James Hardie Industries plc Sponsored ADR Aktie

All right. Good morning, and welcome to James Hardie's 2026 Investor Day. Thank you for everyone that's joining us in person today. It was a huge turnout. We've got an extra room over there for the spillover, and thanks to everyone for joining online. A big thanks to those people who traveled far. We've got a pretty big contingent from Australia with us today.

Let's see here. Safety note. So you came in these doors right here. There's an emergency exit to the left there, and the convenience staff will be there to help you if needed. And let's go through the FLS, the fun stuff.

Please note that today, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes in this slide. Forward-looking statements made today speak only to the date of this presentation. Forward-looking statements are subject to risks and uncertainties and could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements.

In addition, non-GAAP measures should be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of non-GAAP measures discussed are found in the presentation in the appendix.

So let's walk through the agenda here for today. Okay. So we're going to start with Aaron Erter, then we'll do Jon Skelly, John Madson, Sam Toole. And then we're going to do the first Q&A session where all those speakers will come up. We'll take a short break. During that break, you're welcome to go out there and see the demos again. And then we'll come back with Ryan Kilcullen, then Ryan Lada and then Aaron will do a short close, and then we're going to bring the whole group up for a final Q&A.

And then what we have is then we're going to have the leadership luncheon, which is kind of what you saw there. We'll have lunch out there, another chance, an hour for you to check out the demos. And then just 1 little note here, we're doing a decking teach-in. So for those of you who want a primer on decking, we're going to -- it's not on the schedule here, but we're doing a teach-in for decking. That will start at 1:15 to 2:00, that's optional, of course, if you want to do that. So that, again, the main demo area will shut down kind of about 1:00 a little bit after, and then we'll start the decking presentation for those of you that want to do that 1:15 to 2:00.

All right. Let's get started, and we're going to queue up a video.

[Presentation]

All right. Good morning, everyone. What a voice on that announcer there. That's the Hardie operating system in action. All right. Hey, good morning. It's great to see everyone here and also welcome to everyone who's on the webcast. Here, we got a packed house in a beautiful day here in New York City.

Also I want to thank our team. We have some of our leadership team that you'll hear from here today. And then also, you'll get a chance, if you haven't already, meet many of them who are out there manning some of the product stations. And also, I want to thank our team across the globe. This is a monumental moment for us as we think about what we've been through over the last year. It's been 14 months since we came together with AZEK. And there's been a lot of ups, a lot of downs. Integration is never perfect here. But here's really the message I want everyone to take away is, this is working, this is working. What we said was going to happen over a year ago, putting these 2 companies together, this is working.

I think the important point here is, we're just getting started. Part of the thesis of bringing the 2 companies together is really what our Investor Day theme is here, and it's built to outperform, resilient by design. So what I'd like to do here now, and you're going to hear the rest of the day here is this thesis and how we're going to make this happen. So let me dive right into it.

Look, as we brought these 2 companies together, the idea was to be able to outgrow the market, no matter what. Certainly, the market is challenging right now. One quarter does not make a total thesis right. But like I said, we're on our way, and it's working. I think the other thing as we brought the 2 companies together was to accelerate growth, and you'll hear some of the initiatives that we have and we only have by bringing these 2 companies together.

The other piece of this, which is not unique to our industry and building products, but you see more and more consolidation within our industry. That happens every day, you hear about a deal, that is not going to stop happening. If anything, as the market picks up a little bit, we think that's only going to accelerate. And that's why having the strength of brands, the team, the products, makes this much more important for us to do. And we're sitting in a really good place here right now.

So look, the 5 pillars that are going to really -- we're going to dive into here today is delivering growth above the market. And that means, it's not dependent on, okay, when housing comes back, we're going to be able to grow. We're going to be able to grow no matter what. That's what putting these 2 companies together. And we're able to do that because you'll see from the team we have fiber cement, we have Deck, Rail & Accessories initiatives that are going to sustain long-term growth for us.

The other piece, which we're excited about, and we've made a lot of progress. I know when we announced this deal, there were many naysayers about our $500 million in commercial synergies. That is going to happen. We are well on our way. I would even say at least $500 million of commercial synergies for us. And you'll hear Jon and John bring some of this to life. But our customers are aligned with us. They want to do business with us. Our contractors want to use our products. So that's point number one.

If I think about point number two, it's the enduring competitive advantages. And I'll spend some time on this, but you can see on the list here, we said products, brands, manufacturing, Hardie operating system, deep relationships, our commercial strategy. If a company had 1 or 2 of these together, they would feel pretty good. We string all of these together. This is very hard to compete with. The other thing we're going to unveil here, I know in these Investor Days, and certainly many years past, but I've done it before. People have done it before. As you put 3-year, 5-year targets out there, the way the market is, how could any of us predict what that's going to be?

What we feel comfortable with and what you're going to see, I'm going to take you through it in my section here, Ryan will dive more into it is, we have a compelling growth algorithm. Think of it as a differentiated type of portfolio, growth stack of things that we're going to do, that we're going to be able to outperform the market no matter what, right? So outperforming the market, whether the macro is tough, right? There's inflation. There's more consolidation. So you'll see that. And look, what's exciting is, we continue to enhance our cash flow. We are delevering pretty quickly. You see our margins continue to build. So we're going to have a lot of cash. And I think what's really interesting here and what's exciting is the optionality we're going to have, as Ryan takes you through the capital allocation.

The other thing which I'm most excited about is us being able to consistently execute, and I know that's what you look for, right? Are we able to do this day in and day out? And as I told my team last night, many of you are here, you want to see if you understand the strategy, you want to understand if you have confidence in it, but then there's, do you have confidence in the team that's going to go out and execute upon that. And I think we have the best team in the industry. So you're going to hear more about these investment pillars, if you will.

But let me go right to what I just mentioned and talk a little bit about our team because one of the things that I'm most excited about is for you to hear from this team. And look, I won't go through all their backgrounds because they can take you through it. But as we decided to bring these 2 companies together, there's different approaches you can take. And I've been through a few of these. You can say, okay, we're the acquirer. We're going to do whatever, it's going to be the legacy team that's going to run the business. We took a different approach. We said, these are very similar type of companies, right? And so the best approach for us as we move forward, and this is what we've done not only with the team, but we've also done this with the way we've set up the entire organization, our processes is we're going to take the best of both. And that's what we've done here.

And there's really no coincidence why as you look at the backgrounds here, you have equal amount of legacy AZEK, equal amount of legacy Hardie here. So Jon Skelly, who runs our largest business, he's going to come up after me. You can see the breadth of experience that he has. John Madson, who's our Chief Sales Officer, new to that role, but certainly not new to the industry, he is a legacy James Hardie guy since 2004. Sam Toole, who's legacy AZEK, but deep experience in marketing, with consumer brands companies. Ryan Kilcullen, legacy James Hardie guy. And then my partner in crime there, Ryan Lada, who's legacy AZEK that we were able to bring him back. So Look, we have a very strong leadership team. And with that context, what I'd like to just breeze through here quickly is who is James Hardie, today.

Okay. So won't go through this in detail because I think many of you are familiar with this. But James Hardie, we're listed in New York Stock Exchange, listed on the ASX. You can see our last year's sales, EBITDA and EBITDA margin. One of the things to talk about, and I know sometimes this can seem like fluff, but it's very important to us and was very important as we brought these 2 cultures together, is about our purpose, vision, mission and values. What we always start out with when we talk to a customer or we talk to a supplier is we talk about our purpose, we think it differentiates us, and our purpose is building a better future for all.

You saw a little bit about that in the video. That's what unites us. Of all the different things our teams are doing, our purpose unites us because we want our team to look through that guys on how are we building a better future for our stakeholders, whether that be our customers, our suppliers, the communities in which we live and work and also certainly for our investors as well.

You can see the split out of the business. Obviously, North America, the lion's share. This is pretty divestiture. So we have Europe and Australia and New Zealand. You can see it's about 10% each. And then getting more into North America since we've come together with AZEK. Repair & Remodel accounts for about 57% of our business, New Construction, 43% and then diving a little deeper into North America, you can see the product or the segment breakout. And the legacy Hardie business, Fiber Cement is still 60% of our business. Okay?

All right. So let's take a little bit more of a dive into North America, and Jon and Ryan are going to cover more of this. But our business in North America, this is the growth engine, it's split out in Siding and Trim and it split out in Deck, Rail & Accessories. As we mentioned, Siding and Trim is the largest part of our business. The other thing to take note from this slide is you just see the footprint of our manufacturing locations. When we talk about enduring competitive advantages, this is really key because we have about 26 manufacturing locations across North America. They are close to our customers. This is on purpose, about 90% of our customers are within 1 day's haul. This matters, right, for quick turnaround. So this is a competitive advantage for us.

So as I said, the team is going to dive more into North America. Let me cover our international business here very quickly. So Australia and New Zealand and Europe, and I'll get to Europe here in a second. One of the questions I anticipate, and I'll cover it right now is, are you committed to Australia and New Zealand? Yes, absolutely. And I see some of our friends from Australia here laughing. Yes, we are committed to Australia and New Zealand. We love this business. This has been a great business for us. John Arneil and his team do a great job. You talk about difficult operating conditions, that's what's going on in Australia right now and these guys continue to deliver growth. So we like this business. It's our most profitable business. We have good market share there. Our brand is iconic in Australia, and we see growth in Australia.

And one of the things that we're starting to do because of the strength of our brands, the strength of our position within the channel is, we're getting into more building products. It was really just fiber cement. So we just launched this past year air-rated concrete. It's called Hardie Gravis. And we expect next year to take some of the AZEK technology and get into outdoor living in Australia. So a great business for us. We like this business a lot.

Going to Europe, look, we announced the divestiture of Europe. And I know, with many investors, this is always the question, what are you going to do with Europe? Look, the European team is a stellar team. They've done a great job. If I look over the last 4 years, their ability to grow the business in a down market, accretive margins. They've done an excellent job. What we wanted to do is shift our focus where we think we have the best right to win and the greatest opportunity and that is Australia, New Zealand, but primarily in North America.

So you can see the sale of Europe $980 million, EBITDA multiple around 12. We think this is going to close the first half of next year. And certainly, you saw the announcement, we're going to use some of the proceeds to accelerate our debt pay down and then we announced Board approval for a share buyback, okay?

So a little setup on the business. And I got to keep moving here to stay on time. But we talked about this in the beginning, 14 months since the close of the AZEK acquisition. And I talked to many of you, it feels a lot longer than 14 months. Sometimes it feels like that this has been years upon years. And that's usually how integrations go. And our team has worked relentlessly in making this a success. And again, after being through a few of these, this has been a success, is the way we put these 2 companies together. Certainly, nothing is ever perfect. But I think the numbers speak for themselves. And what we gain by bringing the 2 companies together? I mentioned the commercial synergies. We'll unpack that a little more. We feel very, very confident in our ability to be able to deliver on those commercial synergies. And I think all of you are going to walk out here and be like, geez, it's only $500 million.

The other thing, our cost synergies is we said that we were going to do this in 3 years. We're going to finish it at the end of this year. So we're going to be at our $125 million in cost synergies by the end of this year. That's a testament to the team and the work that they've done. Now does it stop there? No. Where we shift more towards to, which we always do, and Ryan will talk more about it, is our Hardie operating system, which I like to say is our inflation mitigator, but it's our cost savings arm, right? We are always in continuous improvement. So we certainly see more opportunity. But what we stated out there publicly, we're going to be finished with to hit that goal at the end of the year.

I think the other thing that's really exciting, and I'm going to get into here in a moment, is bringing the 2 companies together. Again, this is a point of stronger together versus separate is we increased our opportunity, our TAM by more than double, right? We now have a serviceable addressable market that goes from when we were just James Hardie $10 billion to now $23 billion. So that's pretty exciting if you're sitting there as an investor, certainly exciting to us as we think about the opportunities out there.

And then I'm not going to get into the commercial because John is going to cover that, Jon and John will cover that, and Ryan is going to cover more of the operational piece. But look, it's exciting to see, again, taking the best of both. One of the things that we've done is taken our Hardie operating system and started to implement that in the AZEK plants, and we're seeing a tremendous amount of efficiency here.

All right. So let me shift more towards what is the opportunity for us. Look, it's large, right, if we think about this. And it is really set up well for us, right, for having resilient, beautiful product, right? Customers are more -- when you think about Repair & Remodel, for instance, it's just not turnover Repair&Remodel. It's preference Repair & Remodel. They're choosing what they want, and a lot of them who are more affluent, right, who are buying our products, are choosing to have resilient beautiful product, product that stands up to water, stands up to pests, stands up to fire. If we look at our portfolio, we're really the only ones who can claim that out there.

So that is a big part of what we do is material conversion. And our opportunity is to convert share from inferior, less resilient products. You can pick the product or the substrate inferior products, we're working with homeowners and contractors to convert them.

I think we do have some tailwinds here. If you look at the aging housing stock, you look at, for Repair & Remodel 35 million homes, 20 to 40 years old. They're ready to be repaired. You go around here in the New York City area where I'm from, Chicago, you go to suburbs, it's just endless, right, the vinyl homes, the wood homes that are all ripe for our 500-person sales team and all of our partners to be able to go out there and convert. And then you look at the number of decks that are older and the team will talk about this, but certainly another opportunity to convert inferior products like wood to our PVC and composite materials.

And then look, the other thing that is more prevalent here in the U.S. as you think about 1/3 of the U.S. homes are in wooly zones. So I know I'm going to get this wrong. I do every wildland and urban interface zones, right? So think about wildfires. And if you're rebuilding, you need to use materials that are fire resistant. And as I talked to, our materials are perfect for that.

So that runway is meaningful because we now have the portfolio to capture more of the exterior. So let me just show you how this comes together, and I'm not going to spend a lot of time on this, but you can see siding, trim, decking, railing, accessories, all outdoor living, right? I think the point here, and we went back to talking about consolidation within our industry, this completeness that we have to offer now changes the conversation that we used to have as James Hardie and AZEK used to have as AZEK. Now we have more to offer, whether that be our contractor, our homeowner, our dealer partners. That's very important as we think about what's going on in our industry.

So look, a complete portfolio matters, but what's even more important too is having iconic brands, right, that contractors are demanding, that they want because homeowners are asking for. And I won't go through all the 1s and 2s, and I don't like to see 2s, and we're going to change those here very soon. But you can see from siding, we are the brand out there. Decking, we are the brand with the Pro. You can see trim, exteriors, we are the brand, pergolas, structures, railing and then even recycling. So this is very important for us. We call them iconic brands, I think about them as hero brands.

So look, these brands are really important, but part of bringing the 2 companies together was really important and a big part of our strategy is having the right distribution model. And the team is going to go through this more in detail. But we announced this about 45 days ago, our 2-step distribution partnerships. Now I'll just step back here very quickly and tell you this. This has been part of our plan for well over a year. As we think about the 2 companies coming together, and here's the list of actions that we're going to go out and do to make the $500 million synergies a reality, to be able to go out and service our customers better. This has been part of the plan. And so we were able to do this by coming together.

Certainly, Boise has been a long-standing, great partner of James Hardie for years. And so we utilize that relationship, talk to them about decking, talk to them about trim. We did some test markets. It worked, exceeded their expectations. So this is full alignment with what we think is the premier national 2-step distributor.

That plays well to our strategy of having our product readily available and more available to more of our customer partners. Coupled with that, because of our AZEK relationship is the best-in-class regional 2-step distribution partners. So we have been talking so much, I'll give you, for instance, about our desires, James Hardie, to go out and spread fiber cement in the Midwest. That's not been an area that we focused on for years, right? We were focused on more new construction areas, but that is a hot bed of repair and remodel for us.

We have, for instance, and all of these are outstanding 2-step regional distributors, but we have a partner in Lumberman's who knows that market better than anyone, who are now going to bring in James Hardie fiber cement for the first time, getting rid of a competitor, and they're all in with us. So I'll let Jon talk more about this, but this is really, really exciting to us on our future and how we're going to be able to achieve our goals.

So as I start to wind down here, how are we going to win, right? And how are we going to defend? And I just look at our -- we started to think about what do we do that no one else can touch, right? And I talked about this in the beginning, but really enduring competitive advantages, the leading brands, resilient product portfolio, scaled localized manufacturing, our Hardie operating system, deep relationships across the value chain. And this is really important because we talk about 500 sales reps, but Jon will take you through this here in a moment. You start to compound that 500 with all the relationships we have, the thousands of one-step distributors. Boise Cascade with 750 people on the street and it just compounds. They're all out unified with us aligned in selling our product portfolio.

And then certainly, we think about the differentiated commercial strategy. Again, and just to take note of this, you have 1 or 2 of these, it's a differentiator. You have all of these together, this is very, very hard to compete with. So you translate these to the team of what are you going out and what are you doing each and every day? And this is what our team is focused on. Number one, accelerate material conversion. Everything really leads into this. So that is converting inferior product to our product.

Drive channel expansion, as we talked about some of the deals we just mentioned with Boise, regional distributors, we'll talk about ABC, we've talked about Lansing. The list goes on and, on. Make our product more available out there. Jon will cover advanced product innovation. This is, again, bringing the best of both together. And we think we have a long runway and some exciting innovation that we're going to offer our teams, continue to extend our brand leadership, and then this is really who we are when we talk about enhanced homeowner and Pro journey. This is all about being a homeowner focused customer and contractor driven. How do we make it easier for all of those in the value chain?

So look, this all leads up to where we think we can take this business. And ultimately, we're judged by the points we put on the scoreboard. And what we're doing is we're targeting organic growth of 4% to 7% that's not market-dependent. And the way I like to think about this is a differentiated portfolio. So certainly, we have the long runway of material conversion that I just mentioned. We have growth initiatives and we have our revenue synergies that we would layer with us and then certainly net price that we come out with every single year.

So if you ask me to break this up, I'm not going to. This is a differentiated portfolio because one year, one may be more than the other, but in balance, we are confident that we can get to that 4% to 7%, not market dependent. And then if we think about opportunity here on top of this for growth, certainly bolt-on M&A, and if we get some tailwinds from the market.

So in closing here, our investment thesis for all of you is, look, we're going to deliver growth above the market. It's not cycle dependent. We have a list of competitive advantages. Put them all together, very hard to compete with us. A compelling growth algorithm with compounding earnings. It's going to increase and enhance our cash flow that's going to give us optionality as we think about moving forward, what to do with that cash. And then we have the team that's going to deliver consistent execution to really build on long-term growth. Okay?

So look forward to spending the day with you. I'm excited to introduce here our President and General Manager of North America, John Skelly. All right. Jon?

Good morning, everybody. Wow, what a room. It's great to see so many familiar faces. And get to share with you a little bit about the North American business. So my goal, my objective here is to get you a layer deeper. I really want to focus on how we execute, how we win? That's going to be the agenda today. So I appreciate the introduction from Aaron. I joined AZEK in 2018. Prior to that, I had leadership positions at Grainger and Home Depot. I was President of the AZEK business prior to taking that role here as the President and General Manager of North America.

I'm just 1 individual. I think what's most important is the full team that we put together, right? I think we have a team that has a proven ability to execute and drive share gain and value creation, right? We work together hand in glove. The operating cadence, the capabilities, what we do as a team is really different. You put that team on top of the platform that Aaron just mentioned, that's how you drive value creation, right? So if I leave you with nothing today, it's not just a differentiated platform. It's not just an individual, it's a team of individuals, massively aligned around a vision, a mission and a purpose and we're here to deliver value creation and share gain.

In terms of the 4 key points that we'd like to focus on today, it's pretty simple. First and foremost, we're in a highly attractive market, right? Aaron talked to you about the $23 billion opportunity that we have in front of us. We have a massive, massive opportunity around material conversion. What does that mean? That means we don't need a new strategy. We don't need to create new growth categories. We have a $23 billion opportunity that we have to execute against, and we're already doing that. We're winning. We're putting points on the board. We're delivering.

Second, we have a great strategy. It's simple, 5 things. We're focused on it. And again, back to the team, we know how to take that strategy and drive execution against it, right? A lot of people look good on paper, but what really matters is do you get results. And we're going to talk to you about how we get those results.

Third, we have unique advantages, right? So Aaron touched on it, I'm going to go deeper on that today. When you look at the brands, you look at the manufacturing capabilities, you look at the downstream conversion capability, right? It's just massive. I'm going to show you a slide later that I want everybody to pay attention to. It's got puzzle pieces on it. It's going to talk about how it all comes together, create sustained strategic advantage, and it's very difficult to replicate.

Fourth, with that platform, what you're going to see that's a little different about us is we don't have a spread-the-peanut-butter-a-one-size-fits-all approach. We have focused regional execution and strategies to win. What resonates here in the Northeast is not necessarily going to resonate in California or Texas. And so we're going to have a focused strategy to win and focused execution in each of those markets from a product perspective, from a sales perspective, from a manufacturing perspective, it all comes together, delivered locally at scale.

So let's talk a little bit about the opportunity. This is the breakout of the $23 billion by our product lines. When you take a look at this, what's most important is we have a lot of opportunity across each and every one of our product categories. So whether it's in Siding, Decking or Trim, we have 70% to 80% opportunity to convert. Again, back to the earlier point here, we don't have to go look and say, what's a new growth channel for us to grow. We had these opportunities, they're massive, Siding $12 billion, other exteriors an additional $4 billion, decking $6 billion. So you look at the size of these market opportunities, you think about our presence and think in each and every one of these, as Aaron mentioned, inferior materials, right?

People don't want wood that rots on their home. They don't want vinyl that fades in 3 to 5 years. They don't want Stucco that cracks. We have solutions and opportunities to address each and every one of these inferior materials and convert them to our value-added beautiful and resilient materials.

I think when you think about the long-term opportunity for this business and why material conversion matters so much, 1 point, if we can drive 1 point of material conversion. And if you look at our history over the last several years, we've driven massive material conversion, every point of material conversion drives 4 points of category growth for us, right? So that leverage effect is really important. So when you look at that opportunity, when I say 70% to 80% of the market can still convert to us, each point drives 4 points of category opportunity for us, right? That's a massive opportunity.

So what's our plan to win? This is it, 5 pieces, and this is what we're going to execute. I'm going to give you a slide on each of these in the future. We're going to walk through each 1 step by step. What's really important here is, we have a proven track record. So again, I talk about that team. This is not a dream. This is reality. Each and every one of these pillars, we've already made significant progress against. And I'll talk to you about how we're going to continue to drive that growth in the future through them.

First, foremost, material conversion. We have to accelerate that. It's about education, awareness and driving contractors, dealers and homeowners to understand the value proposition, why they should use our products and not something that fails. It's pretty simple. Replace things that fade and rot with things that are long lasting, beautiful and resilient.

Channel expansion. This is just getting our product more available and on more shelves for more customers to buy, right? We're going to go into detail on this, whether it's Pro, big box, whatever it might be, we want our products to be available everywhere, and we want more of the portfolio to be available everywhere.

Third, advanced product innovation. This is core. This touches on the kind of best of both principle that Aaron shared with you. This is bringing the AZEK innovation engine to the entire one James Hardie, and accelerating our ability to bring products to market that solve customer problems.

Fourth, extend brand leadership. The best brands drive the most traffic at our customers. The best brands are what are trusted and desired by homeowners. We have those leadership positions. And where we're not #1, we're going to get to #1 very quickly.

Then finally, enhance the homeowner and Pro journey. This one is really important. The easier we are to do business with, the easier it is for you to repair your home, the easier it is to install our products on a home, the more we win. So we're going to continue to improve the opportunities for homeowners and contractors to work with us and drive more value creation for the business.

And this is all underpinned by the advantages we generate around HOS, the technology investments that we've made and the entire support system that works with business, the commercial organization, the product team, the manufacturing teams to get fully aligned and drive our strategic priorities.

Okay. So material conversion. This is, by far, our biggest opportunity, right? I shared with you the numbers, the conversion opportunity, 78% opportunity. If you look at the macro here, if you look at the setup, it's all about education and awareness, right? So again, whether you have an aging home, whether you have some of those climate issues such as fire or hurricanes or moisture, all of those trends, we have consumers' attention. The homeowner cares about these things. What's beautiful about our portfolio is it fits perfectly against those macro trends, and that's going to help us accelerate material conversion. If you've had an issue with a fire, if you've had an issue with a flood at your home, the last thing you're going to do is put wood back on it. You're going to find a product that comes from James Hardie to solve your problem.

So we have the consumers' attention, and we're capitalizing on that to drive accelerated conversion. With that awareness, we take our 500 salespeople, and we take our thousands of partners to drive that message. We cross-sell the full portfolio. If we get somebody's interest in siding that's fire resistant, how would you like to buy fire-resistant decking to go along with it? So that allows us to unlock the cross-sell in this full portfolio sell.

What our team does, that's really unique back to local strategy is, you have 500 salespeople on the ground. I call those the ground troops. So they're out there market by market and not just market by market, block by block. If you flip 1 home in a neighborhood to Hardie and the guy next to you has got vinyl, the guys looking over his fence and saying, "I want that." So that's market development, we do it market by market.

Take the ground troops, bring in our world-class marketing organization, that's our air cover, right? So whether it's a national campaign, a local campaign, they are getting down and dirty, working closely with the ground troops to say, "Hey, if you're in California, you're probably going to get messaging about fire. If you're in the Southeast, you're probably going to get messaging about rotted pressure-treated lumber," right? So it's a tailored approach, deliver at scale, and that's something that's really unique to us. We have the capability to have the right messaging, the right product offering that's going to connect the most with that consumer based on your region.

And then what we do with the product organization and the innovation engine is we take feedback, okay? What are our gaps? What are opportunities from a product perspective? We're talking to builders, we're talking to architects, we're talking to contractors, how do we improve our product offer? We take that back to our lab, back to the R&D, drive the innovation of the new product that we then launch to solve that customer problem. So it's this positive flywheel effect that you have in the business that allows us to take additional share.

And when you look at that local relevance, you take that big $23 billion opportunity and say, "Okay, how do I boil that down to local market?" A couple of examples here, fiber cement in the Northeast, look at that conversion opportunity. It's massive. And then you go down the South, you go at pressure-treated lumber, you will get the opportunity to convert all that pressure-treated wood to TimberTech decking. It's huge.

What's really unique about our business, if you look at the Midwest, and Aaron touched on this with 1 of our partners, Lumberman's, but if you look at the legacy TimberTech and AZEK relationships in the Midwest and Northeast, we are the brands. We're the winners. We have the locations. We have the customers. We have the contractors. What are we doing? We're pulling through fiber cement R&R in that market. Same is true for James Hardie in the South. They own the South. Now they're helping pull through decking and railing those relationships that they've established in the South.

So when you talk best of both and when you say what is the synergy, that's a synergy brought to life, where you take relationships, presence and a broader portfolio and you drive cross-sell in 2 very important markets with large conversion opportunities.

Okay. This is the aforementioned really important slide, so I want to spend some time on this, right? When you think about what is sustained competitive advantage, like what can this company do that no other competitors can do? This is it. So let's dig in a little bit here.

Channel expansion. What this means is, again, how do I have my products closest to the customer to drive value creation and share gain. It starts with -- Ryan Kilcullen come up here and tell you a little bit more about the manufacturing network. Aaron showed you the math. Look at that platform of manufacturing that we've created, right? We have billions of dollars of investment against this, right? So for those of you who don't know, it's not cheap to build a fiber cement plant, right? And we have them incredibly close to our customers across the U.S.

You take that product from those manufacturing facilities with high service and great quality and then you deliver it to the best-in-class distribution network that Aaron just showed you, right? So we have the best of the best in terms of service, they have the most salespeople, they have the most demand generation. They're taking our product and then they're delivering it close to the customer. So who's the customer? It's close to 4,000 big box locations and 14,000-plus dealer locations, right? So those distributors, and again, they're not just delivering product. What they're doing is those distributors are bringing that product to those retail locations to those dealer locations. In the case of Boise, they have 750 salespeople and you just compound that by all those other distributors, and you had a massive force of downstream demand generation happening at the customer level, okay?

They're doing things like quoting, they're merchandising, they're training, I mean make no mistake about it. These are not delivery drivers, right? These are value creators, right? And then they're educating those dealers along with our sales team. So John will talk more about this. You have this massive training and massive coaching opportunity where the inside sales teams and the outside sales teams of all these locations or even the in-store sales associate in a place like Home Depot or a Lowe's, they're being trained, educated and we're merchandising all these locations. So when you walk in to one of those locations, as a homeowner, you're seeing this massive amount of TimberTech, AZEK, James Hardie, and you're being sold to by an educated salesperson that we've trained and the distributors have trained.

We then attach that to our Pro network. 30,000 Pros are in our program. We have about 300,000 total in our system, right? They are -- and these Pros, as some of you've heard before, they bleed green, right? I mean they are completely connected to our business. We think that, that's 10x the size of any competitor in terms of people in the program, right? So when we offer things like additional labor warranties, when we offer them training and coaching and development, when we offer them leads, we'll talk about later, I mean, we delivered last year 40,000 homeowner leads to that contractor base. I don't know about you, but if you're a contractor and you're trying to grow a business, do you want to work with a company that gives you 40,000 leads a year, that has market-leading brands, that stands behind you when you have an issue with a product, if you have a warranty claim, that's who I want to work with. And that's why our customers are so sticky with us.

And then we attack millions and millions of homeowners. We touch them every day, local marketing, national marketing. We're driving the trends in the industry. They see the beauty, they see the aesthetics, they see the capabilities of the company and they say, "I want James Hardie on my house." No one else can replicate this. No one can. I mean, this took decades to create. And when you talk about why the scale matter, this is when scale matters. The scale that we're able to operate this at and then deliver it locally, it's incredibly unique. We think this is a sustained competitive advantage. We think this is virtually impossible for anybody else to recreate.

So innovation. At the end of the day, I think it's really important to remember that the reason we exist is because we're a product company, right? That's where it all started. We developed beautiful, high-aesthetic, high-quality products that solve customer problems. And what we've been able to do is we've been able to evolve over time. Both James Hardie and legacy AZEK sort of started from a premium position. That's where you always want to start. You want to start at the highest quality level and then that gives you a lot of optionality. What we've done is we've expanded into good, better, best and premium.

Why does that matter? That allows us to meet the customer at whatever value points import to them. That allows us to be more important to more consumers and to more contractors across North America. So we have a very focused product development strategy and a very focused R&D agenda. This is the best of both. We've consolidated our R&D groups, our product groups and we are reigniting the innovation engine across James Hardie. So there, again, a sustained competitive advantage, the ability to continue to produce products that consumers ask for, take those insights, bring them back into the business, create new products and then go back out with our downstream sales and marketing execution and drive share gain.

We're making significant investments here. Aaron talked a little bit about the recycling capabilities that we have. This allows us to not only do good things for the environment, but at a very favorable cost position.

Brands. So you're going to get a lot of this from Sam in a moment. I love these charts, up to the right, big plus signs, lots of big numbers. I think you get the point, right? A brand is really important to driving success in this business, right? Contractors, again, want the brand they trust. Homeowners want a brand they trust. Our ability to activate these brands is second to none. Sam is going tell you a little bit about it. We in-sourced our entire marketing team. We don't rely on outside agencies.

Everybody who does marketing for James Hardie does it 100% of their time. They're focused on our brand message. They're focused on our creative. They're focused on our execution. This is what's going to allow us to be #1 across all categories, right? We're getting close. We have a lot of momentum. We've been driving massive brand awareness and preference over the last several years. We're the clear #1 in siding, we will be #1 in decking.

What really matters here, again, is this whole trust concept, right? We have to stand behind our products. We have to deliver value at each point of the value chain across our businesses and we've been doing that, right? Again, I said it earlier, if you have a warranty claim, if you have a product question, if you have a color question or whatever it might be, we're going to be there for you. We're going to stand behind you. This is why the contractors are so sticky with us. They know that we stand behind our products. They know if there's an issue, we're going to take care of them. They know that once they install the product and they leave the home, that the product is going to withstand and still look beautiful for years to come. The contractor's biggest nightmare is getting the call back. That's time taken away with no additional money. We stand behind it. That's what our brand means. That's what our brand stands for. And I think you're going to be really excited to hear some of the things that Sam and her team are doing to execute against this.

Homeowner and Pro engagement, I talked a little bit about this earlier. Again, our massive advantage that we have in terms of the contractor base. We work with 300,000. We have 30,000 in the network. Each time we convert 1 of that 300 into the 30 and grow that, that becomes a really positive flywheel. Jon is going to talk to you about some of the specific wins like the way I -- my words on this would be simple is, we're hitting a lot of singles, like every day, 10, 20, 30 contractors are, I'm putting in siding. I walked into the house. I'm sitting down at the kitchen table with the homeowner. And I show them that they're decks rotting. So what am I going to do? I'm going to talk to them about TimberTech, right?

I see that there's trims right around the windows. I'm going to talk to them about AZEK, right? So this position that we have, the breadth of our contractor network, the depth of our contractor network, that gives us an opportunity that nobody else has. We are at the kitchen table with the homeowner. We're talking to them about the beauty of their home. We're talking about the resilience of their home. We have their attention, we have their access and now we have more products to sell them. It's a huge advantage.

Talked about those 40,000 homeowner leads that we have. It's massive. One of the other things that we have to do here is reduce any friction that's involved in the business from trying to get to an inspiration, an idea what my home could look like to a completed project. We're investing massively against that, whether it's visualization, digital tools, we are driving more engagement and we are driving an easier process to get either your home recited or to create the outdoor living space to your dreams. Massive investments against that, it's working. We'll talk more about it.

And then this is just -- I'm not going to spend a lot of time on this, but just a quick snapshot. John is going to come in and talk more of this. This is a vision of how we execute regionally, right? So again, different approaches, different strategies by region with dedicated playbooks that allow us to win and what's locally relevant across. But again, what's really exciting here is just pick your geography. $1.3 billion opportunity around fire in the West, $1 billion opportunity around fiber cement R&R in the Midwest and Northeast, right? Anywhere you go, we have multibillion dollar opportunities to win and convert inferior products, whether it's wood, stucco, engineered wood, brick, you name it. We've got a plan to win, and we're executing that plan, and we'll put the points on the board.

So I'll end with where I started, 4 key points. We got a great business and a great market, and we know how to take share. We have a 5-pillar simple, executable strategy. What you've been seeing from our recent results is we've put points on the board, we're delivering against that strategy. The product innovation and scale capabilities are unmatched. We have the ability to bring new products to market, drive downstream conversion and generate wins, and we're doing that locally in a locally relevant way, by region, and again, proven results, and we really, really think our opportunity to continue to drive share gain and market development across North America is unmatched. Thanks so much for your time. I'm going to hand it over to John Madson. Thanks, everybody.

All right. Good morning. My name is John Madson. It's good to see a few familiar faces in here. I have been with this organization for 22 years, and it's a pleasure to have done many of the roles that I'm going to talk to you about today. And some of the markets that I've worked in are where we're really attacking differentiated positions in North America. So before we get started, I want to walk away with some of our key messages. One, we've been through a tremendous lift over the course of the past 14 months. We've done things to pull this team together.

And when you have the opportunity to lead an organization inside of this industry that we get to work in where you have 2 companies that are coming together that are anchored in material conversion and in hunger to grow and take share from the competition and then you get to put them together, it's no easy feat, and we're talking about how we built that organization built on commercial excellence, focused on the customer, believing in the value that is our #1 value, that it starts and ends with the customer.

Then we've got to take the game plans into our regional playbooks. And so each market is different. What we do every single day, what type of competition we're against, what customer needs are, how we develop and train our leaders that develop and train our teams. Each day, we have a playbook that we're running and we're operationalizing. We've got to take those teams in a specialized way to deliver value to our customers, knowing that the needs at a particular dealer location could span exteriors, outdoor living and their targets and how do we activate that the most effectively with the teams that we have in the field, driving that position and pulling through and converting material every single time we go and work with each of these dealers and how we drive that.

And then finally, leveraging the portfolio. Aaron and John talked about our opportunities that we've already are well underway with our revenue synergies. And my job here is to ensure that you understand that there is proof behind this. Because we are out working with our customers, developing those team members and converting inferior materials through the access that we have with those customers and driving that shelf space gain with each of our product lines. And I'm going to take you through what we've built over the course of the past 14 months, and it's been not easy. We've started this back in July when we came together. We began the integration of the 2 teams, and we started with the customer. It was focused specifically on what the customers' needs are, what their voice was saying and how we deliver the most value to them.

And when you look at what we've built, we have over a 500-person sales force. We have one point of contact at the channel level. We took this new role, which is the channel manager, and they are the quarterback at the channel. We have 6 divisions across North America. We have over 13 -- we have 13 regions. We have 36 different districts. And in those districts, you can see these market directors are leading teams that have a channel manager that work with our dealer partners every single day. They work on different needs that the customer may have, whether it be a Pro one stepper that has a space constraint, and we're looking at how we deliver that material more efficiently and effectively.

The targets that we're driving to grow expanded category or market share. And that particular channel manager takes those needs, identifies joint targeted opportunities and passes them to the specialized sales force that we have in those regions. We've specialized our teams around siding and trim and/or outdoor living game plan. Those particular individuals are dedicated to downstream demand conversion. They're identifying targets with their customer partner, their dealer partner, and they're identifying them and taking the value propositions that we have regionalized to each of those opportunities so that we're creating value at the contractor level that answers the call of our homeowner journey and then pulls that back through our aligned partners in a way that it's differentiating our position, creating value at the dealer level and enabling them to sell more and make more selling James Hardie suite of products than any of their competitors.

When you look at the outdoor living and DR&A specialists, they work in tandem with that channel manager, but we enable it on the site so that we can convert that product line with our technical specialists. We've created technical sales across the business for many years, but this team continues to enhance in a way that's differentiated versus our competition. We've got technical sales leaders that oversee a region. They work with contractors in the companies as they identify new opportunities with their builder or R&R communities or R&R contractors. We have technical sales managers that drive that relationship in those districts. They work closely with them on the technical aspects of putting the materials to the wall or to the joist.

And then they really drive our opportunity to leverage the labor in the marketplace with our technical sales specialists, a group of bilingual individuals that are activating our capabilities on the wall so that we can take more opportunities against vinyl or inferior materials, create efficiencies to drive that growth and then ultimately move a market from an inferior material like vinyl to James Hardie. This organization was handpicked -- we have the best 2 companies in our industry coming together. There's capabilities across both sides where we balanced our 6 divisions.

As John and Aaron both stated, we took the best of both. We have a perfectly balanced 3 regional vice presidents from the legacy AZEK organization, 3 regional Vice Presidents from the legacy James Hardie organization. Each of their particular regions in the market are well balanced between legacy leaders on each side of the business, taking the capabilities, the strengths and the development opportunities and putting them into action with our sales team. Many of our frontline leaders are unchanged. Our frontline sales folks are unchanged. They had an expertise in outdoor living or an expertise in exteriors, and they're taking and harnessing that with the channel manager to drive that growth back to the dealer level, pulling that material conversion back through, gaining shelf space share and delivering value through the channel manager to enable our ability to be the most effective partner with our entire value chain.

And I'm going to show you a slide here in a little bit that articulates that value chain and walks you through how that force multiplier that Aaron referenced is activated with this team and how we designed it. When you look at the regions, it's not a one-size-fits-all approach. The West is a wildly different market. I worked in Seattle for a number of years. I came from the Northeast and said, we should be selling color in the West. We've got this. But when you have a high category share opportunity and you have a tremendous opportunity against wood conversion, you have differentiated positions that you have to attack it based on the needs of the market.

And one of those needs is the Wildland-Urban Interface that we've talked about, and I'll touch on that here in a bit, is there is so much opportunity to shift our market based on what the events that are happening in the market. And so when we look at the West, outdoor living is a tremendous opportunity for us. John mentioned, where we have very high share of TimberTech, we have opportunities to grow with Hardie. Where we have very high share of Hardie, we have opportunities to grow TimberTech. What we have is trust and credibility at that dealer level and with our 2-step distribution partners in a way that we're gaining access at those dealers. We're telling the value proposition of our full portfolio of products, the opportunity to be able to engage a contractor and develop their business in a market that isn't as buoyant as years past, but still is rich in opportunity for us to go out and convert material.

When we develop these contractors around our regionalized playbooks and develop the market around the go-to-market strategy or where we aspire to change that market, we have a unique skill set and developed salespeople that are out there to attack it. And when I look at this as a very clean strategy around material conversion, shelf space gains through our dealer partners and activating it with the homeowner, we are creating that level of value to change the marketplace. You get down to the Southeast, we're driving material conversion with each of our business partners and how we take a challenge against stucco and convert that to fiber cement with a very robust game plan around developers, municipalities, engineers on block versus frame construction, how in a market where people are trying to build more affordably, more efficiently, we can change the construction style from a block construction in Orlando to a full frame construction, and we engage every member of that value chain so that we have more addressability on the wall.

Each of these markets, each of these playbooks are uniquely differentiated and enabled by our team that is backed by our segments and operations team that are dedicated to each of the functions that we drive every single day. We have a team for outdoor living. We have a team for exteriors. We have a team in L&D that develop the sellers to deliver the value by the region in the differentiated way that we execute it in the North American market. I mentioned fire. You take a market like Denver. This is a market where the wildfire -- Wildland-Urban Interface is continuing to expand its presence with the consumer. Over 50% of that market is in the WUI zone.

There is opportunity where we have a differentiated position versus our competition where our products are either Class A flame spread in our vintage line of decking PVC or noncombustible with fiber cement, which is a requirement. And as that gains traction in each of these markets, we have a very valuable value proposition that we can share with the entire community of builders, contractors, but more importantly, the homeowners and how we take that air cover that John was mentioning and drive it into our marketing message back to the contractor and really capture our capabilities in a market like Denver or the Colorado market and the entire West.

Then you get into flood. I mentioned the Florida market and what we're doing differently. Our products don't rot. Our products don't have challenges with the high climate contents that we would see in floods, hurricanes, wind risks. But we have this momentum behind us and our composites and PVC decking are going to sustain the performance in those marketplaces, and we have a tremendous opportunity to continue to tell that message around rebuild, preventative approaches and true value to the regions that we have.

This is the slide that I mentioned. And this has been a ton of fun over the course of the past year because we saw this opportunity when we came together. You had 2 great companies that have great distribution networks, but very few of them were harmonized between the 2 companies. And so as we came together, we needed the easiest path to market with the best-in-class 2-step distribution. And we lived by our principles of best to best-in-class in market. This is a consolidating space that we wanted to give a long runway for growth for our partners to be able to develop our markets, work with us closely to drive that force multiplier of our sales force of 500, their sales forces of dedicated exclusive partners. And you have a partner like Boise Cascade that both Aaron and John discussed, these guys are dedicated to what the call of our history is with James Hardie, and we've been a partner with Boise Cascade for the past 25 years.

But when you look at what their presence is now with James Hardie and the full TimberTech, James Hardie, AZEK suite of goods, they are a force to reckon with, and they're complemented by our regional distributors in Capital, Dixie, Lumberm's, Parksite and Woodgrain. And then you pass that over to our Pro distribution partners in ABC, QXO, BFS, these are entrenched in what we've done over the course of the past history with James Hardie. And in the partnerships that we have with our independent lumber yards like Riverhead or Interstate and the slurry of those independent lumber yards across the country. TimberTech was well positioned and AZEK was well positioned with both of them. And James Hardie has been well positioned with the One-step channel.

And as you've heard, ABC and Lansing have developed into new relationships with James Hardie, and I'm going to park on ABC here in a bit with what we've been able to drive as a partnership and answer the calls of their challenges to really drive a value proposition back through our channel. And then on the right-hand side, this is where the specialists are activated. The channel manager works with the 2-step distributors, the 1-step distributor and retailers. And then with the specialization, we are targeting single-family builders, contractors and installers every single day. We're working with them to create the value proposition so that they're selling in the home a more effective approach with that exterior envelope. And then with the builder community, as the market changes, we have the positions with our good, better, best model to be able to drive our capabilities with each member inside of the builder community.

And we're fortunate to have earned a position with 23 of the top 25 national homebuilders. And what that drives is a scaled position back to our dealer partners so that they have the turns on our product line. That turn allows them to work with the contractors in the R&R space so that they have a robust position around our product groups and are enabled to be able to sell that in every different segment that they operate in. So I want to take you through the example of our 2-step distribution synergy with Boise Cascade. Aaron mentioned that we've been in this for over a year. And when we look at the partnership that we've had with Boise Cascade for the past 25 years, the fragmentation of 2-step distribution prior to our 2 companies coming together and the opportunity to grow that between a full-line James Hardie product group, we started in Baltimore and Pittsburgh.

We had that fragmented distribution around each of the categories, and we're able to harmonize through a test with Baltimore and Pittsburgh. And we have the solution that was anchored in our 2 best-in-class management philosophy and a go-to-market strategy where exclusivity prevails over our previous history. And this enables our outdoor outside sales reps to be able to drive a position where we win, they win, when they win, we win. And it's this accountability between our partnership that enables our groups to go out and sell every single day.

Our solution for our 2-step distribution strategy was a very clear 2-partner approach in every market. It gives them the reach, the connection and the capability to be able to sell more effectively. The outcome was one national partner. We have over 1,250 persons combined sales force. That means when we're working with them in the field, they're developing an opportunity, and we're taking that back to the channel partners they sell to every single day, retail, pro lumber yards, volume lumber yards, national distributors and the Pro distribution like ABC Supply. I'm super excited about this. But when you look at our partnership, it's best heard from the customer themselves.

So I'd like to introduce Joanna Barney, the Head of Distribution for Boise Cascade and hear it in her own words.

James Hardie and Boise Cascade have a partnership that can be measured in decades. We are in constant communication about market performance, design trends, changes in the industry that we believe will drive future performance. And as a national distributor that services every market segment from independent and national dealers to retail and home center channel to the one steppers, the big players in the multifamily segment, in order for our business to grow, we have to be partnered with the best-in-class suppliers, those who manufacture and consistently innovate and bring the top products to market. James Hardie has been one of those companies for many, many years.

And with their purchase of the AZEK and TimberTech brand, we saw that as a strategic move with a bold vision for where they can take the whole exterior product category in the future. And the value their portfolio of products can create up and down the channel, which is a future that we at Boise Cascade believe in as well and one that we are excited to support. And frankly, it's a vision that we believe we will make inevitable with the combined strength of our organizations, the sales forces that will come together with one common goal, the trust that we have each built through the channel with our customers and with the quality of the James Hardie, TimberTech and AZEK products. So we are excited to be on the forefront of where this bold vision is going and the success we believe this partnership will generate long into the future.

That bold vision is shared between all of their outside sellers and ours to drive that value back to the customers. And one of those customers is truly a differentiator above the rest. When we partnered with ABC about 10 years ago, it was a growth algorithm for converting vinyl. They created an alignment around that value, and it expanded beyond just the vinyl markets. When the 2 companies came together, we were faced with an opportunity that we took head on. They had a fragmented position around PVC. It was an owner decision at each individual branch level. Our partnership with James Hardie enabled us -- our partnership from the past as James Hardie enabled us to have that trust and credibility with their leadership to create a solution for ABC Supply that's going to expand into beyond a $1 billion partnership.

Over the course of the past year, we've integrated into their business with a One Hardie exterior portfolio to include our AZEK PVC line. This enables us to get into locations that we wouldn't have formerly been in, in the north, where PVC was fragmented and they were using a competitive product. Over the course of the past year, they've consolidated that to one product line. And that gives us that opportunity to reach into vinyl locations that would have PVC on the ground, create credibility with the branch leader, get the trust of the outside sellers and earn the opportunities to meet with builders that are buying vinyl and PVC by James Hardie, AZEK and get that as a conversion opportunity for future fiber cement growth.

Our partnership is just getting started with ABC Supply, and we couldn't be more proud of what we've done so far, and we've got more opportunity to continue to drive that as we expand our entire portfolio with their business. You look at the challenges of expanding that portfolio and you look -- and you see that we have to make this very easy for our contractors to be able to purchase our full line of products. And ColorPlus as a contractor was a multiple product line that was purchased by distribution through the dealer, potentially through a dream collection, and we need to simplify that for an offering that enabled vinyl contractors to sell James Hardie in the home more efficiently and more effectively. So we launched our Statement Essentials Collection. That's 55 SKUs that enables the dealer to have the on-hand materials of at least 80% of what people buy every single day that doesn't take a tremendous footprint, but allows them to grow effectively and offer to their customers what they need.

Then you expand that through our partnership with Boise into our master distribution profile, where we have 5 locations across the Northeast and Midwest that have a robust position of over 600 SKUs on the ground. This is same-day or next-day type of delivery to these dealer partners so that as the customer gets more engaged with the product line at the contractor level, sells a differentiated position to a consumer that wants more than our statement essentials, they have that availability through our 2-step partnership and our full extended statement position.

And for beyond that, we have our Made-To-Order collection, which is future products like TimberHue, our Dream Collection, all enabled through our manufacturing capabilities sold through our 2-step distribution partners and dealers and giving each of our consumers a differentiated position. Now as you make it easier to purchase, you also need to make it easier to install. So we enabled a new technic that you'll be able to see out in the ProLab offering in the other room there, which enables contractors to be more efficient. We've talked on the wall cost for a long time. But really to compress it, we need to make contractors more efficient. And so we've used our teams in technical sales. We've partnered closely with our dealers where we are identifying labor, and we're using the contractor and the dealer to create a host site for us to train in the masses how you can more efficiently put Hardie on the wall and get the gap to vinyl closed.

And we do that through our partners at ABC, our partners at the Pro channel and then take that over into our Trim-Over method in the field with our tech sales specialists that drive that on-the-wall cost through efficiency and taking days off of the wall with our Score and Snap Technology and only fiber cement can be scored, snapped and trimmed over in the way that you will see in the room down the hall that enables us to take days off the wall. And when you're taking days off the wall and compressing it against vinyl, you now have that opportunity to attack that $1 billion-plus R&R market in the Northeast and Midwest and turn it into an opportunity with single-family new construction where you're gaining that throughput at the dealer level that allows our dealers to put all their energy and focus on James Hardie fiber cement and AZEK Exteriors and TimberTech.

I want to use this example with D.R. Horton that takes Trim-Over, the ProLab, Statement Essentials and into real life with America's largest homebuilder, D.R. Horton, in Omaha, Nebraska. Our price band was in the north of $500,000 range. We had about 10% of their starts under that were their vinyl homes. They had 90% of the market was vinyl, 10% was Hardie, but they were struggling to sell their homes as efficiently as their Hardie houses. We used our opportunity to introduce Trim-Over, which enabled the contractor on the vinyl side to Score and Snap, not taking technical tools to the site, calling down numbers, they were able to use a tactic that allowed them to be more efficient on the wall.

As a result, that simpler install, coupled with the increased speed, enabled the cost to be more effective against vinyl. This converted that entire market from vinyl to Hardie, and then they acquired a builder named Celebrity Homes that added another 700 homes to their profile. That was a competitive hard siding manufacturer that supplied that particular product to celebrity. And as celebrity became part of D.R. Horton, that material conversion transitioned into James Hardie and now Omaha, Nebraska with D.R. Horton is a full wrap exterior solution by our James Hardie line of products. This then creates a wake. It creates a price band differentiation. You now have vinyl being substituted at a price band that wouldn't have historically been done. And as the #1 homebuilder, it gives us that opportunity to create that wake behind it.

Finally, a contractor synergy where we have tremendous upside for our future. We have over 30,000 contractors in our network. Those contractors are dedicated to our lines of products. This particular example is RPS remodeling, a gentleman by the name of Rick James out of Northern California. He's a long-term James Hardie Alliance contractor, but his ability to add decking was sporadic. Once we announced our acquisition and partnership with AZEK TimberTech, he quickly added that to his portfolio of offering, answering the need of the wildfire or Wildland-Urban interface, but the demands also of the consumer as he grows his business.

And what you want to hear from Rick is that he saw this as an opportunity to really drive growth through his business.

[Presentation]

Rick is one of many examples, and we're going to do this continuously. We're just getting started when it comes to our contractor conversion, and we've got countless examples that this occurs every single day. I look forward to taking this team to the next level and working closely with our product teams, our manufacturing teams and continuing to deliver this integrated sales organization. We've deployed these regional playbooks. We're in a position to go out and win, and we've got an activated specialized sales force that is the expert in outdoor living and siding and trim to create the demand with our partners, pull-through solutions with each of our channel members and deliver value every single day to the contractors, consumers and builders that we work with.

Thank you for your time this morning. I look forward to talking to you more out in the hall.

And before we get into it, I want to share a little bit about my background. I've been -- I spent most of my career building brands and helping consumers make long, complicated purchase decisions in and around the home. And in the last 5 years at James Hardie -- AZEK and then James Hardie, I've seen firsthand the power of what brands do to give customers confidence around that and how we can help use marketing to drive material conversion and growth. So the story is pretty straightforward. With a brand advantage like that, we have the opportunity to expand the way that we think about these journeys and the purchase decisions around home products. So it's not just a marketing story, it's a growth story. We're helping homeowners choose Hardie, helping contractors install and specify Hardie and increase our share overall.

So the key messages I want to make sure you walk away with today or I'm going to talk about. First of all, is the brand. And the brand creates a significant competitive advantage, as I said. Second, the unified architecture we have built around the brands makes our portfolio easier to understand and more powerful in the marketplace. Third, the localized marketing and digital experiences help accelerate the material conversion and the way that we're able to grow through those 2 things. And then maintaining our leadership position with the Pro is still really critical. Pros are -- they are critical to specification, loyalty, repeat business. They're really integral to everything. So as I move through the presentation and particularly, I have a video at the end that will bring all of this together, I want you to pay attention to how all these things relate with one another. All these pieces work together.

So the brand creates the demand, the digital experiences and the localized marketing help homeowners understand what it means to them and how to make decisions. And then the pros convert all that into projects. So before I get into that, I want to spend a minute talking about the team. You heard John talk about the momentum that TimberTech has built. This slide represents the team that was responsible for that. TimberTech grew in awareness 20 points in 5 years, where our nearest competitor essentially remained flat. That momentum did not happen by accident.

We helped create one of the strongest brands in the industry and drove awareness, that growth that outpaced our competitors by in-housing a lot of our capabilities by building that world-class capabilities in-house across creative, media, digital experience, analytics, growth marketing. As you heard John talk about, we're not using agencies for that. We own that internally. The people that are driving and owning the brand are shareholders in the company. They understand our customers. They're really committed to what we do. We've brought all that, all those capabilities into James Hardie now.

So it's not just about AZEK team joining the Hardie team. What really excites me is that we're bringing the best, the best of both teams to increase the talent and the capabilities, the expertise that we can offer across the whole James Hardie portfolio. So we're really all organized around one common growth strategy. What that does is it makes us more nimble. We're more -- able to execute faster. We have greater accountability. We don't have the delays of telephone tag between different parties on the outside trying to understand what we're trying to do and move quickly. You'll see some of our strategies that rely on localized specialized messaging. We're able to deliver that quickly because we have that internal team.

Okay. So this slide represents the strategic importance of our whole portfolio. We believe we've defined where the category is going. As you've heard, homeowners increasingly want products that combine durability, resilience, low maintenance, long-term value. Those are exactly the attributes that all of our brands stand for. So the home of resilient beauty is not a marketing slogan. It's not just a tagline. It's actually a strategic framework that brings together what's unique about our products all in one place. It brings together what homeowners care about emotionally. They want a home that's beautiful and that's built to last. And combining that with what they care about functionally, right? They want low maintenance. They want performance, durability, confidence that their investment is going to last.

So importantly, every brand in our portfolio supports that promise. So as climate resilience becomes more important, as building codes change, as we're creating a stronger consumer understanding of our portfolio, that all gives us a meaningful competitive advantage. And by pulling this all into one place, as I said, it makes it easier for customers to understand and makes our -- us just more powerful in the marketplace in a way that really there's no other competitor that has this range and this breadth of product that delivers against those promises.

Okay. So let's talk about the homeowner. We see a really strong alignment. We've all referred to it. I'm just going to hit it more directly between what homeowners care about and the strength of our portfolio. So climate resistance, you've heard. There's not -- I live in California. There hasn't been a fire immediately near me, but believe me, it's on my mind all the time. There's nowhere -- 1 in 3 homes are in a WUI zone. I mean this is just the way we live now. It's the way -- it's what everyone is thinking about. Homeowners also care about long-term value. They want to make good investments. They care about the design of their home and the curb appeal. They want it to be beautiful. It's not enough just to be high performance. It has to also be really beautiful. And they also really care now about outdoor living.

I was speaking to someone earlier in the reception area out there around how people want to live outdoors. COVID changed the way we think about how we live in our houses. We're not going back. We want to cook outside. We want to live outside. We want our kids to play outside. We want to work outside. We want to have an outdoor living room. This whole idea of living outdoors is really powerful, and that's exactly where homeowners are right now, what they're thinking about. So what's important that these aren't creating sort of headwinds for us. All these things are creating tailwinds. This is all helping us. Our products are purpose-built for all the things that homeowners increasingly want.

And this gives us the opportunity to convert aging wood and vinyl and participate in more of these exterior decisions as you've heard. Once we create the homeowner preference, the next opportunity -- or the next question is how do we convert it. And you heard Jon and John outlined all of the opportunities, the billions of dollars of opportunity regionally across the U.S. Well, that requires different marketing tactics to activate all of those. So the national brand gives you strength and consideration, but it's the localization that really is what really converts it. Different markets have different housing stock, different climate, as you know, different competitive dynamics, all the things. So we are able by tailoring our media and messaging to activate in those local markets, we create a stronger homeowner buy-in to what our promise is because it's more relevant to them. We can't do the peanut butter spread, as John says. We have to be specific to the right message to the right customer at the right time.

And with our internal team, we're able to be nimble. We're able to activate. We're able to learn quickly because our analytics are quick. We know what's working. We know how to adjust it as needed, and we know how to move from a message in the Northeast that's maybe about vinyl or about an upscale product that you want for your home to what you need in the West when you care about more resilient products. Yes. I think that's enough on that.

Owning the Pro, okay, now let's talk about the Pro. So homeowners initiate the product -- the project, but contractors are the ones who are really critical to the specification and to the installation. So I like to think of it as we're creating homeowner pull, so they know our products and they're asking for us by name, and we're allowing all of our contractors and customers, dealer customers to be ready to push to be there to deliver it, right? So maintaining our position with the Pro is very strategically important. And how do we do that? Our goal is really simple. We help contractors grow their business. We help them be more profitable and more successful with all James Hardie products, and that allows them to -- or that creates their loyalty and stickiness to us that you heard Joh and John reference. So that -- we do that. How do we do that? We do that by delivering better leads, creating stronger match between a homeowner and a contractor by building capability through training and certification and reinforcing that loyalty through our loyalty programs like the Board and Alliance.

We've also created efficiencies through integration, right? So these programs used to all be separate. Now we're bringing them all together. So now we're even more powerful together. We're aligning training. We're expanding education to include the whole portfolio. We're bringing together loyalty capabilities and digital engagements getting simpler and easier to access. So over time, we're creating a more connected contractor experience. And the same philosophy applies to warranty, to service, to support. Contractors want it all in one place. They want one relationship. They want one ecosystem. They want one trusted partner across the whole exterior. And when we deliver that experience, we increase their loyalty, we strengthen our share of wallet. We create a greater sort of material conversion opportunity.

So it's not -- all of this adds up. These are not just sort of contractor support marketing programs. It's actually a growth strategy to be this close to the contractor and maintain our #1 position with them. This slide is the capstone of my section. So this is what really brings it all together. So I talked about the homeowner and I talked about the contractor. So in repair and remodeling, homeowners and contractors do not operate separately. Their journeys intersect repeatedly throughout the whole decision process and success requires creating an experience that works for both. So for homeowners, their journey is probably familiar to you, right? It starts with inspiration, then they do a little research and they pick their materials, they find a contractor and they go through the project, they agree on that and they move forward and eventually, they recommend that to their friends.

For contractors, it's a little different, but similar. It starts with the lead generation, then specification and purchase and installation, they go through warranty and advocacy at the end. But their journeys intersect consistently throughout that. So digital is what connects those journeys. So things like inspiration and education through digital means, visualization tools are really important, contractor matching, guidance and education. It's one of the most highly researched categories, anything around the home. And by delivering all of that, giving the customer that information to take that next best action is really, really important. Because if you think about it, when a homeowner is more informed and they understand the value, the Pro has a better lead, better chance of closing. When the Pro is more equipped, homeowners have more confidence. They feel more good about the decisions. They have an easier time sort of making these decisions.

So a lot of that friction that John referenced gets removed if you have a really strong digital journey. And as I like to think about it, they're consistent and mutually reinforcing. So we spend a lot of time here because removing friction here is really an unlock. It's really a key to how we grow and how we unlock more opportunities for all of our products across all of our customer sets across the full portfolio. So now I'm going to bring this together in this video.

And as I -- as you watch this, what I want you to pay attention to is so -- is how the themes that we've discussed kind of come together here. So you're going to see the importance of trust for the homeowner. You'll see what resilience and durability and low maintenance and long-term value, what that looks like from a homeowner's perspective. And you'll see the role the contractor plays in guiding the homeowner through this process and how the digital tools and education help create this confidence along the way. And this is exactly what we mean by material conversion. It's really about helping homeowners make better decisions and helping contractors deliver successful projects.

[Presentation]

Okay. So I'll close where I started. The key takeaways are pretty simple. We have the best brands and those brands represent a significant competitive advantage. We're accelerating the demand through the unified brand architecture that makes everything easier to understand and more powerful. We're driving the material conversion through localized marketing and digital, and we got to maintain our #1 position with the Pro. What really gives me confidence is our ability to execute in this with the combined team and all of the talents and deep expertise we have around that team and how all those things work together.

So now I'm going to bring up Bill. Thank you for your time.

All right. We're running a little behind schedule. So we're going to make an adjustment to the schedule. We'll start a break right now, be back by 10:35. The team is going to be out there to answer questions as well. So yes, be back by 10:35. And of course, we've got a longer Q& at the end of the day. So thanks.

[Break]

All right. Good morning. Welcome back from break, everybody. I'm Ryan Kilcullen, COO of James Hardie. Happy to be here this morning, walk you through our operations update. A little bit about myself before we get into it. I've been with the company for 19 years. I started as a pretty junior engineer. My first job was a night shift supervisor on one of our fiber cement production line. So I'm pretty excited to talk to you about making fiber cement today. The past couple of years, I led some of the larger transformational efforts in our operations, our lean manufacturing implementation, a lot of the foundational work in our supply chain.

My last role, I was EVP of Global Operations and led the implementation of the Hardie Operating System into our international business units, and then a year ago, stepped in the COO role with the acquisition of AZEK. And honestly, the last 12 months has been the highlight of my career so far, and I'm really excited to show you the capabilities that's brought us. What our teams accomplish, I think more exciting what's in front of us.

Before I jump into that, I want to thought coming back from break would be useful to put this section in context from what you just saw from my colleagues. So you guys just saw Sam really bring our brand to life. She does an amazing job at that. One of the things you hear so loudly in our brand is the confidence in our product performance, okay? And the source of that confidence is really directly in the expertise and the IP that we own in our manufacturing and R&D organizations, and you'll see that brought to life here. Secondly, you heard Madson talk about winning with our customers, okay? We enable that in operations with a really unique advantage in our local supply chain as well as a lot of investment in the technology that helps us directly integrate with our customers. We'll see that.

And you also heard Skelly talk about the really exciting addressable market that sits in front of us, capturing that share takes capacity. What you'll see is we've already invested ahead of that share capture with capacity. And we've got plans in place to get more out of what's already on the ground. That will be a good segue, I'll lead it to Ryan Lada, who'll talk about how we translate the Hardie Operating System and those incremental capacity gains in the margin improvement and free cash flow. So that's how this fits into the day.

I'll make those connections as we go through here with these 4 key messages. One, we've got 2 really significant structural advantages in our operations, our local supply chain and the technology that sits inside our factories. Next, we've got the Hardie Operating System. You guys have heard a fair amount about that already so far, which is great. What I'll try to do is bring that for life. That's our productivity engine. And when I say productivity engine, what you should all hear is margin expansion and inflation offset, okay? So we'll bring that to life. And then finally, we've got capacity on the ground to support the growth that Jon and John talked about, and we're going to deliver more out of what's already there through our advanced manufacturing program.

Before we get into the operations, I want to start with our most important foundational value in the company, and that's Zero Harm. Zero Harm is our safety culture is how we describe our aspiration to have a zero incident work environment. You can see one way to talk about how good yard safety is to measure itself to peers. You can see we benchmark very favorable with significantly fewer incident frequency than peer companies in the space. That's important. What really matters here for us is that this is about a commitment to our people. You saw Jon and John talk about the incredible people on our commercial teams. You'll see more about them in operations. They deserve to work for a company that aspires for zero incidents. And then finally, we just think that if you want to consider yourself a truly great industrial business, you got to prioritize safety excellence, and we firmly believe we belong in that category, and this is really important to us.

So with that, we'll start clicking into the operations here. Here's a setup slide with our operational footprint for North America. You can see 26 factories that either make products or recycle material into stuff we make out of product. It gets across the full portfolio, decking, railing siding, trim across the U.S. We'll double-click into each of those networks here. I want to talk really specifically about the 4,500 operations professionals that work across our business. This team is incredible, okay? They're passionate. The brand that Sam talked about, the brand promise, they take that personally.

They're also continuous improvement zealots, okay? So there's a lot they have to be proud of what they've accomplished over the years, and you'll see some of that here. But at the same time, they wake up every day, trying to win the day, trying to make the place better. And a lot of what we try to do with the Hardie Operating System is standardize the way that those teams work so we can get them working together and connected. When we do that well, they can really move the needle quickly, and we'll show you a couple of examples of really great results from that team.

And then finally, we're showing -- try to give you a sense of scale of what this network actually looks like. When you side it, one of the ways to do that is to talk about what it would cost to replace it. So if you rebuilt this network new at today's cost, it takes about $8 billion to rebuild this factory network, okay? That gives you a sense of scale. From a competitive lens also, it gives you sort of the daunting figure that would be in front of you if you try to replicate what we have. I think what makes this figure even more daunting is that would just get to the factories, okay, not the significant mountain of IP and capabilities that sit inside those walls, okay? And so that's a good transition to how we'll start to talk through some of the differentiated capabilities that exist in Hardie operations. I'll highlight 3 of them here: our localized supply chain, our proprietary manufacturing technology across both fiber cement and our decking platform, and then our continuous improvement engine.

I think each of these independently are pretty significant. What really differentiates us in building products is our ability to put all 3 together and do it day in and day out and that I'll come through over the next couple of slides.

We'll start. So we described -- and this example is our fiber cement network. We describe our supply chain as being a local supply chain advantage. So what does that mean? Most building materials companies, when they decide where to build a factory, they're stuck with a choice. Do I build it near raw materials or I build it near the market? No matter what they choose, what they end up with is typically a pretty long and complicated supply chain. They compensate for that by pushing costs to the customer. So long lead times, excessive working capitals, stringent mixing rules and how you can order from them. Within our fiber cement network, we don't have to make that choice. So the vast majority of the weight of the product that goes into fiber cement is available in free supply at high quality across the whole U.S.

So we're free to choose to build our factory wherever we want to. And what this slide shows is where we choose to build factories is right in the backyard of our customers and right down the street from our suppliers. The result of that is, there's a couple of structural advantages that, that creates. One is proximity, which ultimately for customer means we're simple and fast. You heard Skelly talk about industry-leading lead times and service where 90% of the factories are day away from the customer, 75% of the raw materials are right down the street within 150 miles. We are very, very responsive to customer demand. Secondly, we're flexible without giving up efficiency. So our products can be made at all factories across the U.S. We don't put stringent mixing rules on customers. Customers can transact with us in a way that works for their business and how they're driving their needs.

So those are 2 pretty important structural advantages, and we doubled down on those with a really strong integration approach to our customer supply chain. So we've invested in technology. Hardie Link is an example. That's a portal that all of our customers interact with us. We've got internal supply chain technology that we use to optimize this network and then we have organizational integration. So you saw all the logos from Madson's presentation of our customers. A number of those large customers, we would have dedicated supply chain teams that wake up every day and do nothing but thinking about how we enable those customers to achieve their objectives in our network. And so that creates that combination of real structural advantage, and then an integrated approach to supply chain management creates a really durable advantage in our network.

We go from the network and now we'll drill in inside the 4 walls of the factory and talk about the proprietary manufacturing advantage that we have in fiber cement. So sort of the punchline here is that, we own all of the significant technology associated with making fiber cement in a high throughput, high product capability environment. We own all of it. You can't find fiber cement factories that look like ours anywhere else in the world, certainly nowhere else in the U.S. The source of that differentiation, a lot of it comes from just decades of really deep organizational expertise. So you can see up there, we've got over 150 central scientists, R&D professionals, engineers outside of day to day manufacturing that do nothing but wake up every day and think about how do I move the fiber cement manufacturing and technology platform forward. That is really deep focus and expertise for a single product line, single manufacturing platform.

What do you get from that is probably the question. So one example is a significant scale up in the throughput of a fiber cement sheet machine. So from the time the company came to the U.S. to now, there's been a massive scale up in the technology. One of the easiest ways to bring that to life for you is talk about the most recent factory we built in Prattville, Alabama. That plant when it's fully ramped will produce over $1 billion a day worth of revenue -- sorry, really a year, day would be really big. We're working on that, we're working on that. $1 billion a year of revenue under 1 roof, okay? That's a really, really high-scale factory, a really unique level in building products.

Another way to think about the capability and the advantages that, that expertise has produced is, you saw a lot from Jon and John, the regional approach and how different regions in the U.S. have different climate requirements, different product needs. We're able to engineer our product in our factories from a formulation and process engineering standpoint, customize to those regions, with very, very few changeovers and inefficiencies. So on the same machines, we can make products specifically engineered for different markets and you wouldn't really notice it if you were in the factories, watching it run and change between those products. It's hard to describe, you just got to trust me, that's really, really hard to do with Fiber Cement. It's taken decades to build that. And certainly, nobody else in the U.S. does that. So that's decades of expertise that we've turned into really durable advantages in technology inside of our factories.

If I shift gears into decking, okay, our decking -- and talk about the technology that sits in our decking plants. Our decking plants are modular and flexible, the production lines that make them, okay? We're able to get product. It's a high changeover efficiency process. You saw the innovation from Skelly's presentation. We're able to go from innovation to the market very quickly with our ability to move things in these lines. You also saw from Jon's presentation, the good, better, best positioning. Our success at the top end of that, a lot of it comes down to our ability to mimic the look of high-end real wood, okay? And that capability exists in pretty unique places in the TimberTech decking factories. It's taken years to build. And then finally, you've heard a lot about PVC decking today. You're all experts on WUI now, I think, and fire resistance. And certainly, we are years ahead of competitors when it comes to the ability to deliver PVC product that performs like that across the U.S.

Next, we'll shift into recycling, which is a really key component of our decking operations in Exteriors. One thing to think about that you guys are very aware of the sustainability element of recycling. On this slide, I'd ask you to think about it from a cost lens. So the biggest cost inputs to composite decking are the raw resins like PVC that go into it. Our ability to use to replace that raw resin with recycled content is really important for our continued margin expansion. It also provides a buffer. Those commodities are pretty volatile. So it provides an inflation buffer. And the challenge with using recycle as a lean manufacturing is you get a lot of variation from recycling, okay?

So being the largest vertically integrated PVC recycler in the country means we have a lot of control over that variation, and we're able to do lots of things in how we source it, process it and then run it through the factory that allows us to make really high-quality product with recycled material and gives us a lot of confidence that we've got a really long runway ahead of us to continue to increase the percentage of recycled content in those materials. We have a great team on the recycled side. Many of you probably met Dave. He's out there talking to -- he's not shy. So if you want to learn more about recycling, go talk to Dave. They'll educate you. We've got a team of experts on that.

Hardie Operating System. This is a really important slide for us. You've heard it a number of times throughout the day. So I'll park here for a couple of minutes on it. You heard about -- I've just described some of the really structural advantages we have in our network and technology. Those are great. I think the most exciting thing about this business is the runway in front of us. So across all manufacturing platforms in our supply chain, there's significant headroom to improve our productivity. And again, when I say improved productivity, you should all think margin improvement, cash flow.

And so Hardie Operating System or HOS is our productivity engine. It's how we do that. There's 4 main value creation levers that are up there, lean manufacturing, procurement excellence, it's how we buy efficiently, formulation value improvement and supply chain efficiencies. And I'll bring a couple of them to life. Starting with lean manufacturing or what I'll probably call HMOS, which is what we call it internally. Before I get into that example there, a little about how we think about it. Lean manufacturing for us isn't just a bunch of buzzwords, okay? It's how we operate.

And to give you -- bring that life for you a little bit, I want to talk about our daily management system. So it's 11:00 in New York, okay? That means by now, we've executed our tiered daily management system at all 26 factories across the U.S. It started at 5:00 a.m. Our leaders went out on the floor. They understood what happened on night shift, and then we've executed 3 standardized tiered meetings where every level of our factory has already talked about what their plan is to win the day. okay? And at Hardie, winning the day means achieving their productivity targets, okay?

And as those teams achieve their productivity targets across the 26 plants that rolls up to our network productivity target, that delivers margin expansion, okay? So this is not a bunch of buzzwords. This is how this team operates. They're relentless. They do it every day, and it's what drives really significant operating leverage and improvement across the business. An example of that to bring to life, we show a chart that describes the progress we've made in our fiber cement plants on OEE, which is kind of your highest level of productivity measure in the factories. Pre-lean, we show you where we were. For the 6 years following lean implementation, we improved our OEE in fiber cement by 14 percentage points. okay? That's really big improvement in a network of this scale.

And again, back to this idea, this is a proven productivity engine with lots of runway. We've got a similar level of improvement opportunity still in front of us in fiber cement. We think that's really exciting. Another part of HOS to bring to life is our product reformulation value improvement. Here, we've got teams of -- between the product management group, R&D, process engineers that build long-term road maps and how we reformulate our product to give the same performance at lower cost. The magic of HOS for us is we're able to take those road maps with that deep expertise and then break it into small pieces that we run through our factory and the team is able to achieve lots of small improvements every day that add up to big change over time.

So we're pretty guarded with our formulation secrets, but what I'd tell you is we've got a really big runway ahead of us, particularly on the decking side on how we can continue to take cost out of our product to offset inflation and drive margin expansion. So that's a bit of our Hardie operating system brought to life. Another way to show you the highlight of this, and this is why I say that the 12 months has been one of the highlights of my career.

This has been awesome to see the 2 teams work together, the legacy Hardie, legacy AZEK to implement Hardie operating system into the legacy business. You'll meet our 2 manufacturing leaders ash John Ashworth and Scott Van Winter. Their teams are working together and doing an incredible job implementing lean manufacturing, our procurement and supply chain best practices and reformulation efforts into the legacy AZEK business. Lean has been a pretty new concept in AZEK and their teams have just fully bought in and embraced it.

And that's one of the big reasons why when Ryan gets up, he's going to talk about our -- being ahead of schedule on our cost synergies and our confidence that that's an engine that's going to keep going. These guys are on track to deliver over $50 million in synergy savings, and I think they're just getting started. So that's been really fun. The teams are super energized, and I'm really excited to see what they continue to do with bringing HOS to life and our legacy AZEK network.

We'll shift gears a little bit here as we close and talk about capacity. So as I mentioned, we've got ambitious growth plans that requires capacity ahead of those share gains. We're in a really good position with investments we've already made ahead of those share gains. We show you the utilizations there. You can see 70% in the fiber cement, 65% in decking and 60%. We've already got assets on the ground ready for that growth. And a fair amount of that opportunity to continue to increase utilization sits in brand-new state-of-the-art facilities. So I already talked about the Prattville plant and then our new state-of-the-art decking facility in Boise, Idaho, which is an ideal position to support the growth you saw from Jon and John on the -- in the western part of the U.S.

So we're in a very good spot on capacity. We're ready to enable that share growth without the need for near-term investment. And lastly, I'll close with, I think the most exciting part of this is also not only do we have capacity on the ground, we've got a plan to get a lot more out of that capacity. And so this is our advanced manufacturing strategy that we're in execution mode on. The punchline is we see an opportunity to step change increase the line speed of our fiber cement manufacturing lines. As we've started to execute HMOS, those lines are showing the Sprint potential to go at faster speeds. And now we've built a team and created a plan to implement technology into those factories to allow us to sustain at those Sprint levels.

As we do that and realize that full potential, that will deliver $1 billion -- the equivalent of $1 billion worth of capital offset out in the future. The teams are doing -- we got a ways to go. The teams have done really good work. We're up 5% already in line speeds over the last 12 months, and I'm really excited to see where this keeps going. So that takes me to the close. I'd summarize our Hardie operations. We've got real structural advantages in our local supply chain network and the technology that we've built over decades with deep experience.

On top of that, we've got an asset base of $8 billion that we've already invested in. We've got a proven productivity engine in HOS that drives margin expansion and cash flow and lots of headroom to keep going. And then we've got the capacity already in place to support the share growth you saw from Jon and John and a plan to get more out of what we've built. So I told you, it's been the highlight of my career working through this integration with these teams. They're just getting started, a lot of headroom to go. And what that will turn into is continued margin expansion and free cash flow, and that's a good transition.

Over to Ryan, who will take you through the financials.

Well, thanks, and good morning, everyone. Thank you for being here today. Thanks, Ryan, for the handoff. I'm going to connect the story you heard today to the financials from our competitive advantages to our commercial initiatives and synergies and to the scale and leverage of our supply chain and manufacturing and why we believe these will help us generate sustained growth, cash flow and returns. Let's get into it.

So 5 key messages I want you to leave with today. Our execution is driving above-market growth and the housing recovery would only add upside to this. Two, the AZEK synergies are delivering. Commercial is on track and cost is ahead of schedule. Three, we are generating strong free cash flow as a business. This funds a clear deleveraging path and provides us capital allocation optionality. Four, the growth algorithm drives sustained market outperformance. And regardless of housing cycle, it still works. We believe this is a compounder model poised to generate strong long-term shareholder returns.

Let's begin with the market backdrop. To Aaron's point earlier, we are not assuming housing conditions improve in our algorithm, but the setup is more constructive than the mood suggests. In new construction, starts have been below the 60-year average most of the last decade with strong stretches near trend. This shortage in housing is a product of a decade plus of underbuilding versus household formation. We are not counting on a snapback story, but we believe rates and affordability will help set the pace of recovery. Structurally, this could be a multiyear tailwind, not in our algorithm.

Next, the U.S. housing stock is aging. Roughly half of the homes were built pre-1980 with a meaningful share carrying 30-year-old plus vinyl siding that's ready for repair and remodel. At the same time, elevated mortgage rates create a lock-in effect. Owners are staying put, not trading up, but investing in their property. This can be seen in the R&R growth and resilience even through the cycle troughs. In 2015, $277 billion was the rough R&R number. The last 5 years have been north about $500 billion, and we expect that to continue. What's unique about Hardie setup is we win both ways. R&R continues to deliver now and when new construction returns, it's upside.

Let's move to synergies, starting with the commercial side. As you recall, our target of $500 million of commercial synergies recognized over 5 years through the portfolio combination of James Hardie and AZEK. We are on track to reach at least $125 million exit run rate by the end of full year 2027. On the activated side, the recently announced Boise Cascade and regional distribution agreements provide meaningful steps towards that target and build upon previously announced Lansing and CBUSA deals. The forward-looking pipeline is just as intangible -- or just as tangible, sorry.

As John Madson discussed earlier, we continue to expand coverage in one-step dealers, builders, contractors, independent lumber yards and retail. In new construction and multifamily, where a lot of runway remains, we are expanding Deck, Rail and Accessories. Internationally, we are preparing to introduce decking into the Australian market. Switch gears to the cost side. We were targeting $125 million of cost synergies over 3 years, and we're excited to update you that we plan to exit the full year run rate of $125 million by the end of full year '27, which is 1 year ahead of our original schedule.

From a cost to achieve perspective, we are under budget, and we did not sacrifice service or execution quality to get there. What's remaining as you heard the team talk about earlier, but deploying Hardie operating system into our AZEK plants, leveraging our procurement at scale across our global business and then system consolidation that makes us more effective. We will continue to update you on realization.

Turning to cash flow. Over the years, we've made heavy capacity investments, which have positioned us well for future growth. CapEx as a percent of sales was 10% in 2025, roughly 7.8% in '26. This year, we're estimating 6% to 7% for 2027, normalizing in the 6% to 8% range in the near term.

As Ryan discussed earlier, our plant and equipment is substantially in place. We do not expect any large new projects in the near term, and we will work to optimize our current state through advanced manufacturing. For free cash flow, the full year '26 dip to $425 million was driven by roughly $207 million of deal and integration costs that don't repeat. Our full year '27 guide expected roughly $500 million of free cash flow. We are raising that target to roughly $600 million plus now based on the cash the business is generating this year. From a conversion perspective, you could see '26, we are roughly 30%, jumping up to 38% this year. We anticipate 40% plus moving forward for free cash flow conversion.

Before I turn to capital allocation, I'll spend a minute on what Aaron highlighted around our EU business. We recently announced the divestiture, which is a full exit of our European business that involves selling our Fiber Gypsum business and closing down the EU Fiber Cement business. The agreed sale price is roughly USD 980 million on a USD basis, which represents a 12x multiple on 2026 EBITDA. We expect the deal to close in the first half of 2027. In the interim, Europe will move to discontinued operations beginning in Q2 2027. Our guide is also updated to reflect this. We expect this divestiture to be accretive to the overall margin by roughly 150 basis points, and we plan to use the proceeds roughly $600 million for debt paydown and roughly $250 million share repurchase, which was authorized by our Board of Directors in August. This directly accelerates deleveraging while sharpening our growth and return profile.

On that note, where does the free cash flow go? This is the priority order of our capital allocation funded by the strong free cash flow we are generating. First, we will invest in organic growth. This will fund sales initiatives, product innovation and channel expansion you heard Jon and John talk about earlier. Second, we will continue to deleverage. Our target of 2.4x by the end of the financial year '27 and under 2x by 2Q full year '28. We will accelerate this using the $600 million debt paydown that we discussed related to the EU deal. Third, we will provide shareholder returns through opportunistic repurchases. We are currently authorized to execute a $250 million buyback once the EU deal closes. Finally, fourth, we will look at bolt-on M&A via our structured playbook once we hit our leverage target. This is a clear, disciplined capital allocation framework that we will apply consistently as we generate more cash.

Now let's walk through our Q2 and fiscal 2027 guidance. Note, just as I mentioned earlier, this consolidated guide now excludes Europe, which is moving to discontinued operations. We are reaffirming our Q2 and full year '27 guidance, but we are raising our free cash flow guide from $500 million plus to roughly $600 million plus given our strong free cash flow generation. As discussed, our guidance does not assume any macro housing recovery, and we remain cautious on housing until we see key indicators meaningfully improve. In addition, we've seen no relief on fundamental costs, including freight and diesel. We are encouraged by our initiative traction. We are driving material conversion, and we are realizing our synergies. The demand for our products remain strong, and we are focused on executing and driving above-market growth.

Next, our growth algorithm that Aaron touched on earlier. This is the engine behind everything we've walked through. The North America target is roughly 4% to 7% organic growth above the market built on 3 levers. The first lever is material conversion. As a rule of thumb, 1 point of conversion equals roughly 4% of growth for the industry. This has been a durable multiyear contributor for our business we expect to continue. Jon and John discussed earlier, but we have a long runway of conversion ahead of us across our portfolio. Second lever is the product of our growth initiatives and the $500 million of revenue synergies you heard us discuss. Third lever is net price realization. This is based on the strength of our value proposition across our portfolio and is supported by a multiyear history of price value-based increases. Together, we expect roughly 4% to 7% growth above market with a 35% plus adjusted EBITDA flow-through. This does not underwrite or rely on a market tailwind to work. Outside the core stack, bolt-on M&A and any housing recovery add upside.

So let's review what this means in 3 scenarios that test this. This is not tied to a specific year, rather the positive impact of growth on our financials. This is for illustrative purposes only and is not intended to be our full year '28 guidance. As a reminder, the full year '27 estimate is the midpoint of our guidance, excluding Europe. We use 3 market scenarios, down 1.5%, a plus 0.5% and a plus 2.5%. Our market definition is based on roughly 60% Repair & Remodel and 40% new construction, which includes single-family and multifamily. Our above-market outperformance has held constant at 5.5 points, which is the midrange of our 4% to 7% outgrowth. Our EPS benefits from margin improvement, debt paydown and share repurchase. Assumptions include roughly 35% EBITDA flow-through, roughly 40% plus free cash flow conversion, roughly 22% tax rate and 580 million shares. For EPS, this also assumes $600 million of debt paydown at a 5.5% blended rate and $250 million of share buyback at $31.

What this model generates is assuming the mid-case at 0.5% market, we see 6% sales growth with margins expanding roughly 60 basis points. This outpaced sales growth while improving free cash flow, ROIC and EPS. There's upside to this model if there's any outperformance to the mid-single-digit range we highlighted. This does not include any additional bolt-on M&A we may choose to do, and this doesn't include any incremental debt or share repurchase outside of what we've already announced. Even in a down market, we can deliver sales growth, margin expansion and improved free cash flow and ROIC. That resilience across markets is the core story, but there's other catalysts that could help have a positive impact.

Index inclusion is a positive benefit worth touching on. We became a U.S. domestic filer in April and filed our first 10-K in May. This opened the door to U.S. index inclusion. As you know, index ownership is where a meaningful pool of incremental demand exists. An average of 23% of S&P 500 shares are held via U.S. index today and only roughly 2% for James Hardie. We are encouraged by our early wins. We are now in the MSCI Small Cap Index as well as the S&P Completion Index. As we move forward, we believe we have an opportunity to be in the S&P MidCap 400 as well as others, which brings me to where this leaves the stock.

We believe our growth and margin profile sets us up for multiple expansion over time. This chart is a simple comparison of 3-year average EBITDA margin to valuation versus a group of peers. This peer group includes building products peers and what we consider best-in-class industrial peers. We've maintained and grown margins through the cycle and believe we have a meaningful opportunity to continue to improve margin and to close the valuation gap, which we intend to do through sales growth, margin expansion, deleveraging and disciplined capital allocation.

Now I'll bring this back to where we started, the 5 key messages. We are reaffirming our guide, executing above market despite the macro and a housing recovery only adds upside that we're ready to capitalize on. Two, we are delivering on our synergies with cost ahead of schedule. Three, our business is generating strong free cash flow that will allow us to deliver quicker and gives us capital allocation optionality. Fourth, our growth algorithm is resilient and outperforms across housing markets. Putting this all together, durable growth, expanded margins, strong free cash flow, disciplined capital allocation and a valuation that hasn't caught up, we believe we have a compounder model set up to deliver strong long-term shareholder returns. Thank you.

With that, I'll hand it back to Aaron to close this out.

Thank you, Ryan. Okay. We will quickly close out and get to Q&A. Hey, a couple of goals that we had here for today is to have you all walk away with understanding our strategy. Then second is having confidence in our strategy. And then third is that we have the right team to be able to go out and accomplish that strategy. We are understandably very, very confident in our ability to be able to go out and do this. And I think we have some proof points here as one company since we've been brought together. We've made a lot of meaningful progress over the last 14 months. Certainly, as you look at our track record on what we've been able to do on revenue synergies, which we're just getting started on, feel very confident of achieving our cost synergies a year ahead of schedule, setting up our footprint and the right cost structure. We're on the right path as far as deleveraging the business. And certainly, our ability to focus on the areas where we have the right to win and make the tough calls. And I think we did that and exhibit that by what we're doing with Europe.

Again, I started out by saying this, the last 14 months, we've done a lot. This is working. This is working, and we have a long road ahead of us. So that's what gets me excited. And hopefully, all of you as investors get really excited about this. And I think you should get confidence that as we look at 2 separate companies, AZEK was able to outgrow the market. James Hardie, on our long stretch, we have been able to outgrow the market. And now we're putting 2 teams together that have a proven track record with enduring competitive advantages. And that's why when we think about why to invest in James Hardie, you can see this investment thesis here. Obviously, we talked about this, but we're not cycle dependent. What's going on right now? And certainly, we've proven that and we have to prove it quarter after quarter, but there is enough opportunity for us to go out and convert the market with our resilient, beautiful products.

We have enduring competitive advantages. I've said this over and over, but any company would love to have 1 or 2 of those. We have multiple ones, which makes it very, very hard to compete with. Ryan just went through it. I talked about it. We got a growth algorithm. Think about it as a diversified portfolio where we are going to outgrow the market, 4% to 7%. And then there's upside to that as we think about certainly the optionality of having bolt-on M&A, but also you get a little tailwind from the market out there. And we continue to improve the profitability of our business. Ryan just talked about the efficiency and our reduced CapEx spend. We're going to continue to be able to generate a lot of cash. And that brings optionality for us in what we do with it, including returning to shareholders.

And then I think the thing that gives me the most confidence is the speakers you heard from here today, right? Their ability proven track record to go out and execute, right? This truly is a new James Hardie, and it's a new James Hardie and a better James Hardie because we brought together the best of both. And I think it's exhibited by our team, not only here in the room, but who you're going to interact with out there. So look, I'll end with what we started out with and really is the theme of this day and the thesis behind bringing the 2 companies together is we're built to outperform, resilient by design. So thank you. Appreciate the time.

We'll now move into Q&A here. So ask the team to come on up and always get to ask Ryan and I questions, so it gives you a chance to be able to talk to the whole leadership team here.

Okay. So we have some mic runners, so please raise your hand. Just one note on the webcast. For those people that are on the webcast, there's a portal to ask a question, we'll filter it through and they'll send me the question up here. So all right. Let's go in the front.

Thanks for doing this. Thanks for all. This has been great. Aaron, I know you didn't want to get into the super granular around the growth algo. But if you look at the historic market outperformance on both sides of the business, and then you look at the revenue opportunities, synergy opportunities, 4% to 7% looks pretty conservative. So maybe if you could, any details you could get or give us around what could get us to the low end versus the high end or even above the high end of the range of 4% to 7%.

Yes. Appreciate the question. Look, first of all, I think any company to be able to grow in this building products space of 4% to 7% would be having a pretty good year to outgrow the market 4% to 7%. With that said, there's certainly an opportunity to outgrow that. When we think about having bolt-on acquisitions, we have some of our growth stack perform a little better than others. What we want to present to you is to be, this is something we think we can do no matter what the market delivers to us. And that gives you confidence on consistent performance. We've talked about this before. This is something that AZEK regularly was able to do. James Hardie as well the last couple of years was able to do consistently. So we feel very confident in what we put out there.

Okay. Let's go to the other side here.

Mike Rehaut, Melius Research. The question, I guess, on the commercial synergy opportunity. You outlined by region, by homebuilders, end markets. Is there a way to think about maybe from, let's say, a disproportionate perspective, either regionally where you see the greater opportunity, that $500 million? And I'd also love for you to dive into the $750 million homebuilder opportunity because I know historically, AZEK was kind of underrepresented as the industry was in the new construction channel.

Yes. I'll start out, and then I'll send it over to Jon and John here. Look, again, I'll just reiterate, we're very confident in that $500 million. I say $500 million, it's really $500 million plus. And I think the team laid out a good sampling of where we're going. Certainly, as we think about the Boise Cascade alignment, also a regional distributor alignment, that is significant synergy opportunity. And that really spans across the whole United States out there. I think Jon or John had it up there. But when we look at from a segment standpoint, certainly, we see a tremendous amount of opportunity of leveraging some of the Hardie relationships with contractors, with 2-steppers, with 1-steppers to be able to get TimberTech and AZEK in there, and we have exhibited that.

But just as much we see the opportunity in being able to get James Hardie. I think some of the 2-step regional distribution is a perfect example of that. Some of the lumber yards in areas like the Northeast and the Midwest are perfect examples of that. So I would say it is nationwide, and it is pretty well representative for each of our product groups. But Jon, John, do you want to chime in here and then talk about the regional building opportunity?

Yes. I think it was well said, Aaron. When you look at the Northern markets, AZEK TimberTech had really good penetration in those marketplaces where we're still emerging as a Fiber Cement manufacturer. At the same time in those northern markets, there's also really strong independent lumber yard partnerships with TimberTech and AZEK. And we have, from a Fiber Cement standpoint, very strong partnerships at the 1-step. You go to the South, you have the inverse of that, very strong penetration from a Fiber Cement standpoint and a lot of growth opportunity against pressure-treated wood in the South, underpinned by really strong partnerships with the volume lumber yards and independents as well. So as we look at this, we create the value on that side on the north with more opportunities in independent lumber yards that reach both single-family new construction and R&R.

And then specifically in the North against vinyl, it's truly a partnership with the 1-steppers and our AZEK product line to give them a good, better, best portfolio as people graduate from their first home through the reside of their existing or long-term home. So that's where we feel that there's a ton of strength through our 2-step partnership, their reach to independent lumber yards, our partnerships collectively with the volume national partners and how we take that and pull it all the way back through to include retail, where James Hardie Fiber Cement is well established in the retailers, and we're emerging with TimberTech between both retailers.

You want to cover the regional homebuilder?

Yes, absolutely. And when you look at the $750 million of regional homebuilder activity, we have really strong share within the top 300. Top 300 is anybody over 100 homes annually. When you look under that 100 homes annually, there's so many different single-family opportunities with those homebuilders where we have our Trim-Over method plus our full portfolio enables a One Hardie solution that allows that regional homebuilder to compete with the nationals and differentiates them from that. And our teams are built to deliver that with each of those types of builders and/or contractors and the smaller scale and the large scale through national accounts or with the in-field team.

I think one of the synergies that we've had up there before that really supports what John is saying is our alliance with CBUSA, which is the largest regional homebuilding buying group out there. The other thing, and just to build off that, when you think about 1 plus 1 equals 3 is these regional homebuilders, a lot of them are shopping. They're getting their materials in places like lumber yards, which AZEK has traditionally been very strong at. It also has access to those contractors. So that's an example of the synergy that AZEK is bringing, James Hardie, kind of to tie your whole question back together.

All right. Let's do here.

Be mad at Bill, because I'm not calling on anyone. It's him.

It's Keith Hughes from Truist. I'm doing some rough math on your margin gain. It looks like maybe 35%, 40% contribution margin on the forward view that you gave. That's a given capacity utilization in your presentation, Ryan, that seems like another kind of conservative number. Is that fair? Is there something else going on that I'm not thinking about that keeps it lower?

Yes. I mean I think if you look at the averages of the businesses, we always saw Fiber Cement kind of in the low 40s on incremental volume. On the DR&A side, it's kind of that 30% to 35% range. So we kind of brought those together in a blended rate of 35%. Yes, there could be incremental to that, but we figured in almost any environment on the flow-through we can achieve that.

I assume if volume improves would probably be above that for a period of time until the capacity limit reaches.

Yes, absolutely. With where we are from a utilization perspective, that leverage on our fixed cost, you can take that all the way up through the utilization range.

Tim Wojs from Baird. Maybe just looking at just kind of the vinyl kind of R&R and kind of recapture opportunity. I think the average lifespan of vinyl is about 30 years. And if you look at the census data, it seems like you'd almost be kind of just entering that replacement cycle. I guess, would you agree with that? And how would you kind of track that opportunity or present that opportunity to us? Because it does seem like there's a pretty sizable basically from the mid-90s to the mid-2000s of installed vinyl that has yet to really convert.

Tim, have you been listening to us for the last year? I'm just kidding. This is really what we've been talking about really primarily over the last year is our largest opportunity. And some of the stats we put out there support exactly what you're saying when you think about the aging housing stock, you have this many homes 20 to 40 years old. So they fit in that sweet spot of what you're talking about. And then since the '90s, I think over 10 million homes clad in vinyl. So that's why we see this as a tremendous opportunity. We saw it years ago. I think that we finally are bringing together. The right product proposition, being able to reduce the install time. So we're decreasing that differential between us and vinyl.

And then on top of that, being able to have some of the support in key regions that have been vinyl regions that we get from the AZEK acquisition, not only people, access to contractors, but also access to customers. So we are at a great time to be able to go out and get after that. And that's why we list this as our #1 opportunity. We think Northeast, Midwest, it's a $1 billion opportunity. John was just talking about for the team, we have objectives that are more locally focused, versus, hey, we're going to do this across the country. And Northeast and Midwest, you asked some of our sales team out there and what they're going on. It's how are we going to displace vinyl. So we are set up the right way to be able to get after that.

And as far as how do you track it, how do we know we're winning. On some of our earnings calls. We've talked about some of the reach we've had with Trim-Over. How many homes, the percentage increase. And we'll continue to do that. So we're making good progress. But I think the thing that is really encouraging is we're in our infancy here in being able to go out and get after it. And you may ask, well, why? Why didn't you get after it before? Look, from a James Hardie perspective, we had a tremendous amount of opportunity in certain regions of the country to really get after new construction. And we'll take that all day long. And we've been very successful with that. Now as we look at, okay, what are other opportunities for us as a new James Hardie, Repair & Remodel in some of those regions of the country are top of mind.

And on the growth algo, just has anything changed on the net pricing contribution relative to what the organization has done historically?

Look, we usually say roughly 2% on -- we think of DR&A and we think north of 3% on Fiber Cement. But it goes back to what I said before, some years, these are going to be different. Each one of those growth stacks. Right now, that is our thinking is that we will target that. But I think it's to look at the growth algorithm in totality here of that 4% to 7%.

Great job, guys. Phil Ng from Jefferies. Ryan, the presentation on operations was really impressive. The 2 things I wanted to really tackle was on the speed pick up 5% for Fiber Cement aspirationally, call it, 3 to 5 years, what's a good target? Would that require a lot of capital? And the other piece I wanted to really tack on is the reformulation piece, right? Is there an area to kind of reformulate Fiber Cement in particular to kind of reduce install cost, right? I mean the Trim-Over method was really impactful, but is there an opportunity to kind of reduce that install cost and really open the TAM and go after that PVC market?

Yes, sure. I'll take the first one. Line speed, question was line speed Fiber Cement, kind of what's a 3- to 4-year view of that? Is that the question?

Yes.

Yes. Okay. So I think -- and then the second part was how much CapEx is required. So I'll take the CapEx, I would expect pretty incremental like a level of CapEx you guys won't notice. Most of that will come -- there's like instrumentation and tech stuff on the line and then debottlenecking work as we get the sheet machines ramped up, you run into everything. But I think the headline will be a number that's not really meaningful for you guys. It will be a lot of work for the team.

What to expect, what's reasonable over the next 3 to 5 years. We won't get the full $1 billion over the 3 to 5 years. I'll say that. I think we'll get a good chunk. We gave you what we've done over the last 12 months. I think that's a good indication of a potential run rate. We're pretty early. It's pretty hard stuff. If I had to range it, my range would be pretty big for you, but we're making progress. So I think we took that what we've done in the last 12 months, coupled with we're not going to get it all in 3 to 5 years, you can kind of get a sense of where we think we'll land with the thing.

Reformulation for Fiber Cement. I think we've got run room on it. We've been doing it a long time. So I think the way to set expectations there is I don't see like a reformulation lever that sort of resets our cost position dramatically, but there's a lot of runway to keep contributing to that annual productivity inflation offset, that kind of activity. I'd see bigger probably step change opportunity on decking reformulation than exists on Fiber Cement, but there's still plenty of juice to squeeze. It's going to come kind of incrementally on Fiber Cement and help us roll up to that annual productivity.

So Phil, here's what I would say. The way we've set up the organization, again, best of both. So we have a product organization under Jon. So we have general managers who are dedicated to product. They have a P&L. They're working hand-in-hand with an R&D organization. So what they're constantly trying to do not only go out and sell more product, but how do we make it more profitable as well. So the other thing on top of that is we have a group that is solely dedicated to reformulation and what I call VI, value improvement. So it's part of the competency of Jon's team of product managers to not only develop more product, go out and sell more, but how to make it more profitable as well. And this is one of the things that we used to do at Hardie. So now we're doing that. We're instituting across the whole company here. So we should continue to see when Ryan put up there the HOS type of savings target out there is to deliver on that year in and year out.

Got you. If I could sneak one more in. On the AZEK reformulation side, that's the bigger opportunity. What are the 1 or 2 things that really excites you where you really unlock value on the AZEK side?

Jon probably will take that.

So it's just going to be a continuation of what we've been working on before, but I think we're able to accelerate our efforts now with the combined R&D organization. So simply put, we have more sort of credentialed proven scientists in partnership with the combined Hardie R&D organization. And to Aaron's point, we created a separate organization within an organization, a team 100% focused on this formulation and cost savings opportunity that historically was purely focused on Fiber Cement and now they're focused on the full portfolio.

And so when you think about just the expansion of the capability and the depth of that team, we just think everything we were working on before, we're now going to be able to get there faster. And I think that kind of came through in Ryan's presentation in terms of the acceleration of the $50-plus million in synergy capture from operations. That's a direct result of that kind of consolidated best of both R&D teams.

Okay. We're going to move to anybody in there. Let's go right here then.

Matt Bouley, Barclays. So the commercial synergies, I think you said it a handful of times today that there's upside to the $500 million. You didn't say exactly how much upside. Curious if you have a number, I would love to hear it. But really, what I'm wondering is...

We're not giving that far out.

You got to give it a shot. Maybe you can kind of tick off some of the top opportunities or examples. You roll back 12 months ago, you laid out the $500 million. What's new? What do you really think there's an opportunity on that has changed?

Let me start out, and Jon, maybe you'd be good to take this because I've talked a lot about this. One of the things because we always give these headlines. And certainly, they're very important. Boise, ABC, Lansing and go on and on and on. I think an important piece to remember is go back to John Madson slide on RPS and Rick James, easy name to remember. What we've done with Rick James, who's a contractor, that's being done thousands of times, and it will compound on each other. That is where the real thesis of this deal, and I want to say magic because it's not magic. It's a lot of hard work, but that is the work that is ongoing, and it will continue over and over again. So we can give you the headlines, which are certainly, I think, impressive. But that's what I want to get across is that example of that contractor, there are hundreds of thousands of those.

And Skelly talked a little bit about it and so did Sam as we have 30,000 of those in our network that are signed up. We have 300,000 of them in our network. So you start to think about some of the reach and the power that we have and the relationships we have, not only with our contractors, but as we try to get more contractors converted to our materials, look at the reach from our customer base. And they're aligned with us. Boise, for instance, our regional distributors. Boise is not selling any other decking or railing or trim besides our product. So they're going out and trying to convert. So it's a force multiplier, I think one of the guys had said it before. But I want to start with that because I think that's really important, but maybe give it to Jon to talk a little more here.

Yes. I mean Aaron talked about one of our objectives is about establishing confidence and credibility in our execution. And so nothing we showed here today doesn't have a plan with a team assigned with clear accountabilities and clear targets. So everything we've talked about today, we had a playbook. We're executing against. Everybody likes to talk about the home runs. It's great to talk about Boise. ABC is a great win where you're consolidating their entire PVC business across hundreds and hundreds of locations. I get as a leader, I get just as excited about those singles like that contractor flipped, that dealer flipped. Just keep getting people on base, keep scoring runs, keep delivering. And those small wins, they compound. And so it's just win, win, win, hit a couple over the fence here or there, but we have a proven track record of delivering those quick wins and those long-term wins. And so this portfolio of actions that we're taking, we're holding the team highly accountable to, and that's what's delivering share gains. So there's no new secret recipe that we developed overnight when we put the companies together. It's just the integration, I think, allowed us to accelerate a lot of our initiatives faster than we would have gotten to individually on our own. And so that's what I'm holding the team accountable to.

Got it. No, that's great to hear. And then second one is a quick clarification on the margin guide. So that 35% flow-through. I think I saw in the slides that you had 1.5% of revenue targeted for HOS savings every year. And then obviously, you're guiding to net price every year. So is that 35% just volume? And are those other 2 areas potentially incremental to that?

So think of HOS as more of an inflation mitigator for us. That's why we have a target of that, but do you want to take it anymore?

Yes. I mean I would say that definitely on the incremental piece, as you mentioned. But I mean, to your point, I mean, HOS is a mitigator of inflation. We have normal inflation in our labor force, freight, everything else. And then on top of that, right, we do take price, but that's value-based and that does help fund some of our growth initiatives and things like that. So I would think of it as kind of the 35% can be used in both.

Let's go, can we? I know it's a hike but in the back there.

Rafe Jadrosich at BofA Securities. Just kind of following up on Matt's question. Just where are you on the integration of the Hardie and AZEK sales force and buying programs? Can contractors bundle the purchases together yet? And then how could a consolidated buying program have an impact going forward?

Yes. Do you want to take that John.

Sure. So we're in the evolution. The Board is our TimberTech AZEK program and James Hardie Alliance is the legacy Fiber Cement program. There is a best of both approach between those and 2 different contractor types that participate in. But for those that participate in the alliance and as we bring this together, we're focused on creating a center of excellence for those 2 affiliation programs. But in the near term, our partners on the alliance side are able to accumulate their purchases of AZEK or Versatex PVC as a part of their alliance program. And so when we have that group of contractors that is 10,000 Alliance members deep, a total of 30,000 contractors when you look at the combination of the 2, that allows us to take that back with our dealer partners that I mentioned on my slides and emphasizes our position with them on what they have on the shelf and the pull-through that our contractor alliance program creates for each of those dealers.

So they're able to utilize PVC on the exterior of a full wrap James Hardie home as if it is a One Hardie solution and then create the affiliation points and utilization based on The Full Hardie exteriors portfolio. We're working on the TimberTech side of our overall integration, and we're keeping them independent because of the type of contractor, but we're keeping in the center of all of that, our ease of doing business tactics and our education platforms and our capabilities around improving your business by being a partner of James Hardie is at the center of all of that. The affiliation component and how you track your materials is broken up between outdoor living and exteriors.

Okay. Let's move to this side. Okay. There we go.

Ryan Merkel with Blair. So my first question is on the big boxes. Can you talk about the share gain opportunity and how that's worked so far?

Yes. I'll start out and Jon, you can dive in here. Look, we have good footing at the big boxes, and we've incrementally improved that since we brought the 2 companies together. Jon likes to talk about, I love the term singles. So we have James Hardie there in Siding, backer board. We have TimberTech within Lowe's, and we got it back into Home Depot, special order in some stores, and we keep building upon that. I think what we look at is from a big box standpoint, we're under-indexed from our perspective. So we think that we have opportunity to continue to grow in the big boxes. And certainly, as they try to get more Pro business, we talked about the pull that we have, and we think that's appealing to them. So we're working closely with them. But Jon, do you want to talk about some of our recent success?

Yes. I think what you're seeing is there's a lot more than words with this customer base in terms of the stores operating differently from the Pro and what they've done specifically with their acquisition. So we're now having holistic conversations with those organizations about the full breadth of their portfolios as well. And so as they try to execute and win in the Pro, when we're sitting down and having a conversation with Home Depot, it's Home Depot and SRS in the room, and we're having that dialogue jointly to talk about how we win together across our full portfolio. So we think that, that's a huge advantage for us given our Pro legacy. There's not too many homeowners who I think are trying to hang fiber cement siding on the weekend on their own. So it's clearly a Pro category. TimberTech is clearly the leader in the Pro brand from a decking perspective. And so as they try to fulfill their aspiration of growing with the Pro we're a key partner in that.

And so we continue to hit singles. We're doing some PVC decking tests in certain stores. We've been expanding the AZEK PVC trim opportunity in stores. We've been expanding our Fiber Cement opportunity in stores. So we just continue to put people on base there. And as most of you know, it's a pretty lumpy business. There's line reviews that stretch across years, and we'll be well positioned to win when we have those opportunities.

Awesome. And then my second question on Trim-Over. It seems you're having some great success, but it seems pretty early. How much is it adding to growth? And then how many markets is Trim-Over in right now?

Do you want to talk through the reach?

We really are focused on vinyl substitution markets. So think Carolinas up to Maine over to the Dakotas down to Kansas City. So that's the target area. And when you look at the Midwest, where we started about 14, 15 months ago, we're seeing double-digit sell-through growth in those markets and outpacing that with ColorPlus and trim products. And so when we took that to the Northeast, Midwest at the beginning of the calendar and the Northeast from the Midwest at the beginning of the calendar year and followed it with the Carolinas early in the summer. And we're already starting to see that builder target list continue to accumulate in different price bands. And that's how we really measure it. Are we moving less in our price bands by being able to access this capability in each of the given markets.

And as you know, going from Raleigh, North Carolina to Philadelphia, the price bands where vinyl is acceptable are varying. And so as you get down into Raleigh, it's on homes that are less than $400,000 and anything north of that becomes more akin to hard siding. When you get into Philadelphia, it's north of $1.5 million and you still have a vinyl exterior on it. So it's a different product for the type of home as we continue to penetrate that market, but we're seeing those early stages of double-digit growth in those markets as well.

Okay, yes. Peter.

Peter Steyn, Macquarie. Sorry, I'm going to see if I can ask a question of the whole panel. We've got a lot of good news on the integration. I'd be interested per functional area, what are the biggest challenges you either have faced or are facing. And how you're solving for that or solve for that over the last year?

Yes, that counts as 6 questions.

We can cut it to 4. We can do sales, marketing, products and dev ops.

You don't have to hear it from me. Sam, why don't you begin?

Yes. Our team is one of the first ones to integrate actually. The marketing team has been pulled together since last November. I think the biggest challenge at first was in-housing, getting -- it's kind of a new -- our creative team was able to expand to take over servicing all of the brands. And we've been able to do that really efficiently. Largely with the team that we already had, but brought in a couple of new people, but not very many. But then it's a process change for the team and you're used to working as an outside agency, there's a lot of process there that had all switch around. So that, I think, was probably the biggest thing. We're largely through it now. And same with our other in-housing of media buying or marketing analytics or digital or that kind of stuff. I think that's really been the biggest thing.

Ryan. Start maybe.

Peter, I'd say the thing we haven't struggled with in operations, the group has come together and work together really effectively. And I mentioned some of the leaders we have that you guys will meet today, and they've just been instrumental. So they've come together really quickly. I think the challenge -- if you look at my presentation, there's a ton of opportunity. And so I think the challenge has been how do you make sure we temper that, prioritize critical few and keep working on those and don't try to fight the whole thing. That's been our biggest challenge and opportunity. The opportunities are obvious. They're exciting. Everybody wants to work on everything at once. And obviously, we have to make choices. So keeping that discipline in the business has been on the operations side.

From my standpoint, it's all about the people. I mean, at the end of the day, we're a product company, but the people run this business that's who touches the customer every day. And so when you think about -- Ryan said it well in his presentation, this has been the most challenging 14 months in my career, but also the most rewarding. That is compounded across the entire organization. Like what we're asking out of our product teams, out of our sales teams, out of our R&D teams, it's a lot of work. But we're in a position where we're putting points on the board, we're getting wins and that momentum is contagious. That's what drives people to stay in the boat, stay with us on this journey and produce results.

The competition, they see our talent, they try to take it. But if we can keep people aligned around that vision and mission, we can keep getting those wins. We can keep turning that momentum into sustainable results. That's how you build sustained competitive advantage. And so I've been spending an exorbitant amount of my time making sure we have the right people in the right positions to win and then we put the points on the board, and we just continue that momentum.

Yes. We had our full integration of the sales organization on the 17th of March. We chased that 2 months later with our national sales integration meeting, and that was the chasm that we crossed culturally. And so we have a really awesome opportunity with the culture that we have. And when you have hungry driven winners that want to go out there and hunt and win every single day, the biggest challenge is making sure that you're prioritizing your focus and ensuring that they have all the data and tools that they need to go out and be successful and apply those from what I formerly did to what I'm doing today. And so when we think of that high-energy culture that we have, that's a tick. Now it's making sure that we have that priority and focus really well set, and we'll continue to work on that and develop that every single day as we get our path and game plan operationalized throughout the future.

Do you want to talk to it because I think Ryan is really unique in that you're unique. But Ryan, as we put the 2 companies together, left and then we brought Ryan back. But maybe you can talk a little bit to it.

Yes. I mean I think on the financial side. I mean, any time you bring 2 larger companies together, there's a lot of systems and consolidation and things that just need to happen. And those aren't fundamental like changing on ERP, but even consolidating financials in a common platform, that was one thing we got across the line a couple of months ago, simple things like Concur not being on the same platform. All those things take time. And I think that's just -- there's an endless list of those that we continue to work on. But I think the opportunity and why I came back. I mean, I was really excited about the business prior to the exit. Everything I learned from the Hardie side during diligence. when the opportunity came up and started talking to Aaron about it, just really made sense and really believe in the story. So I was excited to get the opportunity to come back to get to work on all these things.

All right. So right back there. Yes.

Sam Seow from Citi. Just one quick question on your 1 and 2-step strategies. I think the opportunity is pretty clear for AZEK, and congratulations on some of those deals. But just on the Fiber Cement legacy business, could you perhaps double-click on what the benefit is from some of the deals you've got there? And really, was availability of supply in some of those regional distributors in the Northeast, what was holding you back?

Yes. I mean I think Aaron touched on it a little bit in terms of the -- we're a data-driven organization, and there's pretty crystal clear data in terms of who's winning in the marketplace. And so what we report to you all a lot is what was our sell-through, what was our sales growth and consolidation. But I mean, we had a double and triple click to know, okay, which distributor in that market, which dealer in that market is winning more share and why. And so when you look at that and then you look at, Aaron mentioned like Lumbermen's in the Midwest, they were selling a considerable amount of a competing siding product they're now going to sell our siding product. So we knew specifically what their reputation was and what their capabilities were around selling TimberTech decking and selling AZEK trim. They were doing very well selling a competing siding line. They're now selling our siding line and they're dedicated to us.

So in that region, where we just showed you the $1 billion-plus opportunity, we now have the best local distributor who knows how to win in siding, pulling for James Hardie. That's the advantage, like that's what we've built in terms of the opportunity on the Fiber Cement side, and that's across every region. And then you double-click on the dealer side, and I'm watching this daily, I'm looking at a Riverhead. We put the logo up there. I'm watching what are their Fiber Cement sales each and every day year-over-year. Strong base. They work with Versatex Trim, TimberTech decking, and now I'm watching the Fiber Cement grow as we make that a key lever of our business to drive R&R growth and custom builder growth in the Northeast. So that's the data's guiding us, and then we're taking our advantages. We're taking our new partnerships, and then we're attacking our strategic priorities and a tailored approach with the best partners in the market to allow us to win.

Keith from MST. Aaron, I just want to ask either you or to Jon's a question around this distribution change. Obviously, a big deal. Boise has been bought in. And on the other side of that, there are distributors to national and regional that are being dropped, competitive products being dropped as well. To what extent are you confident that any competitive response from those that have been dropped can be manageable? And I guess, to what extent have you proactively planned for a step-up in competition from either the distributors that have been dropped or the competing products?

Yes. Keith, really good question. As I mentioned, and I think the guys mentioned as well. Look, this is not something that we just decided to do a month or 2 ago. This is something we've been working on over the last year. If we think about -- we said, all right, we're going to close on this acquisition, have the 2 companies come together. There were a series of moves, which still are some moves that we have to make that are key for our success as it relates to what is our #1 fundamental and that's material conversion. So we have contemplated and you can't do everything. And you're always paranoid of your competition. But we have gamed this thing out among us as far as, okay, we do this, this is what happens. You have to do that. Because the stakes are very, very high here.

I think it comes down to is the confidence level that we have and the partners that we've aligned with. And then our ability with Jon's team, John Madson's sales team, Sam's support from a marketing standpoint, Ryan, from a manufacturing supply chain standpoint of our ability to be able to go out and execute. And we have made, I think, the best choice, right, because we have now partners that are 100% aligned with us. We win if they win. So we've certainly contemplated all of that.

Yes. And I'd add, again, we're using that data to manage that because it is a risk. So we know specifically which dealers are buying from distributors we used to work with that are now left. And so we can prioritize those accounts to understand that, okay, they used to buy from somebody else. We need to ensure that we facilitate the transfer of the handoff to retain that business. And then more importantly, like we talk about that 500-person sales force, we haven't outsourced our relationship with anyone. So our 500 salespeople have deep relationships at the dealer level, at the retailer level. We haven't outsourced that to our distribution partners. The distribution partners are a force multiplier. They're a partner with us, but we own relationships that those accounts. We haven't outsourced that and let somebody else lead those relationships for us.

And at the same time, the teams are relentlessly hungry to go out and drive that connection. So right now, there's at least half a dozen trainings with those partners happening somewhere in the country today down in Tennessee at one of our facilities where it's a shed for on-the-wall cost and on-the-wall training, and we have Lumbermen's there today. We're headed to Texas tonight to work with Boise and their manager training. We're doing all of this to get that ground game in preparation for the season of buying as we get ready for the calendar year. So as we do this transition, our objective was starting at the lowest level, that ground level with our field sales, understanding what joint targets are, where are the opportunities to retain, grow and continue to expand that. And it's down to the street level through sales force, developed, tracked, trained and executed.

And maybe just a quick one for Ryan. I just want to be explicitly clear on the $500 million of commercial synergies, is that included in the 4% to 10% above-market growth target?

Yes, it is. It would be in the growth initiatives plus the synergies bucket, yes.

Jeffrey from Loop Capital. So last year, you had roughly $550 million in recycled waste and scrap. And I just wondered how should we think about the time line to get to your long-term $1 billion annual target and whether there'd be any interest in bolt-on vertically integrated acquisitions similar to what AZEK did in the past to boost its recycled content levels?

Yes. Jeff, I think we had 550 million pounds, right? I think you said dollars. So it would be pounds. And look, as we think about -- we have Amanda Cimaglia, who is our new Head of ESG. We're working with Ryan's team, also with the product team to decide what can be appropriate for us as far as a new target out there. I know there was an aspiration to 1 billion pounds recycling. We have that and more. But before we go out with some target, we're going to make sure we do our homework and understand what is possible for us. So yes, we want to still continue down that line. As we think about bolt-on acquisitions, some of the things that we've talked about in the past is how do you take some fragmented categories like we always mentioned railing. Well, also, if there were some recycling opportunities and they were the right ones, that certainly would be something that we would bolt-on as well. Good question.

Ketan Mamtora, BMO. On material conversion, clearly a lot of opportunity. I'm just curious, as you think about sort of the different products that you all have, where would you say you've got the most opportunity among the key products? And which one is proving to be, let's say, more of a battleground and kind of why?

I'll start, and Jon, John, please dive in here or anyone. Our #1 dollar opportunity is still siding. You just look at the addressable market, you look at the penetration, even though we've made a lot of progress throughout the years, we put up the opportunities, it still is in siding. So that is our largest opportunity. And look, certainly, decking comes a close second. But our 2 biggest categories, we have a tremendous opportunity. I mean we put up there, I think, $23 billion was our TAM. So siding is the biggest opportunity.

And look, I said this before, and I think it's really important for everyone to understand this new to the James Hardie story, tremendous amount of progress. And these 2 gentlemen have been there for a lot of it. With James Hardie, we focus on regions of the country that were big time new construction, and that has benefited us. And certainly, as that comes back, it's going to benefit us. But we see a tremendous amount of opportunity in Repair & Remodel in certain regions. You saw Jon put up some of the penetration rates in the Northeast and the Midwest. Those are some of our largest opportunities out there. But guys, do you want to chime in anything?

And within Siding, it's vinyl. That's the biggest opportunity. It's an inferior product. We have a very strong value proposition against it. And in decking, it's wood, but don't just think entry level. We're converting cedar, we're converting Redwood. We're converting ipe at the high end as well, given the aesthetics and the quality that we have. So it's just, those are massive long-term structural changes that are going to happen in this industry. And our goal simply put is 10, 15, 20 years from now, you're driving around, you don't see a wood deck and you don't see vinyl house.

And in addition to that, the amount of railing that there is to capture on the existing sales and future sales. It makes a perfect relationship for the dealer, for the 2-step distributor and the contractor to have that singular message specifically around our railing products as we continue to grow that. So when you think of those 3 components of how we can grow, we've got tremendous attachment opportunity.

We'll take a few more now.

Daniel Sykes from Jarden. I just wanted to ask a little bit about the conversion of the contractors. If you look at the example you gave around ABC Supply, on the PVC trim. Obviously, if you're taking those to be in all the stores rather than 1/3 of the stores, how do contractors react to that? And is there anything -- how should we see that play out in the numbers? Is it something we should expect that revenue opportunity to grow straight away? Or is it something that you still need to do work with the contractors and converting them?

Regardless if it's a push or a pull strategy, every member of the value chain needs a level of account management and our teams are built to have that account management. So in the example of ABC, the channel manager in that particular area is working those opportunities. We don't ever want to just blindly sell somebody something that they're not expecting. So that gives us an opportunity to partner with our siding and trim specialists in that market, create value for that outside seller that has been selling something previously and generate that value back to the branch that states why the organization has made this decision to partner. That market level account management at the contractor, at the dealer's location and then partnering with their sellers so that they're a part of this is a critical component to making sure that happens. And when we do that right, it's not about what product we're switching, it's about what experience they're having with James Hardie and how we can create a better business that we're partnering with on that contractor.

Okay. We'll take the final question. Anybody on this side that hasn't asked?

Trevor Allinson of Wolfe Research. Jon, I'll follow up on a comment you just made on railing. It wasn't a huge emphasis of the presentation today. But that's something that historically you guys have talked about. Any color on your expectations for decking growth versus railing growth moving forward? And any color on any initiatives you're implementing?

Jon, do you want to take it?

Yes. Sure. So I think it is very important, and please spend some time with John here and Sam, who'll be outside afterwards and can take you through the full portfolio. If you look at what we've done there, and we talked about it from a product innovation standpoint, we now have a complete offer from railing, good, better, best, premium. I think that was a gap historically for the business, and it's something that we've filled the gap. So whether it's entry-level or the most premium, we're in the game. We're in the game with a differentiated product. When you look across the portfolio, given that we have entry-level all the way to premium, our margin profile is very similar to our decking business. And so it puts us in a position where we can aggressively go take share.

Our railing business has been outgrowing our decking business because we have a low attachment rate, and we've continued to improve that attachment rate, and it's a huge opportunity for us. So we have a lot of opportunities as a business. Rail is a very, very important one for us. But as we talked about in the growth algorithm, we have multiple ways to win. We have a portfolio approach. So just because we're not talking about it all the time, it doesn't mean that we're not aggressively targeting share gain in rail. We've been winning in rail. Again, we share with you our sell-through numbers on Deck, Rail & Accessories, and you can see the growth that we've been able to generate there. The additive piece is that currently railing is accretive to growth for our entire deck and railing business.

Yes. Trevor, I think that's the good thing that you just pointed out. We didn't necessarily spend a ton of time on it. There's a lot of things that we can talk about that are pathways to growth for us. And that's why if you look at the growth algorithm, it's a differentiated portfolio, just like our business.

All right. That's it, everyone. Really appreciate the time and interest. And I know we got lunch.

Luncheon and product showcase teach-in at 1:15.

So if you didn't get ask a question, please grab any of us. We're happy to talk. We're going to have some lunch. And then we have our product stations. Please stop by. We have a talented team out there that is anxious to talk to you. So I appreciate the interest. Thank you, everyone. All right.

Welcome to the James Hardie Fiscal First Quarter 2027 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Bill Seymour, VP of Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining today's call. I'm joined today by Aaron Erter, CEO of James Hardie; Ryan Lada, CFO of James Hardie; and Jon Skelly, President and General Manager of James Hardie, North America Building Products.

Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on Slide 2 of our earnings presentation for more information. Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. In addition, non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of non-GAAP measures discussed today can be found in our earnings presentation, which is posted on our website. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars and any comparisons made are to the corresponding period in the prior fiscal year. Organic net sales comparisons exclude the impact of the AZEK acquisition.

With that opening, I'm pleased to hand the call to Aaron.

Thanks, Bill, and thank you all for joining us today. In my remarks, I'll cover the highlights of our fiscal first quarter, discuss our strategy and outlook and then hand it to Ryan for a detailed walk-through of the financials and our guidance. We're off to a good start to the fiscal year. First quarter results were ahead of our expectations, led primarily by better-than-expected organic growth in our fiber cement business, performance that came against an economic and housing macro backdrop that remains uncertain.

Our team stayed focused on what we can control, strong execution and serving our customers at a high level. We entered the year with a clear set of priorities, return fiber cement to growth, outperform the market across our portfolio, expand adjusted EBITDA, achieve cost and revenue synergies and drive a step-up in free cash flow to support deleveraging. One quarter in, we're pleased with our progress against each of these priorities.

Let me get into the highlights of the quarter. Net sales for the quarter were above the high end of our original guidance range with pro forma growth of 12%, strong outperformance versus the market. Adjusted EBITDA was also above the high end of our guidance range. As you saw in our results today, starting in Q1, a we are excluding share-based compensation expense and adjusted EBITDA and other non-GAAP financial measures. We believe excluding stock-based comp provides a clear view of our underlying performance and makes us more comparable to our peers. We have also heard from a number of our investors that they would like to see this change, and we appreciate that input. We will continue to break out SBC as a separate line item in our reconciliation tables so investors can clearly see the impact of this change.

Back to the results. Our outperformance in the quarter was broad-based, but it was led by our fiber cement business, where organic growth of 20% came in ahead of our expectations. Three things primarily drove the beat. First, strong execution against our growth initiatives, including ColorPlus, Statement Essentials and Trim-Over, where we're seeing continued proof points on material conversion, particularly in the Northeast and Midwest. Second, strength in 2 parts of the market where we are particularly strong that have held up better than the rest, the higher end of the market, including repair and remodel and multifamily new construction. Third, we lapped the inventory destock from a year ago. Our strong execution and progress in fiber cement are encouraging as we head into the balance of the year, even as the market environment remains uncertain.

In Deck, Rail and Accessories, underlying demand remained healthy with nearly double-digit sell-through that reaccelerated through the quarter, driven by strong consumer demand and incremental shelf space across the platform. We're encouraged by the continued strength in TimberTech, driven by wood deck conversions, mix shift to more premium products and commercial synergy momentum. The Australia, New Zealand and Europe businesses performed well, both growing revenue double digits and outperforming in a challenging macro environment. We made progress on debt paydown in the quarter, redeeming $400 million of unsecured notes ahead of their 2028 maturity. This keeps us well on track towards our net leverage target of approximately 2.4x at the end of this fiscal year and less than 2x by fiscal Q2 2028.

Turning to the integration. Commercial synergy momentum continues to build. We're seeing broad-based wins across our combined sales force, strengthening our conviction in the fiscal 2027 $125 million run rate commercial revenue synergy target. Last quarter, we highlighted 2 examples, Lansing Building Products and CB USA. And as you saw earlier this week, we announced an expanded nationwide partnership with Boise Cascade, one of the largest U.S. wholesale distributors of building materials. This agreement makes Boise a national distribution partner across our entire portfolio from Hardie Siding & Trim to AZEK Exteriors and for the first time, TimberTech decking and railing.

In addition to the expanded partnership with Boise, we have expanded our partnership with 6 major regional distributors. Capital, Dixie, Lumbermen's, Parkside, Woodgrain and Wolf, now carrying the full line of the Hardie portfolio. They will now become fiber cement partners in addition to their existing decking partnerships, extending our reach into the repair and remodel market. These expanded partnerships are a validation of our strategy and the culmination of months of planning to bring together James Hardie's industry-leading exterior building products with the best-in-class national distributor and best-in-class regional distributors. These expanded partnerships also mark a significant step forward toward achieving our revenue synergy target.

On cost synergies, we remain ahead of schedule while under budget for cost to achieve without sacrificing service or execution. Our combined sales force gathered for a company-wide sales meeting in Chicago in late May, bringing our legacy Hardie and AZEK teams together under one roof for the first time. One company, one sales force, one culture with a shared playbook. At 500 strong, we believe we have the largest and best sales force in the industry, and the early results reflect that. We also continued extending the Hardie operating system across the AZEK manufacturing network, resulting in improved productivity, tighter procurement discipline and better cost visibility across the combined plant footprint. These examples are the best of both companies coming together in practice.

As a reminder, our $23 billion exterior total addressable market in North America remains heavily underpenetrated by more resilient materials, yielding a $17 billion-plus conversion opportunity. We're executing against 5 pillars to capture it, and I'll touch briefly on each. First, material version. We continue to see contractors switch competitive decking to TimberTech and long-time Hardie siding contractors add composite and PVC decking to their offering. There are approximately 60 million decks in the U.S., and the vast majority are wood. These 2-way wins remain a meaningful contributor to above-market growth.

Second, channel expansion. We continue to scale Hardie into TimberTech and AZEK strong accounts in the North, and TimberTech into Hardie strong accounts in the South, adding new stocking locations across the combined footprint this quarter. Third, innovation and new product development. Our combined product and R&D teams remain focused on solutions that accelerate material conversion, applying the AZEK innovation playbook to fiber cement with products like TimberHue, which offers authentic woodgrain finishes and 8 colors.

Fourth, brand preference. Brand search volume and customer sample orders, a leading indicator of future demand both continue to grow at a healthy clip in the quarter, reinforcing our position as one of the most recognized brands in our categories and supporting sustained share gains over time. And fifth, simplifying the consumer journey. Our replatform website continues to improve our homeowners research, compare and connect with our contractor network. Together, these 5 pillars remain the core of how we win in North America, and we're pleased with our progress across each of these this quarter.

Let me give you an update on our fiber cement growth plan. As discussed last quarter, our focus remains on the Northeast and Midwest where repair and remodel, wood and wood-look siding alone represents an approximately $1 billion conversion opportunity. And where AZEK gives us immediate channel relevance, an established footprint, strong relationships and complementary products, the expanded statement and statement Essential's rollout is gaining traction, continuing with double-digit growth in the Midwest East pilot and is now live in an additional 5 regions. Building on that momentum, we opened 2 new expanded statement partner stocking locations on the East Coast, improving service and availability of the full collection across our pilot markets, with ColorPlus mix continuing to grow.

At the same time, we've expanded our Hardie ProLab, our mobile contractor training units to drive Statement Essentials adoption across the broader Midwest and Northeast footprint, and we're seeing that training translate into sell-through. Our 3 conversion priorities remain unchanged. Converting vinyl siding, winning against wood and expanding our presence in premium products. On vinyl, we are accelerating penetration in the Northeast, Midwest and the Carolinas backed by expanded ColorPlus rollout and contractor training. On wood, fire resilience, especially in the West continues to be an increasingly important part of the conversation as building codes evolve insurance requirements tighten and homeowners place greater emphasis on durability and risk mitigation. Finally, TimberHue and our enhanced Artisan lineup, our premium, higher-priced, higher-margin lines are gaining traction with custom builders and high-end remodelers.

Let me close my remarks with a quick word on the external environment before I hand it to Ryan. The housing macro backdrop remains uncertain and broadly similar to what we discussed last quarter. Mortgage rates remain elevated and builder confidence and consumer sentiment remain cautious. Housing starts have converged down toward permits over the quarter. And as I touched on earlier, we are seeing a divergence by price band with the middle to upper tiers where we participate more significantly holding up better than the rest of the market. In our outlook, we are not assuming housing industry conditions improve from here. We are focused on what we can control in our own execution, and we remain committed to our fiscal 2027 priorities, market outperformance, a return to growth in fiber cement, attainment of cost and revenue synergies, adjusted EBITDA expansion and significant growth in free cash flow and further deleveraging.

Now let me turn it over to Ryan, who will walk you through our financial results and outlook in more detail.

Thanks, Aaron. Total net sales for the first quarter were $1.47 billion, growing 64% on a reported basis and 12% on a pro forma basis, above the high end of our original guidance range. As Aaron mentioned, starting this quarter, we're excluding share-based compensation expense from adjusted EBITDA and our other non-GAAP measures. We'll continue to break share-based compensation out as a separate line in our reconciliation tables, so investors can see the impact clearly in both current and prior periods.

Adjusted EBITDA was $422 million with margins of 28.6%, above the high end of our original guide with and without the share-based compensation exclusion, reflecting volume leverage and the benefit of our cost actions. A few modeling notes. Adjusted corporate and unallocated R&D was $32.3 million in the quarter. Keep in mind, a portion of our cost energy benefits continue to run through that line. Our adjusted effective tax rate was 21.7%, in line with expectations. Weighted average diluted shares were approximately 584 million in the quarter, and we expect share count to remain broadly consistent throughout the year.

Adjusted net interest was $64.8 million in Q1, and we expect it to normalize around $60 million per quarter for the remainder of the fiscal year. Adjusted EPS was $0.36, up 13%, with growth diluted by the increased in shares from the AZEK consideration. As we discussed last quarter, we continue to convert customers as part of our commercial synergy program, and some of those wins involve buying back existing channel inventory. These are investments tied to specific conversion wins, not a reflection of underlying demand, and we'd expect to see these investments continue as we close out more of our commercial synergy pipeline.

On costs, we continue to expect approximately $80 million to $100 million of cost pressure in fiscal 2027, primarily raw materials, freight and energy, with roughly 2/3 of that impact in North America. The pricing actions we announced in late April are directly offsetting this pressure, and we're pleased with the execution and realization to date. Our raw material cost assumptions have improved modestly, but we're seeing offsetting pressure in freight, where elevated spot rates and network dynamics are running above our original planning assumptions. We are actively working on contracting a higher percentage of our freight lanes to help reduce this pressure.

Oil prices have moved below our planning assumptions, but refined products like diesel have not seen the same relief. We are holding our assumption of $80 million to $100 million of cost pressure in fiscal 2027, and we're continuing to watch this closely given the volatility. Separately, the $25 million in annualized fiscal year 2027 savings from our Fontana and Summerville plant closures, along with continued cost savings across sourcing, productivity and formulation are tracking as planned. In Siding & Trim, net sales were $859.8 million, up 34% with organic growth of 20%, ahead of our expectations and led by fiber cement.

Adjusted EBITDA margin was 33.5%, reflecting volume leverage, pricing and continued plant cost savings from our manufacturing footprint optimization work. Sell-through was strong exiting the quarter, outpacing shipments, driving volume leverage and bringing channel inventory to healthy levels. In Deck, Rail and Accessories, net sales were $305.1 million, a decline of 5%. The year-over-year sales compared reflects the planned channel inventory normalization we discussed last quarter, not a change in the underlying health of the category. Sell-through improved sequentially each month and we exited the quarter with channel inventory and days on hand at healthy levels. We continue to see strong engagement with TimberTech and AZEK across both legacy AZEK and legacy Hardie accounts, supporting our confidence in the long-term material conversion opportunity.

Adjusted EBITDA margin was 27.1%. In Australia and New Zealand, U.S. dollar net sales were $153.3 million, up 26% with EBITDA margin of 34.9%. This reflected strong volume growth, disciplined cost management and the benefit of FX. In Europe, net sales were $156.4 million, up 15%, with an EBITDA margin of 19.4%, reflecting continued expense management, improved manufacturing efficiency, solid fiber gypsum and fiber cement demand and the benefit of FX. Free cash flow in the quarter was $254 million, driven by higher profitability lower capital expenditures, improved working capital and a continued reduction in acquisition and integration-related costs. As Aaron mentioned, we redeemed $400 million of senior unsecured notes in the quarter, bringing net leverage down to 2.7x, on track towards the leverage targets Aaron reiterated.

Turning to our outlook for the second quarter and fiscal year 2027. Before I jump in, it's worth flagging as you think about modeling the next few quarters. The distribution changes Aaron discussed create real upside to both the current year and long term, and we've built what visibility we have into our guide. The moving pieces here are mostly on sell-in as new and legacy distributors transition at the same time. Given that, we'd expect some quarter-to-quarter noise there over the next couple of periods. Sell-through, though, we expect to remain strong through the transition. We'll also incur some costs along the way. Marketing, sales support and other transition-related investments as we onboard new partners and wind down legacy relationships.

Additionally, beginning with our second quarter results, we have fully lapped the AZEK acquisition. So going forward, we will not reference pro forma or organic growth metrics for quarterly comparisons. In Q2, we expect net sales of $1.485 billion to $1.575 billion, or growth of 14.9% to 21.9%. We expect adjusted EBITDA of $420 million to $455 million. Given our first quarter performance, we are raising our full year outlook. We now expect sales of $5.564 billion to $5.723 billion or growth of 5.9% to 9% on a pro forma basis for the full year fiscal 2027.

We now expect adjusted EBITDA of $1.536 billion to $1.625 billion. This outlook reflects the flow through of the first quarter performance and the current expectations for the incremental contribution from our new distribution partnerships. We continue to plan the back half prudently against an uncertain macro backdrop. We expect free cash flow to exceed $500 million for the full year and capital expenditures to be approximately 6% to 7% of net sales.

With that, I'll turn the call back to Aaron.

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

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Ryan Merkel with William Blair.

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

Yes. Ryan, thanks for the question. I think many of you know, we've talked about fiber cement coming into this year being our #1 priority. In the Q1 results, they are very encouraging. With that said, we're not satisfied. I think the -- as we think about the -- I like to bucketize the 3 main reasons why we're seeing fiber cement grow, what we saw it in Q1. As I really frame it is the execution of our strategic initiatives, the stock comp and the rest being really price and mix.

And let me dive a little bit more into thinking about our strategic initiatives. We've talked a lot about ColorPlus and that being a big focus of ours as we think about really getting after repair and remodel, namely in those areas that have been underpenetrated for us. We've done that with the expanded statement program, which now is live nationwide. We just had 2 more locations at it in Baltimore and Chicopee, Massachusetts. And then we've talked a lot about the Trim-Over and that being a way for us to really get after a vinyl siding. And we continue to make really good progress.

A year into this pilot, we continue to see encouraging results in the pilot regions. We keep filling this out to more and more contractors. One of the things that I know you've seen and that we put out there is really our ProLabs, which are mobile training centers really to take contractors through what Trim-Over is and why it can be easier for them to install and why they can make more money. We've had 50 events in Q1, and we've done -- we've trained over 1,200 contractors out there.

The other thing that we're really seeing is the multifamily business. That's about 15% of our volumes that has taken off for us in Q1. And then if you look at our growth regions, areas that we really are concentrated in, areas like the Carolinas, these are more affordable price point metros, they're really running ahead of the national market. The other thing I would say is we've had competitors not able to serve the market, we've been able to take advantage of that. So a lot of this I'd say, number one, to bucketize its execution of our initiatives. The team has done an outstanding job.

The other thing, we talked about the easier comp and then price being the last. So that's how I would bucketize it. As we look at the sell-through as well, and we haven't talked a lot about sell-through, that is something that our teams are concentrated on. It's something that our teams are incentivized on. Our sell-through for fiber cement really accelerated each month, with June being our strongest with up 19%. So those are the reasons, Ryan, why we would say fiber cement is up about 20%. So a good quarter for us. But like I said, we're not satisfied.

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

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

Yes. If you think about the Q2 side, from a debtor accessories perspective, we're up over 40% year-over-year. The easiest way to think about that is we did the channel very normalization here in Q1. We saw really strong sell-through above estimated demand in Q1, and that's continued into the quarter so far that we've seen through July. So you're kind of having an upside due to that.

And then there is about 1/3 of it that's related to building our new distribution partners. So those are the 2 major drivers of the DRNA side. And then when you think about Siding & Trim, as we mentioned, we saw a stronger Q1. We saw a stronger sell-through. And from an inventory perspective, we're in a very good position with our channel partners. So we feel confident that, that execution will continue in Q2 here.

Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey.

Just the first one on the implied second half group -- hello? Just checking to make sure you can hear me?

Yes. We got you, Brook.

All right. Great. Yes. Just checking on the implied second half group EBITDA, it looks to be kind of down a couple of percent when you normalize last year's stock comp. So just trying to check any specific dynamics there that would sort of drive that decline year-over-year just given the really strong first half? Or is it just planning for the worst here?

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

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

That's great. And just on my second one around the trim method, obviously doing pretty well with traction there. Do you mind just providing like a little bit of history. My understanding is that's been around for quite a while. And for whatever reason, Hardie's in the past has not really promoted that more broadly across the U.S. So was there any sort of risk that previous...

Yes. Brook, you broke up there, and I think we've covered this maybe on a few calls before. If we think about Trim-Over, certainly in some of the areas where Hardie has been around with high production this type of installed methodology has been around. What we wanted to do is make sure when we brought this out and wheeled this out from a national standpoint, we took the time needed to test this out fully, and it took us a couple of years to do that. So we felt comfortable. And that's why we see this as an advantage for certain contractors that are going against vinyl.

Again, from a Trim-Over methodology standpoint, what it allows you to do is cut down on your labor costs and be able to install Hardie at a faster rate. So contractors can go out there and do more jobs and they can make more money. So this has been around this pilot for us that we wheeled out about a year now, as I mentioned before. We keep seeing success with this, and we keep going it out to more regions of the country.

Your next question comes from the line of Keith Hughes with Truist.

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

Yes. Keith, a really good question. Look, we're extremely excited about what we announced with Boise and some of the other regional distributors. Look, as you know, Boise is a scaled national 2-step distributor. And we've had a deep and proven relationship with Boise with our fiber cement business, which was effectively national even before this agreement was signed. So we're building on a partnership that has already been proven that works. We know what Boise can do. We think they're one of the best in the business.

The other thing is just moving to a full line exclusive relationship, that's really 3 things for us. It concentrates demand behind a single national partner that is now fully aligned with James Hardie and AZEK and TimberTech portfolios rather than really splitting attention across competing lines. And I think that's really important because we talk so much about our large sales force of having 500-plus people, if you put Boise's sales force with that, call it, 600-plus people and you put them together, that's a really formidable type of force that's going out there and selling our full exterior lineup.

And look, it really pairs Boise's national region logistics with our own downstream demand generation, as I mentioned before. So we're driving pull-through at the dealer and contract level, while Boise is handling distribution. But they're also driving pull-through as well. And look, I think the other thing that is really obvious, Boise now has every reason to grow our brands and actively convert volume because their success is directly tied to ours. And I think that's the best type of partnership out there. So we're really excited about it.

To answer your question, who is to gain more? Look, we have some pretty ambitious targets, joint targets with Boise, and we think we're going to be able to continue to grow fiber cement business. And certainly, the TimberTech business and the AZEK business is going to be relatively new. So right off the bat, we think we'll see gains there. But one thing to keep in mind is we closed on the deal with AZEK. This has been part of our plan. There's a few different chess pieces that we have planned here since when we signed the deal. This is one of them and helps us be able to grow our business, our collective business and helps us to really accelerate our revenue synergies out there. But more than anything, we think signing with Boise, we think with these regional partners is going to help us service our customers better. And that really is the key point there.

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

Yes. Keith, the way I think about it, look, we have -- from Siding & Trim, fiber cement, we're about 5.5% from a price standpoint, roughly be 0.5 point from a mix, and that's really the growth that we've seen in ColorPlus. We think it's more like a 3.5% to 4% type of range when we look through the rest of the year.

Your next question comes from the line of Keith Chau with MST Marquee.

I don't hear Keith. Maybe we'll come back to him.

Can you hear me?

There you are.

First one, just to follow up, Ryan, on some of the comments you made earlier. I think you said -- and please correct me if I'm wrong, but the growth you're expecting in Deck, Rail and Accessories in the second quarter, up 40% versus last year. I think you mentioned 1/3 of that is related to movement in the channel. So let's just talk in round number terms, but that's probably roughly $15 million at EBITDA, which leaves you somewhere close to $30 million as an underlying improvement for the DRNA.

Now understanding that there is seasonality into that business into the end of the year, so your September comp is typically -- September quarter is typically low, but then that improves into December. Is it fair to assume that, that $30 million EBITDA improvement in the second quarter can be annualized going into the full year? Or is that being way too aggressive?

I would probably say that's a little bit aggressive, right? I mean, your Q1 results, you saw the decline driven by the lower sales number and then us intentionally pulling down production and having slightly less absorption. Q2 kind of gets back to a little bit of a higher flow-through due to that incremental volume. So I think you probably need to do more of like a 2- to 3- quarter average just because using 2Q with all that additional volume is probably a little bit too much.

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

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

One thing that's a little bit unique, as we called out on the call is if there is a channel inventory buyback, we would call that out separate. The guide does not contemplate that fully. As you transition, you wait to see how it burns down and what kind of inventory trends in between locations. So that would be something we would call out as we get into the next guide if it was material. And I know we called out that if there was any impact in Q1, we would let you know. And it was pretty minimal, it was under $1 million. So we didn't call it out specifically from some of the synergy wins that we had in the first quarter.

[Operator Instructions] Your next question comes from the line of Phil Ng with Jefferies.

Well, Aaron, what a way to celebrate your 1-year anniversary for the AZEK deal with such strong results, and congratulations to the team.

Thank you, Phil.

I guess, first off, a question perhaps for Ryan. You gave us some color for 2Q with some load-in dynamic. On decking in particular, any more consideration? Does that have an impact, perhaps in the back half in terms of your sales because you implied sales guidance for both decking and siding is flat. So I don't know if there was any pull forward that will impact the back half from that dynamic? And is the load-in largely just stacking? Is there any siding consideration? So just kind of give us some color on the back half framework calling for flat sales.

You think kind of the load-in in Q2, right, it's primarily on the decking DRNA side. There is a modest amount of fiber cement, but it's a pretty small number. with some of the other distribution partners that we called out this week as well, there will be some load in fiber cement that may impact the back half of the year depending on timing. So any time load-in happens, right, you can get a little bit of impact on pull forward, which is why I mentioned some quarter-to-quarter availability during the call earlier. But that could be just timing as you look at latency as you look in, you wait to see the sell-through. And that could impact the back half slightly. But right now, just given the backdrop from that perspective, we thought it was prudent to kind of keep the back half as we originally guided. And if things improve, we would have an opportunity to guide differently as we execute this year.

Okay. So it sounds like it's more conservatism. Any way to kind of flush out some of this noise, Ryan? How you're thinking about sell-out for decking or siding for this year?

Yes. I don't think we've quantified the full year amount. But I know when we started at the beginning of the year, we said we expected mid-single-digit sell-through in DRNA side, and we continue to expect that. I mean, the trend we've seen in Q1 was extremely positive. It built each month and built from April on throughout the end of the quarter. And then we have preliminary kind of July results, and we continue to see right around that double-digit number in July. So we feel pretty good about kind of the mid-single digits for the remainder of the year on the decking side. And then, Aaron, I don't know if you want to hear a comment on the fiber cement side.

Yes. Look, we talked about Q1 and what we saw from a sell-out of fiber cement. And we said it's 9% up. And our June -- end of June, it was 19% up. So we continue to see strength there that is very encouraging for us.

Okay. And then, Aaron, you kind of teased about this already on the commercial synergies perhaps coming in better than you expected. I think initially, when you guys gave us the framework, it didn't account for any wins on a 2-step distribution with a guy like Boise. Would that be incremental? And is there any way to kind of size that perhaps maybe not just this year, like 12 to 18 months out with some of these moves you've made under distribution side, how much potential upside you could generate on the commercial synergy top line perspective?

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

Yes, Phil. I think we talked a little bit about this last call. Again, I think the customer permission and reception has exceeded our expectations, right? So I think we've been able to uncover more opportunities than we initially expected. Again, some of these things take time to actually get closed and turn into revenue. So having said that, I do believe that the targets we've laid out are highly achievable with the combination of Boise plus the enhanced relationships with new regional distributors, it could allow us to get there faster. It could allow us to achieve the capture slightly ahead of schedule, but we're still comfortable with what we laid out in terms of total opportunity.

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

Your next question comes from the line of Peter Steyn with Macquarie.

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

Yes. Look, really good question there, Peter. We contemplated everything when we thought about this move. Obviously, this was a huge move for us, as I mentioned before, this is something that we have been thinking about over the last year. So as you can imagine, our teams thought about everything, -- we also had a lot of comfort as we started out a couple of pilots with TimberTech with Boise, and you think about within Pittsburgh, within Baltimore and really exceeding expectations out there. So number one, and this was even before this move when we looked at all our 2-step distributor partners was how do they service. And we certainly took that as the #1 factor out there. And then as you can imagine, all the other variables and some of them you mentioned, we looked at.

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

Yes. Certainly, just for all of you on the call, our Hardie operating system is really our version of lean. And so that started out with our manufacturing plants and has really extended to other areas, areas like procurement, we think about formulation. So we have a target level of savings that we go out and get after every single year. That is on track. Everyone is involved in the Hardie operating system, but really Ryan Kilcullen, who leads our operations spearheads that for us. And our plans are running extremely well. Even when we saw lower volumes, they ran well. And as you can imagine, getting more volume has helped them to run even better.

So we continue to see progress there. As we think about synergies and around cost synergies and some opportunities we have, we've talked for some time about really implementing the Hardie operating system within the legacy AZEK plants. So Ryan and his team have done that, and we're already seeing really solid results. When we think about efficiency, when we think about downtime, that's been something -- even though those plants ran well. Now we have a unified system across our entire network.

Your next question comes from the line of Tim Wojs with Baird.

Nice job. Maybe just first question. When you guys have historically done 2-step distribution changes in the past, I know they've been at a much smaller scale. But in your history, what is the typical kind of training period or training ramp for those sales forces to be kind of fully effective from getting to kind of when they're fully effective selling your products?

Yes. Tim, we'll hand that over to Jon to answer that.

Yes. Tim, I think in the Boise situation, clearly, they've been selling composite decking for a long period of time. So there's a lot of experience overall with the category. And so what we need to do is get them trained and armed ready around the value proposition of TimberTech, right? And so we're already in the process of doing that. And again, we expect that curve to ramp up pretty quickly. A relevant data point, you'll recall when TimberTech converted Capital out West a few years back, Again, it's a very similar situation. They were already experienced in the category. And we leveraged that knowledge, got trained on the TimberTech value proposition, and that enabled us to move very quickly and drive really strong growth with that conversion. So we expect to see that again.

Some of the other regional distributors that we've taken on that will add fiber cement, siding, several of them were already in the siding category. So they're again, familiar with the category and there will be a similar training process around the value proposition and then the joint sales targeting from the commercial organizations, joint marketing across the marketing organizations to drive that downstream pull-through demand.

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

Yes. We probably fell probably -- yes, I don't think we quantified it, but I would say $20 million to $25 million in Q1 and mainly on the freight side there, right? So a lot of the raw materials will be hung up on the balance sheet, just the way the inventory is brought in. But from a freight perspective, that was immediate. And as you see, even when rates come down, freight doesn't drop fast. So that was kind of the major driver there.

I mean, we have seen a little bit of relief on the commodity and natural raw materials side. But as we called out the freight piece, we're running at a higher volume, and then there is some general discrepancies in the freight market right now. So those spot rates are higher than normal. So we're working actively to try to contract more of our freight lanes under contract versus spot. So we do actively work that kind of relief, but that's why we kept it at the $80 million to $100 million for now.

Your next question comes from the line of Harry Saunders with E&P.

Firstly, I know we've touched on this. Just wondering what the share-based payment expense was previously assumed in the old guidance range before and perhaps sort of what we could assume for the balance of the year just as a run rate, please?

Yes. Go ahead, Ryan.

Yes. So in the guide that we would have released at fiscal year end there. It was about $50 million of share-based comp. I think in Q1 we go out about $15 million. So I think you could probably use that kind of as a run rate based on the current valuation of the stock. So I think that I would kind of plan on it as that annualized for Q1.

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

Yes. I mean, it's embedded in our guide. I mean I think the way to look at it from a full year standpoint is as we took our beat and we rolled that forward and then we kept the back half relatively flat if you will. And the other piece of that, that you see is going to be the puts and takes from the 2-step distribution changes.

Your next question comes from the line of Matthew Bouley with Barclays.

Questions on the kind of balance of sort of your own organic growth initiatives and then the commercial synergies. So basically, where are you on those commercial synergies in the first half of the year, Q1 and Q2? I know you kept the full year at $125 million and said there might be some upside. But if I'm kind of rank ordering them, I guess, when we look about your growth here relative to the market, commercial synergies, some of your initiatives like ColorPlus, Trim-Over, et cetera, what do you think is kind of the most powerful couple of drivers that are leading this level of growth?

Yes. Great question. Look, we haven't given exactly what those commercial synergies are quarter-by-quarter, as you can imagine, and Jon talked a little bit about this. the fluid as it relates to when they happen. I mean, what we can reaffirm is the $125 million exit run rate. And certainly, we think there could be possibly upside to that with some of the new news we talked about. So from a commercial synergy standpoint, that's how it would talk about that. As far as how we bucketize what is having the greatest impact. I mentioned for Q1, 1/3, 1/3, 1/3, basically, of 3 different buckets. And that's strategic initiatives. Obviously, we got a little bit of help from the comp from the destocking and certainly then price as well.

But we really are seeing strong execution on our initiatives particularly in fiber cement around areas like ColorPlus. We mentioned the expanded statement collection, which is just getting started. We talked about the Trim-Over. And these are things, yes, we're seeing the benefits in one quarter. But these are sustained growth items for us as we think about our strategy moving forward.

Got it. Okay. Secondly, given what you just guided for Q2 and your comments about inventory, and it sounds like that there's this probably didn't really happen. But my question is on often in this industry, when you have price increases, you might see some pre-buys and things like that. And so just given you had a couple of price announcements during the quarter there, did you see any kind of unusual inventory swings related to that?

Yes, we really didn't. And we're sitting, I mean, broadly speak -- I mean, I can say this across our segments were at a normalized inventory level.

Your next question comes from the line of Daniel Sykes with Jarden.

Just had 2 really. Number one, just on the volumes. I mean, obviously, it's very strong with double-digit growth in exterior products. I was just wondering whether you could quantify the destocking. I know you mentioned it was kind of a soft comp, but in the context of that double-digit growth, what was the destocking impact in there?

Yes. As far as from a dollar volume standpoint, I mean, we would say it was roughly $40 million to $50 million from a destocking standpoint. And when we talked about our growth in fiber cement, we talked about those components really being roughly 1/3, 1/3, 1/3 of that type of 20% growth.

Okay. Great. And then just another one, just in terms of the definitional changes to adjusted EBITDA. In relation to the old FY '27 guidance, can you just confirm, was that under the same definition? Or is the definition changed in this new part?

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

Your next question comes from the line of Rafe Jadrosich with Bank of America.

Just the -- obviously, the pretty big beat raise. Just the 2Q, the segment margin going forward are coming down on a percent basis for the full year for both siding and decking. Can you just talk about what the headwinds are there. Is that because of either inventory buyback or investments or mix? Just sort of bridge as to what's happening on a percent basis?

Yes. I would say the major piece is we called out the freight issue that we're seeing on the spot rate and kind of just availability. The other piece is really just driven off of the investments in these distribution partners. That's everything from sales to marketing activity to ensuring the right rate set up there. So that's the major driver there. And then as the back half, as we said, right, I mean Q3, that October to December period is always the lowest from a DRNA perspective. So as it is like when volumes up, the flow-through is a little bit higher, you're not investing at the same rate. These investments kind of hit us from Q2 on. So that's why you see that margin decline.

Got it. Okay. That's helpful. And then following up on the decking, railing, the sell-through up double digit. You called out a shelf space, taking some incremental shelf space. Can you just give a little bit more color on where that's happening. It does look like there's been some placement at Home Depot. I wondering if you could -- if there's been more expansion at retail? Or are there specific channels where you're seeing that?

Yes. We'll let Jon answer that.

Yes. So what you see is in the quarter, that's prime season. And so we landed a lot of additional shelf space gains during last year's early buy season. And so what you're seeing is that's when you actually get those conversions, right? That's when you place the inventory SP1 Into the channel. And then once you drive the sell-through with that double-digit sell-through, that's what gets you to reorder points. So those new gains in addition to the core business, which continue to operate at a very high level. That's what led to some of the outperformance in sell-through, core business performing and then pulling through the product at the gains that we got to early buy is what drove that double-digit.

We have reached the end of the question-and-answer session. This concludes today's call. Thank you for attending. You may now disconnect.

Welcome to the James Hardie Fiscal Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Chris Russell, Senior Vice President of Global Strategy and Corporate Development. Please go ahead.

Thank you, operator, and thank you to everyone for joining today's call. I am joined today by Aaron Erter, Chief Executive Officer of James Hardie; Ryan Lada, Chief Financial Officer of James Hardie; and Jon Skelly, President and General Manager of James Hardie, North America Building Products.

Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on Slide 2 of our earnings presentation for more information. Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements.

In addition, non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of non-GAAP measures discussed today can be found in our earnings presentation, which is posted on our website.

Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars and any comparisons made are to the corresponding period in the prior fiscal year. Organic net sales comparisons exclude the impact of the AZEK acquisition as well as the impact of exiting our Philippines business in Q2 fiscal year '25.

With that opening, I'm pleased to hand the call to Aaron.

Thanks, Chris. I'd like to take a moment to thank Chris for his contributions during this transition period in Investor Relations and to welcome Bill Seymour, our new Vice President of Investor Relations. Bill brings extensive IR experience to the role and a strong track record in the field.

In my remarks today, I will briefly review the highlights for Q4 and fiscal 2026, discuss our strategy and end with our outlook. We delivered a solid fiscal fourth quarter and full year despite a challenging construction market. The result of staying focused on what we can control, execution, cost and serving our customers. For the fourth quarter, we delivered net sales of $1.4 billion, and adjusted EBITDA of $381 million ahead of expectations with adjusted EBITDA margin of 27.1%.

Demand held up across our core categories despite weather-related softness early in the quarter in the United States. And our teams executed well, protecting price, managing costs and supporting demand as conditions improved.

For the full fiscal year, we delivered net sales of $4.8 billion and adjusted EBITDA of $1.3 billion with adjusted EBITDA margin of 26.2%, reflecting the resilience of our portfolio and the actions we took across the business. Free cash flow for the year was $314 million, reflecting tightly managed operations in the year and despite significant onetime integration and acquisition-related costs. While organic net sales declined in our fiber cement business during the year, we are confident in the underlying demand drivers and expect this business to grow in fiscal 2027. This confidence is reinforced by our great products, leading brands and best-in-class sales force, which together position us to outperform the market and capture long-term growth opportunities.

As I look back on fiscal 2026, we delivered against a number of objectives. A key differentiator for us is the Hardie Operating System. Through HOS, we've taken out and offset significant inflationary costs by improving procurement, driving productivity in our plants, and applying operational discipline.

Even with lower volumes, we were able to maintain best-in-class margins and keep the business performing at a high level. As we continue to bring the companies together we are applying the Hardie Operating System to the AZEK manufacturing network. We are encouraged by the early progress in the AZEK plans and believe that HOS will drive productivity and savings over the long term. We utilized a HOS framework to make the difficult decision to close 2 of our legacy fiber cement plants in January 2026. As we move forward, we will continue to leverage HOS as a critical tool to drive productivity, manage costs and support both margin expansion and reinvestment in growth.

Another milestone in the integration we recently completed was combining our sales forces. We believe we have the largest, most downstream focused sales team in our space. One sales force, one company and a portfolio of leading Pro brands, James Hardie, TimberTech, AZEK and more. We are seeing commercial synergy momentum build as a result of the combination with early wins validating the strength of our integrated go-to-market approach. These wins are both numerous and broad-based. You can see 2 examples in our earnings presentation. One example is our expanded relationship with Lansing Building Products. Lansing has been a long-time and valued partner of James Hardie, and through this expansion, we are consolidating multiple PVC trim brands to AZEK across their footprint. This simplifies the offering for the channel, increases attachment of AZEK trim on our fiber cement siding jobs and strengthens our ability to deliver a more complete exterior solution.

Another example is our recently announced expansion with CBUSA. This exclusive agreement adds TimberTech to an existing relationship between James Hardie and CBUSA, expanding our share of wallet, while positioning us as a single source provider of exterior products for custom builders. These are just 2 examples. The breadth of opportunities and early traction reinforces our confidence and hitting $125 million in run rate commercial revenue synergies exiting fiscal 2027. On cost synergies, we're ahead of schedule without sacrificing service or execution. Integration continues and our conviction in this combination grows.

Next, I'd like to discuss our go-to-market strategy in our largest market, North America, starting with the size of the prize. Our $23 billion exterior total addressable market remains heavily underpenetrated by more resilient materials. Wood and vinyl still dominate siding, decking, railing and outdoor structures despite real limits on durability and maintenance, a $17 billion plus conversion opportunity. The James Hardie AZEK combination positions us to capture it, build a leading exterior platform with the best brands and win in both R&R and new construction.

To capture it, we're executing against 5 pillars that drive our growth and margin expansion. First, material conversion. We're replacing wood and vinyl with materials that are more resilient, need less maintenance and resist fire. We're seeing this play out in real time. Contractors who trust our brands are switching competitive decking to TimberTech and long-time Hardie siding contractors are adding composite decking to their service offerings. There are approximately 60 million decks in the United States, and the vast majority are wood, representing a long runway as the installed base weathers and the elements. These 2-way wins are exactly what we expected from the combination. With our brands, products and contractor relationships, we are positioned to continue to deliver above-market growth.

Second, channel expansion. In scaling what each business does best across the combined footprint. In the South, approximately 2,500 locations stock Hardie, but not TimberTech yet. A clear runway for our outdoor portfolio into accounts where we have established relationships. In the north, the inverse, approximately 700 strong TimberTech and AZEK locations where Hardie isn't yet stocked, disciplined approach, real growth opportunities.

The third pillar is innovation. The product and R&D teams from both companies are now combined, focused on solutions that accelerate exterior conversion. Innovation has been a key element of AZEK's 500 to 700 basis points above market growth per year. We're applying that same playbook to fiber cement to expand our market and drive new product growth over time.

Fourth, brand preference. James Hardie, AZEK and TimberTech are among the most recognized brands in our categories, and we're extending that lead through targeted marketing, contractor education and innovation, most of it in-house. The impact is clear in our DR&A business, brand search volume has increased at a 40% CAGR over the past 3 years, while customer sample orders, a leading indicator of future demand have grown at nearly 15% annually over the same period. This marketing strength also carries through to our loyal TimberTech pros where our data suggests that the consumer demand we are generating has established TimberTech as the leader in brand awareness among contractors. This positions us for sustained share gains over time.

As we move forward, we have combined the marketing teams and are applying the AZEK in-house marketing approach to the fiber cement side of the business. As we scale this competency, we expect to drive increased awareness, consideration and brand preference.

Fifth, simplifying the consumer journey. We're making it easier for homeowners to choose and purchase our products. A key part of this has been a full replatforming of our website, designed to improve how homeowners research, compare and ultimately select products for their homes. Just as important, it better connects homeowners to our contractor network helping turn interest into action. Underpinning it all is the Hardie operating system, continuous improvement in safety, quality, service and cost. Together, this is a clear path to sustainable growth, margin resilience and long-term value.

Now let me talk a little bit about our fiber cement growth plan. Beyond these 5 pillars, our fiber cement growth plan is central to the strategy. We have clear plans to reaccelerate siding and trim and as noted, we expect fiber cement to return to organic volume growth in fiscal 2027. Step one, a deliberate focus on the Northeast and Midwest, where we're underpenetrated and where R&R wood and wood-look siding alone is an approximately $1 billion conversion opportunity. AZEK gives us immediate relevance, established channels, strong relationships and complementary products. In these markets, we are actively pursuing the opportunity across multiple fronts, including expanded dealer engagement, targeted training programs and scaled contractor conversion initiatives.

Central to this effort is the continued rollout of expanded statement and statement essentials which ensure James Hardie has the right offering for each contractor in our value chain. We launched this program with a Midwest pilot in April 2025, and the results to date provide clear evidence that the strategy is working. We are seeing consistent acceleration in shift to revenue across each quarter, with growth culminating in double-digit percentage gains. This reflects improved execution in the market and early success in converting demand into realized revenue, and we are scaling this approach to other regions throughout our footprint.

We're hitting these markets on multiple fronts. Hardie ProLab, a series of mobile training units supports contractor adoption with hands-on training on ease, speed and economics of fiber cement install. Based on Midwest pilot success, we've expanded the program across approximately 50 dealer locations and the broader Midwest and Northeast with strong early traction. Our approach focuses on 3 opportunities: one, converting vinyl siding. Two, winning against all wood siding types; and three, expanding our presence in premium products.

First, vinyl, we're accelerating penetration in the Northeast, Midwest, Carolinas and Canada, backed by new products, expanded ColorPlus rollout and more contractor engagement and training. Second, winning against wood. We are rolling out easier and faster to install products, targeted downstream sales and marketing and expanded channel access, including the legacy AZEK dealer network. Fire resilience is becoming an increasingly critical factor in this dynamic. As building codes evolve, insurance requirements tighten and the homeowners place greater emphasis on durability and risk mitigation, fiber cement's noncombustible properties are emerging as a more meaningful differentiator versus wood and other combustible materials. While this is most pronounced in the higher-risk regions, we are also seeing broader awareness and adoption across markets, reinforcing the structural advantage of our portfolio and supporting continued material conversion.

Third, premium products, TimberHue and enhancements to Artisan and other premium lines target custom builders and high-end remodelers, leveraging our independent channel strength where design and durability drive the decision. Together, these priorities position us to accelerate conversion, take share and drive durable volume growth in fiber cement siding.

Let me talk to you a little bit about our external environment and outlook. Ryan will cover our outlook in more detail, but let me quickly frame how we see the external environment and touch on our approach to fiscal 2027. The market has shifted substantially in the last few months. At the start of the year, we plan for broadly flat market demand in fiscal 2027. Since then, key variables have changed, 30-year mortgage rates below 6% late February, moved meaningfully higher after the Middle East escalation. Builder confidence and consumer sentiment have softened. Across our dealers and contractors, nearly half cite economic uncertainty as their biggest challenge.

While the broader market remains somewhat challenging, I want to be clear, we are optimistic about our path forward. We are seeing solid momentum in the business and are intensely focused on execution. We expect to deliver market outperformance, a return to growth in fiber cement, adjusted EBITDA expansion, and we expect to significantly grow our free cash flow which will drive meaningful deleveraging.

Now over to Ryan, who will take us through the financials.

Thanks, Aaron. I will walk through our results and then get into our planning assumptions. Q4 total net sales grew 45% to $1.4 billion, including $445 million of acquired AZEK revenue. Organic net sales declined 1% in the quarter. For the full year, total net sales grew 25% to $4.8 billion with organic net sales down 2%. The organic decline in fiber cement reflects the market environment Aaron has described. Q4 adjusted EBITDA was $381 million, margin was 27.1%. For the full year, adjusted EBITDA was $1.27 billion, margin was 26.2%.

A few items to highlight. Adjusted corporate and unallocated R&D was $45.5 million in Q4. For modeling purposes, keep in mind that approximately 40% of our full year 2026 cost synergy benefits are in that line. Our adjusted effective tax rate was 23.4% for the quarter, and 20.2% for the full year, slightly above our prior 20% guide. Adjusted net interest was $65 million. Weighted average diluted shares were approximately 585 million we expect both to remain consistent in fiscal 2027. Q4 adjusted net income was $173 million and adjusted diluted EPS was $0.30.

Free cash flow for fiscal '26 was $314 million, including the benefit of a completed Australia land sale in Q3. Integration costs continue to weigh on cash. but those stepped down meaningfully in fiscal 2027. Combined with higher EBITDA from synergy realization and disciplined CapEx, free cash flow will improve significantly and deleveraging remains a clear priority.

In Siding & Trim, we delivered against our objectives despite unfavorable weather. In Q4, net sales were $767 million, up 7% with adjusted EBITDA of $253 million at a 33% margin. Cold, storms and above-average precipitation, most pronounced in February and early March limited job site activity and delayed project starts in both new construction and R&R. We estimate the weather impact to our fiber cement sales was approximately $20 million in the quarter. Activity rebounded later in the quarter as conditions improved. Our manufacturing footprint optimization and expense management is already delivering with initial P&L benefits in Q4 an example of actively managing the business for stronger profitability. For the full year, Siding & Trim delivered net sales of $2.96 billion, up 3% and adjusted EBITDA of $951 million at a 32.1% margin.

In Deck, Rail & Accessories, Q4 net sales were $345 million, up 5%. Adjusted EBITDA was $97.5 million, margin was 28.2%. Sell-through grew low single digits. January was solid, February and early March were disrupted by weather and activity recovered through the end of the month. We grew DR&A again this quarter, lapping strong Q4 growth in the prior year, delivering against the down market.

Over the past few years, we've meaningfully expanded our shelf position with continued gains this year across both Pro and retail channels. During Q4, we shipped to support those new shelf wins and saw pockets of sell-through delayed by weather. Working with our channel partners, we are taking a slightly more conservative inventory position in Q1 to set up a strong back half of the year. Q1 sales and margins will be softer as a result. Underlying demand is intact. We expect positive sell-through in both Q1 and for the full year.

Full year on 3 quarters of contribution, net sales were $795.2 million. Adjusted EBITDA was $224.8 million. Margin was 28.3%. We outperformed a market that declined low to mid-single digits by more than 700 basis points.

In Australia and New Zealand, our fiber cement business remains highly profitable across new construction and R&R. Q4 net sales were $140 million, up 18%, mainly driven by FX and with adjusted EBITDA of $50 million at 35.8% margin. Softer volumes in certain markets were partially offset by pricing realization and disciplined cost management. with long-term tailwinds from durability requirements and consumer preference for low maintenance materials. For the full year, ANZ delivered net sales of $521 million, which is flat and adjusted EBITDA of $178 million at 34.1% margin. We remain focused on innovation, mix and contractor engagement to extend our leadership in the region.

In Europe, Q4 net sales were $152 million, up 13%, mainly driven by FX. Adjusted EBITDA was $23 million. Margin was 14.9%. Fiber gypsum demand was strong, and we improved profitability through expense management and increased manufacturing efficiency. For the full year, Europe delivered net sales of $557 million, up 13%, adjusted EBITDA was $82 million at a margin of 14.8%.

Turning to our fiscal 2027 outlook. The environment is more challenging than we expected entering the year. Mortgage rates are higher, builder confidence and consumer sentiment have softened, and economic uncertainty remains a top concern across our dealer and contractor base. New construction will remain under pressure. R&R activity is compressed. Our base case assumes the addressable market declined approximately 3% in fiscal 2027. With that said, our guidance contemplates a range of outcomes on both the macro and the cost side. We are not assuming conditions improve. We are planning on what we can execute.

On cost, the Middle East conflict has driven real inflation across raw materials, freight and energy. We expect approximately $80 million to $100 million of cost pressure in fiscal 2027, roughly 2/3 in North America. Pricing actions announced in late April directly offset this pressure. Separately, the $25 million in annualized savings for Fontana and Summerville, cost discipline across sourcing, productivity, formulation and deal cost synergies where we are ahead of schedule reflects structural improvement work already underway independent of the macro environment.

One technical note on commercial synergies. As we convert customers, some wins involve buyback of their inventory in the channel. This is mechanical, transitory and not fully modeled into our guidance. We will quantify it where material.

Our objectives are clear: organic volume growth in Siding & Trim and Deck, Rail & Accessories, margin expansion and a significant step-up in free cash flow as integration cost step down. Capital expenditures are expected to be approximately 6% to 7% of net sales. These primarily include maintenance, safety and targeted growth investments. On Page 17 of the presentation, we have outlined our planning assumptions for fiscal 2027. At a high level, our fiscal 2027 planning assumptions are for net sales of $5.25 billion to $5.41 billion, which equates to 0% to 3% growth on a pro forma basis. On an organic basis, it's a sales growth of 1% to 4%. For adjusted EBITDA, we are planning for a range of $1.45 billion to $1.5 billion or 4.1% to 7.7% growth on a pro forma basis.

On free cash flow, this is where the combination of the business shows up. We expect to exceed $500 million in fiscal 2027, up from $314 million in fiscal year 2026. Higher profitability integration and acquisition costs rolling off and disciplined capital spending, all driving in the same direction. Turning to Q1. For the first quarter of fiscal 2027, we expect net sales of $1.32 billion to $1.35 billion or growth of flat to 3% on a pro forma basis. On an organic basis, this translates to sales growth of 4.3% to 7.5%. Adjusted EBITDA is expected to be between $354 million and $375 million or 0.5% to 6.5% growth on a pro forma basis. In Siding & Trim, we expect net sales of $758 million to $781 million. Channel inventory is normalized. We expect continued execution in new construction and early traction in the Midwest and Northeast fiber cement expansion.

In Deck, Rail & Accessories, we expect net sales of $291 million to $300 million. As flagged in results, Q1 reflects the channel inventory normalization dynamic. Across both Siding & Trim and Deck, Rail & Accessories, pricing actions, plant cost savings and cost synergies are all driving in the same direction on margins.

And with that, I'll turn the call back to Aaron.

Thanks, Ryan. Before we open it up to questions, let me leave you with a few thoughts. Fiscal 2026 was a solid performance in a challenging market. A testament to the discipline and focus of our team and our commitment to control what we can control. And it sets us up well for what's ahead.

Looking ahead to fiscal 2027, we expect fiber cement to return to growth. We expect to outperform the market across our portfolio. The early returns and execution from the AZEK acquisitions are encouraging, resulting in $125 million in run rate of commercial revenue synergies exiting this fiscal year and ahead of schedule progress on cost synergies. We expect adjusted EBITDA to expand. And finally, we expect significant free cash flow improvement in fiscal 2027, which will drive deleveraging and give us continued flexibility to invest behind our brands, innovation and go-to-market capabilities.

We look forward to telling you more about all of this at our Investor Day which we will host in New York City this September. Members of our leadership team will provide an in-depth update on our strategy, growth priorities and long-term financial outlook and a formal invitation to register for the in-person or virtual attendance will follow in the coming weeks.

Before we go to questions, I want to thank our team. None of this happens without them. They've done an excellent job navigating change, while servicing our customers at a high level and delivering solid results.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Philip Ng with Jefferies. Please go ahead.

Thanks for all the great color I guess a question for you, Aaron. Still pretty challenging backdrop. Help us kind of think through the key drivers that you have that gives you confidence you could deliver positive organic growth in your Siding & Trim business. it would be helpful to kind of tease out the big buckets, whether it's pricing, some of these commercial synergies, how that kind of ramps up? And any other Hardie-specific initiatives?

Yes. Thanks for the question, Phil. Look, quite simply, when we think about the priorities in our business, our #1 priority as a company is getting our fiber cement business back to growth. Look, we've had a strong history of growth in this category over the last decade, but we haven't been happy with our growth in the last couple of years. We can talk about the markets being tough, but quite simply, those are excuses, and we won't have any excuses anymore. There's enough available share for us to go out and get when we think about the value proposition we have, the team we have. So we're going to go out and get it.

Let me tell you a little bit how I think we're going to be able to do this. We talked a little bit about it on the call, Phil. But look, we have a tremendous opportunity in our R&R business. We think that we can really take advantage of, call it, over $1 billion type of opportunity in the Northeast and the Midwest that have been really underpenetrated for us. We're going to be able to do this by making the product easier to install with our Trim-Over method. We're going to be able to reduce costs to our contractors, to our homeowners who take on these jobs with contractors by the labor savings that we're going to be able to provide. And that's going to help contractors go out there and do more jobs. And we're going to make the product more accessible. We're having more and more of our dealer partners bring in our statement essentials product. And I guess the question is, all right, what's the proof point? How do we know this is working?

We piloted this in the Midwest for about a year now. and we're seeing really strong growth. In fact, over the last year, we saw low double-digit growth in the Midwest. So we're extremely excited about this. We're going to roll this out to other areas, right now. We're rolling it out to the north to the mid-Atlantic to the Carolinas to the south. So this is the #1 priority for our team. And as you know, we have a combined sales force. As we think about their objectives, this is #1 for them to be able to grow this fiber cement business.

The other opportunity we believe we have that has been untapped for us and not fully focused on is really getting after these regional homebuilders. We believe this is about a $750 million opportunity out there. We have the product to be able to do it. We have the team. We have the value proposition. And I think a proof point of this, when we think about synergies out there is the agreement we just signed with CBUSA to help us really get after a lot of those regional homebuilders, not just with fiber cement, but with our whole selection of products out there. And then if we think about this, Phil, just with -- from a fiber cement standpoint, we do believe there's competitive share to go out there and get.

We have a competitor that's vacating the space. Add to that, the synergies that we believe we're going to be able to give with the combined sales team. And then we look at our inventory levels, which are in a good space right now. And we look at our Q1, we have pretty favorable comps. You add all that together, Phil, and it gives us a lot of confidence for us to be able to get this business back to growth in this year FY '27.

Well, that sounds exciting, Aaron, if anything, it almost feels a little conservative in terms of how you frame the guidance for this year. So looking forward to that defaulting this year. I guess a question for Ryan. Your full year guidance for EBITDA margin is calling for, I think, roughly 140 basis points of expansion. And you're calling out, call it, $80 million to $100 million of inflation. So a tough environment from that standpoint.

Just give us the levers you have at your disposal to offset some of this. You talked about HOS and perhaps some pricing. But just kind of help us think through how that kind of ramps up and the ability to drive that margin expansion this year.

Yes. So if you think about this back last year, right? I mean we had a lot of cost synergies that we took action on that materialized here in fiscal year Additionally, we took $25 million of plant actions at the end of the year in Q4 that would really start impacting us. So those are nice regardless of what the market has. And then second, we do -- are seeing about $80 million to $100 million of cost inflation due to the current conflict. We are working through HOS savings as well as other procurement initiatives to go after that as well as we have opportunity to price against that selectively with our -- partnering with our customers. So I think the back of that as well as a little bit of growth and getting utilization in our factories. Those should set us up really nice for 2027 from an EBITDA perspective.

Your next question comes from Lee Power with JPMorgan.

The decking and railing piece. So you obviously talked to an inventory impact in the first quarter. Other than inventory, as we look to this FY '27 number, how important are the price increases that you've announced to hitting that guidance and kind of what's the feedback that you're getting from your customers, given there's obviously a couple of your peers that are probably not going as hard on price at the moment?

Lee, good to hear from you. I'll start out here and then I'll turn it over to Ryan and then Jon to add any color. I think the first thing to note is our DR&A business is healthy. And we expect we're going to continue the trajectory traditionally that AZEK has had in the '27. And we're going to grow the business, and we're going to improve the pricing and the mix of the business. Look, the last couple of years, we've really meaningfully expanded our shelf position with gains this year in the pro channel and also the retail channels.

So as we think about our stack and our growth algorithm, the biggest part of this is for us to have a contractor and customer conversion, which we'll continue to do that. And look, from a pricing standpoint, we're taking price to offset inflation, and also to hold our margins here. But guys, do you want to chime in here, Ryan?

Yes. I think those are the major drivers there, right? So our historicals, we've been targeting to help ease the market by 5 to 7 points and we've consistently done that. I'd say there's not a lot of change to the algorithm for this year. As we exit the full year, we had a modest inventory build due to the weather after a successful early buy. So that normalizes past Q1, and then we're back to kind of growth from a that perspective. So I think those are the key things. I don't know, John, anything else you'd add.

Yes. I think that's well said. I'd just add that we have history of taking selective price actions business and still drive that 500 to 700 basis points above market growth.

Okay. Excellent. And then just a follow-up, if I can. Just going on from Phil's question around kind of bridging that top line. So market volumes sold, I think, going to be down 3%. You've got a couple of points of growth at the top line. So there's a decent a decent gap there. You've obviously kind of outlined a bunch of initiatives that sound really exciting on getting back to that 500 to 700 points of growth. When we think about '27, is it real -- is it going to be that growth above market that does the most of that heavy lifting? Or is it a pricing perspective? Just trying to think about how we go from down 3% to the low single-digit growth?

Lee, I think that the short answer is we're guiding to a number we believe that's appropriate, given the uncertainty that we see out in the marketplace right now. and also 1 that we believe that can handle continued potential challenges.

Your next question comes from Ryan Merkel with William Blair.

Wanted to ask on Slide 8. It's new disclosure. I think it's a case study of the Midwest. And I guess my question is, do you expect to see this kind of growth when you roll it out to the other regions and then what could it mean for fiber cement growth if it has a success that you think it might?

Ryan, really good question. I'll start out, and I'll hand it over to Jon to talk about a little more. Look, as we think about our fiber cement growth, as I mentioned before, we have not been pleased with it. This has been an on-purpose effort that we've had in the works over the last couple of years. How do we get after repair and remodel, how do we close that gap right, versus inferior materials like vinyl from a pricing standpoint? And we get after what we think is the largest opportunity in the marketplace. We talked always about these 40 million -- are these homes that are 40 years or older, 40 million homes.

So we believe that we have the right formula now. It is the early days, right? When we were citing this case study here, we've been doing this for about a year. The results are very promising. So we're taking the template of that, and we're rolling it out region by region where there's this opportunity. So we talked about the Midwest, mid-Atlantic, we think we can do this in other areas of the country.

So Ryan, as we get into our Investor Day in September, they can talk about from a longer-term perspective, what that means. Our focus right now, as I mentioned in the beginning, is getting this business back to growth and getting it back to volume growth, and that's our target, and we believe this is going to help us be able to do that even in what is a challenging market.

Jon, do you have anything else you want to throw in there?

Yes, sure. I mean I think the only thing I'd add is it's really -- it's good execution and it's providing additional education and awareness in the marketplace, right? So there's a strong value proposition for the product. But in certain markets, there wasn't the right value proposition in terms of installation and pricing. So we've solved that problem, right? So that gives us the opportunity, Ryan, to get after that $1 billion R&R opportunity that Aaron highlighted by making sure we've narrowed the gap between competitive secure materials, and we allow both the homeowner and the contract or benefit from a better value proposition from a pricing perspective.

All right. That's great. Great to see. And then my next question is just on the first quarter DR&A. The EBITDA is a little light. Can you just talk about what's the impact of the production cut in 1Q to EBITDA? And then when do you think the channel will be destocked for decking?

Yes. I'll turn it over to Ryan here. Look, when we talk about elevated inventory levels, this is less than $20 million. So just full disclosure here. But Ryan can talk a little bit about the impact from reducing the production.

Yes, right. I would say basically half the decline year-over-year is probably limited to the production there. So we did pull a little bit of volume out. Some of it was related to that inventory destock that we were mentioning. And then some of it was we've been producing a little bit ahead for some of the synergies, and now we're kind of normalizing that production. So our goal was to get that all behind us as we exited Q4 into Q1. The rest is really just the volume of that $20 million that we would be in. So if you go to those 2, that really normalize EBITDA year-over-year.

Your next question comes from Sam Seow with Citi.

Ryan. Just a quick question on the guide and really how you're modeling costs over the full year. When we think about the margin assumption you've got there, are you using kind of like spot for things like freight, et cetera? Or how are you thinking about the assumption you're building into the margin?

Yes. Sam, good to hear from you, and I'll start out. Look, what we're thinking about when we look at inflation in FY '27 we're thinking about a $80 million to $100 million type of cost headwind. And certainly, the Middle East conflict has driven real input cost inflation across certain raw materials, in particular, freight and production inputs. So the majority of this, call it, about 70% is in North America. But that's how we're looking at it. As far as how we offset it, certainly, we're looking at this from a hard operating system standpoint.

The team has done a really fabulous job even with slowed volumes of operating very efficiently. And we've certainly taken out costs last year that is going to help us this year. And then we're working with our customer partners where we need to from a pricing standpoint. But -- that's kind of how we're looking at this. But Ryan, do you want to add anything to this?

Yes. I mean I think the other way to look at it, too, from a phasing perspective, right, it's pretty equal right now. We're not assuming recovery. So what we're seeing for oil prices now in terms of freight and input. We're modeling that through the year. As that could get worse, that could get better. We're monitoring it daily, and we would continue to work to offset that.

Got it. That's really helpful. And then a quick question on cash. You obviously did [ $300-odd million ] this year. If we had an additional AZEK quarter reversal of the integration costs we kind of get above $600 million or well above your guide before even kind of considering organic growth or declining CapEx. Can we just kind of talk about if there's another moving piece there or if the guidance is just conservative on cash as well?

Yes. So we were starting with the building blocks that we knew, right? So obviously, the big one being integration and deal costs stepping down materially year-over-year. The second part is you're picking up the highest quarter of AZEK, and then we were really working on an assumption of we didn't need to market to help stabilize that. We did have a land sale that won't repeat year-over-year. So that's part of the step down. So -- although CapEx is coming down, we won't get the benefit from the Australia land sale. So that's kind of offsetting some of that. But yes, generally, we were setting $500 million of the floor. We think we absolutely do that.

Your next question comes from Keith Hughes with Truist.

Questions on Siding & Trim in the guidance and the organic numbers you talk, can you give us a feel at least directionally how much price and volume are going to play a role in that number? For the guide.

It's Ryan. Yes. So when you think about combined market down 3%, right? I mean we think new home construction is going to be down a little bit more than that. When you think about that growth there, I'd say about half of its price and then the half is initiatives at this point. We could do a little bit better on pricing, but the reality of it is it's about 50-50 in our current guidance.

So you think volume will be up for that segment in the year you hit the guide?

Yes. So I would look at it as the price is kind of offsetting the market decline of 3% and then that other 0 to 3% would be the volume and initiatives that we're driving.

Okay. So okay. One other question. It does look as you work through the numbers, like a pretty big margin ramp coming in Deck, Rail & Accessories. I know the first quarter is going to be hit with the production slowdowns. Can you just talk about our production rates and what you anticipate to see for the rest of the year in that segment.

Yes. I think we're pretty consistent with where we were in the last couple of years, just under 70% utilization across the decking network. I would say that probably stays pretty consistent throughout the year. It is a little bit lower in Q1. So if you normalize for the Q1 blip, it's back to more I'd say, kind of run rate, what we've seen for DR&A. So I think absent of Q1, the run rate kind of holds the track record and kind of trend that we ran.

Your next question comes from Peter Steyn with Macquarie.

Ryan, Aaron, Chris and Jon, may I just ask you, after the sales organization integration in mid-March, if you could just sort of dig in a little deeper for us, Aaron, can you give us a sense of where the team is at? What the balance is like between the 2 businesses and how comfortable you are that the team is set up to be able to switch and shift between the businesses and drive the outcomes that you're needing both on siding and the DR&A.

Yes. Peter, that's a really good question. And as we think about keys to our success, that certainly is. Just to note, as we sit here in Chicago, we're having our sales organization have their sales meeting, right now. So if we think about this, as we sign the deal, we're getting to almost a year of finalizing it and we've integrated the 2 teams starting on April 1. We're still in our infancy here. With that said, we're seeing a lot of success.

When we talk about synergies, which certainly is a proof point for us from a commercial standpoint, we are seeing very good progress, and we're confident in our run rate exiting FY '27 a $125 million run rate. But look, I think best we got Jon sitting right here who runs this group, and he can give some more color to you.

Happy to do that, Aaron. So, again, I think, ultimately, the #1 litmus test is the customer, and that's where you've seen a really positive response, right? So the synergy opportunities are headed in the direction that we expected. And to clarify in terms of roles and responsibilities, largely, if somebody was a tenured fiber cement seller or someone was a 10-year Deck, Rail & Accessories seller that maintains its flow. So we haven't built a general sales force what we've done is leverage the strength of the team and we still have that specialist bottle out on the street, but that's being coordinated as a team and then we have a channel manager that's considered that person a quarterback at the customer level.

So the customer has 1 point of contact and then is able to leverage the best-in-class knowledge required, whether it's a fiber cement conversion opportunity or Deck, Rail & Accessories opportunities. So the customer's feedback has been really positive. The data and the sales growth coming from that has been exceeded by expectations. And then Ryan just quoted, that's a big driver of the initiative growth that we expect next year is going to be driven by that combined sales team.

Awesome. Could I just indulge 1 quick follow-up. You tried a number of years ago, you entered a range of exclusive deeper relationships, particularly with the large builders or some of those have probably played out in some of the sales performance over the last years just from a mix and location point of view. But what I'm curious about is as a lot of those contracts probably are starting to extend now towards some form of renewal? How are you thinking about those how we positioned do you feel for extension of those relationships?

Yes. Peter, you were a little choppy. I think I got the gist of it. It's just our -- the contract renewals for some of the large homebuilders. Look, reminds -- that remains a key focus and a very important part of our business, and we will defend that rigorously, and we have. And we believe not only is there opportunity to continue to defend that business, but to deepen those relationships and expand those relationships with offering a full suite of products that now we have at our disposal, whether that be AZEK trim or TimberTech type of decking. So our focus is to defend that business but also to expand it. And as we think about opportunities from a revenue synergy standpoint, certainly, this is a key 1 for us.

Your next question comes from Tim Wojs with Baird.

Everybody, maybe just starting with price mix in the Siding & Trim business. I think it was the second consecutive quarter where that's been up mid-single digits. And so I'm just curious if you -- if there's any -- anything in there that we should think about in terms of pure price versus mix? Because Ryan, it did sound like maybe that number could step down a little bit as you think about fiscal 2027. So could you just kind of talk about what price mix kind of landed in the fourth quarter and kind of the sustainability of that in 2027, especially against higher inflation.

Yes. I think as we talked about before on the fiber cement side, we'd expect it to be a little north of 3% in terms of price realization and then DR&A would be closer to that 2%. We did end Q4 in a little bit better position. So I think price was net about 4.8%. We did see a little bit higher realization on price and then that was offset by some negative mix based on the regional demand scale. We expect that to normalize closer to that 3%, 3.5% as we enter full year 2017 here. And then DR&A consistent, we would expect that 2% to 3%, depending on the annual price increase as well as we're working to offset inflation.

Okay. Okay. Great. That's helpful. And then just, is there a way just to kind of give us a little bit more precision on what the realized cost synergies that are kind of embedded in the guidance are?

Yes. So I think as we exited full year '26, we're approximately at an $80 million run rate versus our original target of about $42 million exiting the year. So I would say you expect like a $35 million to $40 million incremental of cost synergies to be realized during full year '27, driven by manufacturing optimization, procurement organization efficiency and just continuing to integrate on the AZEK platform. Cost savings and things outside of that and the $25 million we cleared for the plant closures would be outside of that. But that's generally where the cost synergies would be.

Your next question comes from Keith Chau with MST Marquee.

Aaron, Ryan. The first one, maybe just for simply. So -- we're all trying to get a gauge of what's in the FY '27 guide. I just want to focus on market share. So important to give a bit of context for Siding & Trim last year. I think there was a $75 million destocking impact at the revenue level for Siding & Trim. So if you take that into consideration, it's -- I'm just trying to back out what your market share assumptions is for FY '27. So maybe if you can just give us that 1 number, that would be useful.

Yes. Keith, if you're talking about PDG, I mean, look, what we're looking at is how do we have positive PDG as we go into FY '27. Certainly, a lot of challenges in FY '27. Our focus is to outperform the market. And we believe with the commercial synergies, the R&R expansion we talked about, you mentioned that some of the comps that we have that we're going to be able to do that, and bring this business back to volume growth. So if you're looking for a PDG number, our focus is to be able to have positive PDG as we contemplate our guide, and we look to the year. One thing I think everyone knows this, but as we look at our guide, we're not only guiding through this year. We're lapping the calendar, and we have to guide through March 31. So that -- the visibility is limited, but we are confident in our ability to be able to grow and be able to have positive market share gains.

Can I just ask a follow-up for Ryan. So Ryan, I think you mentioned before that this history of AZEK raising prices being able to recover costs and also taking market share at the same time. Presumably, you're talking about that post-COVID period where price increases were fairly and I guess the difference this time around is your competitors in decking haven't announced a price increase, whereas back in that period, everyone was raising prices and for some competing products, it was multiple price increases. So -- just keen to understand how you're proposing to manage the competitive dynamic given AZEK and raising prices and at this juncture.

Yes, again, I would say we have history regardless of market conditions to be able to take strategic price and so there's a long track record with our ability to do so. So again, I think we have proven history of strategic pricing plus share gains, nothing's changed. What we have seen historically is typically the competition has followed. If they choose not to, again, we still believe we have the best value proposition in terms of product, downstream sales and marketing engine. And so we have proven capability to take share regardless of what the competition does from a pricing standpoint.

Your next question comes from Trevor Allinson with Wolfe Research.

Another question on the synergies. You reiterated your run rate target about $125 million by year-end on the commercial synergies. How should we think about the contribution of these in 2027? And then on the cost side, do you see upside to your eventual cost synergies number, given you've made such good progress? Or are you just seeing those come through earlier and you think you kind of land in the same spot as you'd originally targeted on the cost side?

Yes. Trevor, I'll take the revenue synergy piece. Look, we haven't explicitly mentioned what these are and how they're going to be phased in. What I would say is we have clear line of sight to be able to exit the year at $125 million in revenue synergies. We gave a couple of the headlines out there. There's many headlines that we could give on some of these. The real magic is going to come, and Jon talked a little bit about the sales teams being together, is when we really get after in which we are our, our contractors are -- thousands of contractors that we can cross-sell to. So that's a big opportunity for us as we move forward. Yes, we're giving headlines, but we feel confident we do have line of sight to that $125 million revenue synergies. Do you want to take the cost?

Yes. And ever on the cost side, right, the primary goal is to get to the $125 million faster. We're not necessarily raising that target. The goal is just to achieve that quicker, and we're on a really good run rate to be able to do that.

Okay. Good. Makes sense. And then maybe more of a clarifying question here on some of the pricing commentary 2027, I think I heard you say you're expecting about 3% pricing in siding, which for you guys is a pretty normalized price increase, but you also have the inflationary pressures that you're speaking to see maybe to require some additional pricing. So can you confirm on siding and trim is the 3% expectation for realization in 2027, correct? And then if so, can you kind of help reconcile why given some of these inflationary pressures that might not be a little bit higher in 2027?

Yes. Trevor, if we think about this, I mean, we go out usually with a mid-single-digit type of price increase and it usually matched to like 3% to 3.5%. Here's what I would say. If we have to go out and take pricing because of inflation, certainly, we're going to be able to -- we'll do that. And on the Siding & Trim side of the business, we've been very selective in working with our customer base on certain products, in certain areas where we can go take pricing and that's what we've done.

Certainly, there's other areas that we try to make up that inflation and hold our margins. We talked a lot about the Hardie Operating System. So we have a number of levers at our disposal, which we'll utilize if we need them.

Your final question comes from Daniel Sykes with Jarden.

I just have 2. The first one was just on the exteriors business within Siding & Trim on AZEK. It looks like revenue dropped kind of -- I'm getting in the double digits year-on-year that was more than actually the organic fibers cement business. Just in the context with earlier questions around the go-to market combined sales force. Just wondered if you could help us flesh out, I guess, a differential in performance between those 2 businesses, whether there's any kind of volume and pricing mix you can give us on that 7% drop on the exteriors business?

Yes, do you want to talk to that? I'll talk to moving forward here.

Yes. Yes, I think just given kind of where we ended Q4, you're talking about the results or the guidance result?

Result and then that we move forward.

Yes. Yes. I think we have a lot of the commercial synergies that early on are related to the exterior product. A lot of those will materialize as we get into the season here. So I think that's really what you saw in Q4, nothing really from a fundamental demand perspective, just given timing of where the market is.

Yes. As we move forward, and you heard from some of the headlines, we believe, and we talked about this when we signed the deal, we see some low-lying fruit within being able to bring to many of our traditional fiber cement customers. That's what you're seeing with Lansing is us doing that, and we'll do that with a number of other customers. So the business is healthy. The business is going to grow for us. So nothing else really. I guess we have no worries about this business. We're confident of our path forward.

Okay. Great. And then just another clarifying question. Just on the timing impacts of starts. I think historically, you kind of talked to a 1 quarter lag between sales volume and what we see on the start side, I note in the prepared remarks kind of talking to, I think it was a $20 million headwind from weather in February and March.

So it seems like the kind of timing is contracted. I was just wondering if you could help me understand a little bit more whether there's any kind of procedural changes, whether that shortened that time frame and if we should expect that going forward.

Yes. I don't think there's anything different. When we talk about the -- you mentioned the $20 million from weather impact. That was because we had customers that were shut down. There were job sites where people could not work. That's -- there's really nothing else to read into that. So as far as the -- would there be any difference from the lag between starts and realized volume, we should get back on a normalized level.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Welcome to the James Hardie Fiscal Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Chris Russell, Senior Vice President of Global Strategy, Corporate Development and Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining today's call. I am joined today by Aaron Erter, Chief Executive Officer of James Hardie; Ryan Lada, Chief Financial Officer of James Hardie; and Jon Skelly, President and General Manager of James Hardie North America Building Products.

Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on Slide 2 for more information.

Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars and any comparisons made are to the corresponding period in the prior fiscal year.

With that opening, I'm pleased to hand the call to Aaron for some opening remarks.

Thanks, Chris. Hello, everyone, and thanks for joining us today. Before I begin, I would like to take a moment to thank our employees around the world who work every day to safely deliver the highest quality products, solutions and services to our customers. This team has done an incredible job navigating a period of significant change and excitement with the AZEK combination. I am truly grateful for their dedication, and I'm proud to work alongside them each and every day.

With me on today's call is Ryan Lada, our new Chief Financial Officer. Many of you know Ryan from his prior role as CFO at AZEK. He brings extensive financial and operating experience and a strong understanding of the building products landscape. I'm excited to have Ryan alongside me as we lead the business forward.

Also joining me today is Jon Skelly, President and General Manager, James Hardie North America Building Products Group; Jon along with John Madson, our new Chief Sales Officer, have stepped into expanded roles recently. Each leader brings an impressive track record of driving sustainable sales growth, and each have deep knowledge of our industry. And each one of them has already contributed meaningfully to the commercial synergies that I will speak about on today's call. I am confident in their leadership to deliver on our commitment of outperforming the market over the long term.

Let's start with our results. We delivered a solid quarter, exceeding our guidance and making good progress across the business. Execution was discipline. Commercial momentum improved, and our teams continued to advance the strategic priorities that matter most for long-term value creation. That said, we are not satisfied. We have higher expectations for ourselves, and our ambition is to deliver stronger, more consistent performance over time. That ambition is what's driving the actions we are taking across the business.

On the commercial front, we are focused on reaccelerating organic growth in fiber cement and expanding margins across our portfolio through disciplined execution, innovation and operational excellence. The manufacturing optimization actions we implemented in mid-January were an important step in aligning our footprint and cost structure with our long-term growth and margin objectives.

Finally, our combination with AZEK continues to build momentum and is already generating meaningful commercial opportunities. We are confident this combination will be a significant contributor to accelerated top line growth in the years ahead as we bring together the best of James Hardie and AZEK to better serve our customers and create long-term value for our shareholders.

Now let's look at the results for Siding & Trim in the quarter. Current market conditions remain mixed due to the category's exposure to the new construction end market and the Southern region. Organic net sales in the legacy James Hardie North America fiber cement business declined 2% in the quarter, driven by lower volumes, partly offset by higher average net sales price. Single-family exteriors volumes were down high single digits. Multifamily was up high single digits, and interiors were down double digits in the quarter. Siding & Trim adjusted EBITDA was $269 million in the quarter with adjusted EBITDA margin of 34.1%, a nearly 500 basis point sequential improvement, largely reflecting price-mix favorability.

As I mentioned in the opening, we are taking actions through the application of the Hardie operating system to improve performance and return to margin expansion in FY '27. On January 15, we made the difficult decision to close 2 of our older, less efficient plants and transfer more production volume to some of our newer advanced plants. This decision, along with actions we took to balance our footprint, will focus production on fewer manufacturing lines. These actions will create annual cost savings of $25 million beginning in the first quarter of FY '27. Looking ahead to fiscal '27, these actions not only strengthen our cost position but also allow us to have the right capacity in the right locations to execute against our significant material conversion opportunities.

From a market perspective, while new home market demand is still uncertain, we have seen stable demand trends in line with expectations we outlined in November. In repair and remodel, we have seen demand stabilize at the current low levels, and while we expect organic net sales to decline modestly in the fiscal fourth quarter, we are focused on driving organic growth in the Siding & Trim segment in FY '27 and beyond.

Our overarching strategic focus is increasing our penetration in both the new home and the repair and remodel end markets, which is over $10 billion in which we have a significant material conversion runway. Going forward, we believe growth in this segment will be enabled by a few core strategies. First, in the repair and remodel end market, we believe a significant opportunity exists for additional revenue growth in the Northeast and Midwest regions, where we believe there is a nearly $1 billion repair and remodel-focused revenue opportunity in competitive wood and wood-look siding alone. We believe the combination with AZEK positively impacts our ability to compete and win in these regions. Enabled by the combination, James Hardie now has long-standing relationships with independent lumberyards in the region, a large and talented sales force, and the best collective product portfolio to drive material conversion.

And while repair and remodel remains our focus, particularly given the synergies from the AZEK acquisition, we continue to see meaningful opportunities with custom and local homebuilders. We believe this underpenetrated segment represents an incremental $750 million opportunity for continued growth in the new home construction end market.

We also see additional opportunities to drive growth through product innovation. Our R&D and product management organizations are focused on product innovation, where we see opportunity to introduce resilient and beautiful products to drive material conversion. One example of our product development is TimberHue, a new product that we will showcase at the International Builders Show that combines a natural wood look with the durability and performance of James Hardie's fiber cement. Our innovation mindset is not only in our products but also in the installation techniques of our products.

We have worked closely with our contractors and installers to understand and develop installation innovation, helping to reduce the overall installed cost of our products. Through installation techniques such as score and snap and the Trim-Over method, we believe we can increase contractor efficiency by approximately 30%. For those of you who will be in Orlando at the International Builders Show, we will have the opportunity to showcase these innovative installation methods in our booth at the show.

Now let's turn to Deck, Rail & Accessories. Performance remains strong in our DR&A business with TimberTech continuing to outperform the broader market by executing against our proven growth playbook. This performance is supported by multiple levers with material conversion underpinning everything that we do.

The most recent data suggests the decking market is approximately 25% converted to composite materials. As a reminder, at this point in the conversion curve, every 100 basis points of material conversion equates to approximately 400 basis points of composite decking growth. We've had sustained material conversion momentum, which gives us confidence in the long-term runway, particularly as homeowners and professionals increasingly prioritize materials that offer superior durability, fire resistance and performance.

Wood conversion is driven by downstream-focused sales activity at the contractor level, with the continued education of contractors on the benefits of our resilient and aesthetically differentiated products relative to inferior substrates. Similar to our Siding & Trim segment, new product development represents another important growth lever, supported by our ability to design and successfully launch innovations that enhance the TimberTech portfolio for both consumers and pros. Recent new product introductions such as the TimberTech Advantage Rail and impression privacy screen provide contractors and homeowners with advancements and functionality, aesthetics and ease of installation.

Consistent with the past, channel expansion remains a key focus as we continue to broaden TimberTech's presence across distribution and retail to further accelerate market conversion. Given the highly complementary nature of James Hardie and TimberTech's geographic footprints and customer bases, we see significant opportunities to facilitate channel expansion through our existing relationships. An example here may be helpful. James Hardie's traditional strength has been the West and South, where we have had success penetrating the market and have strong coverage in selling locations in the region. At the moment, our fiber cement business has more than doubled the selling locations than TimberTech in the South. We believe, over time, there is a strong opportunity to place TimberTech products in the locations currently carrying James Hardie fiber cement.

All of our sales and commercial initiatives are supported by a strong in-house marketing organization. By executing a consistent marketing playbook over the past 4 years, TimberTech has delivered meaningful progress across key brand health and commercial metrics, including strong gains in awareness and consideration. These results reflect increased brand visibility, broader channel presence and effective engagement with both the homeowner and the pro. Our focus going forward is strengthening preference and deepening relationships with contractors. With this group, we believe we have outpaced the competition to become the leader in awareness, positioning us to convert that advantage into sustained share growth over time.

Taken together, these efforts give us confidence in our ability to drive 500 to 700 basis points of growth above the market, consistent with TimberTech's historical track record. We delivered on this commitment in the most recent quarter with mid-single-digit sell-through growth, outperforming the broader market that declined at a low single-digit rate. Despite continued market softness, we remain confident that our strategic growth initiatives with customers and contractors will support continued market outperformance and low to mid-single-digit sell-through growth in the fourth quarter.

As I close the DR&A update, I wanted to share the progress from the seasonal early buy shelf space negotiation period with key channel partners, which wrapped up in recent weeks. As in prior years, we were focused on reinforcing customer relationships and securing appropriate seasonal inventory positioning. We believe these discussions have further expanded our market presence, positioning us well as we move into the primary decking selling season in the spring.

Turning to the integration with AZEK. We are executing with discipline and urgency across all areas of the integration with a clear focus on our people and our customers. As we move into FY '27 in just a couple of months, we have established a clear organizational structure aligned around common goals, and we have a specialized downstream customer-focused sales organization designed to deepen relationships, accelerate material conversion and drive sustainable growth.

We also continue to move quickly on cost synergy realization. We've already surpassed our FY '26 cost synergy goal, and our progress to date increases our confidence in hitting our $125 million cost synergy target.

On the commercial synergy front, customer feedback on the combined offering from the one James Hardie team has been very positive. We have seen a growing number of recent wins across the businesses that we expect to translate into meaningful revenue synergies as we move through FY '27.

Just to give you an idea of some of these, a large national one-step dealer has committed to choosing AZEK as their exclusive PVC trim brand, drawn by the combination with James Hardie and the strong loyalty of contractors to our combined portfolio. Another example of our momentum is a recently secured expansion of a relationship with a scaled distributor of exterior building materials that positions James Hardie as a primary hard siding and trim brand and TimberTech as its primary composite decking brand across North America. This partner has agreed to focus national marketing on the One Hardie suite of brands and products. Most importantly, these commitments are reinforced by coordinated go-to-market efforts, targeted hyper-local marketing support and training to drive material conversion.

We're also seeing strong momentum in cross-selling across the One Hardie portfolio. Over the past few weeks, we hosted national contractor summits for both TimberTech and James Hardie. One piece of feedback from these meetings is that contractors are increasingly looking to consolidate their portfolios under the One Hardie brands. One such example is Rick James of RPS Remodeling, a long-time James Hardie siding partner, who recently transitioned as company's decking offering from a competitive product to TimberTech. The positive momentum from these proof points gives us confidence in our ability to deliver $125 million in annualized commercial synergy run rate exiting FY '27, in line with our public commitment at the deal close.

I will now turn it over to Ryan to run through the financials. Ryan?

Thanks, Aaron. I will start with our third quarter consolidated results. Total net sales grew 30% to $1.24 billion, which included $275 million of acquired AZEK sales. Our organic sales increased by 1%, and adjusted EBITDA was $330 million, with a 26.6% adjusted EBITDA margin. Adjusted general corporate and unallocated R&D costs totaled $47.1 million in the quarter. As a reminder, nearly half of the P&L benefit from full year '26 cost synergies resides in corporate expense for the year.

Our adjusted effective tax rate was 17.3%. We now expect our full year tax rate to be slightly lower than our prior guide at around 19%. Adjusted net interest was $68 million, and weighted average diluted share count was approximately 583 million. We anticipate these items will remain consistent in the fourth quarter.

Adjusted net income was $142 million, and adjusted diluted earnings per share was $0.24. Year-to-date, free cash flow was $261 million, which includes the benefit of completed land sale in Australia. However, cash flow remains negatively impacted by onetime integration costs, which will step down significantly in fiscal year 2027. Cash generation of our core businesses remain strong, and with capital spending projected at modest levels, we expect free cash flow to accelerate in years ahead.

Turning to our Siding & Trim segment. Net sales were up 10%, including $81 million from the AZEK acquisition. Siding & Trim organic net sales were down 2% as lower volumes were partially offset by a mid-single-digit increase in ASP. Adjusted EBITDA was $269 million, with adjusted EBITDA margin of 34.1%, down just 70 basis points year-over-year. This decline was largely due to a 100 basis point impact from reallocating $9 million of R&D costs to the segment. Excluding this allocation, adjusted EBITDA margin would have increased year-over-year. The key drivers of the comparable change in margins were positive price, mix and ongoing HOS savings. These were partially offset by lower volumes, unfavorable absorption and inflation in freight and raw materials.

We are employing the Hardie operating system to optimize the business cost structure through network optimization, cost synergies and structural efficiency improvements. We expect the recently announced site closures and optimization initiatives to generate annualized cost savings of approximately $25 million beginning in the first quarter of fiscal year 2027. These cost savings will be driven by reduced fixed costs and improved utilization across the remaining manufacturing network. These cost savings are also incremental to any cost synergy savings related to the AZEK acquisition. Together, these actions will position the business for margin recovery and stronger performance going forward.

For Deck, Rail & Accessories, net sales were up 2% compared to the quarter ended December 31, 2024, prior to the AZEK acquisition by James Hardie. Sell-through was up mid-single digits, consistent with the business performance in the 2 most recent quarters. Adjusted EBITDA was $49 million, resulting in a 25.1% adjusted EBITDA margin. The Deck, Rail & Accessories margin outlook remains strong, with upside from material formulation, recycling initiatives, improved absorption across the manufacturing network and the application of the Hardie operating system across the manufacturing base.

Turning to Australia and New Zealand. Net sales were up 7% in both U.S. and Australian dollars due to 1% growth in volume and a 6% rise in ASP. Adjusted EBITDA was up 4% to $41 million with adjusted EBITDA margin of 32.6%, down 90 basis points due to unfavorable production cost absorption and the R&D allocations.

And in Europe, net sales were up 13% or 3% in euros, driven by strong fiber gypsum volume and a modest decline in average net sales price. EBITDA margin was up 240 basis points to 12.7%, driven by volume leverage, lower gypsum and paper costs, and solid manufacturing efficiency.

Turning to our full year outlook. We are increasing our Siding & Trim net sales guidance to a range of $2.953 billion to $2.998 billion, reflecting our outperformance in the third quarter. For Siding & Trim adjusted EBITDA, we are modestly raising our guidance range to $939 million to $962 million. At the midpoint, this implies a full year organic net sales decline of approximately 6% and an adjusted EBITDA margin of 31.9%.

For Deck, Rail & Accessories, we have also increased our net sales and adjusted EBITDA guidance for the post-close period of fiscal year '26 to account for the outperformance in 3Q. We expect net sales of $787 million to $800 million, which assumes sell-through up low to mid-single digits. This is consistent with recent quarters and above prior expectations, reflecting continued success in driving material conversion through our core strategies. Based on these demand expectations, we expect Deck, Rail & Accessories adjusted EBITDA of $219 million to $224 million.

For the total company, we now expect full year '26 adjusted EBITDA of $1.232 billion to $1.263 billion. We are confident in our long-term cash generation. We expect it to accelerate as integration costs wind down and interest expense declines with debt paydown. Our capital expenditures outlook remains unchanged at approximately $400 million for full year '26, including $75 million for AZEK investments. Over the long term, we expect CapEx across our North America businesses to run 6% to 7% of combined North America sales.

We continue to expect at least $200 million in free cash flow for the year. Our net debt ended the quarter at $4.3 billion. Pro forma for the AZEK acquisition and the midpoint of our updated guidance, full year '26 net leverage stands at approximately 3x. We remain committed to reducing leverage below 2x within 2 years post close as we grow EBITDA, generate cash and pay down debt.

With that, I'll turn the call back to Aaron.

Thanks, Ryan. Looking ahead to FY '27, while we are not guiding at this time, our expectation and goal is to return to both organic revenue growth and adjusted EBITDA margin expansion. In DR&A, TimberTech has demonstrated the ability to consistently outgrow the underlying market through our well-defined and repeatable growth playbook. We expect that this will continue in FY '27.

As highlighted earlier in the call, we also expect to return to organic growth in our Siding & Trim segment and fiber cement siding in particular. Our 4 key strategies for returning to growth include: number one, a focus on the $1 billion repair and remodel opportunity in the Midwest and Northeast; number two, a deeper focus on penetrating into the $750 million remaining in wood and wood-look siding and new construction; number three, a focus on new product innovation; and finally, continuing to introduce new and innovative installation techniques to drive efficiency for our contractors.

Additionally, on growth, relative to commercial synergies, we are encouraged by the early commercial wins, which give us confidence in our ability to realize our FY '27 revenue synergy target exiting the year at $125 million run rate, consistent with our public commitment at the time of the deal announcement. And on cost synergies, we have executed well in FY '26. We've already surpassed our FY '26 cost synergy goal, and our progress to date increases our confidence in hitting our $125 million cost synergy target. We will give additional details on fiscal 2027 guidance during our year-end conference call in May.

To close, we are executing against our clear long-term strategy focused on material conversion from wood and other inferior materials. We are well positioned to capture that opportunity through the breadth of our combined portfolio and our downstream engagement with contractors and customers. As we look ahead to FY '27 and beyond, we are confident in our ability to continue outperforming the market, expand margins and translate our strategy and execution into consistent long-term value creation for our shareholders.

And coming up next week, we will be exhibiting at the International Builders Show, where we plan to highlight the breadth and potential of our combined product portfolio and demonstrate how our complementary offerings across siding, trim, decking and accessories deliver differentiated solutions for our customers and reinforce the value proposition of the combined company. For those of you planning to be in attendance, we look forward to seeing you at the show.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Keith Hughes with Truist.

A lot of regional variation of late in some of the siding sales. Can you give us an update on that and specifically, what you think your expectations are near term, how that could change as we get into calendar '26?

Keith, let me take it from there. Then -- so Keith, I think with -- as we have our -- we look at what went on. It's pretty consistent with what we said in November. I'll start out a little bit with new construction. So new construction activity, it's challenging across most of our regions, with Texas, the West and the Southeast showing the greatest softness out there given their scale and our exposure to these markets.

You're aware of all the data on permit starts. Permit's down 9% year-over-year, and then if we look year-to-date of starts, down 7%. Look, I'll start out with Texas because Texas is so significant for us and for the country. It's about 26% of national closings out there. So what we're seeing in Texas is builders, for the most part, have been tightly managing inventory. After significant volume declines in Q3, we have seen some signs of normalization early in the calendar year. The recent weather has created short-term production delays, and we're seeing most builders remain conservative, pacing starts to sales.

If I look in the Southeast, I look at the Carolinas, demand remains soft there when Q3 volumes down year-over-year. Inventory in key markets like Orlando, Jacksonville, Tampa and Atlanta remain elevated. The Carolinas and Tennessee continue to benefit from strong migration trends, and we're seeing healthier starts there.

In the West, starts are slow. Builders across the Southwest and Mountain states, they're overbuilt in inventory right now. The Midwest activity is comparatively resilient. We're seeing areas like Minneapolis. We're seeing Chicago, Ohio, Pittsburgh due to more affordable price points, and we're seeing strong performance in the higher-priced bands as well. Some easing in contractor backlog is creating momentum as the season progresses.

So look, overall, in new construction, it's soft across many of the key regions. Inventory levels are elevated. But the good news is consumer sentiment has stabilized, and it's supported by pent-up demand, and we're seeing modest relief in mortgage rates.

As we move to repair and remodel, we would say that, that is stabilizing. It's choppy, but it's stabilizing. We're not seeing it getting any worse, which is good. We're seeing sentiment improving across all our regions, West, South, Midwest and Northeast, particularly where there's aging housing stock, which makes a lot of sense. And if we look at our contractor surveys that we brought in this best practice from AZEK, we are seeing some optimism in -- with our contractors.

So all in all, I would say, new construction continues to be a challenge but not unexpected from what we talked about a little bit in November. And then if we look at repair and remodel, we would say stabilizing.

Last thing before I talk just briefly on Deck, Rail & Accessories is we look at our inventory levels. Inventory exiting our third quarter was seasonally appropriate. Over the last weeks, I would say that we've seen a little bit of a tick up with our dealer inventory because some of the weather disruptions out there as we've seen loss building days and production out there with our customers. But all in all, if we look at our channel inventory, very healthy versus last year.

DR&A, I won't spend a lot of time on it because we went through it in the script, but we continue to outperform the market. Sell-through was broadly consistent at mid-single digits, only modest regional variation, and we're seeing stable trends with our contractors and inventories are appropriate levels. Hopefully, that answered the question, Keith, because you got cut off a little bit.

No, that's very complete. Can you hear me now, by the way?

Yes.

Yes. Okay. Great. Just one quick follow-up on costs. Are you seeing any potential inflation coming in any of the siding inputs as we head into the new year?

Yes, this is Ryan. Keith, it's Ryan. Yes, we have a modest expectation of inflation on the fiber cement side. Nothing drastic at this point, just given where pulp and things are. The majority of it is kind of playing towards the back half of 2027 at this point.

Your next question comes from the line of Daniel Kang from CLSA.

Just wondering in terms of -- I guess, as we enter your final quarter, we're midway through it. At the moment, market -- end markets are still soft. But just wondering if you could talk about how your recent price increases have been accepted by your customers and how you're seeing, I guess, the all-important spring selling season.

Yes, Daniel, I would say, look, we executed our price increases. They've been effective since January 1 out there. That is on the fiber cement side, and that would be on the Deck, Rail & Accessories and the PVC trim side as well. We talked a little bit about the increases. We see some benefits from price and mix, particularly from the fiber cement side. So look, we -- the way we price is we're doing it for value, and it's been accepted well from all our customers out there.

And you also spoke about, I guess, the early wins in commercial synergies. Is this going to feature much in the FY '26 year?

Yes, Daniel, good question here. As we look at sales synergies, we'll see many of those start to hit the P&L as we get into FY '27. Right now, a lot of these are being executed as far as the specifics around them, and we are making good progress. What I can say -- and we're not giving guidance for FY '27, but we have line of sight to our $125 million target of revenue synergies as we exit FY '27. So we feel very confident of that.

Your next question comes from the line of Ryan Merkel of William Blair.

My first one is on the 4Q guide. Are you assuming that Siding & Trim, the volumes are going to be down in a similar range as 3Q? And then on the margins, you had a nice beat in 3Q. Why not flow that through in 4Q? Is there a reason?

Yes. I'll let Ryan go through the guide. But if we look at our Siding & Trim volume, one of the things I think that you'll remember is we are facing a comp from an inventory build that we saw in Q4 last year. But Ryan, if you want to walk through some of that.

Yes, I think the guide reflects exactly what Aaron just hit on. And then from a margin perspective, we have a step-up in marketing activity really in our fourth quarter that, that is the main driver of the dilution from 3Q. But yes, that's the biggest thing as we enter the season, is just increased marketing expense as we get into the year-end here.

Yes. And Ryan, to get more specific on that, these are things like contractor events. We had them on the legacy AZEK side. We had them on the legacy James Hardie side, and then also, we have an upcoming sales meeting. So some of those expenses that you see really reflect that.

Okay. Yes, that makes sense. And then my follow-up, the large distributor committing to One Hardie, that sounds pretty interesting. My question is do you have more of those in the pipeline.

Yes, Ryan, I'm going to turn it over to Jon Skelly, who runs our North American business, who has been a big architect of getting some of these commercial synergy wins. Jon, do you want to take it?

Yes. So Ryan, obviously, you can't say too much at this point, but I think I'll just attach it to what Aaron said earlier around our confidence to deliver against the exit synergy rate for fiscal '27, right? So I think the customer has welcomed the opportunity to consolidate with the market-leading brands and what we've been able to do from a downstream sales and execution standpoint to help them grow their business. So we're -- that's what's giving us the confidence.

Your next question comes from the line of Peter Steyn from Macquarie.

I actually just wanted to bring together -- that very conversation together with working capital. Your inventory relative to pro forma kind of went to 75 days from perhaps around the 71 in the prior comparative period. What I'm curious about is what the trending will be as you execute commercial synergies, as you gain more position with similar one-step space. Do you believe that you can reduce the volatility that you've historically seen in the decking business' inventory profile in particular? And then across the business, what your expectation would be for improved efficiencies on that investment?

Ryan, do you want to handle that one?

Yes. Yes. I would say, as you think about the commercial synergies we're going after, there is a little bit of build on our internal balance sheet to be able to satisfy those as those come to fruition. So I think we hit a little bit on the prior question, but there is phasing and timing of rollout into the season. So we would expect as that normalizes, our inventory and our balance sheet would also come down. But yes, the real build is driven by that, nothing else intentionally.

And would there be network redesign benefits that flow over the medium term as well? That's probably more where I'm getting at.

Yes, nothing major contemplated in that. I think with the optimization of our footprint here that was announced last month, it's really a rebalance of the inventory through that and the corresponding freight to fulfill the customer demand.

Your next question comes from the line of Tim Wojs from Baird.

Maybe just on fiber cement and kind of the pricing contribution in the quarter, it was a pretty healthy step-up sequentially. And it sounds like it's mix related. So I'm just curious if you could kind of flesh out the drivers of the mix improvement and if you're expecting that to kind of continue in the kind of near to intermediate term there.

Yes, Tim, so I think, roughly, price accounted for about 4% -- a little over 4%. Mix was a little over 1% there. So as we sell more ColorPlus, we're going to see the benefits from mix. I think part of this, too, as you look at some of the -- as I opened up, and I talk about new construction and some of the products that really are attributable to new construction, we saw some -- less of that. So that's some of the mix benefit that you're seeing out there, Tim.

Okay. Okay. That's helpful. And then I guess as you're talking about kind of new kind of R&R installation methods, you're talking about going after maybe some smaller, more kind of custom builders, are there any sort of larger, chunkier investments that you need to make? Or I guess, does your go-to-market strategy kind of change that requires some larger -- any sort of larger upfront costs to kind of accelerate that?

Yes. Tim, the biggest investment that we could make there and we have already made is going to be in our sales force, right? So I'll let Jon talk a little bit more around it. But as we move forward and we think about what our sales team is going to look like, it's going to be focused more from a downstream standpoint.

So we are going to be focused on contractors out there and really converting them. We'll have a dedicated team on that. We'll also have specialists from a fiber cement, deck, rail and accessories standpoint that aids them, and then we'll have folks that are focused on our customers, like our dealer partners there.

So that investment has already been made. Certainly, training is a big part of it. But as far as any big onetime cost, I would say we made it as we think about the acquisition of AZEK. Bringing the 2 together is going to help us really accelerate that. But Jon anything else you want to add there?

That's right. I mean we can leverage that existing investment, Tim. And so as you recall, historical TimberTech and AZEK was much more repair and remodel-driven, right? So it was a much larger piece of the business. And so the downstream team has the relationships within the dealer channel with custom builders and with a lot of pull-through opportunities on the R&R side. And then conversely, James Hardie has a lot of that opportunity with the new build side.

So legacy AZEK relationships can be leveraged to help pull through more on the repair and remodel side of fiber cement. And then vice versa, we can work together to pull through more decking, railing, accessories through into the vendor channel.

Your next question comes from the line of Keith Chau from MST Marquee.

The first one, just a follow-up on the 4Q guidance. I wanted to try and think about it sequentially. So revenue is expected to be broadly flat. I think, Ryan, as you said before, inflation, there is some but not too much, and sequentially, there should at least be a pulp benefit, a price increase benefit and you should be starting to get the benefit of the capacity reduction.

So yes, I understand there needs to be an investment on the marketing side, but it seems unlikely that, that investment in marketing is going to be overwhelmed by some of the sequential positives. So maybe, Ryan, if you can help me understand the magnitude of marketing investment in the fourth quarter relative to the third and how much that actually steps up, just so I can get an understanding of why the margin should deteriorate quarter-on-quarter, please.

Yes. I think there's a few things, right? So from a marketing step-up, I don't think we're going to quantify the actual dollars, but it is a significant impact over Q3. I think the second thing with the announced plant closures, the impact of that really is delayed to full year '27. So we will not see any benefit of that in the quarter as we go through the wind-down activities and the delay on the balance sheet.

I think the third thing, right, I mean, AZEK from a Q3 perspective, that's AZEK's historically low production and shipment perspective. So there are some delayed costs on the balance sheet that roll off in our financial year Q4. So that's a little bit of the impact you feel on the margin perspective. So those are kind of the 3 things. You're not getting the savings. You have a little bit of balance sheet lag rolling off, and then there is incremental marketing and sales efforts in the quarter.

Okay. My follow-up question just relates to some of those capacity reconfiguration. So I'm just trying to understand, particularly for the Fontana, California closure, where will that region be supplied now, from which part of the network? And if it's from the South, when the South eventually ramps up again, what's the plan to keep supply in the South or the West going, particularly in the California region?

Yes, Keith, I think I got all of that and how are we going to supply the West. Look, obviously, this was a difficult decision for us to make, but also, we feel confident in our ability to be able to supply the whole network. And that includes when we think about the growth that we're contemplating and also the revenue synergies as well.

Look, over the last few years, we spent well over $1 billion in more efficient, modernized plants and really adding to our facilities. So we feel very confident in what we're doing. If we think about the plants that we closed down, they were very limited as to what they could make. If we look at Summerville, for instance, they could make plank and that was it. Fontana, we could make plank, panel and backer.

So rest assured, if we think about California, we're going to be able to supply product from Tacoma 2 in Northern California. Southern California, Cleburne and Wax. And look, we've taken into account the freight costs there as well and the contribution that we're going to see next year that has contemplated the freight in there as well. So we feel very -- as much as a tough decision, it was the right decision for us to make as we move forward.

Your next question comes from the line of Philip Ng from Jefferies.

Congrats on a really strong quarter. Progress is very encouraging. And Ryan, welcome back. Good to have you back in the fold. I guess, kind of kick things off, a question for you, Aaron. I know you guys aren't guiding for '27 yet, but pretty encouraging to hear you're expecting organic growth to be growing in '27. Do you need a little help from the market? Or these are largely James Hardie-specific initiatives?

I'm particularly interested in your Siding & Trim business, right? I mean you highlighted some of the challenges in new construction. So what are -- what gives you the conviction, I guess, for that piece of business to kind of reaccelerate? I know there's some talk of new products getting pushed out. Are you seeing some of that? Are you seeing placement with dealers, penetration wins with builders? Just kind of give us a little more color on your conviction level why your signing business is going to reaccelerate.

Yes, Phil, good question here. Look, when we say we believe that we're going to have organic growth, that's considering if there's no worsening of the market here than where we're at right now, right? That's the caveat I would put on this, severe worsening of the market. Number one, why we have the conviction as a team, right, this is a new James Hardie. So as we think about our sales team and the way that Jon is going to structure this team and really get after the contractor, we have a lot of confidence there.

The other thing is we look at the commercial synergies that we're going to be able to generate. We look at the plans on how we grow fiber cement. We talked a little bit about the 4 key areas that we're going to really drive. All those give us conviction. The other thing is we think about this past year and what we're comping against. We have some opportunity, we believe. So all of those things together, Phil, give us a lot of confidence and be able to provide organic growth in fiber cement again.

Okay. Helpful. You guys gave us great examples of wins with dealers and distributors. I didn't hear you talk too much about big box. I believe there's a line review for decking. Any color there on an opportunity to pick up some placement there? I know AZEK made a big push on railing about a year ago. Any more color on increasing penetration, whether it's on the retail or pro channel, particularly in railing as well?

Yes. Look, I'll start out and I'll have Jon chime in here. All our customers are very important to us, and we talked about a number of the buckets that we believe are going to be opportunities for us, and we certainly see retail as being an opportunity. And we are making good progress on the James Hardie side and also from a legacy TimberTech side.

Look, as someone who has called on retail and big boxes for almost 30 years now, it doesn't happen overnight. So we're looking at getting single after single with our retail partners and just building upon that. So we have a lot of confidence that's going to happen. Nothing major to announce right now. But Jon, do you want to take that?

Yes. Nothing major to announce is correct, but we continue to expand our positions there. So even without line reviews, we continue to broaden our stocking store base, continue to amplify our special order business and continue to make retail and that channel expansion, we regularly talk about, a bigger part of business.

Your next question comes from the line of Sam Seow from Citi.

You had a pretty solid margin improvement there sequentially in siding. I just wanted to maybe ask if you could talk about the contribution of raw materials. Was it positive sequentially in the third quarter there? And then as we think about the fourth quarter, should that raw material benefit be sequentially higher again?

Yes. Sam, good question. I'll turn it over to Ryan here in a second, but just to walk through it, I mean, if we think about the sequential improvement, it was really built from a high-level standpoint. We think about volume. We think about ASP. We think about our manufacturing costs, and we think about SG&A, right? So from a raw standpoint, Ryan, you just want to dive into that?

Yes. Yes, I would say if you think about kind of how we look at it, roughly 40% of it was contributed from price-mix about 20% came from manufacturing costs, and that was raw material costs. So we did see a step down. The first 2 quarters of the year, we did see inflation on raws on the fiber cement side. We actually saw a modest deflation year-over-year as we step into the third quarter. And then there was some cost actions just to mitigate there, and the other 40% basically came from SG&A management on the cost side. And to your question on the raw material inflation that we saw in 3Q, that will actually carry into 4Q as well.

Awesome. Awesome. And then just quickly on the guide to free cash flow, year-to-date, it looks like your free cash flow is about $260 million odd, but you're guiding to $200 million for the full year. Just want to understand if that's conservative or something we're missing there.

Yes. Yes, I think the big thing there, right, is, yes, we're at $260 million year-to-date after 3 quarters. The biggest thing is just timing of AR and things as we get into the year-end here. So there might be a little bit of conservatism there, but we were holding that flat at the $200 million. We know we'll hit that and then kind of wind down on integration and deal costs this quarter as well. So I wanted to leave ample room for that, but we expect from full year '27 Q1 on, we should see a nice ramp-up as those integration and deal costs minimize.

Yes. And if we look at FY '27, all else equal, I mean, we'll have AZEK cash flow quarter, right, the other quarter plus lack of transaction costs and fewer integration costs, as you mentioned. Yes. Okay.

Your next question comes from the line of Matthew Bouley from Barclays.

So the score and snap and the new install techniques, it sounds like more to be seen at the Builders Show next week. I think I heard you say that contractor efficiency is better by 30%. So in the past, you guys have talked about some of the early returns here. I'm curious if there's any update. Maybe sort of outline, as you've been undergoing the strategy, what you're doing to incentivize or motivate contractors to kind of play along here.

Yes. Matt, good question. I mean, look, this is all part of how we win in fiber cement and in particular, how we believe that we're going to win around R&R. It's a big part of it. And we touched on innovation. We do believe that these new installation techniques are innovative, and we spent years on this. So we're wheeling this out methodically across the country.

So as we think about this is supported by our Statement Essentials Collection (sic) [ Statement Collection Essentials ], and that is really targeted on competing against vinyl out there. So this installation technique plus that product that's readily available, we believe, is going to help decrease the differential versus vinyl and for our contractors to be able to go out and win more jobs out there.

So we launched this in April of '25 when we think about the Statement Essentials Collection in the East, in the Midwest and then in the Midwest, Central. We launched in January this year. I'm not going to give you the full rollout because I don't necessarily want our competition to hear this. But as we look through what will be -- call it, as we get into our Q1 of FY '27, we're going to have the majority of the Statement Essentials Collection wheeled out. I talked about our sales force and how we're going to have a dedicated team focused on our contractors. That's going to be wheeled out April 1 as well.

So they go in tandem with each other, and then it's going to be supported at the local level by marketing and training. So that's the plan right now. We will update you on these calls on our progress and how we're doing. I think a big part of it is just seeing our ColorPlus number grow and particularly for these regions. So that's where we're at, Matt.

Okay. Perfect. Second one, I just wanted to drill down into that marketing investments in Q4. Just to be clear, was that mainly due to the trade shows and contractor events and as you alluded to? Or was there also a step-up perhaps related to what we're hearing in decking, of course, where there is a little bit more of a market spend going on across [ the business ]?

Yes, Matt, good question here. This was related to trade shows. This was related to our sales meeting, and this was related to contractor events, not any type of major step-up from a marketing standpoint at all. And some of those costs that we have there because we have dual expenses, we expect to be onetime and not reflected as we move forward.

Your next call comes from the line of Brook Campbell-Crawford from Barney Joey (sic) [ Barrenjoey ].

Yes. Just one on the outlook here for FY '27. You're talking about lots of great activity and initiatives you have going on in the U.S. at the moment, which is good to hear. Just wanted to understand, Aaron, do you think the business is capable of growing volume at that kind of 4% above market and then deliver synergies on top of it? Or do you more think of these initiatives so synergies effectively helping to deliver on the 4%? I'm just trying to understand if we should expect both or just sort of 4% above market as a total target.

Yes, Brook, good question. Look, we're not giving guidance. I think what you're referring to when we talk about 4% is that has been our PDG target, right? And obviously, this year, we are not at that rate, and there's many different reasons for that. But as we think about the inventory build, we think about some of the magnitude of new construction that we've seen in areas that we're really tied to like Texas. As we get into next year, we expect to get back on that train of 4% PDG growth.

We've talked about some of the initiatives that we have to be able to do that, and that would be our base. And then our expectation is synergies are going to be on top of that. So that's our aspiration. Not giving guidance, but that's what we're aiming to do, Brook.

Sure. That's helpful. And just one quick follow-up on the fourth quarter. If we just look at AZEK, I guess, you outperformed your guidance in the third quarter. If you look at the growth rate, the first 3 quarters would look to be about 9% growth year-over-year relative to the prior period for AZEK EBITDA. And then the fourth quarter guidance implies, on my numbers, EBITDA falls like 4% year-over-year. So really quite a material change in the direction of growth there in AZEK. So do you mind just giving a couple of comments on why that might happen?

Yes. Look, we don't see AZEK slowing at all. I think it's appropriate from what we see from a seasonal standpoint. So it's reflected with that. Any of you guys want to -- do you want to jump in?

Yes, I would say it was -- back to a little bit of a similar point earlier. Our -- as we end the calendar year, our Q3 here was the slowest quarter from a production and sales perspective, so that creates a headwind going into 4Q. So that's really only modest change on -- that you're going to feel on the margin side there. And then just it's a higher activity from an SG&A investment at that period as we hit on with the trade shows and different things like that.

Your next question comes from the line of Trevor Allinson from Wolfe.

I want to follow up on your comments on some early wins regarding the revenue synergies. You've had a chance to go through the early buy period here now on the combined portfolio. Do you think you're getting some of these wins more quickly than you had originally anticipated? And then I think about the synergies between siding and trim and decking, is there one side of the business where you'd expect the commercial synergies to come through either sooner or more meaningful in fiscal '27?

Yes, Trevor, I'll take the last first, and then I'll hand it over to Jon. Look, we believe that where we see opportunity from a commercial synergy standpoint, across all our businesses, DR&A, fiber cement and then from an exterior trim standpoint. So we do see opportunities across the board. But Jon, do you want to take it as far as our presence.

Yes. I mean, again, I think as we highlighted in the prepared remarks, right, this is a consistent part of our growth algorithm, right, is going to early buy and expanding our shelf position and presence across all the dealer channels. Obviously, now sales guys like to have good stuff to talk about. Now they more to talk about, right?

So I think we've been able to create a lot of energy and excitement at the customer with an expanded portfolio of the leading brands. And so I think that's been resonating with customers. And again, I'll connect that back to the confidence we have about delivering on our commitments around that synergy capture.

Yes. That makes sense. And then second is on your approach to siding pricing here in what's still a weaker demand environment and one where affordability is still a big factor for the homebuilders. You guys clearly produce a value-add product, but I would think you still need to be aware of your pricing spread versus vinyl. So with that in mind, can you talk about your expectations for realization on your pricing put in place at the beginning of the year? And are there any concerns about some elasticity-driven volume headwinds as a result?

Yes. Trevor, good question. Look, we price strategically and we price for value. And look, our pricing is not necessarily -- as we look at homeowners and we understand their needs, it may be different. We think about repair and remodel. So we price accordingly. And we do not believe that we're losing any type of volume because of our pricing.

There are no further questions at this time. I'll now turn the call back to Aaron Erter, CEO, for closing remarks.

All right. Hey, thanks, everyone. Really appreciate it. I want to thank the James Hardie team. I want to thank our customers as well for their support. Look, I'd just end this by saying our integration is on schedule, and we're executing on plan. Our cost and our commercial synergies are on track.

As you heard here, and we'll talk more about it, we plan to get fiber cement back in growth mode in FY '27. AZEK, legacy AZEK business is on track. We see continued growth there. And look, we set the business up for FY '27 with some of the cost actions that we've taken. If you think about what we've done with the plants, the footprint optimization, SG&A, we continue to run the business with a focus on our Hardie operating system. We look forward to ending the year strong and we look forward to FY '27.

So with that, thank you all. I appreciate the time here this evening.

This concludes today's call. Thank you all for attending. You may now disconnect.

Thank you for standing by, and welcome to the James Hardie Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Joe Ahlersmeyer, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thank you to everyone for joining today's call. I am joined today by Aaron Erter, Chief Executive Officer of James Hardie; and Jon Skelly, President of AZEK Residential.

Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on Slide 2 for more information. Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars and any comparisons made are to the corresponding period in the prior fiscal year.

And with that, I'm pleased to hand the call over to Aaron.

Good morning, and thanks for joining us today. With me on today's call are Jon Skelly, President of our AZEK business; and Joe Ahlersmeyer, our Vice President of Investor Relations. Before we get into the second quarter results, I wanted to provide an update on some important developments for the company.

Today, we announced the appointment of Nigel Stein as Chair of the James Hardie Board of Directors. Nigel's extensive Board experience, understanding of James Hardie and his leadership come at a transformative time as we focus on execution and long-term value creation for our shareholders. Our Board also announced the creation of an Integration and Performance Committee to support the successful integration of AZEK and the performance of the combined businesses. The committee will be chaired by Jesse Singh and will include Board members, Howard Heckes, Persio Lisboa and myself.

I look forward to working with Nigel and the entire Board to advance our strategy and continue strengthening the company for the future. As you may have seen in our press release, Rachel Wilson will be leaving James Hardie to pursue other opportunities. Rachel has been a valued partner and an important part of our team during her tenure at James Hardie. I want to thank Rachel for her many contributions over the last 2 years.

Finally, I'm very pleased to announce that Ryan Lada will join us as our new Chief Financial Officer. Ryan comes to us from Watts Water, where he recently served as CFO. Many of you know him from his prior role as CFO at AZEK. Ryan is a proven leader who brings strong operational and financial experience and a deep knowledge of the building products industry. He's the right person to partner with me in leading James Hardie in this next phase of growth. We have every confidence in a smooth CFO transition.

We released our second quarter results yesterday, which were consistent with what we shared in our prerelease in early October. While we continue to navigate a dynamic market environment, we are actively focused on driving improved performance in our results. We have identified several opportunities to enhance how we operate today while positioning James Hardie to take full advantage of the favorable long-term fundamentals of the U.S. housing market.

Our strategy remains grounded in profitable growth, disciplined execution and ongoing material conversion across our businesses from wood and inferior materials to composite alternatives and fiber cement. Before getting into the details of these initiatives, I wanted to address the changes we made to our outlook since we lowered our full year guidance in August. At the time, what we were hearing from our customers and what was evident in their ordering rates was more cautious positioning and the possibility of additional inventory tightening in the channel.

The magnitude of the August guidance reduction was deliberate and based on the information we had at the time. Since then, we've seen conditions stabilize with recent customer conversations and data shared by customers showing a more stable market and normalized inventory levels. And based on that, we're modestly raising our full year guidance. We still expect the broader market to be challenging in the near term, and that view is embedded in our guidance range.

The variability in our guidance this year has highlighted the need for greater consistency and discipline in our financial forecasting process. We know we can do better, and we've taken decisive action to strengthen execution, improve predictability and drive consistency in our results. We have been working with our customers and are now receiving more frequent granular data from them, giving us a clear view of inventory and market demand.

These improvements, among others, will help us deliver more predictable results going forward. Our 2 largest segments: Siding & Trim and Deck, Rail & Accessories, position the company with 80% of our net sales from North America with a strong record of structural growth and substantial material conversion runway across both segments of the business. The balance of our net sales are generated in Australia and New Zealand, where we run a highly profitable fiber cement business and in Europe with an improving financial profile and an attractive fiber gypsum business.

In North America, our partnership with large one-step dealers and our success converting homebuilders from vinyl to fiber cement have driven new construction to approximately 40% of our North America revenue, inclusive of AZEK with repair and remodel at approximately 60% of sales. Over time, we expect repair and remodel to grow faster given favorable structural fundamentals and deliberate focus to accelerate fiber cement penetration in that end market.

In Siding & Trim, current conditions remain mixed, reflecting the category's higher exposure to new construction in the Southern states. From a channel inventory perspective, customers are appropriately positioned for this time of year relative to forward demand expectations. And while the new home market is still uncertain, demand trends have improved relative to our expectations in August. We now expect mid-single-digit organic net sales declines for the full year.

We are focused on returning our Siding & Trim segment to growth in the future. A few examples of our growth plan in the segment include on-the-wall cost reduction pilots in Detroit, Pittsburgh, Indianapolis and the Ohio area are delivering early wins. In some cases, we've cut the relative cost gap versus vinyl by about 50%, thanks to improved material availability and new installation methods.

Statement Essentials with Boise Cascade simplifies our ColorPlus lineup, about a 90% SKU reduction versus the full statement collection with products reliably stocked at dealers in pilot regions. This improves availability and reduces project delays, which directly helps contractors win more jobs. Intuitive Edge training and productivity programs are expanding. We're teaching contractors the Trim-Over method, which can improve productivity by about 35%. That means less time measuring, cutting and caulking.

These steps make it simpler and more affordable for contractors to install our products and help attract new users to fiber cement. We plan to scale these efforts across major Midwest, Northeast and Mid-Atlantic markets in early calendar year 2026 and close partnership with Boise Cascade. Based on the early results, we see meaningful expansion potential in those regions. Beyond installation, we believe ColorPlus is a differentiated product with large opportunities in repair and remodel, especially in the Northeast and Midwest, where aging housing stock supports conversion from vinyl.

We continue to invest in contractor conversion, and we're seeing strong performance in ColorPlus versus prime products with growing momentum among our sales team and dealer partners. Organic net sales in the legacy James Hardie North America fiber cement business declined 3% in the second quarter, driven mainly by lower volumes, partly offset by higher average sales price. Single-family exteriors volumes were down mid-single digits with interiors down low double digits and multifamily up mid-single digits.

On a pro forma organic basis, AZEK Exteriors grew revenue, up 5% in the quarter and up 7% in the first half. In Siding & Trim, which reflects both our core James Hardie fiber cement business and AZEK Exteriors, adjusted EBITDA was $224 million in the second quarter, with adjusted EBITDA margin of 29.2%, down year-over-year, primarily due to approximately 400 basis points of margin decline in our North American fiber cement business, largely reflecting underutilization in our plants.

We're not satisfied with our performance in the quarter, and we are taking action to improve future performance, including accelerating identified cost synergies from the AZEK combination, reducing variable costs in our plants and optimizing our manufacturing network to improve utilization. These steps are already underway and will drive meaningful margin improvement. Going forward, we expect utilization to improve and margin expansion as we move into fiscal 2027.

For the full year, we now expect total raw material inflation in the organic business to run mid-single digits, better than the high single digits we expected earlier. Pricing is expected to offset cost inflation, while HOS or the Hardie Operating System will help dampen the impacts of underutilization.

Now let's turn to Deck, Rail & Accessories. In Deck, Rail & Accessories, performance remains strong with mid-single-digit sell-through growth in a market that is down in the low single digits. TimberTech continues to outperform through our proven playbook focused on wood conversion, new product development, channel expansion and strong downstream execution. This business continues to demonstrate that we can deliver above-market growth and profitability through customer-focused execution.

Demand in this segment remains solid, supported by a higher mix of repair and remodel work and a large presence in the North and Midwest regions. We delivered mid-single-digit sell-through growth in the quarter, again, outperforming the broader market by several hundred basis points. TimberTech continues to drive conversion by doing what it's always done well, consistent downstream execution, focusing on material conversion, deeper engagement with TimberTech Pros, expanding our channel presence with dealers and distributors and new product development.

Over the last 12 months, TimberTech's brand awareness has increased by 7 points to its highest level since we began tracking this measure 5 years ago. New products are also adding momentum. The recently announced TimberTech Advantage Rail is a great example of how we continue to innovate and strengthen our position in outdoor living by launching products that provide the highest levels of quality, style and design while improving contractor productivity.

Our quarterly survey of TimberTech Pros shows a stable market. Our contractors continue to report approximately 7 weeks of project backlog, consistent with both prior quarters and the same period last year. They also expect future market conditions to remain relatively stable, in line with recent quarters and the prior year's outlook. Based on this and other data points, we expect both sell-through and net sales to grow low to mid-single digits on a full year basis in FY '26 for the post-close period, July 1 through March 31 compared to the same pre-acquisition period.

We expect sequential growth from the December to March quarter, boosted by new product launches and expanded distribution ahead of the spring season. And we are anticipating our partners to carry a seasonally normal level of inventory through the balance of our fiscal year. The integration with AZEK remains on track. We've already aligned key functions like marketing and operations under single leadership. Most recently, we appointed Sam Toole as Chief Marketing Officer of James Hardie. Sam has done an outstanding job leading AZEK's marketing organization for the past 4 years.

Under her leadership, we'll strengthen our marketing capabilities, deepen customer engagement and expand our reach across North America. On cost synergies, we've moved quickly on G&A opportunities while being deliberate in how we integrate manufacturing and commercial operations. With 6 months left in FY '26, we've already surpassed our first year cost synergy goal, and we're pushing hard toward our $125 million total cost synergy target. Dealer feedback has been very positive.

Several key partners have already chosen to make AZEK their exclusive PVC trim brand, drawn by the combination with James Hardie and the strong loyalty contractors have to our combined portfolio. Our sales teams are leaning in, turning these opportunities into revenue and setting us up for faster growth ahead. Distributor feedback has also been positive. Last month, we announced a multiyear expansion with Boise Cascade in select markets.

This agreement expands our strategic statement essentials offering and adds the TimberTech and AZEK exterior brands into our long-standing relationship with Boise. The strong feedback we are hearing across every level of the channel reinforces our confidence in delivering over $500 million of revenue synergies over the next 5 years from the AZEK combination. And it's important to note that this isn't coming from one group or one region. It's broad-based across our dealer network and the contractors and builders who use our leading brands every day.

Through countless meetings over the past few months, we are seeing firsthand how the combined portfolio is resonating, how our teams are executing together in the field and how we can bring to bear the relative strengths of the 2 companies. Those early signals give us conviction in the value creation opportunity ahead.

I will now turn it over to Joe to run through the financials. Joe?

Thanks, Aaron. Starting with consolidated results for the second quarter. Total net sales grew 34% to $1.3 billion, including $345 million of acquired AZEK sales. Organic sales declined 1%. Adjusted EBITDA was $330 million with a 25.5% adjusted EBITDA margin. Adjusted general corporate and unallocated R&D costs totaled $39 million in the quarter, benefiting from favorable stock-based compensation expense. During the second half, we anticipate around $50 million per quarter of general corporate and unallocated R&D costs.

Corporate expense is where the majority of our $24 million P&L benefit from cost synergies resides for FY '26. Adjusted effective tax rate was 16.9%, reflecting our updated expectation for FY '26 of approximately 20%. Adjusted net interest was $68 million and weighted average diluted share count used for adjusted diluted EPS was 582 million. We anticipate these items will remain consistent throughout the third and fourth quarter.

Adjusted net income was $154 million and adjusted diluted earnings per share was $0.26. Year-to-date free cash flow was $58 million, reflecting transaction and integration costs, partially offsetting strong cash generation and reduced capital spending.

Turning to our Siding & Trim segment, which combines our North America Fiber Cement business with AZEK Exteriors. Net sales were up 10%, including $89 million from a full quarter of AZEK. AZEK Exteriors grew net sales 5% for the quarter and 7% for the first half on a pro forma basis. Siding & Trim organic net sales declined 3% in the quarter as lower volumes were partially offset by a 2% rise in ASP with solid single-family realization.

Adjusted EBITDA was $224 million, with adjusted EBITDA margin of 29.2%, down 530 basis points year-over-year, including over 100 basis points of impact from $8 million of R&D costs previously expensed within corporate and now allocated to the segment. Excluding the impact of this allocation, adjusted EBITDA margin would have been approximately 30.2%, a decrease of around 430 basis points. The key drivers of the comparable change in margins were lower volumes, unfavorable absorption and raw material inflation.

In the quarter, we experienced a $25 million underutilization impact, partially offset by $10 million in efficiency gains from the Hardie Operating System. We're addressing the margin decline aggressively through network optimization, cost synergies and structural efficiency improvements. These actions will position the business for margin recovery and stronger performance going forward.

For Deck, Rail & Accessories, which includes AZEK's residential decking, railing and pergola lines led by TimberTech, net sales increased 6% on a pro forma basis and sell-through was up mid-single digits, consistent with performance in the first quarter. Adjusted EBITDA was $79 million, resulting in a 30.7% adjusted EBITDA margin.

The Deck, Rail & Accessories margin outlook remains strong with upside from recycling initiatives, improved absorption at our Boise manufacturing location and the application of the Hardie Operating System across the manufacturing base. Our fiscal third quarter has historically been the smallest seasonal period for our Deck, Rail & Accessories business, and we anticipate a sequential step down in margins consistent with these historical patterns.

Turning to Australia and New Zealand, formerly Asia Pacific Fiber Cement. Including the impact of winding down operations in the Philippines, net sales declined 10% or 8% in Australian dollars due to a 20% decline in volumes, partly offset by a 14% rise in ASP. Adjusted EBITDA was down 19% to $44 million, with adjusted EBITDA margin down 380 basis points to 32.7%. Excluding the impact of the Philippines, Australia and New Zealand net sales declined low single digits in Australian dollars with a low single-digit volume decline partially offset by modest ASP growth.

Lower margins reflect softer volumes, R&D allocations and higher SG&A expense, including lease exit costs and added growth investments. And in Europe, net sales were up 18% or 11% in euros, driven by strong fiber gypsum volume and average net sales price consistent with the prior year. Adjusted EBITDA margin was up 80 basis points to 15.3%, helped by volume leverage, lower freight and paper costs and solid manufacturing efficiency. We're continuing to invest in sales and marketing in Europe to support higher-value product growth and drive long-term margin expansion.

And with that, I'll turn it back to Aaron.

Thanks, Joe. Turning to our full year outlook. For Siding & Trim, we expect continued challenges in our end markets to result in mid-single-digit organic sales declines in the second half, with Q3 net sales dollars below Q4 due to normal seasonality and the timing of our annual price increase. Based on updated planning assumptions, we are raising our Siding & Trim net sales guidance to $2.925 to $2.995 billion. And today, we are issuing Siding & Trim adjusted EBITDA guidance of $920 million to $955 million.

At the midpoint, this implies a full year organic net sales decline of approximately 6% and an adjusted EBITDA margin of just over 31.5%. For Deck, Rail & Accessories, we are modestly increasing the low end of our net sales guidance to $780 million, with the high end remaining at $800 million for the post-close period of FY '26. This assumes sell-through up low to mid-single digits, consistent with recent quarters and above prior expectations, reflecting outdoor living tailwinds and continued material conversion.

Based on these demand expectations, we expect Deck, Rail & Accessories adjusted EBITDA of $215 million to $225 million. For the total company, we now expect FY '26 adjusted EBITDA of $1.20 billion to $1.25. We're confident in our long-term cash generation. We expect it to accelerate as integration costs wind down and interest expense declines with debt paydown. Our capital expenditures outlook remains unchanged at approximately $400 million for FY '26, including $75 million for AZEK investments.

Over the long term, we expect CapEx across our North American businesses to run around 6% to 7% of combined North America sales. We still expect to generate at least $200 million in free cash flow for the year. Net debt ended the quarter at $4.5 billion. Pro forma for the AZEK acquisition and the midpoint of our updated guidance, FY '26 net leverage stands at approximately 3.2x. We remain committed to getting our leverage under 2 turns within 2 years post close as we grow EBITDA, generate cash and pay down the debt.

So to wrap things up, looking ahead, our priorities are clear: continue driving material conversion from wood and inferior materials to composite alternatives and fiber cement, sharpening execution across the business and delivering on synergy and deleveraging commitments. Only 4.5 months post-closing, we are more optimistic than ever on the opportunity in front of us and remain confident that our strategy, our team and our leading brands put us in a strong position to deliver consistent long-term value for our shareholders.

With that, operator, please open the line for questions.

[Operator Instructions] The first question today comes from Trevor Allinson with Wolfe Research.

First question is on some of the trends you're seeing in Siding & Trim, particularly with your builder customers in the South. I think last quarter, you mentioned about 1/3 of your reduced guidance was due to slower market conditions. Now it seems like perhaps your expectation is for market conditions to not be quite as bad as you were previously anticipating despite the builders continuing to reduce starts here. So can you just talk about from an end market perspective, what's different than what you previously expected? Perhaps any differences by geography worth noting that is supporting your outlook?

Yes. Sure, Trevor. Thanks for the question. I think very simply, just to begin, the magnitude of that deterioration has been less severe than what we embedded in our guidance. I mean, for instance, the South, single-family new construction, for instance, the declines were less severe than the 20-plus percent declines that we previously embedded. But let me take this opportunity since you threw the question out there, just to give you a little bit of a lay of the landscape here as we think about new construction.

Look, starts activity really remains challenging for most of the country. We've cited this before, and it continues, particularly Texas and the Southeast are really having the greatest impact, particularly given their relative size and how indexed we are to new construction in these areas. So Texas, for instance, we see builders continue to manage their inventory levels. Builder activity continues to slow with builders starting homes at a slower pace than they are selling homes.

In the second quarter, we again saw double-digit volume declines in this market. The second quarter declines reflect an even softer market than 1Q, even as 1Q was more impacted by the channel inventory impacts. And we've seen continued weakness and deterioration in October with even stronger double-digit volume declines. If we shift over to Florida and Georgia, which is a big market for us as well, demand similarly remains challenging with the volumes down year-over-year in 2Q.

Housing inventory, we do see some mix there. Housing inventory across key markets like Orlando and Jacksonville remains elevated and builders continue to manage their inventories. And then in areas, housing inventories have begun to approach normal such as Southwest Florida, we've seen some relief. So we're continuing to see more stable activity in areas like the Carolinas, a market where we're outperforming as we convert builders from vinyl to color.

In the West, we expect starts to be down high single digits to low double digits for the year as builders across the Southwest and the Mountain States also slow their starts. And then if we look at areas like the Midwest, we continue to see more resilience in activity, particularly at what we would call the barbell ends of the market. So more affordably priced homes and then top of the market.

So look, just to sum it up, generally speaking, new construction has softened -- continued to soften across our key regions. But as I started out and begin with, not as significantly as we factored in our previous guidance. But look, even with that said, we continually strive to figure out ways to continually bring value to our builder customers, to our dealer partners and try to outperform the market.

That's super helpful. And then switching to decking and railing. A peer of yours recently talked about seeing a more competitive environment. They're talking about an expectation for SG&A spend to ramp meaningfully here versus where it's trended in recent years. Are you also seeing market conditions become more competitive? And are you expecting marketing spend or rebates to be materially higher moving forward versus what you would have expected 6 or 8 months ago? Any color on the competitive dynamics within decking and railing would be helpful.

Yes, Trevor. I think to start out, when we introduced this deal, one of the things that was interesting and similar with James Hardie and AZEK is how we went to market. And we focus on the entire customer value chain. We always say homeowner-focused, customer and contractor-driven. And I think you see that with what we've been doing with AZEK and we've been doing it for years. Look, our strategy with AZEK has been consistent and it's been working. And I don't see a need to change that. So as I said, we've been focused on downstream marketing. But look, I have Jon, who runs the business for us and has for years. He can give a little more color there.

Yes. So Trevor, again, I think it's just pretty consistent execution of the playbook. And we haven't seen any reason why we need to alter that, right? So we've consistently communicated externally that we believe we can beat the market by 500-plus basis points of growth. And that's been our experience, and the recent quarter is another example of that outperformance.

New product development, downstream sales and marketing, execution, channel expansion and just getting really sticky with our customer base. That's proven to be a successful formula for us. So we're just going to continue to execute that playbook, continue to take care of our customers and continue to take care of our people. If we keep doing that, we'll continue to outperform.

The next question comes from Keith Hughes with Truist.

Let me go back to the question. Building on the last question, you saw a couple of points of price, I believe, in the decking business. If you could talk more about price as we end the year and potentially to next year, as you said, the previous questioner said, the largest competitor has said a dynamic like there's going to be discounting in this market. What is your expectation for price for the next year or so?

Yes. Keith, are you talking specifically of DR&A or fiber cement?

Specifically decking.

Yes. Yes. Look, I'll take that. And Jon, chime in here if you feel the need. Look, we've taken price. We've seen other competitors take price as well. And we'll continually remain consistent in our actions and our approach to price. We don't see that changing at all.

Yes. I mean, Keith, nothing's changed versus what we've communicated to you over the last multiple years, right? I mean we believe we can continue to take inflationary pricing in the marketplace. That hasn't changed, and we continue to execute and realize the price.

Okay. And let me switch to railing. What are your plans in the future for Railing? Are we seeing any new launches of different substrate materials? The question is around new introductions.

Jon, do you want to talk to some of our new product introductions? We've had some exciting ones that just came out.

Yes. So the most recent one we just talked about in the prepared remarks is Advantage Rail. And what that is, Keith, is consistent with our decking portfolio where we have good, better, best, premium, consider this a better/best offer in the composite category. And one of the things we've been doing over the last multiple years with rail is filling out the portfolio.

So again, as we look for those continued shelf space gain opportunities, when we can walk into one of our dealer partners with a full portfolio, historically, our portfolio was much more driven around composite and aluminum. But now we have a complete portfolio. You've got entry-level, so your good category with a differentiated vinyl product. You've got a step up into the steel category, sort of that's better.

And then the best of the premium is rounded out with our aluminum offer and with a few different versions of composite and then our most premium and PVC. So that really provides us with a great opportunity to help our dealer partners consolidate the number of rail types they have on offer with the full portfolio. And then they get the strength of the TimberTech brand and all the demand generation -- downstream demand generation we provide them behind that brand. So we think that's a really powerful opportunity for our customers.

Keith, what's been interesting as we've learned -- as I've learned this business more and more and been out with our customers with Jon and the team. As Jon mentioned, it is a very fragmented category. You go into a dealer partner, you go to dealers and you see many different types of railing out there.

So to Jon's point, we're trying to be able to bring the complete offering and be able to make it simpler for our dealer partners, make it simpler for the customer as well. And look, just like we did in fiber cement, if you sell a fiber cement job, you're going to sell the trim with it. It's the same thing. We sell a TimberTech decking job, we're going to sell the rail with it as well. That's a focus of ours.

The next question comes from Lee Power with JPMorgan.

Aaron, the organic strategy piece that you've kind of outlined again, there's obviously a few moving pieces there just around ColorPlus. Some of it goes to productivity, some of it goes to the price gap versus vinyl, some of it goes to the dealer and the contractor network. What do you think is the core reason that you have struggled probably in the Northeast with ColorPlus in the past. Is it one of those more than the others?

Yes, Lee, good question. Look, I think if we look at our opportunity to grow the organic fiber cement business, it's a couple of things. If we look at the Northeast and we look at the Midwest, those are the areas from a repair and remodel standpoint that have the most opportunity because you have an aging housing stock out there. The big challenge for us or I should say, opportunity is how do we decrease the price differential versus inferior substrates.

So vinyl, for instance. What we know is if our contractors are sitting at a kitchen table and trying to sell a James Hardie job, if we can get that price differential versus, say, vinyl, for instance, about 50% to a premium, we're going to win the majority of those jobs. So as we walk through the presentation and we talked about reducing on-the-wall cost, we firmly believe and are confident we have an answer to that.

This has been one of the biggest combined R&D efforts, supply chain efforts and also working with our customer partners to bring this all together. And over the last year, we've had this pilot out there. And what we're seeing in this area where we're having the pilot, call it, the Central Northeast is we're seeing our ColorPlus volume up 17%. So that's giving us tremendous amount of confidence to wheel this out to more locations like the Midwest, to the Carolinas, to the Mid-Atlantic.

And what's been critical, you saw the announcement with Boise. A lot of that has been focused on TimberTech and AZEK in some regions. But what's critical in that announcement is Boise partnering with us to get this extended statement collection out there to more areas of the country. So that allows us to really be able to accelerate our repair and remodel conversion out there.

And look, we believe from a ColorPlus standpoint, the methods that we have, this Intuitive Edge program that we're going to be able to double our ColorPlus volume just with this program. So we're really excited about it. I know we've talked about it, but we're seeing it working, and we're going to have it be launched to a couple of different areas and continue to launch appropriate areas across the country as we get into the back half of our year.

And then just a follow-up. You talked to trim attachment rates before. Can you just tell us where you are tracking now trim attachment rates in new housing and R&R and maybe how AZEK has helped that?

Yes. Good question, Lee. Look, we continue to see progress in our trim attachment. And a lot of our agreements with our large homebuilders, which has been new over the last couple of years have included adding trim attachment as well. We see a tremendous amount of opportunity, just synergies in total, obviously, with AZEK, but areas of the country that are not utilizing fiber cement.

So take, for instance, the Northeast, that's where we think we have opportunity to be able to bring AZEK in and VERSATEX as well. And look, I think what's been really encouraging as well as we brought this complete proposition to some of our large one-step dealers out there, they're excited about it, and they're adopting it. So we're seeing progress.

The next question comes from Ryan Merkel with William Blair.

Nice job this quarter. My first question is on margins. It looks like guidance implies the second quarter EBITDA margins at the bottom for the year. Can you talk about what's driving the improvement in the second half and, particularly, because it looks like Siding volumes might be a little worse in the second half year-over-year?

Yes. Ryan, good question. Look, we're continue to -- we're going to have soft volumes, we think, in the back half. I mentioned that in the beginning when we think about fiber cement. Even still, our guidance shows more modest margin compression on a year-over-year basis. I think it's important to contextualize that our second half expected margin performance would be more consistent with what you would expect with our cost structure and decremental profile.

We've seen a lot of inflation headwinds continue from FY '25 that we flagged and have carried over. So there were impacts related to short-term under-absorption and variable costs that really weighed on the first half. But as we get into the second half, we expect to see more pronounced benefits from some of our cost initiatives, healthy price/mix benefits, some incremental benefits of cost synergies and really some potentially early improvements from the actions we're taking to really optimize our manufacturing network.

So as I think about margins moving forward, we're not giving guidance, but I would expect if we continue to see the same type of volumes that the second half is going to be more representative of what we would see, if not a little better.

Got it. All right. That's helpful. And then just stepping back, Aaron, if I go back to the guidance cut in August, there were a lot of fears that fiber cement was losing share. It now seems like your exposure in the South and a cautious guide were really the key issues. So my question is, can you comment on how fiber cement is performing versus other materials in a market where affordability is a big issue? Are you taking share? Are you holding share?

Yes. Good question. Look, as we look at share, I mean, certainly, we are not happy or satisfied with our performance. We need to be growing. Now with that said, and not using an excuse, but we do face some challenges with our exposure to new construction and certainly areas like the South. But I talked about some opportunities that we have moving forward. Lee had just asked me the question about the improvement on the wall cost. We think that's a game changer for us, and we expect to really accelerate that.

I think the other thing is the momentum behind resilient materials is structural. So if we think about risks such as wildfires, sustainability goals, insurance reform, fiber cement really aligns perfectly with the trend to meet evolving building codes. There's the curb appeal. And then look, lastly, I would say, builders remain focused on what helps them sell more houses quicker. And we're finding that James Hardie homes do that. So as we think about over the longer term, we think we're well positioned.

The next question comes from Tim Wojs with Baird.

I guess first, my question just on cost synergies. You raised kind of the exit rate on the run rate for fiscal '26. If you could just speak to kind of what you were able to attack on the cost synergy front earlier than you expected. And then as you think about kind of the $125 million cost synergy target, any kind of timing change there as you kind of attack the rest of the bucket?

Yes. Tim, good question. Look, I think the key here is, we focus on G&A right away. So really, I think 85% of the target that we had for G&A, we've achieved. So the natural question is, are you going to think -- are you going to get these done earlier? Or are you going to raise the cost synergy target? What I'd like to do first is let's see these show up in the P&L for us and then be able to look at potentially doing that.

But I'm very pleased with the focus and how the team is working on approaching these cost synergies. The other key is you don't want any disruption to your base business or disruption to your customers, and we have not seen that. So there's been a tremendous amount of focus from the team.

Okay. Okay. That's helpful. And then just kind of piggybacking on Ryan's question about margins, specifically in the Siding & Trim business. Is there anything internally that you're specifically doing to kind of limit some of the decrementals on volume? Because I mean it still is kind of a high single-digit volume decline, I think, implied in the back half of the year, but you're going to see much better incrementals. So is it the timing of raws? Is it some things you're doing on variable costs and things like that kind of manage it? Just some more color there, I think, would be a lot helpful.

Yes. Certainly, we've had our cost inflation. But look, we always say we focus on what we can control. So we are taking actions. If you look at some of the things that we're doing in our manufacturing plants, we're managing shifts. We're working as best as we can to manage our variable costs. Also, we're looking at our footprint as well. And what are the right type of capacity levels we need at this time, that speaks to us working through the right amount of shifts to have.

So there's a whole host of things. I still go back to areas like the Hardie operating system. That is key for us to manage our costs, whether that be from a procurement standpoint, whether that be from a formulation standpoint. So we're looking at that from a legacy Hardie standpoint, but also implementing that in the legacy AZEK business. So those are some of the things that we're doing, and we've already taken action on some of these already that we should see the benefits as we complete our Q3.

The next question comes from Peter Steyn with Macquarie.

Just you've mentioned one step, your one-step dealer network and relationships a number of times. Could you give us a little bit more of a sense of what you're experiencing in that space? Obviously, it's easy to see the Boise's and the like, but less so in the one step context, what reception you're getting, what impact it's having on the business and how you're thinking about the strategic positioning of your channel mix across the portfolio?

Yes. Peter, maybe to start out, Boise, we have not listed as a synergy, meaning a commercial synergy. Synergy happens downstream. And so if we think about our distribution partners, it's really important and our strategy has always been at James Hardie, and it's been the same at AZEK is to make sure that we're teamed up with the best distribution partners that are going to service our customers. If we go to our one-step dealers, certainly, we have tremendous relationships with them.

And call it day 2, we've talked to them and we spent a lot of time with them and bringing them what is the complete value proposition of the 2 companies combined. So again, I want to be able to demonstrate in the P&L and because of confidentiality reasons, we won't go into some of the early wins that we've had, but we have had early wins with some of our large one-step dealers, particularly in the areas of PVC trim. So they see the value in the complete offering.

I think any time you ask, okay, why would they want to change? Why would they want to bring in a complete offering of what is the new James Hardie. It goes back to that demand creation. And Jon talked a little bit about the downstream marketing, the downstream focus. That really is us focused on our contractors and our ability to drive them through our dealers' branches. And we do that because outstanding product.

We do that because of outstanding service, and we do that because of outstanding brands. The TimberTech brand is the #1 brand for the Pros and Decking. The James Hardie brand is the #1 brand in Siding. We have the #1 brand from a Trim standpoint. So that really is the value that we bring and why they would be interested in bringing in the complete offering.

Yes. As a quick follow-on and a direct one at that, you mentioned continued strong performance in premium decking. How much has a varied channel mix relative to some of your peers got to do with some of the experience you're having in your business relative to peer commentaries?

Yes. You know what, I'll let the expert here, Jon Skelly, take that one, Jon?

Yes. So again, I think if you look back at the strategy and the execution that we talked about, continuing to deliver against shelf space gains and that channel expansion has been critical to our success. And so we're just continuing to execute against that playbook. I think historically, as we've talked about, we tend to be a more Pro leading business. And so a lot of our channel expansion and shelf gains have been coming at the Pro level.

So the independent Pro channel is critical for us. And as Aaron articulated well, the one-step channel has also been good historically for TimberTech and AZEK, but obviously, roofing and siding focused one-step dealers. James Hardie has a stronger base of relationships there. And so we're able to have really powerful joint conversations with that channel. So that's been our strategy. We've been executing it. Again, our portfolio has been in decking experienced balanced growth. Again, our mix tends to lean more premium, but we are seeing growth across the portfolio, and we are seeing continued strength in the Pro channel.

The next question comes from Phil Ng with Jefferies.

Congrats on the strong quarter. I mean, pretty encouraging in terms of the quarter and the outlook. Jon, it's a treat that we have you on this call. So I guess a question for you. When we look at marrying Hardie and AZEK, these 2 companies and businesses, how is perhaps the go-to-market strategy similar and different from your previous life at AZEK and the opportunities that could be different?

I'm curious, what are some of the new levers in your toolkit now with a much larger entity, a larger portfolio? Are there things that you can offer that wasn't as obvious before, whether it's rebates, the ease of doing business, pricing? Just kind of help us think through some of those opportunities? And any noticeable shelf space wins you want to call out for '26, whether it's retail or the 2 steppers?

Sure. Great to talk to you again, Phil. So first and foremost, what I've been most encouraged about is the shared culture across both businesses. So when you look at whether you're a TimberTech or AZEK seller or a James Hardie seller, just the focus downstream on driving contractor conversions and pull-through of the channel, it's just been terrific. So our teams have been working incredibly well together, and they've been doing a terrific job of sharing opportunities and trying to generate some quick wins out of the gate.

So first and foremost, that's been really powerful. So on a combined basis, we believe we now have the largest sales team among any building products manufacturer, and that's critical to our growth and our synergy capture here in the future. If you think about what's the opportunity, the opportunity is we can completely service the entire exterior of the home now. So that is just a great strategic advantage, and we can go in and have conversations with customers about having leading brands in every exterior product category.

So that's great for us and great for our team is that we are -- now have the opportunity to be more important to more customers. So whether that's the independent channel, the one-step channel or distribution partners, we have the broadest portfolio of market-leading brands, and that allows you to have really great conversations with customers about how we grow our businesses together on a combined basis.

Okay. Super. That's great color. And Aaron, I thought the comments around how you're looking to reduce the on-the-wall cost with some of these pilot programs and training was pretty encouraging. How should we think about that opportunity as you scale that up? Is it going to be a meaningful needle mover in fiscal '27? Or it's going to take a multiyear process? Is there any aspirational goal like in 3 years, we want this half of the branches that we sell to being rolled out or whatnot? Just give us some color in terms of aspirational targets in the next few years as you roll this...

Yes. Phil, very simply, we are going to start scaling this up in the back half, which is now. So I mentioned the partnership that we have with Boise. So we believe the Mid-Atlantic, the Northeast, the Carolinas and the Midwest are all areas that are huge opportunities for us, particularly in repair and remodel. So we're going to be working with them to start reeling this out in this back half of the year. And look, I think as far as longer-term KPIs on this, the opportunity is tremendous. I'll save that for when we have Investor Day.

But as I mentioned before, we think our ColorPlus volume, which is roughly, call it, 25% of what our fiber cement exterior volume is now, we believe we can double that through this initiative. So we're very encouraged by this. Like I said, this has been something that has been an on-purpose plan, and we put a lot of resources behind this over the last 1.5 years. It is something that has had many different parts of the organization combine and work to for this common goal. So hats off for the team -- to the team. Now we got to go execute it and scale it up in a much bigger way.

The next question comes from Keith Chau with MST Marquee.

Aaron, I want to ask you a question, and I know it's been asked before, so this is a bit of a follow-up. But your quarterly assumptions for Siding & Trim from the third and the fourth quarter. So rather than looking at it versus last year, just looking at it sequentially. So I think the context you provided for the guidance is that end markets are soft, but more stable than expected. So against this backdrop, we would expect demand to improve on a seasonal basis in the fourth quarter, not only for the Hardie's legacy Siding business and AZEK Interiors -- sorry, Exteriors.

And you also mentioned the 1 January price increase as well. So in combination with that and also raw materials moving favorably sequentially, I'm surprised you've guided to margins being down in the fourth quarter. I would have thought naturally that they should be higher. So is there anything going on between those 2 quarters that we should be aware of because it helps us inform us of the FY '27 entry run rate for margins?

Yes. Keith, so here's what I'd say simply. We expect high single-digit declines in volume when we think of our Siding & Trim business as we get to the back half of the year. And then we expect roughly, call it, 3% price realization, so then you get to the mid-single digits. That's very simply the outlook. Joe, anything else you'd add?

Yes. And we know there's a lot of moving pieces between the acquisition and the allocation of the R&D. So just thinking about the organic NAFC business and stripping out the R&D impact, I think it's important to look at first half versus second half. The first half decrementals were over 80%. The second half decrementals in NAFC ex R&D are under 50%. So that's why when we think about the back half as a good baseline, we're really looking at the decrementals relative to the high single-digit decline in volume that Aaron mentioned.

And Keith, to your point about what is the right run rate going forward. So adding back in the R&D because that is now how we allocate to the segment, we're implying 32% to 33% adjusted EBITDA margins in the back half for NAFC, and that's relatively consistent with AZEK Exteriors. So that's the way you think about it.

Okay. And then a follow-up just on these trials in the pilot plants and reducing on the wall cost. I know I'm kind of mixing our work streams here. But can you help us understand, Aaron, what the current revenue generation is from those pilot programs?

Yes. So the way that we're looking at this right now is we have the Central Northeast. So we have a defined area, Keith. And we looked really over a 6-month period of time, what our increase from a ColorPlus volume standpoint. And we've seen that being close to 20% increase. So what we're really doing, a couple of things. We're shrinking the differential when we think about quoting versus, call it, a vinyl job.

But also because of the price that we're seeing in the on-the-wall cost reductions we're seeing is contractors are able to go after price points of homes that they usually haven't been able to do so with. So meaning our total addressable market increases quite a bit as well. So not only are we excited about the differential and being able to shrink that premium versus, call it, vinyl, but it opens up an addressable market that's much larger for us. So that's very exciting.

The last question today comes from Adam Baumgarten with Vertical Research.

I guess just I assume you guys are still in AZEK doing the quarterly surveys that the company has talked about in the past. I know you talked about backlogs around 7 weeks, but any additional color on how your customers are thinking about calendar '26 at this point?

Jon, go ahead.

Yes. So again, what we highlighted in the prepared remarks around the surveys and what we're hearing is that it's consistent, right? So backlogs are consistent. Outlook is consistent. And then obviously, we get other data points as well. And what we've seen is, by and large, while repair and remodel is down, outdoor living is one of the more positive categories within repair and remodel.

And then Temper-Tech has been performing the best within the category. Again, it's a really attractive market. It's driven by material conversion and it's driven by the consumers' desire to spend more time outdoors, right? So you have 2 kind of structural tailwinds here in terms of the desire for outdoor living. And then obviously, we continue to convert wood and other inferior materials into our products. And that is what's driving that stable outlook and that stable backlog for our contractors and our dealers.

Yes. One thing I would just add to that is we talk so much about the best of both with AZEK and James Hardie. And what we've adopted as a total company are these dealer and contractor surveys, and we have that on the fiber cement side as well. So it helps us to get closer to our customer partners and get a viewpoint of the future as well. So very helpful.

Okay. I think, we're -- sorry, Adam, you have a follow-up?

Nope. All set.

Okay. Very good. Hey, everyone. Thanks for the time. Look, I want to thank all the James Hardie team members for all their hard work and working to service our customers. Really, what I want to leave you with is, look, we have a handle on the business. And our fiber cement business, although we're not satisfied with our growth trajectory, we think we have a good plan and our business is healthy.

We have a handle on the fiber cement margins. The actions are underway and coming, and you'll see that as we look at our margin profile. And our decking business has continued to remain highly attractive, and our AZEK business is performing very well.

So with that, I'll leave you all. Thank you very much for the time.

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Good day, and welcome to the 2025 Annual General Meeting of James Hardie Industries plc. Please note that today's meeting is being recorded. [Operator Instructions]. To ensure the meeting proceeds in our respectful, orderly and efficient manner, all shareholders are required to adhere to the rules of conduct, which are available at the meeting venue and on the Investor Relations section of the James Hardie website.

Shareholder questions will be only at the designated time. Each shareholder may ask up to 2 questions on a single topic per question. And all questions must strictly relate to the items on the agenda. Duplicate or substantially similar questions will be grouped and addressed together. All questions must be respectful, relevant and concise. The chair reserves the right to decline any question that is inappropriate, disruptive or outside the scope of the meeting.

Media representatives are not permitted to ask questions during the meeting. Any media inquiries should be directed to [email protected] following the conclusion of this meeting. Thank you for your cooperation.

I will now hand the meeting over to Ms. Anne Lloyd.

Hello. My name is Anne Lloyd, Chairperson of the Board of James Hardie Industries plc. Welcome to the company's 2025 Annual General Meeting. As the appointed time has arrived and the necessary quorum is present, I declare the meeting open. This year's AGM is being held at our corporate headquarters in Dublin, where I am attending in person. Before we begin, I would like to refer shareholders to the rules of procedure for this AGM, which has set out how the meeting will run.

Copies of the rule procedures are available here in the room and on our website. I encourage all shareholders to review them carefully. Voting will be conducted by poll after each resolution is put to the meeting. Shareholders will have the opportunity to ask questions at the end of the meeting relating to the business of the company and the resolutions put to the meeting. Documents available for inspection include the minutes of the previous AGM, and statutory registers and materials referred to in the notice of meeting.

These are available here in the room. Before we move to the business of the AGM, I would like to acknowledge that based on votes received by proxy in advance of the AGM, it appears that Resolution 2 on the remuneration report, Resolutions 3D to 3F inclusive on the reappointment of Rada Rodriquez, PJ Davis and I as Directors.

Resolution 5 on the grant of return of capital employed restricted stock units to the CEO, and Resolution 8 on the increase to the maximum aggregate remuneration payable to nonexecutive directors will not receive sufficient support to be approved. However, we will confirm the final outcome following the conclusion of the meeting. While we are naturally disappointed by the anticipated outcome on certain resolutions, we remain confident that the board is acting in the best interest of shareholders and delivering strong strategic leadership.

We will continue to engage constructively with shareholders, reflect on the feedback received and remain focused on executing our strategic growth plans, realizing the tremendous potential of our combination with ASIC and taking the right steps to drive long-term outperformance and shareholder value in the dynamic building products industry.

Now to the business of the meeting. The agenda was included in the notice of meeting, and I will proceed on the basis that it is taken as read. There are 8 resolutions for consideration at this meeting with Resolution 3 comprised of Resolutions A to F, each of which will be considered separately. The Board believes they are all in the best interest of shareholders and has recommended voting in favor.

The full text of each resolution is set out in the notice of meeting. Preliminary results were announced in advance of the commencement of the AGM and the final results on each resolution will be announced following the final tabulation of the results.

Resolution 1 is to receive and consider the financial statements and reports for the year ended 31 March 2025 in accordance with the Irish Companies Act 2014. This resolution also involves a review by James Hardie shareholders of the affairs of the company. The full text of Resolution 1 is set out in the notice of meeting.

Based on the proxy votes received prior to AGM, it appears that this resolution will be approved by shareholders. However, we will confirm the final outcome following the conclusion of the meeting.

I now put Resolution 1 to the vote of the meeting as an ordinary resolution. We now move on to Resolution 2. This nonbuying resolution is to receive and consider the remuneration report for the year ended 31 March 2025. While not required under Irish U.S. or Australian law, we voluntarily produce a remuneration report to give greater transparency into our remuneration framework and outcomes.

The remuneration report contains details of the company's remuneration framework, performance measures and outcomes for the year, and I will proceed on the basis that report is taken as read. The full text of the resolution 2 is set out in the notice of meeting. Based on the proxy votes received prior to the AGM, it appears that this resolution will not receive sufficient support to be approved. However, we will confirm the final outcome following the conclusion of the meeting. The Board and the people and remuneration committee will engage with shareholders to understand the feedback received and where appropriate, we will consider next steps and provide updates in due course.

I now put Resolution 2 to a vote of the meeting as a nonbinding ordinary resolution. We will now move on to Resolutions 3A through 3F. These resolutions ask shareholders to consider the election or reelection of directors as applicable. Each will be put to a separate vote. The full text of Resolution 3A through F is set out in the notice of meeting. Gary Hendrickson, Jesse Singh and Howard Hecks were appointed by the Board following the merger with ASIC Company Inc. in July this year and are standing for election.

PJ Davis, Rada Rodriguez and I are retiring by rotation and offering ourselves for reelection. Based on proxy votes received prior to the meeting, it appears that Howard Hecks, Gary Hendrickson and Jesse Singh have received shareholder support and are expected to be elected by shareholders. Conversely, it appears that Rada Rodriguez, PJ Davis and I have not secured sufficient support to be reelected.

And if this position remains on final tabulation, we will each retire automatically at the conclusion of the AGM. We will confirm the final outcome following the conclusion of the meeting. The Board acknowledges the significance of these outcomes and will engage with shareholders to understand the feedback received. I now put each of Resolutions 3A through 3F to separate votes of the meeting as ordinary resolutions.

We now move on to Resolution 4. This resolution asks shareholders to authorize the Board to fix the remuneration of the company's external auditors, Ernst & Young LLP, for the financial year ended 31 March 2025. The full text of Resolution 4 is set out in the notice of meeting. Based on the proxy votes received prior to the AGM, it appears that this resolution will be approved by shareholders. However, we will confirm the final outcome following the conclusion of the meeting.

I now put Resolution 4 to a vote of the meeting as an ordinary resolution. We now move on to Resolution 5. This solution asks shareholders to prove the grant of return on capital employed restricted stock units to the CEO, Aaron Erter. The notice of meeting and remuneration report contains further detail on the structure and performance hurdles. The full text of Resolution 5 is set out in the notice of meeting. Based on the proxy votes received prior to the AGM, it appears that this resolution will not receive sufficient support to be approved.

However, we will confirm the final outcome following the conclusion of the meeting. The Board and the people and remuneration committee will engage with shareholders to understand feedback received and where appropriate, consider next steps and provide updates in due course. I now put Resolution 5 to a vote of the meeting as an ordinary resolution. We now move on to Resolution 6. This resolution asks shareholders to approve the grant of relative total share return RSUs to CEO, Aaron Erter.

The notice of meeting and our remuneration report contained a detailed explanation of relative TSR RSUs, their key terms and performance hurdles. The full text of Resolution 6 is set out in the notice of meeting. Based on the proxy votes received prior to the AGM, it appears that this resolution will be approved by shareholders. However, we will confirm the final outcome following the conclusion of the meeting.

I now put resolution 6 to a vote of the meeting as an ordinary resolution. We now move on to Resolution 7. This resolution asks shareholders to approve the issue of securities for cash under the James Hardie 2020 Nonexecutive Director to plan, the NED equity plan for the next 3 years in accordance with the terms of the plan. The full text of the resolution 7 is set out in the notice of meeting. A copy of the NED equity plan is available on our website and at the back of the room in Dublin.

Based on proxy votes received prior to the AGM, it appears that this resolution will be approved by shareholders. However, we will confirm the final outcome following the conclusion of the meeting. I now put Resolution 7 to a vote of the meeting as an ordinary resolution. We will now move on to Resolution 8. This resolution seeks shareholder approval to increase the maximum aggregate remuneration payable to nonexecutive directors by USD 1 million in aggregate per annum. The full text of Resolution 8 is set out in the notice of meeting. A copy of the NED equity plan is available on our website and at the back of the room in Dublin. Based on proxy votes received prior to the AGM, it appears that this resolution will not receive sufficient support to be approved However, we will confirm final outcome following the conclusion of the meeting.

The Board and the people and remuneration committee will engage with shareholders to understand the feedback and where appropriate, we will consider next steps and provide updates in due course. I now put Resolution 8 to a vote of the meeting as an ordinary resolution. Now that all resolutions have been put to the meeting, let's move to questions and other business. We ask that questions remain focused on the business of the meeting and respects the views of all participants. Are there any questions or comments in relation to any of the resolutions put to the meeting?

[Operator Instructions] We are showing no telephone questions.

Thank you, operator. Can the company and Secretary inform me if there are any other items of business or proposals that have been properly made by shareholders or proxy holders of the company?

No, there are not.

Thank you. I note that in accordance with Irish law, Ernst & Young LLP are deemed to be reappointed as the company's external auditors until the conclusion of next year's AGM. I now declare the polls open. The voting cards will now be collected in the room when ready. Once the polls have closed, the votes will be verified under the scrutiny of the company's registrar, Computershare. The registrar will report the total of the votes cast for and against each resolutions as well as any extensions.

The Board will take the outcome of each resolution seriously and will engage with shareholders to understand the feedback received. Where appropriate, we will consider next steps and provide updates in due course. Preliminary results were announced in advance of the commencement of the AGM and the final voting results will be announced to the Australian Securities Exchange and the U.S. Securities Exchange Commission once they are available.

In closing, James Hardie has reached an important period in its history as we execute on our strategic growth plans and realize the tremendous potential of our combination with ASIC. With our comprehensive portfolio of leading exterior brands and a powerful manufacturing and support network, we are poised to drive long-term growth and success in the dynamic building products industry. The preliminary second quarter results we announced in October reflect the strong performance of our Deck, Rail & Accessories segment and our continued progress towards realizing substantial cost and revenue synergies from the ASIC integration.

Looking ahead, we are focused on taking the right steps to drive shareholder value. At the same time, we recognize that we have more work to do to deliver on our promise to shareholders. Your duly elected Board is committed to holding both itself and the management team accountable as we execute our plans to drive outperformance over the long term. The Board thanks shareholders for their time during the extensive engagement that has taken place during the last several months.

As many of you have asked me personally, the Board has considered various vote outcomes in determining the next chair of person and the reconstitution of Board committees. The duly elected Board of Directors will continue efforts to date and provide an update to you in due course. I personally want to thank our James Hardie shareholders for supporting our nominees, Howard Heck, Gary Hendrickson and Jesse Singh. Your support ensures a solid foundation for continued accountability for both Board and the management team. PJ Davis, Rada Rodriguez and I are honored to have served on the James Hardie Board.

We have always acted in the long-term interest of all James Hardie stakeholders, shareholders, employees and customers alike. I particularly want to thank Rada and PJ for their insights and representations of our global markets in Europe and Australia. Their voices will be missed. That concludes our meeting for today. On behalf of the directors, I'd like to thank you for attending our Annual General Meeting and wish you -- those of you attending from the United States, Australia and the rest of the world, a good day or evening. Thank you, ladies and gentlemen. I declare the meeting closed.

We have the James Hardie team here. Representing the company, we got Aaron Erter, CEO of the company; and Rachel Wilson, CFO. Well, welcome, guys. Really appreciate you joining us.

Great. Thanks, Phil. Good morning, everyone. Thanks for taking the time to be with us.

I guess, first, to kick things off, Aaron, we're all very appreciative of the decking business. The fiber cement business is probably newer for many of us. Just kind of give us a little more color in terms of the industry structure? And then just what James Hardie's all about in terms of the growth algo and your go-to-market strategy?

Yes, sure. Look, and I'm appreciative that everyone is more familiar with the decking business and that's what we need to make sure we change is get you all familiar with James Hardie and the great story that we have. Just a little bit. James Hardie has been around for about 135 years and we started in Australia, came over to the U.S. a couple of decades ago and really have built our business on fiber cement siding, and if you think about fiber cement siding, it is really we would characterize it as being resilient and beautiful product. So it holds up to the elements, it holds up to pests. It's maintenance free, it's fire resistant. So a very premium product, and we built that up as the leader in premium siding over the last couple of decades here.

Our business consists of the North American business, which is the lion's share of our business, almost 80% of our business and the focus of our entire company. If we think about the other business segments, we have Europe, and we also have Australia and New Zealand. We really are on a new growth track as we think about the combination that we announced in July with AZEK. so our business now, you could say, is one of the leaders in outdoor exterior solutions and also outdoor living.

Our brands are very strong. We have the James Hardie brand, which is #1 in premium siding. We have the TimberTech decking brand, which we would say is #1 with the Pro and then also our exterior products and brands, whether that be James Hardie or AZEK or Versatex, you put those together, those are #1 as well. So significant brands. And as I said before, we are on a new growth trajectory with AZEK. So what is the opportunity as we think about with AZEK. It's roughly about $23 billion with James Hardie before was about $10 billion. So we essentially have more than doubled that opportunity.

How we go to market and what our focus is, it's pretty simple. And that's why bringing James Hardie and AZEK together with so natural, it's all about material conversion. And how do we convert contractors, how do we get homeowners to convert over to this resilient beautiful product. And our customer teams out there are able to sell that idea whether it be PVC decking that has a lot of the same characteristics if you think about James Hardie. It's resilient, it's beautiful, it's fire resistant. So that is not that much of a stretch for our sales team. The way we go-to-market is a little different from others out there is that we focus on the entire customer value chain.

We are focused number one on our contractor partners. We think that is essential. So we provide them service. We provide them training. We have our contractor Alliance program. AZEK has the Board contractor program. And what we're providing with our contractors is support throughout the whole process. Along with the contractor, we are focused on our dealer and distributor partners, and we bring them high levels of service. We bring them training. So that is a value that they like and in addition, we're driving contractors through their locations.

And then finally, we focus on the homeowner and that is through direct marketing to the homeowner. And that's why we've seen the equity and the strength in our respective brands out there. So if you -- Phil, you asked, what is our long-term growth algorithm? Just very simply, if you look at the legacy James Hardie, North America business, if you look at the legacy AZEK residential business, and you put those together, the CAGR would be essentially 11% over the last 5 years.

As we look forward and just to know what AZEK has always looked at as their algorithm is to really grow 7% above the market. We at James Hardie, we look moving forward with our legacy fiber cement business, we would say we would get 2 points or we would get low double-digits market growth. We would also get 4 points of outperformance of the market. And then the remainder of that growth, we would say is between price and mix, which would be mid-single digits. So that gets us to double-digit growth. As we move forward and inclusive of the revenue synergies that we've laid out there, we believe that we can increase that growth of the 2 companies by 250 basis points. So just a little bit about our company, our focus and then the growth algorithm as we move forward.

That's really great color. Any early read from the combination from AZEK with what your customers are telling you? Your opportunity to drive conversion. I mean, obviously, the big opportunities in the Midwest and Northeast where you're underpenetrated so what are some of the early wins you're hearing and how you're converting that?

Yes. Look, just in summary, I would say the integration is going extremely well. As we thought about this and we looked at this, we don't call it an acquisition, and we were very quick to make sure we're doing that. This is the merger of 2 companies. And I think it's really important that it always starts with people and making sure you have the right people that are on the boat, and you also appreciate the similarities but also the differences that you see in culture. So just very simply, what we've instilled in the new company is the idea that the best idea wins.

And I'll give you a little bit of an example there. As we started to recast as a leadership team, what our values are, one of the values that really rang true that we didn't necessarily have in our,s, it was just embedded in us, but AZEK has is it always starts and ends with the customer.

So we've adopted that as our first value, and that's an example of the best idea wins. But moving along to talk a little bit about synergies, look, early days, the cost synergy targets that we've put out there, we're seeing good progress. And I would even venture to say that we're tracking a little ahead when we think about our cost synergies.

From a revenue synergy standpoint, and Phil, your question was really how is this being received by our customers, I would say extremely well. Pretty much when we closed the deal, call it, a few days in as we hit the road. So I hit the road with Sean Gadd, who runs our legacy James Hardie business. I hit the road with Jon Skelly, who runs the legacy AZEK business and we went to see our largest customers. And as we went in, really, what we wanted to do is, first, understand their impressions and how they felt about this, which are general responses, excitement, but also okay. What's new. And what we wanted to make sure we're bringing to them is value. So we do anticipate some early wins with some of our large one-steppers out there. Things that we're working through the execution mode right now. I can't disclose those. It would be too early, but we feel very, very confident in some of those wins that we're going to see.

And then as we think about some of the opportunities that we're seeing with some of our legacy AZEK customers is what AZEK will do in the decking industry is instituted early or a winter buy which is really getting ready for the next decking season starting now towards the end of the year. And it's not a prebuy. It's more of, okay, this is what your shelf is going to look like. Here's what we're going to market, here's going to be the new products. What we've done with this winter buy is brought the two teams together and really looked at opportunities that we could have with customers, legacy AZEK customers to bring in James Hardie products. And we're seeing an enormous amount of optimism and potential for that winter buy with those customers.

Then the last piece, when we talk about synergies, and this is the one that we know will take more time. And I think we've appropriately laid that out as we looked at the phasing of the business is with our contractor partners. And so that's the idea of how do we get some of our legacy AZEK contractors. How do we get some of our legacy James Hardie contractors to adopt each other's products. So the way this is working right now because we still have 2 separate sales teams as we're handing off leads to our within AZEK and legacy James Hardie. And then we're working with the teams to execute upon those leads. And there's an incentive for our sales team to do this. So we're hearing story after story and execution after execution of a legacy James Hardie, Alliance member who does decking now deciding only to do TimberTech decking.

So those are some of the success that we're seeing out there. And look, through this whole integration, what we want to make sure we're doing is being as transparent as possible and sharing with you all the wins that we're having. And certainly, the wins are going to be most credible when you see them in the results. But to answer your question, we feel very optimistic in early days.

And then, Aaron, correct me if I'm wrong, your guidance doesn't assume any of these wins or potential pickup opportunity on the winter buy side, I think is correct for this year?

Yes. From a commercial synergy standpoint, we do not have that in our guidance as assumption.

Okay. Certainly, a very dynamic environment with spring selling season being a little more underwhelming some destocking. So you guys had to lower your full year guidance pretty materially. I guess, what were some of the big surprises? And then perhaps, Rachel, how did you approach forecasting your guidance? It feels reasonably conservative. Like did you take a view at some point in time and just kind of assume the rest of the year? Just kind of help us unpack how you approached it and how much line of sight you guys perhaps have with your customers and what they're signaling.

Yes. Maybe I'll start out. And I think the first thing is you mentioned dynamic, and it certainly is a dynamic time. And I think that's a little bit of a caveat as we talk about our guidance here. One of the things I want to make clear is if we look at our legacy AZEK business, that business is stronger than ever. We're projecting low to mid-single-digit sell-through. We're going to grow our revenue. We're going to expand our margins. That business is very, very healthy.

If we think about our legacy James Hardie business, which is our European business, that's going to perform as expected. As we think about our Australia and New Zealand business, we expect that to perform as expected. Really, what we're talking about is our North America legacy fiber cement business. And look, we talked about being dynamic as we did that guide in August. We saw some things as it relates to new construction, which we have a very generous exposure to and then also, we took the approach of as new construction worsens as large repair and remodel doesn't get better. We were going to take a prudent, I would say, process as a prudent look at our guide out there, Phil.

And with that said, things do change, right? It's a very dynamic market, and it's our job to make sure that we're seeing things synthesizing them and giving here's what our best approach is, and we thought our guide was really prudent.

With that said, also as you go out into the market, which not only when we finish our earnings calls, I've been out there in the market pounding the pavement and talking to our customers, a little bit of therapy after earnings call. But you hear pockets of optimism out there as well. So look, it's our job to make sure we give what we think that we can deliver on, and that's what we did. But Rachel, I interrupted you. Please go ahead.

No, it's good context because look, as we think about demand and forecasting demand, a key part of this is we have one of the largest sales forces in the country, right, and in this industry. And so as Aaron said, I think the right place to start is talking about going out to your customers and kind of what is that environment at the time. We do have a demand forecasting model that we use that's a key input to it. We also, of course, look at some of the macros, we look at some of the prognosticators out there, and we statistically regress and see how things are performing relative to the market.

And look, this is an industry that is quite, it's cyclical. And so while we do have fairly good visibility for a quarter, as Aaron was saying, our guide actually goes through March, right? So you really have to embrace a much longer period for us as we're thinking about our guide. And as you think about constructing that guide, you really are thinking about that early August time frame and looking at the data you have at that time. And as Aaron has mentioned, it's been quite dynamic out there, I think, for a lot of us over the weekend, sharing tariffs may now be illegal, right? I mean it's a lot of dynamics that are changing. But again, as we stand back and we think about forecasting that demand, we're embracing a long period, and we're embracing the data we have as we were looking at that time.

I guess the question we get asked, and I don't think it's fair because it's a dynamic environment, destock and whatnot. On fiber cement, have you guys reached a terminal value in terms of penetration, right? So just kind of give us some nuggets why or confidence where you are in that journey, where the big opportunities are and how you can unlock that?

Yes. So we talk about our focus being material conversion. I look at it from a high level of roughly 80% of the homes out there do not have fiber cement on them, right? Now you may say, okay, well, 80% of them couldn't afford it. It couldn't qualify for it. But look, we believe there's a high amount of material conversion left from a fiber cement standpoint. I would even venture to say we may be in our infancy, if you think about those numbers. Look, there's no doubt that we've had a tremendous amount of success over the last few years. If I think about our penetration of fiber cement over the last 10 years, it's increased almost a point every single year out there.

From a new construction standpoint, we would say about 24% -- 23%, 24% of the homes that are being built out there have fiber cement on them. But as I mentioned before, there's an enormous amount of homes that do not have fiber cement on them. And so our focus has been on repair and remodel in single-family new construction. And we've made significant progress when we think about single-family new construction standpoint, where I do believe, and we've talked about for years, and we've been putting resources behind it over the last couple of years, is a tremendous amount of opportunities in repair and remodel.

And so that is going in converting contractors one by one. You think about the hundreds of thousands of contractors out there and it doesn't happen overnight. But I believe that is where our most significant opportunities out there. If I think about our penetration just as a business, and these are high-level numbers, so Jo will have to get you the exact ones, but thinking off the top of my head. If you look at where most of the new or older homes are that need to be resided. And first of all, why do people reside homes. Well, they reside homes either because they have to or they have a desire for one reason or another, like our best ones that we can convert from a homeowner standpoint is they want better curb appeal, right? But people are residing homes for all different reasons and the majority of older homes out there, the majority of homes are in the Northeast. And then there's a high percentage in the Midwest as well.

Our business is roughly, it's under 10% in the Northeast. It's roughly about 10% in the Midwest. And that is where we believe from a repair and remodel standpoint, we still have significant runway ahead. So how do you do that? Of course, you have to have the right value proposition and you have to have the right product. And we certainly have that. We have products. People ask me a lot about affordability of fiber cement. And certainly, it is not for everyone. But we have a range of products that start with [ SimpleLine ], which is more introductory price point all the way up to ColorPlus and different versions of ColorPlus that give resilient, beautiful product out there. So the product is key, and that's one of the ways that we can -- we believe that we can help convert some of these homeowners and contractors.

But then how do we accelerate this? And a big part of the opportunity that we have from the AZEK acquisition is where AZEK has been strong or those areas that I talked about the Midwest and the Northeast, where I would say from a James Hardie standpoint, we're underpenetrated.

And I'll just give a little story. Last week, I said, "Hey, I want to be with some customers. And so I went with my 2 presidents and I had a regional manager, and we started out -- we flew out to Augusta, Maine. And then we went from Augusta, Maine down to Cape Cod and then we went to Long Island, then we went to the Coast of Connecticut and then we went to the Philadelphia area. And the interesting thing is I met with customers, is these were loyal independent AZEK customers that are market makers in those certain areas meaning they have the relationships with the smaller metro builders. They have the relationships with the contractors out there.

And I would just say this, the business that we do with AZEK with some of those customers was 10x what we did with James Hardie. And so the first question I asked our team is why haven't we gotten after these guys more, right? Because there's certainly an opportunity as and I sat with those customers. I said, would you be willing to talk about James Hardie, have a program? How can we be successful together? Absolutely, we would. And part of it really has been our focus, right? As far as being able to do everything at one time, and I've talked about some of the areas that have been our focus, new construction, and we have been in R&R, but really over the last couple of years. But we believe AZEK can help us accelerate this with the relationships, with the contractor, with some of these smaller or some of these independent lumber yards and dealers, and that's something that we can get after right away. And we already have started the process. Long answer, sorry Phil.

That's awesome color. I guess, Aaron, when we think about this current backdrop, housing affordability, and just affordability in general for a consumer that stretch has impacted demand, right? I mean that is the environment. I think you guys have never blame the market, you're looking at ways to grow, right? So how do you accelerate growth, right, whether it's in the retail channel, whether it's potentially reducing your cost to install to kind of improve that affordability? Just kind of give us a little perspective on your approach?

Yes. Look, Phil, you said we never blame the market. Look, I think in the past, we cite the market, and we don't want to use the market as a crutch because our job, my job is to make sure we figure out ways to grow no matter what. And that is what we are committed to as a team because there are certainly pockets, some of them that I just mentioned out there that we certainly have the right to win, and we certainly should be growing in. I think what you're getting at a little bit, Phil, is from an affordability standpoint, certainly, there is pressure out there, and that's what we hear all the time is housing affordability. We need to get it in line. Look, our builder partners are working to do that, certainly are.

James Hardie is not a product that is for everyone. It is a premium product, right? And people pay a premium for it, and we're proud of that. But is there opportunity for us to make it more accessible. Is there opportunity for us to widen our addressable market that we can get after. And certainly, we believe there is. Look, one of the things when you think about a job and this is roughly speaking, when you're doing a exciting job. The cost split out is the way to think of it is about 1/3 as it relates to materials cost, about 1/3 from a labor standpoint and then 1/3 roughly, when you think about profit to the contractor. So I get the question a lot of.

And look, we've looked at this, if you lower your price, can you sell more. That's not necessarily the case. The key when you talk about getting the differential down versus, call it, another substrate like vinyl is how do you reduce the entire cost of the job. And that's certainly something from an innovation standpoint, a product mix that we're laser-focused on. Too early to talk about specifics but we have tests that are going on in the Northeast and areas in the Mid-Atlantic, where what we're doing is basically having a simplified product lineup then making sure we're training the contractors in that area and then piloting innovative install techniques.

And what we're seeing is that differential that we have versus another substrates, say, like vinyl being cut down in half, all right? So that opens the addressable market that we potentially have out there quite a bit. So we're excited about that. We think that's a way that we can address and help some of our partners from an affordability standpoint. But also, Phil, I just mentioned is we have product lines that can fit into what our builder and repair and remodel customers need to be more affordable out there. So those are some of the ways that we're looking at it.

And in terms of penetrating the retail channel?

Look, I mean, certainly, it's a big channel, and we participate in the retail channel today as has legacy AZEK. I think as we look at early days, we got to scope out where we have the right to win, where we can bring value to those customers and then look at the opportunity. So I'd just say too early to talk to that, but we participate today.

Okay. And then certainly, from an industry standpoint, it's quickly evolving, whether it's the channel where you see the likes of Home Depot and Lowe's king of getting into that Pro Channel [indiscernible]. And we've seen manufacturers like yourself get bigger as well and providing a bigger offering. How do you kind of see that market evolving, the industry evolving? And how does James Hardie position itself on the next, call it, 3 to 5 years?

Yes, really good question. And look, we factored that in as we were thinking about the merger with AZEK. I think what you have to step back and look at is, is that going to continue? And I think all of us in this room would probably say, yes, we've seen evidence of that over the last 2 years. It's an attractive space. So yes, we believe that's going to continue. So who are the manufacturer partners and what do they look like their structure, how are they set up to win as that continues.

And I think there's a few things. Number one, I think you have to have leading hero brands. And certainly, as I started out, I talked about the James Hardie brand. It is number one with the Pro. It is the #1 premium siding brand with the consumers. We take a lot of pride in that, and we're going to continue down that path, and we'll continue to invest in the brand. So you have to have the brand. So we have that with James Hardie.

You think about TimberTech. TimberTech is the #1 brand from a deck composite and PVC decking standpoint with the Pro. If you look at what these big retailers or as the consolidation continues, a big part of the win is going to be ingrained with the Pro. And how do you get more of the Pro customer. We certainly have that with James Hardie. We certainly have that with TimberTech. And then from an exterior standpoint, we have leading brands in James Hardie, we have leading brands in AZEK and Versatex, so you have to have strong brands.

Then number two, the breadth of lineup that matters, again, to the contractor to the Pro is very important. I think as we went through the brands, we can check off all of those as well. We bring the entire pretty much an entire exterior solution absent the roof and windows with James Hardie and with TimberTech. Then you have to have the value proposition, which, in my mind, a big part of that is service. And our sales force now has a combined sales force is over 500 feet on the street, way bigger than anyone else. And as we think about moving forward, we want to make sure that we continue to be the largest sales force because we see the value that, that brings to our customer partners but also our contractors.

And then lastly, as consolidation happens more and more, and some of these customers get bigger, you have to have the scale. You have to be able to supply them no matter what. And you look at our manufacturing facilities around the country. We have localized supply and when we think about our customer partners, we're within a pretty close proximity to them. So I think all of those things add up and are going to matter. And I think we are really well set up to service whatever the industry looks like over the next 5, 10 years and beyond.

Super. I would love to get your philosophy on how you manage pricing, right? So a pretty soft demand environment, you're calling double-digit type declines for volume, but you got 3% of price mix. So how do you think about price? How do you price your product? And do you look at spreads versus, let's say, vinyl or other Hardie siding? Just want us -- if you give us a little perspective of your approach on price and the pricing power through the cycle?

Yes. Look, I would characterize our pricing approach as being disciplined but thoughtful when we think about our channels out there and we really price commensurate to value. I just talked about the value proposition that we offer out there along the value chain from a homeowner from a dealer partner and then to the contractor standpoint. So look, it just -- it really amounts to pricing for value. And our approach has been roughly mid-single digits out there. And I walked through our long-term growth algorithm, which consists of that. But Rachel, do you want to add anything else?

So as you think about our position in the category, we have pretty unique attributes with fiber cement relative to the other substrates. And then as Aaron talked about, we're embracing the entire value chain. So homeowner focused customer and contractor driven as part of our strategy. I think Aaron's outlined some of the value that we try to provide to each part of that value chain. And so as we think about price, it is reflective of what we can bring across the value of the service and frankly, also the fact that we have a manufacturing footprint that really spans the entire United States and really can provide those customers with very quick service. So they know they can rely on us. So it's an earned right in our value proposition.

That's great. Part of the surprise in terms of the full year guidance was an element of destocking, once again, a very dynamic environment. As you kind of exit the year based on your guidance, where do you think inventory levels kind of set off for you guys as well as the channel and going forward, how do you plan on managing inventory. We've seen different iterations of Trex and AZEK approaching that a little differently. You have capacity. So just kind of help us think through inventory more broadly.

Thanks, Phil. In Q1, we did see more of a traditional destock. As we look ahead, thought, and we think about Q2 and Q3, in particular, we're really trying to embrace looking at what is the macro and what's really going to be happening in terms of how our customers will position themselves. And will they position more defensively in inventory. And thus, as we think about the pace of sell-in versus sell-through how do we embrace that. So basically, if we are assuming that the market continues to decline and that our customers take a more conservative position, we've tried to, again, fully embrace that in the guidance. And again, this is something that as we look ahead and we're sitting there in early August, we want to make sure, thinking through March that we fully embrace that.

Any questions in the audience, actually? Back to...

Yes. The question is what's the biggest pushback customers have on adopting fiber cement.

I think the biggest pushback in is really our job working with our contractor partners is clearly outlining the total cost of ownership, right? The proposition there. So if you think about and again, fiber cement is not for everyone, but it's going to pretty much, we have a 30-year warranty on it. If it's ColorPlus, we have a 15-year paint warranty on it. It's engineered for climate. So whether you're in the upper Midwest or you're down south, it's engineered for that certain type of climate. It's pest-resistant. So the attributes of it go on and on, but even further to that, there's been some studies and Jo can get the actual ones where you look at realtors out there and you ask them, what's one of the #1 things that you can do to your home to improve the resale value. And there's all different types of things, whether it's you put these new appliances in or you do this or that.

And really listed, number one is reside your home with James Hardie, right? Because as you go to a James Hardie home, and I'm probably many in here who might have James Hardie homes or maybe some of your second homes or James Hardie Homes is -- it is a different look, right? It's a beautiful look, but also it lasts through time. But I think that is the biggest opportunity we have. And we've been so successful in areas of the country like the South because we've been there for years, and we've told the story over and over, and it certainly has helped with some of the partnerships we've had with large homebuilders to get that story out.

But we have a really unique opportunity for some of those underpenetrated areas to tell that story. And as we think about where we're going to put resources and how we can really accelerate this business moving forward, AZEK and the relationships are really going to help us to accelerate the story of fiber cement. So I think it is just an education piece very simply.

All right, guys, I think our time is up. Thank you, Aaron. Thank you, Rachel. Great job, guys.

All right. Thank you all. Appreciate it.