Hello, my name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cornerstone Building Brands Q4 2022 Lenders Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Thank you. Jason Uthe, SVP, Finance and Investor Relations. You may begin.

Thank you. Good morning, and thank you for investing in Cornerstone Building Brands. Our prepared remarks include comments from Rose Lee, President and Chief Executive Officer; and Jeffrey Lee, Executive Vice President and Chief Financial Officer. Please be reminded, that comments regarding the company's results and projections may include forward-looking statements that are subject to risks and uncertainties. Such forward-looking statements in this presentation include, but are not limited to, the impact of several projects and initiatives for synergies and expected cost savings. The risks are described in detail in the company's SEC filings. The company's actual results may differ materially from the anticipated performance or results expressed or implied by these forward-looking statements. Finally, management will refer to certain non-GAAP financial measures. Specifically, in this presentation, we refer to adjusted EBITDA, adjusted EBITDA margin, defined as adjusted EBITDA as a percentage of net sales and pro forma net debt leverage, which are non-GAAP financial measures. You will find a reconciliation of adjusted EBITDA and adjusted EBITDA margin, non-GAAP financial measures and other related information in the SEC filing. Our non-GAAP financial measures are not intended to replace the presentation of the comparable measures under U.S. GAAP. Please note, we will be referencing our investor presentation on the investor site throughout today's call. Today's call is copyrighted by Cornerstone Building Brands. We prohibit any use, recording or transmission of any portion of the call without our expressed advanced written consent. With that, I would like to turn the call over to, Rose.

Thank you, Jason. Good afternoon, and thank you for joining us. This is our second lenders call since the company merger, and we thank you for investing in Cornerstone Building Brands. Starting on slide four, 2022 was a strong year for the company, achieving its highest net sales and adjusted EBITDA. Net sales were $6.5 billion, a 16.1% increase versus prior year and adjusted EBITDA at $799 million, a 14.9% increase versus prior year. We delivered pricing gains more than offsetting inflation, reflecting our strong value proposition to our customers. Our supply chains have stabilized and our hourly workforce retention has improved. Turning to slide five. Our fourth quarter performance also yielded good results. We experienced market slowdown in inventory resets primarily in our residential businesses. However, we continue to be disciplined on pricing actions to offset inflation. For the fourth quarter, our net sales of $1.5 billion was approximately flat versus prior year. Adjusted EBITDA of $172 million was favorable versus prior year by $12.5 million, mainly from lower volume in the quarter. Jeff, will cover this segment with additional details, but overall EBITDA margin of 11.7% was 90 basis points lower than prior year. This decline is mainly from our Surface Solutions segment, where inflationary pressure was not offset by higher prices in the quarter. We do anticipate that the higher price inventory will work its way off the balance sheet in the first quarter of this year. Turning to slide six. We continue to manage through a complex and uncertain market conditions. Strong price actions in Aperture and Shelter segments have offset raw material costs and other inflationary factors. Overall, we have seen most of the labor and material challenges subside. However, we continue to have labor shortages in a few locations, which we are addressing with…

Thank you, Rose. Starting on slide seven. As Rose mentioned, we had a strong year as well as a good fourth quarter with net sales of $1.5 billion, which was flat versus previous year. This comprised of 9.1% price and a small impact from acquisitions and was offset by 9.8% lower organic volume. We have been able to effectively manage favorable price in response to rising commodity costs and other inflationary impacts. Our volume decline was from overall lower market conditions in the quarter, combined with inventory resets in our channel and overall price discipline. Adjusted EBITDA of a $172 million was unfavorable $12.5 million or 6.8% versus the prior year. Lower volumes of $44 million combined was unfavorable, but improving manufacturing inefficiencies were partially offset by net price over inflation. The unfavorable net manufacturing productivity of $11 million resulted from specific plant operations and higher freight costs, primarily in our Aperture Solutions segment. Turning to slide eight. The Shelter Solutions segment, fourth quarter net sales of $488 million was approximately 7% lower than the same period last year and comprised of unfavorable 7.9% organic volume, slightly lower pricing actions with lower steel costs that were partially offset by favorable 1.7% impact from the UCC acquisition. Adjusted EBITDA was a $107 million, lower than prior year by $6 million or 5.3%. The effective price management to offset a very dynamic volatile steel cost market resulted in a favorable $15 million impact and supported a 21.9% record EBITDA margin. This offset was -- this was offset by unfavorable organic volume of $17 million as well as $7 million impact of the UCC acquisition in the prior year quarter results. Favorable year-over-year net manufacturing productivity with efforts to automate and focus on continued improvement continued -- and contributed to a positive $7…

Thanks, Jeff. Turning to Slide 14. While these are dynamic times, we remain focused on executing our strategic priorities. We have firmly established leadership positions in our chosen segments, Shelter, Aperture and Surface Solutions, large operational scale, breadth and depth of channel partnerships and strong product and brand portfolio enables us to create superior and differentiated value with our customers in our chosen spaces. We are advancing our capabilities in Cornerstone Building Brands business system, CBS, which will enable us to serve our customers more cost effectively with strong service and quality levels while creating a safe and inclusive work environment for our employees. In addition, as we build out our expansive innovation engine, we're investing for our future with priority toward organic growth, while cultivating a strong pipeline of inorganic opportunities. For example, we continue to invest in manufacturing automation to make our plants more efficient and produce high quality products. We are investing in process digitization and customer facing digital platforms to enhance customer experience. We're equipping our sales teams with processes and tools to engage more deeply with our customers and capture market share. We are excited about our future as we continue to strengthen our cost position, grow our pipeline of business, demonstrate a track record as an efficient operator, become the partner of choice for our customers and remain a disciplined capital allocator for our shareholders. Operator, we would now like to open up the lines for questions.

Thank you. . The first question is from Andrew Casella with Deutsche Bank. Your line is open.

Hi, thanks for taking my question. So, kind of a two parter as far as demand is concerned. So can you help us understand by segment, what we would say is due to kind of just market unit volumes versus destocking at distributors? And then as you kind of, we're sitting here in the beginning of March, if you could kind of talk a little bit about, what you're seeing into January and February? I know some of the builders were saying January and February have been pretty strong. So certainly, given the appearance that December or at least fourth quarter trends marked, somewhat of kind of a local bottom, but curious what you're kind of seeing out there.

Yes. I think as we mentioned, our residential businesses, Aperture and Surfaces started seeing slowdown beginning of the year with Surfaces and second half with Aperture. As we look at the totality of the year, we approximate about half of the demand slowdown that we saw was due to end market and half has to do with the destocking in the channel as everyone has been adjusting to new demand levels. And as you've alluded to already, December certainly over the last quarter was the more slower, we are seeing -- it's lumpy, but we are seeing different dynamics, some areas it be more in demand and other areas continue to lower demand as we start out the year.

Yes. The only thing I'll add to that, Andrew, is the commercial business or our Shelters business. We did see some softening in particular in our bookings in the fourth quarter of 2022. But the first couple of months of 2023, in particular, in our long cycle business has actually been fairly good. So we've seen a little bit of rebound. We saw some softening in that longer cycle business, but it's rebounded in the first couple of months.

Okay. Got it. That's helpful. And then just focusing on margins, if you could kind of help us think through some of, I guess, the dynamics there. I guess specifically on the siding business. I know you had said that you're expecting the higher priced resins to kind of roll off into the first quarter of '23. But curious if there's going to be a ramp up to more historical levels? Or if you think coming first quarter of '23, we're going to see numbers kind of in the high teens level where you've been historically? And then I guess on the commercial business, I'm not sure if you disclosed like a $1 spread that you're at, if that margin was more a function of just the dynamics of maintaining a $1 spread and typically and in deflationary environments, there's a percentage increase. I think a lot of folks have kind of expected more of a normalization to kind of the low teens horizon and you guys have been outperforming that. So, just curious to kind of think about that cadence as we go into 2023. And any comments on the Windows business as well as far as any pricing dynamics with competition, potential price wars, et cetera, that would be helpful. Thank you.

Yes. As we've shared already, our more challenging margin profile for the fourth quarter has been our Siding or Surface business. And as we mentioned, just about all of it has to do with the mismatch between the higher priced inventory that is unfortunate that warehouses and the lower demand that we've been experiencing. As we work that through in the first quarter, certainly, first quarter will, in our view, we'll continue to see somewhat compressed margins. But we think through the first quarter, we will work all of that off. Now what will remain in the business is some of the permanent inflationary factors that now come into our business, including labor and other inflationary costs, but that's where we will continue to work with our factories for improved efficiencies and other improvements. We anticipate that we will be going back to more normal rates of high teens and low 20s in terms of margins, but it will work itself over throughout the year. As it pertains to Shelter business, as we've said, we had record margins in the last quarter. It's a combination of the raw materials and how -- what we're experiencing. But relative to history of low teens margins for this business, we believe we have installed some permanent improvements in how we actually manage that business. Our pricing processes, how we gather competitive data, how we make decisions, how we analyze what the different market sub-segments can bear and combination of our speed of reaction to the market dynamics and steel price and the decisions that we make, we believe we have now elevated the margins of this business from historical low teens to something in the mid-teens range. And that, I think under more normal circumstances, certainly, the 21% plus margins is not sustainable, but something that is several points higher than our history in mid-teens, is what we expect this business to be able to perform to 21:02. And then lastly, in our Windows business, certainly, we had some in-quarter challenges in the last year, with the lower margins that we experienced then. As we mentioned, our workforce, our operating cadence have returned to more normal times, and we've been able to recover just about most of those margins as we've shown in our last quarter's performance. We are able to hold our price in Windows, which we anticipated certainly, that doesn't exclude some of the pricing actions and the discussions that are taking place in the marketplace. But overall, given the mix of our remodel and new construction and different channel dynamics, we are currently able to hold our price that we've installed in the previous quarters and previous years.

Okay, very helpful. And then final question for me, Jeff, I know on the last call, I think there were two milestones that you guys were looking at in February and November on how to kind of deploy the coder’s sale proceeds. I'm just curious if you have an update for us. I know there were some bond repurchases done in the fourth quarter. Just curious if that's continued into the beginning of the year, or how you guys are kind of thinking about those levers as we look into the next 12 months?

Yes, Andrew, I appreciate the question on that. We're staying very disciplined on our capital allocation methodology and the discipline within the company. So, first of all and foremost, we're going to continue to invest in cost out CapEx initiatives. It's given us the ability like we saw within our different businesses as we automate, in particular, the labor component within Windows inside of Siding where a lot of those physicians aren't desirable even for the workforce that we have, automating those makes a lot of sense. And so we're going to continue down that path. We've also continued down the path in making sure we invest for growth inside of our different segments that are out there. Our Shelters business, we've put a lot of investment in place to make sure we can run the process a lot quicker and our Surfaces business, we've also put in some CapEx to make sure we get some of the higher growth as we see the products move forward inside of this year. The buyback of bonds was very intentional for us to strengthen our balance sheet a bit with the cash that we had and put the cash to use and make more effective use of that cash than just sitting on the balance sheet. We did continue that a little bit inside of the first couple of months. And we just look at it on a weekly, daily, monthly basis and determine if it makes sense for us or not. And it all really just depends on where it's trading and where we feel comfortable with our liquidity position and expected needs that we have. We will see to invest about a $160 million -- excuse me, $140 million of CapEx inside of 2023 is the expectation. And we've got some great projects that are identified to absorb that capital inside the year.

Okay. Great. Thanks so much. I'll get back in the queue.

The next question is from Chris Piccolella with Apollo. Your line is open.

Hello. Good afternoon, good quarter, as usual. And Rose, just congrats on being named to the NAM Board. It's pretty cool.

Thank you very much, Chris.

No problem. So, just wanted to ask on Siding, I mean if you think that margins begin to normalize a bit in, call it, 2Q '23 because it sounds like you're going to have some similar pressure in 1Q. Like, how should we be thinking about the back half of '23 if demand kind of hangs in just from a destocking perspective because the second half of the year, it looks like it's setting up for a pretty good year-over-year comp, even if margins go back to this, call it, even like mid-teens level, about 12%, 13%, 14%. Is that kind of the right way to think about it?

Yes. Certainly, at our planning also, we anticipate the most challenging quarter to be the first quarter for the reasons that we talked about of mismatch inventory, which we will work off. And certainly, the sooner the market can help us in terms of our demand profile, stronger will become at a faster rate. Once we have the mismatch managed, we will continue to progress towards more historical stabilized margins. But as I mentioned earlier, we had the -- some of the permanent inflationary factors will still be there, which we will work, try to mitigate with other additional efficiency actions. But by second half, assuming that the market strengthens to some degree in the second half, we should be able to deliver the more normalized margins for the business.

Yes.

And Chris, I'll add just a couple of comments on that as well. So, the Siding business was a little bit different in 2022 than Windows. We started to feel the decline in order rates really starting inside of the last couple of months of 2021…

Yes.

And then carry all the way through 2022. So you're absolutely right, the comparisons get easier for us as we kind of get further throughout the year. This business has historically run around those 19% to low 20% in margin, and we don't feel like there's anything that significantly changed the profile of that. It's just the volatility in that supply chain in that resin. In particular, that drove the timing differences that we're kind of experiencing right now, but we do expect it to get back to much more normal levels. And as we think about our lead times, we think about our backlogs a year ago as we kind of came into 2022, we had excessive and high backlogs that we had to work our way through…

Yes.

And, as we come out now in 2023, those backlogs are in a much more normalized pace. So things are running back to normal, and we expect those margins to get back to those high teens and low 20s again.

Okay. And then just looking -- I mean, we're about two-thirds of the way through 1Q. I mean, should we just across the board, do you think what we should be expecting a similar margin performance across the segments?

Yes. I mean, again, it's quite dynamic, and we're monitoring it on a daily basis, but as anticipated and as we've been sharing that we anticipate the first quarter to be the most challenging quarter of the year.

Okay. And then even at these depressed margin levels in Siding, that segment on it, obviously, on an unlevered basis would be cash flow positive, right? So there's very little CapEx associated with that?

Yes, it's a high fixed cost business compared to Windows, for example. The labor percentage is much smaller because it's running high speed extruders. So, you're absolutely right. The cash flows continue to move through there. We got a working capital benefit in the second half. You probably noticed that inside of our financials. We picked up a nice amount of working capital as we came into the third and fourth quarter of 2022. But we don't think that, that necessarily means there's not an opportunity for us in 2023 to improve on working capital. And like we have in previous years, we think there's probably a 1% reduction in overall primary working capital. So, inventory accounts payables and receivables having that come down as a percentage of revenue by about 1%.

Got it. Okay. And then that makes sense. And then my last question would just be, as you think about rising SOFR rates today and you're conducting the buybacks of your fixed rate debt in the open market, albeit below par. How do you think about reducing some of your now your highest cost of debt? Because even with the hedge, if you're roughly 50% hedged on your SOFR rates, with those loans having current yields of somewhat close to 10%, how do you think about reducing cash interest burden versus doing like EV accretive transactions when you're buying at a discount?

Yes. I think right now, we're happy with our capital structure that's in place. We've got long-term debt that's sitting out there for a number of years to come. And there's still a lot of uncertainty inside the marketplace. And so for us right now, I think it's stayed the course. Look at some very specific opportunities maybe for some small buybacks on bonds. But for the most part, it's -- let's just continue to maintain the debt structure that we have. We recognize that our interest expense, if you look at our kind of our cash, net interest expense, you can calculate this, but it's going to be roughly $300 million, $310 million as we go into 2023, but our ability to absorb that due to investments that we're looking at from a CapEx perspective and some of the other cash payouts. We feel good about our liquidity, and we feel good about the capital structure. So for now, it's kind of stay the course.

Got it, makes sense. All right. Good quarter and talk to you soon.

Thanks, Chris.

The next question is from Michael Clerico with Onex. Your line is open.

Yes. Hey, guys. Hey, thanks for continuing to provide a nice level of detail for lenders here and investors in the business. I guess, Andrew asked my first question on the Shelter Solutions segment, just the margins there and the sustainability at the 20% plus range. Do you see that continuing through any portion of '23 at all?

That's like asking us to have the crystal ball on steel prices. I think quality directionally, what I would say is certainly for us, when the steel prices are increasing, it gives us more means to maximize the value that we would realize. And when steel prices are decreasing, is when we have to manage the level of compression. I think what we've been able to demonstrate that in both directions, we've been able to realize a spread that is noticeably stable to how we have been demonstrated in the past. So, I think if the steel prices are more favorable for us and has an upward trend, which the latest indications are there is a little bit of an uptick by the steel producers. Then certainly, that will enable us to realize higher margins. If it goes the other direction, then we will have to adjust according to the steel market.

And Michael, the only thing I'll add to that is the interest rates right now being higher -- do have -- it could have an impact on long term projects that are out there. And in our buildings division itself, this is the pre-engineered metal buildings, we do have high engineered products that are out there. And so, as those projects continue to move forward as long as they can afford the capital because of the higher interest rates, we should continue to see the mix be favorable for us. So, it's something that we monitor and you're probably very aware of our long cycle versus our short cycle business within the pre-engineered metal building space, which is a long cycle components and residential metal roofing, which is much more short cycle. So, we monitor each one of those. The shorter cycle businesses have a tendency to react more like our residential markets. And as prices are going up, steel costs are going up, we have a little bit of margin compression on those. And then as it turns the other direction we get some expansion. So, we monitor and watch it. We do have a little bit of that diversification that has a tendency to offset as steel costs are going up or down. But as Rose said, we're very, very disciplined right now looking at the different price by geography, by mix, by customer to make sure that we're getting the value that our products really deserve.

Right. And is there any -- I could definitely appreciate the relationship with steel prices. I didn't realize it was so short though. I was wondering if you just had any backlog built up where there might have been some forward sales and have nice margin locked in. And I guess that relates to my second question, which is just on the overall demand you're seeing in that business, as we think about the relationship between the non-resi and the resi markets, obviously, there's a lag, but I was wondering just the outlook for '23 on the back of weaker but kind of some -- maybe somewhat stabilizing residential trends here?

Yes. Certainly, I think overall for all of our businesses, the backlog has kind of tempered to more pre-COVID historical levels in terms of units, certainly the case in Shelter as well. The -- for the -- because of the two distinct lead time or two buckets, two segments of lead time short cycle and long cycle, certainly, we do have orders in our books, which we capture at a more favorable price that we will be then be servicing as we move out during the year. But rounding, let's say, long get lead time items, but three month plus-ish. So, depending on what is happening in the marketplace, we may or may not get more of those as we move out in time. And so, it's very much a function of, I think, how the end demand in the market will that move forward. And you are correct, historically, in a more typical cycle, which we don't know whether we're in a typical cycle or not, there is about a 12 month to 18 month lag in the commercial side versus the residential side. So, we're also trying to monitor, is that really evolving that way? Or are there other dynamics that's creating a difference at profile.

Okay. Great. Thanks a lot guys.

The next question is from Anna Pack with Jefferies. Your line is open.

Good afternoon, and thanks for taking my question. I was wondering if you could talk more about the manufacturing challenges you've cited particularly in the Aperture Windows segment. Is this also machine downtime that you're seeing? And it sounded like things are improving. So, should we think about this as persisting through 1Q and then being better by 2Q?

Yes. Manufacturing improvement is really one of our highest priority initiatives that we've shared. It's really driven by the backed traditionally, historically, Windows manufacturing is a very labor intensive process. And so, the more we can find efficiencies and consistent quality and productivity, better we will be. And so, we have systematic approach, our Cornerstone Production System of how we organize our factory floors, how we train our operators, how we roll out our work instructions, how do we continue to improve. They're all part of our Production System. And so, that's what we've been investing in. And that's what the Windows business, which has the highest largest opportunity for improvement, but all of our factories have been experiencing. And so, that's what you will see have an impact on a go-forward basis of the continued margin expansion that we should be getting from particular Windows business, but overall for our company profile. As it pertains to the specific challenges that we had in the quarter, a combination of some of the equipment, unanticipated maintenance issues, some of it is driven by some of the power source and weather related things, and some of its related to some of the one-off supply chain issues, which have impacted our productivity in a particular quarter versus a little bit of what we're alluding to. But we anticipated we get increasingly systematic in how we operate our plants. We intend to introduce more increasing margin expansion due our factory improvement.

I'll just add a couple of comments on top of that as well. So labor, supply chain and freight are the biggest opportunities that are in front of us. The labor through the pandemic, as Rose mentioned, just became very disrupted with the turnover that existed across this industry and across the country, quite honestly, we weren't immune to that. And so, replacing that labor comes at a cost. We've got to replace it at a higher wage rate. We also have to train the employees and get them efficient on manufacturing Windows. And so, that becomes a real challenge to do across the multi-sites that we have. The turnover has come down significantly and specifically by many locations that's back to normal levels. It is persistent in a couple of different locations where we continue to address those with local analysis and local solutions. The supply chain got very disrupted as well through the pandemic and even coming out of the pandemic, there were just a lot of challenges on people keeping up with the level of production and just the inconsistency of supply which causes labor inefficiencies and causes freight inefficiencies. So, less than load shipments were very common for us as we try to service customers and meet their demands and chose that was the right path for us was to make sure we try to service our customers. And so, as now things are stabilizing again from the labor from the supply chain, we’d see there's a big opportunity for us to get back to more full loads instead of less than load shipments across the company. And so you're right, we have -- we anticipate that we're going to get those benefits back, the inefficiencies that we saw, we should regain those back as we continue to put discipline around those and the train – put the training in place and other things that are required for us to get back to a normal state.

Okay. Thank you. So it sounds like improving progressively through -- that was all for me. Thank you. Good luck in the quarter.

Thank you.

The next question is from Richard Stevens with Amundi USA.

Hello. Thank you. Most of my questions were answered, but I did have one follow-up. And just kind of looking at the housing space and seeing coming out of Q4, most of the order trends down, on average, call it, 35% to 40% with some of the build order guys much worse than that. But the one observation that comes through is that the backlogs seem to be reasonably stable and the people that are in backlog seem to be pretty well stuck in backlog. They've got pretty big deposits and houses on it. I think our view is that they probably don't back out. So with all of that in mind and with order trends down and a pretty solid backlog, I mean can you give some color around the general idea of how to think about that as we work through the year. I mean this should be a reasonably good year for Windows, I would think as that backlog gets built out, still reasonably solid. But then is there a lag effect similar to what you see in commercial that kind of impacts that as well as the Windows kind of go into the mid to sort of the end of the construction cycle.

Yes. We'll share a little bit how we're seeing the year as the current snapshot in time. Our overall business portfolio is about third, third, third, new construction -- residential new construction, about third residential (ph) and about third light commercial, the commercial spaces that we're in. I think all of these different analyses and forecast by different analysts are all out there, but I think for the year, a new construction, something in the 10-plus percent-ish type of decline is general consensus out there. (ph) probably something like high single digits in light commercial, maybe low single digits. And there's always a band around it depending on whose perspective. So given that kind of overall annual parameter, certainly what we are working towards is that as we've shared already that the first half in particularly first quarter, but the first half in the residential area will be the most challenging because of what we experienced in the last quarter, the slowdown in December and folks that are trying to get their head around what the interest rates and what all that means, right? So I think once people get more confidence and in the predictability of the interest rates and so forth, I think we will see improved level of activity. So that's kind of how we're seeing the evolution the residential side. So it's more challenging in the first half, hopefully a little bit better in the second half. And in the nonresidential side, which lags, as we said, we're seeing pretty good activity currently. And we will have to see, depending on what the underlying parameters are, whether there is a lag there that we've historically seen, which may or may not be there in this particular case.

Okay. That's helpful. And then your cycle times in the Window business at this point. I think they were elongated, and correct me if I'm wrong, but I thought in the last couple of quarters, they were potentially out to 20 weeks. So have they come back into that more normalized 10- to 12-week period?

Yes. All of our lead times have pretty much normalized, and we have different brands with different requirements and different applications, but our Windows lead times are on average about three to four weeks that we're able to service some a little bit longer depending on the brand. So it has normalized.

Okay. And the last question for me, just on a leverage standpoint, and I know obviously, you've been buying the bonds back. But have you guys made a stated target for leverage? Or is that not something you've thought about at this point?

Historically, we’ve always talked about a reduction of three quarters to one turn reduction in every year. And as you go from 2019 through 2022, we're very good at making sure that we hit our leverage reduction target of that 0.75% to 1% for one times. In 2023, it will just depend on the market, right? So we haven't signed up for a leverage reduction in 2023. It's more around where do we think EBITDA is going to come in. We do, as I mentioned, I think we have a working capital opportunity for us in 2023. So at this point, we haven't given specific guidance, but we do feel like we don't believe that our leverage ratio is going to go up even with the projections that we have in place.

Okay. Great. That's helpful. And then I guess final -- maybe while I'm thinking of it, one more final one. I know in the past, when your public companies used to give guidance. Is there hope that sometime in the next couple of quarters when some of these things clear out, you get a little bit more visibility that you will make formal guidance, provide formal guidance.

So, we don't anticipate right now that there's advantage for us to provide a lot of forward guidance and especially in the uncertain markets that are out there. One thing that's important, we also used to provide pro forma data for the financials. You'll notice that we tied back to our 10-K. So if you look at the adjusted EBITDA that we provide inside the management discussion and analysis, that reconcile down to the $799 million. On a pro forma basis, that was $775 million. So that will continue to bleed off as those acquisitions are coming at that one year point. But I just want to point that out that on a pro forma basis, our EBITDA was $775 million, now to $799 million.

Got it. Okay, that’s helpful. Thank you so much.

The next question is from Thomas Shapiro with Credit Suisse Asset Management. Your line is open.

Great. Good afternoon. First, in terms of the synergies and cost savings, it looks like you realized about $22 million between July and year-end. Is it right to think that in theory, if you didn't realize those cost savings and synergies, your adjusted EBITDA that would have been $22 million in the second half? Is that sort of the right way to think about that? Could you realize that now hitting the P&L?

Yes. I think that's a fair way to look at it. We certainly did pick up the synergy benefits from the acquisitions. Our pipeline goes up and down. When you think about our pipeline of cost savings initiatives that are out there, we went from in July of 2022 from $84 million to $74 million. As projects get identified, that could jump back up into $80 million, $90 million, even $110 million. We've seen roughly over multiple years that we have about $100 million worth of cost out initiatives that are identified. What's offsetting it is some of the inefficiencies that we talked about, right? So we did pick up the benefits on the cost savings and the synergy benefits, but we lost some of the inefficiencies in our manufacturing operations just because of some of the things that Rose mentioned and I did around the supply chain, labor and the freight challenges that are in place. But as we kind of look forward, you go back to some of the earlier years before the pandemic, our manufacturing efficiencies were on a positive note. They want actually on the negative side. So we do anticipate that we'll get back to that type of scenario.

Got it. That makes sense. And then on the Aperture Windows side, I believe you mentioned pricing was about an 18% benefit in Q4. So as we think about sort of just heading into this year, is that mostly at this point just wrap around pricing that we should expect? Or is there actual additional pricing increases that are heading into this year? And maybe just broadly, if that's going to be more first half weighted versus second you probably don't want to get too specific, but maybe just at a high level when we could expect some of those higher pricing with at the higher pricing periods?

Yes. Our view is that given the down markets and the softer demand profile, additional pricing actions on a go-forward basis is very limited and unlikely. What we want to do is continue our service and quality capability focused so that we're able to hold on to the price with our customers while we work on gaining a deeper penetration and share with our customers. So, I think the year-on-year comparison that you will see is really the best around.

Okay. And then on the cost side, are you seeing any declines in glass prices? Or is that within pretty steady. I think there were some glass prices later in the year last year. But I guess, on a sequential basis, is that for a flattish or going up or down at all?

Yes. Our major suppliers are on either an annual or a multiyear contract. And so our glass contract negotiations have been completed. And so the prices that we -- purchase prices that we realized have been set as a function of that contract price. So although right now, because of the local market conditions and lower demand, I think there are some downward pressures on glass prices as well. But our pricing structure has been already built upon.

Okay. That makes sense. And then last question for me was in terms of sort of the destocking that you've seen or may continue to see somewhat, is that -- that's less focused on the Window, so I get correct. I think my understanding is that the Windows is a little bit more made to order. So is it right to think that, that might be -- or might have been impacting the other two segments more? Or is that pretty consistent across the business? And that's all for me. Thank you.

I think the destocking has been certainly most in the residential value chain because of the configuration of the value chain itself. From our experience, there has been a little bit in the Windows segment, but a greater amount of it in the Siding segment is where we have seen the destocking by the channel.

The next question is from James Kayler with Bank of America. Your line is open.

Hi. Good afternoon.

Good afternoon, James.

Just two quick ones. One, the discussion around the sort of business mix by end market and the sort of consensus outlook was super helpful. Within that context, I know there's a lot of moving pieces, but can you give us some sense for how you think about decrementals? Maybe I think probably is going to differ throughout the year, just given the color you've given on the first half versus second half, but if we think through the whole year, how to think about the decremental margin for the business?

Yes. James, over the last couple of years, we've given a little bit of guidance around decremental margins. The best indicator is probably to look at our gross profit. And think about our gross profit is a good indicator and then kind of add a 10% type margin on top for fixed expenses. And that's kind of how we think about it. It really does vary by business. And you can kind of look at some of the seasonality, which also gives you an indicator on to some of the incremental decrementals that are out there. Certainly, our second and third quarters are our strongest quarters, just with the construction cycle that we have in our first and second quarters are lighter because of the seasonality that exists. But as an overall company, we've had a tendency to kind of think about our decremental incremental margins overall, it's about 25%.

Very good. That's helpful. And then just the last one I had was on the -- I think you said $90 million of remaining synergies and cost opportunities. How should we think about timing? Like how many of those things are stuff that sort of already been executed and is just rolling through the numbers or stuff that's sort of being executed now or coming in the future?

Yes. So the way that we think about our cost takeout policy when we report the pipeline or projects that have already existed. So these are the things that have already begun, and we expect them to finish within an 18-month window.

Very good. Thank you.

. The next question is from Brian DiRubbio with Baird. Your line is open.

Good afternoon. A couple of questions for you. Jeff, you mentioned a couple of times just about primary working capital levels. You want to get that down. How should we think about that as a percentage of sales, what your goal ultimately is?

Yes. So just rough math, right, but we think about a 1% opportunity inside of 2023, we talked about that in the years past as well, reducing our working capital after you take into consideration the commodity normal movements up and down, performance, we think that there's about a 1% benefit that should come from working capital. So as our revenues at that $5.5 billion or $6 billion level, that would indicate there is a $55 million, $60 million worth of working capital benefit from performance. So that's taking our days down. If you think about the day's perspective on inventory or receivables or payables up, we'd expect on the performance that we'd be able to get a 1% reduction or $55 million to $60 million. Now I think what's important as you think about our balance sheet, in particular, the steel costs have driven a lot of volatility in our balance sheet as steel costs have gone up significantly. We've seen our balance sheet go up with that as well. Now our revenue also increases with the inventory that comes out there, but there's a lot of movement on our balance sheet just because of the commodity costs and the movement up and down. But performance-wise, think about kind of a $50 million to $60 million opportunity for us to take working capital out.

Fair enough. That's helpful. Switching gears, Rose, question earlier just about ability to hold price or get price. Just want to touch on that for a second. Some of the large home builders have talked about (ph) and looking for actually price cuts. Are you seeing any pressure to cut price in the face of some full raw material prices?

Yes. Certainly, I mean, the price balance in the soft market is expected. As we've alluded to already, in a deflationary environment for our Siding our Surfaces business, we make sure that we kind of parachute down as the raw material prices are decreasing. And so we're looking for the appropriate areas in which we need to adjust price as the resin prices have been decreasing in the last number of months. Although right now, it's kind of stabilized, and we'll see how the month unfold here. On the Windows side, where we're experiencing the most pricing pressure is actually in new construction and the builders that are looking for ways to relieve their margin compression. But again, because these are products that are important and supply is also important and the partnership, we have been able to hold our price in our work with our builders. If we were to contemplate sort of pricing adjustment, it would be very project-specific and for a particular share gain that we would be looking for. But I think we've demonstrated pretty clearly our price leadership. And as a leader and a share leader in the industry, making sure that we are very disciplined and diligent in our pricing actions, I think, is very important to us. And so we will continue to act with that discipline in mind.

And the only thing I'll add to that, Brian, is our Shelters business, which we price on a very frequent basis, right? So daily, basically, we're out pricing different projects. And so when steel costs move up and down, we have the ability to move those prices in conjunction with those to make sure that we maintain the value that we expect for our products. So that's a very dynamic market that we deal with in our Shelters organization.

Great. That distinction helps. Thank you. I don't think you've ever disclosed this, but if you -- can you help us give us any sense on where plant utilization rates are? Are you guys still operating at a healthy 80% plus. Do you feel that could go below 80%? Just love to get a sense of your operations on that front?

I would say generally, it tends to vary because of the regional demand varies by our different businesses. And so as we mentioned in our front comments, we have certain factories where we're operating more historical levels and fighting for talent is an important part. We do have factories that are now underutilized, and we have been making adjustments in our labor and indirect wafer as well as a function of that demand profile.

Okay. Got it there. And then just two final ones, both balance sheet related. So Jeff, just how should we think of minimum liquidity? You guys obviously have a ton of liquidity, a ton of cash on the balance sheet. And I'm not sure if you said this earlier, but did you repurchase any bonds post quarter end?

So let's talk about liquidity. We do have a lot of liquidity right now, and we have a lot of cash on the balance sheet. And as we mentioned, we're going to be very disciplined and patient as we kind of understand the markets that are out there. For us, having at least $100 million worth of cash is important for us to be able to just maintain a working capital environment. Now we don't necessarily have to have all that as cash on the balance sheet. We could also go into the ABL and other things fluctuate appropriately for us to manage the business. But we're comfortable if we have about $100 million worth of cash, just to make sure that we've got the ins and outs for CapEx and working capital and the things that are there. We have purchased a few bonds post the year-end on a 10b5-1 plan. And like I said, we'll continue to look at those opportunistically on occasion if the price is right, and we feel comfortable with our position.

Great. That's all for me. Appreciate all the responses. Thank you.

The next question is from Chris Piccolella with Apollo.

Jeff, I just had one quick follow-up. You said decremental is around 25%. A few years ago during COVID, they were 30%. Is that just because of the cost takeout you guys have done since then? So basically, the business models become more flexible?

Yes, Chris, I think it all depends on the mix that's happening within the businesses, right? So depending on if Shelters is up, down, or Siding, they all have different profiles out there. I would say during the pandemic, though, it could have been much more around the inefficiencies in particular. There was a lot of inefficiencies with labor and supply chain challenges that drove those costs out.

Got it. And then the 25% would be pre-synergies, right? So when you take into account the initiatives you're working on today in a downside scenario, there will obviously be opportunities to take out additional costs. The 25% is pre all those actions.

That's correct. I mean, we think about it as, hopefully, we can get price over inflation and that the inefficiencies we can solve those problems, which allows the cost takeout to fall to the bottom line. Obviously, if any of those things go the other direction that it does affect those margin rates as well.

Okay. Great. Thank you. Just wanted to make sure that everyone is clear that it's pre. Thank you.

There are no further questions at this time. I'll turn it over to Jason Uthe for any closing comments.

Thank you, everyone, for attending our fourth quarter call. As we indicated, it was a good quarter. Thank you for your continued interest, and have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.