AZEK Q2 2025 Earnings Report

AZEK EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.44
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.39

AZEK Revenue Results

• Actual Revenue: $452.23 million
• Expected Revenue: $444.75 million
• Beat/Miss: Beat by +$7.48 million
• YoY Revenue Growth: +8.10%

AZEK Announcement Details

• Quarter: Q2 2025
• Date: 5/6/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 5:00PM ET

AZEK (NYSE:AZEK) engages in the design, manufacturing, and selling of building products for residential, commercial, and industrial markets in the United States and Canada. It operates through two segments: Residential and Commercial. The Residential segment designs and manufactures engineered outdoor living products, such as decking, railing, trim and molding, siding and cladding, pergolas and cabanas, and accessories under the TimberTech, AZEK Exteriors, VERSATEX, ULTRALOX, StruXure, and INTEX brands. The Commercial segment offers bathroom partitions, shower and dressing stalls, lockers and other storage solutions, and engineered plastic sheet products under the Aria, Eclipse, Hiny Hiders, TuffTec, and Duralife brands. This segment also offers bathroom partitions, shower and dressing stalls, lockers, storage solutions, extruded plastic sheet, and non-fabricated products under the Aria, Eclipse, Hiny Hiders, TuffTec, and Duralife brands. The company was formerly known as Delaware corporation and changed its name to The AZEK Company Inc. in June 2020. The AZEK Company Inc. was incorporated in 2013 and is headquartered in Chicago, Illinois.

AZEK Q2 2025 Earnings Call Transcript

Key Takeaways

• AZEK delivered Q2 fiscal 2025 net sales of $452 M (up 8% Y/Y), with residential segment net sales up 9%, driving 10% Y/Y adjusted EBITDA growth to $124 M and expanding adjusted EBITDA margin by 40 bps to 27.5%.
• The company reaffirmed its FY25 guidance of 5–8% consolidated net sales growth and 6–10% consolidated adjusted EBITDA growth, assuming low- to mid-single-digit residential sell-through and maintaining conservative channel inventory levels.
• AZEK proposed a merger with James Hardie to create a combined platform across siding, decking, railing, trim and accessories, targeting $125 M in cost synergies and $500 M in incremental sales synergies to accelerate material conversion.
• AZEK acquired Northwest Polymers to expand its vertically integrated PVC recycling network, aiming to increase recycled content, lower input costs and reduce greenhouse gas emissions while bolstering operational margins.
• New product launches—including TimberTech Harvest Plus decking, Reliance and Fulton rail, and TrimLogic high-recycled-content trim—are gaining traction and expanding shelf presence, with start-up investments expected to moderate in H2 as volumes scale.

Presentation

[Operator]

Ladies and gentlemen, I'd like to welcome you to the AZEK Company's Q2 twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. And after the speakers' presentation, there will be a question and answer session. We'll give you more instructions about how to ask a question at that time. Please also be advised that today's conference is being recorded.

[Operator]

With that, I would now like to hand the call over to Eric Robinson with Investor Investor Relations. Eric, you may begin.

[Eric Robinson, Investor Relations at The AZEK Company]

Thank you, and good afternoon, everyone. We issued our earnings press release and a supplemental earnings presentation this afternoon to the Investor Relations portion of our website at investors.azicco.com. The earnings press release was also furnished via eight ks on the SEC's website. I'm joined today by Jesse Singh, our President and Chief Executive Officer Ryan Lotta, our Chief Financial Officer and Treasurer and Jonathan Skelly, our President of ASIC's Residential and Commercial segments. I would like to remind everyone that during this call, we may make certain statements that constitute forward looking statements within the meanings of the federal securities laws, including remarks about future expectations, beliefs, estimates, forecasts, plans and prospects.

[Eric Robinson, Investor Relations at The AZEK Company]

Such statements are subject to a variety of risks and uncertainties as described in our periodic reports filed with the Securities and Exchange Commission that could cause actual results to differ materially. We do not undertake any duty to update such forward looking statements. Additionally, during today's call, we will discuss non GAAP financial measures, which we believe can be useful in evaluating our performance. These non GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of such non GAAP measures can be found in our earnings press release and a supplemental earnings presentation, which are posted to our website.

[Eric Robinson, Investor Relations at The AZEK Company]

Now let me turn the call over to ASIC's CEO, Jesse Singh.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Good afternoon and thank you for joining us. The AZEK team delivered another strong quarter once again executing well in a dynamic market backdrop. In the second quarter of fiscal twenty twenty five, we achieved 9% year over year growth in our residential segment. This is driven by positive mid single digit residential sell through growth along with our continued expansion of our channel presence and new product launches across our TimberTech, AZEK exteriors and VersaTec brands. Through the first half of the fiscal year, we have grown our residential segment 13% year over year driven by high single digit sell through growth.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Our focus on material conversion, product innovation, improving the customer journey, growing brand awareness and channel expansion continues to drive our success and our market outperformance. Our consistent ability to outperform the broader repair and remodel market highlights the effectiveness of our business model, the attractiveness of our products and the disciplined execution by the AZEK team. During the quarter, Deck, Rail and Accessories net sales grew 11 year over year with each of the product lines growing high single digits to double digits. Exteriors net sales grew 2% year over year as that business has experienced relative stability while navigating a slower R and R and new construction market. During the quarter overall, we saw solid residential sell through growth numbers in January, a slower February followed by a stronger March, which has continued into April.

[Jesse Singh, CEO, President & Director at The AZEK Company]

We expanded our adjusted EBITDA margin by 40 basis points year over year to 27.5%, while continuing to invest in our long term growth initiatives and vertically integrated recycling network. During the quarter, we also made investments in merchandising, display and samples to support our geographic channel and shelf expansions. We also delivered strong residential segment adjusted EBITDA growth of 11% year over year and expanded our segment adjusted EBITDA margin by 60 basis points year over year to 28% inclusive of these investments. For those new to the story, I want to take the opportunity to briefly highlight AZAC's unique growth and margin expansion strategy and the compelling fundamentals behind our sustained outperformance. AZEK is well positioned to capitalize on the large and growing shift from traditional materials such as wood to low maintenance, high performance and sustainably engineered building materials across the outdoor living and exteriors categories.

[Jesse Singh, CEO, President & Director at The AZEK Company]

As an example, wood and engineered wood represents more than 75% of decking, 60% of rail, and 50% of exterior trim units sold annually. We have a proven multiyear track record of driving above market growth, margin expansion and cash generation through various market cycles. AZEK's product offerings include industry leading brands like TimberTech, AZEK Exteriors and VersaTec. With award winning innovation, a resilient business model and a clear strategy focused on material conversion, product leadership, channel expansion and sustainability, we are targeting double digit long term growth and sustained margin expansion. Over the last seven years through fiscal twenty twenty four, we have delivered a 15% compounded annual growth rate in our residential segment.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Our proposed merger with James Hardie enhances our strategy to accelerate material conversion, provide our contractors and customers with expanded solutions, benefit from significant synergies, accelerate our growth and deliver even greater value for our shareholders. Together, we are creating a premier growth platform with leading brands across siding, decking, railing, trim and accessories. This platform will unlock significant wood and other material conversion opportunities across a large and expanding addressable market. In addition to the growth platform I just described, AZAC brings a category leading outdoor living portfolio, one of the largest and most effective sales organizations in the industry, and a vertically integrated recycling network. James Hardie is a leader in siding and similarly has a compelling material conversion growth story and a strong focus on contractors, customers, and branding.

[Jesse Singh, CEO, President & Director at The AZEK Company]

It has an even larger sales force and a strong proven track record. All true shareholder value comes from customer value. And the combination of our two companies will allow us to provide a more complete solution and create more value and growth for our current and future customers. Early feedback from our customers and contractors has been overwhelmingly positive. We've heard many of them express the value of partnering with an innovative manufacturer for their home exteriors and outdoor living needs.

[Jesse Singh, CEO, President & Director at The AZEK Company]

We are highly confident that together we will unlock $125,000,000 in cost synergies and 500,000,000 in incremental sales synergies with the potential for even greater upside as we integrate our complementary capabilities and scale. These benefits would be on top of the already compelling growth, margin and free cash flow profile of the pro form a company. While we remain confident in our standalone business, this combination provides our shareholders an even greater opportunity to realize significant long term value. As always, our people remain at the center of our success, and I want to thank the AZAC team for their outstanding work and focus as we execute through this exciting period. AZAC's long track record of growth and outperformance, margin expansion and value creation would not be possible without the dedication, collaboration and support of our team members and business partners.

[Jesse Singh, CEO, President & Director at The AZEK Company]

I would once again like to express my sincere gratitude, and I know we are all energized by the significant opportunities ahead. I will now shift to an update on AZEK's strategic initiatives. Our twenty twenty four and twenty twenty five new product launches, including TimberTech Harvest Plus decking, TimberTech Reliance Rail, TimberTech Fulton Rail and TrimLogic high recycled content exterior trim are ramping up well. Contractor and dealer feedback has been highly positive, and we have expanded our shelf presence with new and existing partners as part of our recently completed 2025 early buy negotiations. Each of these new products allow us to expand our addressable market and address a wider range of price points, consumer needs and drive increased wood conversion.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Investments in these new product platforms continued during the quarter, modestly impacting our second quarter margins. We expect these startup investments to moderate in the second half of the fiscal year as we scale and position these new product platforms to drive future growth. Recycled materials represent the largest raw material input we use to manufacture our products. And today, we believe we are the largest vertically integrated recycler of PVC in The U. S.

[Jesse Singh, CEO, President & Director at The AZEK Company]

As we continue to grow and scale our recycling infrastructure, we're excited to welcome Northwest Polymers to the AZEK team. Northwest Polymers is an industry leading post industrial and post consumer plastic recycler based in Oregon. The acquisition expands AZEK's in house capacity in the Western Part Of The U. S. To source and process recycled materials to support our long term growth strategy and margin expansion objectives.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Our continued investments support our goal to further increase recycled content in our products, reduce input costs, and reduce our greenhouse gas emissions over time. We are also proud to be named to Barron's one hundred Most Sustainable U. S. Companies list for the first time ever. Moving to our outlook.

[Jesse Singh, CEO, President & Director at The AZEK Company]

We continue to see steady demand across our outdoor living portfolio. Our residential sell through trends in March grew high single digits, improving from a softer February, and April has trended positively with double digit sell through growth. While our contractor backlogs remain stable at approximately seven weeks and our surveys highlight a steady market, The contractors and dealers responding to our surveys have expressed some concern about the uncertain macro environment and the potential impact on future behavior of their customers. We exited the quarter with channel inventory levels once again below historical averages and we will continue to focus on maintaining a conservative level of inventory in the channel. On the margin front, we continue to see positive momentum through our recycling expansion, sourcing savings and continuous improvement initiatives.

[Jesse Singh, CEO, President & Director at The AZEK Company]

These actions position us to sustain our margins over the time while simultaneously investing in our new product introductions, channel expansion and brand building to support our long term growth trajectory. We are a domestic manufacturer with primarily locally sourced raw materials and expect a limited direct impact from the recently announced tariffs. We are reaffirming our fiscal twenty twenty five guidance, reflecting strong residential segment net sales growth and strong residential segment adjusted EBITDA growth. While we have seen mid single digit to double digit residential sell through growth recently, we acknowledge that there is uncertainty in the broader economy. We believe we can continue to outperform the market.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And if the market gets weaker, we are well positioned to continue delivering against our adjusted EBITDA targets. Our fiscal twenty twenty five guidance considers residential sell through growth scenarios in the low single digit to mid single digit range in the second half of the fiscal year, while still maintaining conservative channel inventory positioning. Our track record over the past several years demonstrates our ability to navigate varied economic cycles while continuing to grow, underscoring our ability to manage through uncertainty. We've been operating in an environment for more than two years that has been negative for the repair and remodel and new construction markets. We expect AZEK's differentiated model to remain resilient, backed by strong momentum from our growing brand awareness, new product platforms, continued shelf gains and a unique focus on material conversion driven by our differentiated technology and digital investments.

[Jesse Singh, CEO, President & Director at The AZEK Company]

These elements combined with our industry leading sales force and best in class customer service as well as our strong focus on R and R, pro contractors and differentiated segments has led to our consistent outperformance of the market. We are well positioned to sustain and further expand our margins, and we are close to achieving our annual 27.5% adjusted EBITDA margin target, well ahead of our fiscal year twenty twenty seven milestone. We are confident in our ability to deliver results in fiscal twenty twenty five and deliver sustained value for our shareholders. I will now turn the call over to Ryan to discuss our financial results and outlook in more detail.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Thanks, Jesse, and good afternoon, everyone. Thanks for joining us today. AZEK's second quarter performance is another strong validation of our disciplined execution as we continued to outperform a choppy repair and remodel market through targeted growth initiatives and operational rigor. In Q2, we delivered residential segment net sales growth of 8.6% year over year and drove mid single digit overall sell through in line with our expectations. We continue to see stable demand trends with no significant shifts in customer behavior.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Year to date, over 1,000 new contractors have joined our loyalty program. During the quarter, digital indicators such as website sessions and contractor leads grew double digits year over year. Feedback from our survey of nearly 2,000 contractors and dealers showed consistent and positive sentiment, but also highlighted some concern about macroeconomic uncertainty potentially weighing on growth expectations. We delivered strong margin performance in the quarter with adjusted EBITDA margins reaching 27.5%, a 40 basis point improvement year over year and ahead of both guidance and consensus. Our demand in operations were steady through the quarter, and our team executed well while investing in key growth initiatives.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Our balance sheet remains strong and flexible, and we generated solid free cash flow in what is typically a seasonal usage quarter. We are reaffirming our full year fiscal twenty twenty five outlook based on our strong first half execution, visibility into our early buy momentum and conservative channel inventories that remain positioned below historical averages. The majority of our supply chain is U. S.-based, and we believe we are well positioned to navigate the current or future tariffs. For the second quarter of fiscal twenty twenty five, we delivered consolidated net sales of $452,000,000 an increase of 8% year over year.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Our 2Q net sales were driven by positive mid single digit residential sell through growth along with continued expansion of our channel presence and new product launches across our deck, rail and accessories and exteriors businesses. 2Q gross profit was $168,000,000 an increase of $11,000,000 year over year and gross margin was 37.1. 2Q adjusted gross profit was $171,000,000 an increase of $10,000,000 year over year and adjusted gross profit margin was 37.8%. The adjusted gross profit margin decline was driven primarily by the previously mentioned costs related to new product expansion, channel expansion and investment and weakness in our commercial segment's Grants and Products business. GAAP SG and A expenses increased $5,000,000 year over year to $88,000,000 primarily driven by acquisition related expenses due to the proposed merger with James Hardie.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Adjusted SG and A expenses increased $1,000,000 year over year to $71,000,000 primarily driven by marketing and branding investments. Adjusted EBITDA for 2Q increased $11,000,000 or 10% year over year to $124,000,000 Adjusted EBITDA margin for the quarter expanded 40 basis points year over year to 27.5%. Net income for 2Q increased year over year by $5,000,000 to $54,000,000 or $0.37 per share. Adjusted net income for 2Q increased year over year by $7,000,000 to 66,000,000 Adjusted diluted EPS increased $0.6 year over year to $0.45 per share. Now turning to our segment results.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Residential segment net sales for 2Q were $437,000,000 up 9% year over year, driven by the previously mentioned sell through growth, channel expansion and new products. Residential segment adjusted EBITDA for 2Q twenty twenty five was $122,000,000 up 11% year over year. Residential segment adjusted EBITDA margin was 28%. Commercial segment net sales for the quarter were $15,000,000 down 4% year over year, primarily due to the weaker demand in our spring products business. Commercial segment adjusted EBITDA for the quarter was $1,900,000 a decrease of $1,000,000 year over year, again primarily driven by weaker demand and increases in material input costs.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

We have taken appropriate pricing and cost actions in this business to offset the pressure and expect to return to more traditional margin levels by the third fourth quarters of fiscal twenty twenty five. From a balance sheet and cash flow perspective, we ended the quarter with cash and cash equivalents of $147,000,000 and approximately $373,000,000 available for future borrowings under our revolving credit facility. Working capital defined as inventory plus accounts receivable minus accounts payable was $300,000,000 up $4,800,000 year over year. We ended the quarter with gross debt of $538,000,000 which included approximately $99,000,000 of finance leases. Net debt was $392,000,000 and our net leverage ratio stood at 1x at the end of our second quarter.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Net cash from operating activities was $47,000,000 during the second quarter, an increase of $62,000,000 year over year. Capital expenditures for the quarter were approximately $46,000,000 including the $25,000,000 facility purchase of SRAN PA, and we deployed 7,200,000 capital to acquire a new regional recycling operation to support our long term recycling capabilities and ambition. For the second quarter, cash flow was $1,000,000 an increase of $35,000,000 year over year. Our capital allocation priorities remain the same as we previously communicated, primarily investing in our business both organically and inorganically. Now let's turn to our outlook.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

For full year 2025, we are reaffirming our guidance with consolidated net sales between $1,520,000,000 to $1,550,000,000 representing 5% to 8% year over year sales growth with consolidated adjusted EBITDA between $4,300,000 to $418,000,000 representing an increase of 6% to 10% year over year. Since our last call, we have taken some modest pricing actions to offset the impact of tariffs on our internationally sourced materials and other increases in additive costs. For residential, our guidance for net sales of $1,452,000,000 to $1,479,000,000 representing 6% to 8% year over year growth with adjusted EBITDA between three ninety two million dollars and $4.00 $6,000,000 representing approximately 7% to 11% year over year growth. Our planning assumption considers residential sell through growth scenarios in the low single digit to mid single digit range for the remainder of the fiscal year, while maintaining conservative channel inventory positioning. Once again, we have yet to see a slowdown in sell through growth, but are acknowledging the macro uncertainty.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

A few other assumptions for fiscal twenty twenty five to share include the following. We are expecting a capital expenditure range of $110,000,000 to $120,000,000 The increase is driven by the $25,000,000 opportunistic purchase of our Scranton PA facility we completed in our fiscal second quarter. We expect depreciation in the range of $98,000,000 to $102,000,000 And finally, we are expecting an effective tax rate for the full year between 25% to 26%. For the second half of fiscal twenty twenty five, we expect net sales growth of 0% to 4% year over year on a consolidated basis and 0% to five percent year over year in the residential segment. Our planning assumptions consider residential sell through growth scenarios in the low to mid single digit range year over year and normal inventory seasonality in the second half of our fiscal year.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

We expect to end the year with channel inventory levels once again below historical averages. Adjusted EBITDA is expected to grow 1% to 8% year over year on a consolidated basis, and adjusted EBITDA margin is expected to be in the range of 27.2% to 28%. To help with modeling, recall we will be lapping approximately $35,000,000 of sales impact in the prior year from the timing of channel purchases ahead of the July 4 holiday into the third quarter of twenty twenty four from the fourth quarter. We expect fiscal third quarter consolidated net sales in the range of $413,000,000 to $429,000,000 Consolidated adjusted EBITDA is expected to be between $115,000,000 to $123,000,000 and adjusted EBITDA margin is expected to be in the range of 27.8% to 28.7%. Our Residential segment guidance for the quarter is $396,000,000 to $410,000,000 in net sales with segment adjusted EBITDA between $112,000,000 to $119,000,000 We are assuming residential sell through growth in the low single digit to mid single digit range in the third quarter.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

We are expecting an effective tax rate of approximately 25% to 26%. Despite facing some macro uncertainty, we are well positioned to execute for the remainder of fiscal twenty twenty five and beyond. For additional planning assumptions to assess with modeling fiscal year twenty twenty five, please refer to the supplemental earnings presentation we have posted on our Investor Relations website. Now I'll turn the call back to Jesse for some closing remarks.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Thanks, Ryan. Over the last ten years through fiscal year twenty twenty four, we have delivered a 12% compounded annual growth rate in our residential segment with significant increases in profitability. We are incredibly excited about AZEK's future as we look to combine with James Hardie. Together, we will be able to provide a better value for our customers, grow the business faster and operate more efficiently, leading to greater shareholder value. Our focus has always been about building a great business that benefits our customers, our employees and our shareholders, and we are excited about the journey ahead.

[Jesse Singh, CEO, President & Director at The AZEK Company]

We have built a great company, and I know that the next phase will be even better. With that, operator, please open the line for questions.

[Operator]

Thank you. Thank you. Our first question for today comes from the line of Kevin Hughes with Truist. Your line is live.

[Keith Hughes, Managing Director at Truist Securities]

Thank you. It's Keith Hughes from Truist. A question on the guide in the second half. You've got some low single digit numbers out there. Can you talk about what you're expecting decking and railing versus exteriors in the second half?

[Jesse Singh, CEO, President & Director at The AZEK Company]

We're not giving specific guidance on that. I I think as you look at, in aggregate how we performed, to date and how we performed in the second quarter, deck, rail and accessories has clearly been outgrowing exteriors. And and I think it comes down to, you know, the exposure difference between both geographic and end markets.

[Keith Hughes, Managing Director at Truist Securities]

Okay. I'll sneak one more in here on cost. There's been some talk of PVC pricing going up. If you could talk about your cost bucket near term, what it, what it looks like for the next several months?

[Jesse Singh, CEO, President & Director at The AZEK Company]

I I Keith, by the way, I we we do know your name, so it's great to hear from

[Jesse Singh, CEO, President & Director at The AZEK Company]

you, Keith.

[Jesse Singh, CEO, President & Director at The AZEK Company]

But Love I I I think you were asking about the cost bucket. I I think the way to think of our cost structure right now, and Ryan, please comment. But I think the general comment is things have been pretty steady. In aggregate, there are, some items, that are being impacted by some supply chain things, call it additives, and some of the small items that are impacted by tariffs. And so we're seeing some modest inflation that we've offset through price.

[Keith Hughes, Managing Director at Truist Securities]

Okay. Thank you.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Thanks, Pete.

[Operator]

Thank you for your question. Our next question is from the line of Michael Rehaut with JPMorgan. Your line is live.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

Hi, everyone. This is Andrew Ozzi on for Michael Rehaut. I appreciate taking my questions. I just wanted to ask in kind of in terms of how it relates to the expected sales synergies of the combined company. Is any additional color you can provide on the strategy, knowing that it's a little early now, but of the integration of the teams and how the Salesforce will be organized.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. As you point out, you know, it's really early. So, you know, we're, we're we're not prepared to talk about any specifics there. But here's what I would reaffirm, right, that that we've talked about. I think number one, we see significant sales synergies through the combination.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And each business has a very, very good downstream sales force that's driving absolutely terrific activity. And, you you know, so number one, the most important thing is as we go through this process is that we sustain our focus on our customers. And if you extrapolate that out, you should assume that there's gonna be a fair amount of stability in the sales organization, stability with our distribution, and a real focus on how we drive more material conversion. I think the second point is as, you know, we've gotten into this, we're probably even more confident on some of the sales synergies. There's just a terrific opportunity in certain downstream segments to sell more to contractors and builders.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

Thanks for that, Jesse. I guess my second question is in terms of acquiring additional recycling assets, how much is that part of your focus going forward? And and what does the environment look like for that? And and what kind of incremental cost reduction and and recycling cap capacity do you expect to achieve from that?

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I I think on on the last call, we highlighted that, you know, from where we stood at that moment, we saw about an incremental $40,000,000 as kind of the next milestone of cost savings on our recycle journey. We're gonna continue to invest both to meet our volumes, but also to to have supply and regional supply to continue to to realize that incremental cost savings. In terms of the specific acquisition we made, that's really setting us up for 2026 as, you know, there's lags as as we qualify. We may see some benefit in '25, but that's really around a cost in this year that will benefit us in '26 as we localize our recycling around Boise.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

Understood. I'll pass it on. Thanks so much for taking my questions.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Thanks.

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Thank you.

[Operator]

Our next question is from the line of Matthew Bouley with Barclays. Your line is live.

[Elizabeth L, AVP - Equity Research at Barclays]

Hello. You've got Elizabeth Lang on for Matt today. I was just wondering if you could touch on, you know, what you're seeing across, you know, your retail and pro channels. And, you know, if you could kinda categorize the demand across each category and what you're seeing, if there's any regions that kind of have relative strength or weakness?

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yes. I'll ask John Skelly to take that. Go ahead, John.

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

Hi, Sean. Thanks. Yes. So again, we're we are seeing growth across both both categories. We continue to see slightly higher growth in in the pro channel versus versus retail channel.

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

But within retail, again, we we continue to see positive momentum from a from a of sale perspective. Regionally, across the business, in retail and the pro channel, pretty good results across The U. S. A little bit of weakness, slight weakness in the North Northeast. They were very severely impacted by by weather, early in the spring.

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

You know, we have seen a nice rebound in activity, since some of that weather has cleared.

[Elizabeth L, AVP - Equity Research at Barclays]

Thank you very much. And then I know that you've mentioned that tariffs are, you know, it's a pretty limited impact given that your supply chains are predominantly domestic. But would you be able to quantify that, you know, what kind of what you are expecting? And if there's any in terms of the cadence of that impact through the back half of the year as well?

[Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer at The AZEK Company]

Yes. With the current tariff exposure on an annualized basis, it's anywhere between 12,000,000 and $15,000,000 We source roughly 100,000,000 to $120,000,000 outside The U. S. On our fiscal year, we kind of plan that as more of a 4,000,000 to $6,000,000 impact in the year, which we were able to price against with modest increases.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yes. And we would expect know, that particular type of pricing will carry through into subsequent years to, you know, have us continue to offset, any of those types of of increases.

[Elizabeth L, AVP - Equity Research at Barclays]

Great. Thanks.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Great. Thank you.

[Operator]

Thank you for your questions. Our next question is from the line of Tim Wojos with Baird. Your line is live.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Hey, guys. Good, good afternoon. Somebody put an h in there. So I guess the the the really, the question I have is I was just kinda hoping you could kind of expand a little bit, Jesse, on just some of the customer reactions to the James Hardie and the Azac combinations. If you could just kind of expand a little bit on of what you're hearing from them and maybe kind of some early you know, maybe opportunities on the on the sales synergy side.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I so I'm I'm gonna use, you know, my my wife Linda and I have done a, you know, a number of remodels in the Midwest. And, in those remodels, we have, used general contractors. And think of them as they are the core contractors for James Hardy. Right?

[Jesse Singh, CEO, President & Director at The AZEK Company]

They do exteriors. They do broad remodels, and those contractors are, well familiar with James, very familiar with James Hardy. In each of those instances, they were installing wood decks. And because they were working with me, and my wife's turned into one of our best salespeople, we, had them move towards, TimberTech, and Azec types of materials. Now that's an isolated incident.

[Jesse Singh, CEO, President & Director at The AZEK Company]

There are meaningful numbers of contractors that install siding, that have communicated that they historically have either installed wood decks or an alternative, decking material. And and I would say that, there's a very specific instance of a contractor that was, installing installing Hardie that called us and said, hey. You know, you know, I'm a Hardy installer. I should be calling you because I was gonna put a wood deck on this job, and it happens to be for a Hardy executive. And so we're starting to get those sorts of of, communications.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And then the flip side is also true where, we have channel partners, that are communicating to us that they're really excited about, the combination. So long winded way of saying, we are hearing directly directly from both contractors and channel partners, on that. And John here, John, you wanna elaborate anymore?

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

Yeah. I mean, you know, Tim, we've obviously been visiting with customers across across the country, and the feedback was, you know, first off, you guys did a really nice job of keeping it quiet. We we hadn't even thought about it. But now that it's been announced, it's it's obvious to us. So I think it's been really nice to see the validation from from the point of view of the customer that they see the strategic combination benefits.

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

It's obvious to them they get it, and they're excited to start working with us together.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Okay. Okay. No. That's great. And then just on the sell through side in the back half of the year, the low to mid single digits, I mean, I think that was probably a little bit softer than maybe what we saw last quarter.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Is that preemptive in your mind, trying to kind of bake in a kind of more volatile macro? Or is that something that you're actually seeing in the in the order book?

[Jesse Singh, CEO, President & Director at The AZEK Company]

We are not seeing that. So, you know, as as I said on, on the prepared remarks, you know, think of it as high single digit year to date. April was double digit. We just think what we're what we're trying to communicate is, within our guide, you know, you know, you should we're assuming, you know, low to mid single digits within our guide. Now we can, you know, we can go down even a a bit below that, closer to zero sell through and and still be within the guide.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And and so even though we're not seeing it, what we're trying to communicate is, just the resilience of, our guide. And, you know, we you know, in order our sell through is just an additive element to the underlying market. So all of our growth programs are intact, etcetera. The the market would have to go, you know, negative and and, you know, negative in a decent way, for us to have sell through that that goes negative. And and so that's all it was.

[Jesse Singh, CEO, President & Director at The AZEK Company]

It's not even preemptive. It's just giving you our assumptions. Now sell through continues, then, you know, at the current rate, then, you know, we'll see where we end up. But but we think it's prudent given the macro to kinda lay out that if there is softening, our guide considers that.

[Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co]

Okay. Okay. Great. Thanks, everybody.

[Operator]

Tim, thanks for your question. Apologies for the name. Our next question is from the line of Phil Ng with Jefferies. Your line is live.

[Analyst]

Hey, guys. This is Maggie on for Phil. I guess kind of going off that last question about the sell through, you know, that guide against the the sales guide for zero to 5% sales growth in resi maybe implies some additional inventory destocking from here, inventories are are already trending below historical levels. So maybe if you could just talk about how the channel is positioning themselves on inventory at this point, particularly given some of the macro uncertainty out there?

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I, you know, I think as we've said on the call, we have been, you know, conservative really over the last couple of years. But, you you know, we work with our channel to make sure that, we are appropriately staging inventory. John, actually, do you wanna touch upon that a little bit?

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

Yeah.

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

Sure. So again, you know, from from our standpoint, we're we're in the we finished early buy in in a great position, and we put a fair amount of inventory in the channel. And while we're while we're currently seeing, the strong sell through that that we commented on, again, we always wanna put ourselves in a position, where we can provide great service without putting too much inventory in the channel. So, with an outlook of that we shared with you of low to mid single digit sell through, if you operate under that assumption, we're going to

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

be conservative on inventory levels, and not have as much inventory in the channel as when we have double digit sell through.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. And and so just one comment on your question. There's always seasonality in our business where we stage product and and it flows through, etcetera. We are not seeing anything negative. And, you you know, the there is not excess inventory in the channel.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And even if we went down to to zero sell through or towards zero sell through, all of our numbers account for a a sub, historical amount of inventory in the channel. So I I think it's important to note that we are including any inventory in all of our numbers. And so you don't have to worry that there's gonna be another shoe to drop if things decelerate. So I think that's an important distinction. They're you know, we're in a normalized, below historical norm inventory level on channel.

[Analyst]

Okay. Great. That's that's really helpful. And then I guess my second question, you've been seeing a lot of progress on your recycling targets. Maybe you could talk about the opportunity out there being part of a larger organization to expand or accelerate those efforts and how you're thinking about the related margin opportunity there.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I you know, what I would say is, you know, we've laid out cost targets as as part of the merger. It considers, you know, a bit of s g and a optimization. It also considers the opportunity we're gonna have just in terms of logistics and supply chain. I would say in our planning assumptions, we don't really have incrementally increased benefit from recycle above and beyond what we had in our plan.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Now having said that, I I think that's gonna be an interesting thing as we move into the future. At a minimum, it's gonna be a customer value as one of the best recycle streams we have is vinyl, PVC siding. And so in so much as, you know, there is repair and remodel that removes that product, you know, and and that's part of the channel relationships that James Hardie has. I think that'll be a terrific, sustainability opportunity and a terrific opportunity for us to, really do the right thing for the environment. I'm not sure at this point that, you know, there would be a financial benefit to that.

[Analyst]

Got it. Thanks for thanks for all the color.

[Operator]

Thank you for your questions. Our next question is from the line of Susan Maklari with Goldman Sachs. Your line is live.

[Charles Perron-Piché, Analyst at Goldman Sachs]

Hi, everyone. This is Charles Perron in for Susan. Thanks for taking my question and congrats on a strong quarter. First, want to ask a little bit about the low to mid single digit sellout assumptions for the back half. Can you talk about how do you expect this to compare to the broader R and R market?

[Charles Perron-Piché, Analyst at Goldman Sachs]

And then when you consider your long term outlook for double digit annual net growth over the coming years, can you talk about your confidence to achieve this even if the r and r markets remain tepid considering the organic initiatives and the potential benefit from the merger?

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I so let me reiterate. We are not saying that sell through is gonna decline. What we are doing is, giving you the modeling capability to assume some slowdown. Right?

[Jesse Singh, CEO, President & Director at The AZEK Company]

And I think it's important that our guide is contemplating, and it's really a guide that's kinda low low single digit to mid single digit sell through, which is different than what we've seen. Now relative to the R and R markets overall, we had assumed a flat R and R market, really for the last two years. And last year, we grew 12%. And this year, you know, our guide is, you know, in mid to high single digit range. And what that adds up to is, once again, what we're guiding you to is, you know, give or take seven percentage points over the underlying r and r market.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And once again, we delivered more than that last year. So our target is always double digits over the underlying r and r market. When we go out for our guide, we assume that it'll be 7%. So in other words, if you go to that, we're assuming only 2% sell through in the back half, that would mean the r and r markets would need to decline, give or take, you know, 5% on a year over year basis. So that's the simple math there.

[Jesse Singh, CEO, President & Director at The AZEK Company]

And then in terms of, the confidence moving forward, we've had three years of a flat to declining r and r market. You can take a look at our our, our growth stack during that time. As we move into into next year, you know, we certainly feel, if anything, even better on a stand alone basis than we have in the past given the new products we've launched. And then if you add to that the potential synergy that we get through a combination, you know, we there's certainly scenarios where, you know, we are meaningfully higher than where we are now relative, to our overall growth rate. So hopefully, answers your question.

[Charles Perron-Piché, Analyst at Goldman Sachs]

It does. Thank you very much, Jesse.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Alright. Thank you.

[Charles Perron-Piché, Analyst at Goldman Sachs]

And And

[Charles Perron-Piché, Analyst at Goldman Sachs]

then second, you know, was great to see the continued success from channel expansion and new product. Can you maybe expand on on those channel wins and, you know, the adoption of new products across both retail and wholesales, through the quarter? And, you know, given the macro uncertainty, are you seeing shift in the tone from channel partners about their willingness to ramp, on inventory into the seasonally stronger, you know, part of the season for for the new products?

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

This is John. I I think that was three questions with one, but I'll I'll I'll try. So I think the first question from a shelf space gain and channel perspective, as I mentioned earlier, a highly successful early buy period where we achieved additional shelf space gains as we've talked about before. And our new partnership with Capital Lumber continues to pay dividends. We've had a really great start with that new channel partner, and we're seeing the benefits of that.

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

From a from a from a product new product perspective, very well received. Again, launched, as a reminder, we launched new rail products as well as some new decking products. We're we're currently ahead of our expectations in terms of the launch of those products.

[Operator]

Thank you for your questions. Our next question is from the line of Ryan Merkel with William Blair. Your line is live.

[Ryan Merkel, Co-Group Head–Industrials at William Blair & Company, L.L.C]

Yeah. Hey, everyone. Wanted to, dig in a little bit on the 3Q revenue guide. It was coming in a little bit below the street and, you know, down year over year, but, you know, I think that's because of the 35,000,000 last year's a comp issue. But just, you know, put some context to it because April's up double digits.

[Ryan Merkel, Co-Group Head–Industrials at William Blair & Company, L.L.C]

You know, the sell through is low single digits to mid single digits, but, you know, you've you're guiding down 3% roughly year over year. So just help us a little bit with that.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yes. And Ryan can chime in too. I think you hit it on the head. It's just timing of when product ships, right? So last year, we had, the way fourth of July fell a little bit more shipped into the third quarter.

[Jesse Singh, CEO, President & Director at The AZEK Company]

This year, a little less will ship into the third quarter and will be in the fourth quarter. So I think it's important to look at our guide as a back half guide. And once again, there's staging of inventory, there's drawdown of inventory, which is normally how this business operates. But in general, I think you answered your own question, which is it's really the timing of, when the product ships.

[Ryan Merkel, Co-Group Head–Industrials at William Blair & Company, L.L.C]

Got it. All right. Thanks. Pass it on.

[Operator]

Thank you for your question. Our next question is from the line of Mike Dahl with RBC Capital Markets. Your line is live.

[Christopher Kalata, AVP at RBC Capital Markets]

Hi. It's Chris on for Mike. It sounds like demand trends have remained pretty solid quarter to date, but is there anything is there anything notably to point out on the mix front? Are you seeing any any pressures there emerge? And if I could sneak just a quick follow-up, the the contractor backlogs, where where are they at today?

[Christopher Kalata, AVP at RBC Capital Markets]

Thanks.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I mean, I'll now take it quickly. We've continued to operate with a pretty consistent mix. There's nothing meaningful shifting there. And then contractor backlogs, you know, we're steady with our last survey.

[Jesse Singh, CEO, President & Director at The AZEK Company]

In fact, they may have creeped up just a little bit. But in general, they're pretty much right on, you know, where we would expect them to be at seven weeks.

[Christopher Kalata, AVP at RBC Capital Markets]

Got it. Appreciate that.

[Operator]

Thank you for your question. Our next question is from the line of Ruben Gardner with Benchmark. Your line is live.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Thank you. Good evening, guys. Hi. I wanted to ask ask about your concerns about affordability in the context of some of the other components that go into a deck, whether it be the sub structure or some of the hardware that comes from overseas, is that how big of a concern would significant price increases in those portions of the deck be for you guys, I guess?

[Jonathan Skelly, President of Residential & Commercial Segment at The AZEK Company]

Yes. So you hit on the right products in terms of where we're feeling the tariff impact. And as Jesse mentioned earlier, we've taken your price in certain areas to offset some of that pressure. What we have done in certain situations is not taken in certain product lines, not taken the full amount of the tariff increase to remain competitive, while trying to offset in other areas.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. And I I I would just say, in general, the way the tariffs are falling right now, and there are certain exemptions without being specific. In general, for our types of jobs, with the exception of certain rail products, that are imported, from certain countries, in general, I don't know that there's been a large impact, from tariffs in our types of jobs.

[Reuben Garner, Equity Research Analyst at The Benchmark Company LLC]

Great. That's helpful and good luck guys.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Great. Thank you.

[Operator]

Thank

[Operator]

you for your question. And ladies and gentlemen, that will close out our q and a session for today. I'd like to turn it back over to Jesse for any closing comments.

[Jesse Singh, CEO, President & Director at The AZEK Company]

Yeah. I wanna take a moment to thank all of our shareholders and analysts that have worked over the years to understand our business and, to be great partners. You know, I, I rare we we, as management, rarely compliment our shareholders and our analysts. But I I I think I can speak for the team by saying, our analyst community, and our shareholders have really impressed us and impressed us, with their and your professionalism. And and it's been really, it's been really good to see your understanding of, the business.

[Jesse Singh, CEO, President & Director at The AZEK Company]

As always, I'd like to thank, our partners and customers, for their trust and support. And once again, I'd like to thank the AZAC team for being the best team in the industry and for working incredibly hard and always doing the right thing and putting our customers first. Thanks again, to all of you for joining us, and we appreciate your continued support of Asek. Take care. Thanks.

Participants

Executives

• Eric Robinson, Investor Relations
• Jesse Singh, CEO, President & Director
• Ryan Lada, Senior Vice President, Chief Financial Officer and Treasurer
• Jonathan Skelly, President of Residential & Commercial Segment

Analysts

• Keith Hughes, Managing Director at Truist Securities
• Andrew Azzi, Vice President at JP Morgan Chase & Co
• Elizabeth L, AVP - Equity Research at Barclays
• Timothy Wojs, Senior Research Analyst at Robert W. Baird & Co
• Analyst
• Charles Perron-Piché, Analyst at Goldman Sachs
• Ryan Merkel, Co-Group Head–Industrials at William Blair & Company, L.L.C
• Christopher Kalata, AVP at RBC Capital Markets
• Reuben Garner, Equity Research Analyst at The Benchmark Company LLC