot of these are proprietary deals, and family-owned businesses, so, the cultivation period takes years sometimes, that you're really positioning yourself, that, you want to build the relationship so that when someone is ready to sell their business, you're the first person they call. So I'd say the funnel is active, but I would also say, you know, the M&A markets are probably not back to normal yet. I would think that in the back half of fiscal 2024 for us, we'd start to see some realignment, you know, where buyers', you know, valuation assumptions are better aligned to, you know, our expectations. A question for Jon. I think there's a lot of focus in your composite decking business as it relates to Residential. Your exterior trim business actually grown pretty nicely. What's driving that growth? How should we think about that growth profile, that business, the margin opportunities? Just bigger picture, how to think about that business. Sure. I mean, I think, you know, the best analogs are decking business, right? It's a material conversion story, where people are, you know, choosing us as a replacement, you know, for wood. So it's got a lot of the exact same... You've got that long-term aesthetic, you've got the long-term warranty, you've got the low maintenance, and you've got the recycling. So that, that's, you know, our exteriors business, our trim business is something where, you know, I think, recycling was less of a focus, but given the capabilities, we now have through Return Polymers and the ability to use a higher percentage of recycled content, you know, that's really been helpful from a margin perspective, you know, in that business. You know, for us, you know, specifically, it's downstream execution, you know, continuing to gain share, continuing to educate, you know, consumers and contractors of the benefits of the product, and driving the wood conversion the same way we drive in the decking business. And so, you know, having the number one and number two brands in exteriors and exterior trim is a large, you know, benefit to us, and then we use that name recognition to drive downstream conversion. Super. I'd just add, I mean, you know, our exteriors business is not diluted from a growth perspective. It's not diluted from an EBITDA perspective. As Jon mentioned, we own the number one and number two brands. It's a pure, you know, wood conversion story, leverages the material science of our PVC decking business, leverages the extrusion technology of our decking business. So, it's a fantastic business. Great. You've made some acquisitions that are more adjacent in nature. Can you talk about how that is the integration process and how bringing that in-house to the AZEK umbrella has potentially unlock opportunities going forward? And do you still see a lot of runway and opportunities in that some of these adjacent categories? Yeah. So I mean, if you start, if you kind of, you know, do a historical look back, I mean, again, from... We're just talking about exteriors, you know, with the Versatex acquisition, which was now several years ago, that gave us the second-leading brand, and it also gave us a portfolio of value-added products in that segment we didn't have. And so, you know, our growth and their growth post-acquisition outpaces both of our individual growths prior to acquisition. If you look at, you know, Ultralox's aluminum rail, and then if you look at the most recent INTEX PVC rail acquisition, you know, there again, we're able to get purchasing leverage, channel leverage, sales and marketing leverage, you know, across those businesses. So again, we had similar technologies that we understand. It's a similar, you know, end user that we understand. So we get to use our brand power and our channel leverage to really, you know, accelerate the growth, and some of our buying power to reduce our, our cost of goods sold, you know, through purchasing efficiencies. So, you know, that's the model. Stick to our knitting. You know, you're gonna see us, you know, continue to pursue things with technologies that we understand, where we have the R&D and the engineering know-how, where we have the buying power, and it's all outside the home, exterior of the home and the outdoor living space. Those natural adjacencies, you know, within our Investor Day presentation, we've tried to, you know, appropriately size and profile, you know, the various end markets where we see continued opportunity. The railing market is a interesting market. I appreciate you probably don't want to be, all things railing, but, your attachment rate I don't think is super high. Is that an opportunity for you to grow organically or maybe tackle that on the inorganic side of things going forward? Yeah, yeah, absolutely. The answer, the answer is both. So we're attacking it both organically and inorganically. And we see it, we see it as a great opportunity. You know, the railing, the railing segment is much more fragmented than decking and exteriors. We don't, we don't see there being any reason why we can't, you know, eventually have a similar share in railing than we do in our decking and exteriors businesses. Great. The penetration rate story's been pretty powerful on decking and certainly exterior trim. Has that trend shifted, slowed, or accelerated in this current backdrop? So I mean, you know, again, you know, from our standpoint, our mission is to drive that. And so our downstream efforts are all around, how do we continue to, you know, force an acceleration of that? And so we'll continue to do that with feet on the street. We'll continue to do that at the point of purchase. We're doing a lot more of that through our marketing efforts, you know, both digitally and traditionally. You know, again, I think, awareness and education is a key driver here. The more consumers that we can get to touch and feel the product and see the quality, see the aesthetics, and again, understand they don't have to make a compromise. They can get low maintenance. They don't have to sand and stain anymore, and they can get a beautiful, sustainable product, with up to a 50-year warranty. You know, we tell that one story at a time, and we continue to drive conversion. And then there's a big, big network effect in our business. You know, there's definitely a looking over the fence and seeing what the neighbor put in, and that tends to drive a lot of growth in the neighborhood. You know, once folks have a positive experience with our products, they tell their friends. Contractor referrals then come from that. So it's a snowball effect where you kinda win one consumer at a time, and you continue to see that, you know, add benefits to additional conversion in the future. That's great. I guess question for Pete. On the Commercial side of things, it's been a little noisier with some destocking, but the margins have actually still been pretty impressive. Can you talk through, where you are with that destocking process? Appreciating that business has more of a backlog when we look out to 2024, how do you see Commercial, performing? Yeah. So, you know, I think the good news for us is through the third quarter that we just completed, the bulk of the markets that we serve on the Commercial side, so, graphics, marine, and a lot of the general industrial markets, we're actually already through and complete with their channel reshuffling. The lone market that we expected to continue to see some continued inventory changes in was around semiconductor, and we still do expect to see that completed by our fiscal year-end here at the end of this month. You know, I think, 2024, the way we would think about the business is kinda return back to normal growth rates, which are kinda more GDP-like. Business has done really well and executed well over the last two years in terms of margin expansion. We think this is a business that we can kinda maintain sorta in that, you know, 20%-low 20s% kinda EBITDA profile. Okay. From a channel standpoint, I would say on your core Residential business, it's been kinda noisy as well from a managing inventory and you guys managing your inventory. Give us an update where we are in that process. Do you have a view whether or not the channel will get back to stocking at a more normal level, or this is gonna be the new basis going forward just because your service level has really improved? Yeah, look, I think we've been assertive all year in terms of trying to manage the channel inventory levels to a conservative profile to kinda de-risk 2023. You know, most of this year, we've kinda been down about 10% in terms of days on hand with inventory in the channel at our partners. As well, we've taken about $80 million of inventory off of our balance sheet since the beginning of the year through the end of the third quarter. I think the new norm is, look, we'd really like to keep our lead times low and industry lead times low as that's the best way to kinda make sure that the channel is not disincentivized to buy more than what it needs. You know, our lead times for most of this year have kinda been back to sorta two to four weeks. The industry pre-pandemic was kinda think of it as probably around eight weeks. During the pandemic, it went up to 14 weeks. So if we can continue to execute and manage our capacity well, we really think we can keep our lead times in line to that kinda two to four weeks through most of the season. Okay, great. From a free cash flow conversion, you know, CapEx is obviously coming down. What about... Is there anything else that you could do on the cash flow conversion side? I mean, perhaps maybe working capital? Yeah, as we'd kinda outlined on our Investor Day, you know, next target for us is about 18.5%, as a percentage of sales for working capital. We think that's very achievable. You know, most of that is gonna come primarily from inventory turn acceleration, and velocity. So, historically, we've been around three to four turns. We dropped below that as the business downshifted here about a year ago. We're back up above four, and, you know, at least internally, our aspiration is to try and get to six turns plus, over the next couple of years. Super. Last question from me, on Commercial side. Does it make sense strategically as part of the portfolio just because the growth profile is a little more muted compared to your core Residential business, and if it's separable? It is separable. Look, we've done a lot of work to improve, again, the profile of the business, so we're really pleased with a business that's sitting sorta in the mid-twenties from an EBITDA perspective for most of this year. Look, we are tasked every year with looking at our portfolio, and this year is no different. So, we're always open that, you know, to, to, you know, again, to manage our portfolio, effectively. Okay. That's all for me. I wanted to thank Pete and Jon for all the great insights. Really appreciate your support here today.