Financial Data and Key Metrics Changes - Total net sales decreased by 9% year-over-year to $900 million, reflecting a normalization of channel inventories and lower demand expectations [32][34] - Adjusted EBITDA was $226 million, with a margin of 25.1%, down 21% from the previous year [32] - Adjusted net income was $127 million, with adjusted diluted EPS of $0.29 per share [32] - Free cash flow increased by 88% to $104 million, driven by strong cash generation and moderating capital spending [32] Business Line Data and Key Metrics Changes - North American net sales declined by 12%, primarily due to lower volumes, although average selling prices (ASP) increased by 3% year-over-year [33][34] - Legacy AZEK performed well, with mid single-digit sell-through growth in June, driven by new product contributions [9] - North American adjusted EBITDA was $206 million, with a margin of 32.1%, down 400 basis points year-over-year due to lower volumes and raw material inflation [35] Market Data and Key Metrics Changes - Single-family new construction starts in the South fell approximately 25% since February, leading to a more cautious inventory posture among builders [34] - Asia Pacific net sales declined by 10%, influenced by the cessation of operations in the Philippines, while ASP rose by 22% in Australian dollars [37] - European net sales increased by 7%, driven by higher ASP, with EBITDA margin improving to 16% [38] Company Strategy and Development Direction - The integration of James Hardie and AZEK aims to create a leading provider of exterior home and outdoor living solutions, with a focus on material conversion opportunities [4][5] - The company is committed to a homeowner-focused strategy, emphasizing customer and contractor partnerships to drive demand [11][12] - Future growth will be supported by strategic investments in innovation and localized manufacturing to enhance customer value [12][19] Management's Comments on Operating Environment and Future Outlook - Management noted that demand in both repair and remodel and new construction in North America is currently challenging, with homeowners deferring large projects due to affordability issues [6][8] - The company anticipates a mid-single-digit decline in end-market demand for the full year, adjusting expectations for softer demand in new construction [8][10] - Management expressed optimism about long-term growth potential, particularly through material conversion opportunities and strategic partnerships with homebuilders [13][72] Other Important Information - The company is on track to achieve $125 million in cost synergies over three years, with over 50% of the run rate target already realized [26] - Free cash flow for FY '26 is expected to be at least $200 million, with capital expenditures projected at approximately $400 million [42][43] - The company successfully completed a $1.7 billion debt financing, with gross debt standing at approximately $5.1 billion [45] Q&A Session Summary Question: Can you help parse out the single-family outlook versus the inventory element? - Management indicated that the Q1 results were as expected, with customers adjusting inventory levels due to a softer outlook, particularly in single-family new construction [50][52] Question: What is the plan to improve margin profiles given the demand challenges? - Management emphasized a disciplined approach to cost management, including freezing headcount and focusing on yield as volumes decline [58][60] Question: How much of the volume decline was attributed to inventory destocking? - Management noted that inventory destocking was significant, particularly in the second quarter, and that they expect some continued impact from this in the upcoming quarters [66][74] Question: How is the single-family new construction segment evolving? - Management reported that single-family new construction has been impacted significantly, with a notable decline in starts, particularly in the South [78][79] Question: What are the assumptions behind the EBITDA contribution from AZEK? - Management clarified that the guidance reflects a conservative outlook due to macroeconomic uncertainties and a cautious approach to channel inventory [85]