Thank you for standing by, and welcome to the James Hardie First Quarter Fiscal Year '26 Results. [Operator Instructions] I would now like to hand the conference 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. Please note that during the course of prepared remarks and Q&A, management 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 presentation 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. I'm now pleased to hand the call over to our Chief Executive Officer, Mr. Aaron Erter.

Hello, everyone. In a moment, I'll discuss our most recent results and how we are thinking about the quarters ahead. But it is only fitting to open my comments with some perspective on our future now that James Hardie and AZEK are one company. The combination of these 2 businesses now completed, has created a leading provider of exterior home and outdoor living solutions. We have significantly expanded our offering and in doing so, have strengthened our customer value proposition and positioned James Hardie to capture multiple opportunities for material conversion with a total addressable market more than twice the size of legacy James Hardie. Our team is stronger as one, and we are better equipped than ever to serve our customers and create value for all our stakeholders. I am pleased with the focus shown by everyone through pre-integration planning and now into integration execution and, in particular, with an unwavering dedication to working safely each day and serving our customer partners. The integration is off to a very positive start, and I look forward to sharing more details on our actions and progress towards our synergy targets in just a few moments. The material conversion opportunity that lies ahead is substantial, and we will strategically invest where we see long-term returns to support our future growth. Please turn to Slide 5. Presently, demand in both repair and remodel and new construction in North America are challenging. Uncertainty is a common threat throughout conversations with customer and contractor partners. Homeowners are deferring large ticket remodeling projects like residing and affordability remains the key impediment to improvement in single-family new construction, where more recently, homebuilders are moderating their demand expectations and slowing starts to align their home inventory with a decelerating pace of traffic and sales. For legacy James Hardie,…

Thank you, Aaron. Please turn to Slide 9. We delivered Q1 results largely consistent with our internal plan, navigating a dynamic near-term environment, while also remaining focused on scaling the organization and investing in our business to drive long- term profitable growth. We will stay focused on the key strategies that have underpinned the strength of our long-term financial performance, including aligning our spend into the market environment, investing ahead of recovery and evolving our plans to drive outperformance. Lastly, as Aaron mentioned, our integration synergy capture efforts are well underway. In a moment, I will introduce our guidance for FY '26 inclusive of AZEK as well as provide for some modeling considerations for the combined company. But first, please turn to Slide 10 for the financial highlights of our fiscal first quarter. Total net sales were 9% below last year's strong first quarter results, mostly consistent with our internal expectations at $900 million globally. We delivered $226 million of adjusted EBITDA in the quarter with an adjusted EBITDA margin of 25.1%. Total adjusted EBITDA declined 21% against last year's record 1Q and margins decreased by 370 basis points. Adjusted net income in the quarter was $127 million, and adjusted diluted EPS was $0.29 per share. Lastly, free cash flow was $104 million up 88%, driven by continued strength in the cash generation profile of our business and moderating capital spending requirements. Turning to our North American results on Slide 11. North America net sales declined 12% in the quarter driven by lower volumes, partially offset by an increase in average net sales price, or ASP. As we anticipated, price realization improved sequentially. As ASP rose plus 3% year-over-year, ahead of the 1% increase in the fourth quarter of FY '25. Volumes declined double digits in exteriors, consistent with planning…

Thanks, Rachel. With the closing of the AZEK acquisition now behind us, we are working diligently to integrate and deliver on cost and commercial synergies on an accelerated time line positioning ourselves to capture the expansive material conversion opportunity ahead to deliver on our long-term value creation commitments to shareholders. I am so proud of the focus and dedication shown by our One Hardie team over the last 50 days. And I am confident that together, we are elevating James Hardie to be a clear leader in the building products industry. With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from Phil Ng with Jefferies.

When I look at your legacy North American fiber cement in the quarter, volumes were down about 15%. Kind of to get to your 2Q and full year guide, appreciating you're guiding the segments a little differently. It implies like 20% declines in 2Q, probably a mid- teen decline. So appreciating a lot going on here with the single-family exposure in the South as well as destock. Can you in help us parse out like the single-family outlook versus the inventory element to it because it's far more pronounced than I think most of those was expected. So just kind of help us think through how long it's going to take to parse out the inventory fresh there's 2 pieces, right? There's a channel as well as, I guess, at the dollar level too.

Yes. Phil, thanks for the question. Let me start out by saying, look, we continue to make progress on our key strategic focus areas that involve the homeowner, customer and contractor, and we're going to be much stronger with the integration of AZEK. With the homeowner, we continue to be the #1 siding brand in the United States with the contractor with the brand of choice for contractors and siding. And with AZEK, that's going to be the case with Decking. That's going to be the case with Trim, that's going to be the case with pergolas. And we continue to add more contractors to our loyalty program each and every day. And then with our dealer partners, we're relied upon to be business consultants and hence, we are available in 25,000 points of distribution out there. Let me just -- as we answer this, I think it's important to ground and talk a little bit about Q1 and the results, and then we'll go into our guidance here. Look, our Q1 results were as expected, and they were embedded in our FY '26 guide. During the calendar year '25 March quarter, our customers ordered to really more optimistic expectations than we are here today and hence, some of the Q1 results that we're seeing. Relatively speaking, as we got into our first quarter, channel inventories were not out of line for the build season. As we progressed through the quarter, we saw our customers focus on inventory more as the outlook began to soften. The Q1 market environment was considered within our full year guidance. North America R&R multifamily performed per our expectation. And we believe we performed in line with the market, really down mid-single digits. Inventory draw down aside. Single-family new construction starts became our demand was…

Okay. As you look forward, Aaron, just given the tougher demand backdrop, it's great that you guys are accelerating cost-out actions for the deal. Are there any other things you guys could do in terms of managing costs a little more effectively demand drugs and put challenge right now. Is there a headcount to us you guys can do idle capacity because it's a pretty step margin correction here? And how -- what's the game plan to kind of improve that margin profile as we kind of look out forward.

Yes. Phil, good question. Look, I go back to what we talked about has been a discipline for us at James Hardie for years. and we're bringing that discipline with the new James Hardie with AZEK being a part of it. And that's really our Hardie Operating System. So that extends into our benchmarks, which is how we manage our manufacturing plants. Obviously, as the volumes come down, it gets more and more challenging. But we have the right focus. When volumes are high, you focus on throughput, now we're focused more on yield. Obviously, we're managing shifts as best we can. We're pedaling and clutching on certain expenditures out there with frozen headcount. And look, we're in the process of integrating 2 companies here. So we think there can potentially be opportunities there. So our team is disciplined. We are focused on this. We continue to accelerate our efforts.

And your next question comes from Keith Chau with MST.

Just back on the inventory point, please. So you mentioned we spoke about it at the last quarter, which we certainly did and that was 7.5 weeks into the quarter. So the destocking into the second half of the quarter must have been quite severe. But I just want to -- maybe if you can simplify it for us volumes were down 15% in the period. How much of that was actually attributed to inventory destocking? And then as we look into the second quarter, how much of that impact will persist into the second quarter? And your views on your competitive standing as well in the market, please?

Yes. Thanks for the question here. Let me give you a little bit of a time line when we think about inventory here. We talked -- just talked about it, but I'll reiterate it again. So Q4 FY '25 in March, we sold our customers prepared for growth. right? You think about the time, the election ended up happening in November, people were ready for growth. Look, and we talked about inventory not too high, but full well positioned for growth in the building season out there. As we got into April, we cited this on the call, a little bit of noise, a little bit of uncertainty. You get into May, we have our call, June environment softening. As we got into April, people were managing their inventory, right? So we already started to see a little bit of that destock as you talk about April through May. And then look, as we got into July, June, it was softening and then as we got into July, we really saw customers getting into defensive inventory posture. And look, this is a big part of the impetus for our lower outlook with inventory, with a dramatic change in single-family new construction. And then with that said, some of the benefits that we counted in for FY '26, whether that be new products, whether that be the benefits from some of our exclusivities with homebuilders. Those are all pushed out here. The other thing I think it's really important to remember as we look forward is our year, right, ends March 31. So as you look that the uncertainty and the visibility as you go from January of what is calendar year '26 to March that's further out than a lot of people who are reporting here. I think the other…

Sorry, just going back just seeing if you can put a framework or a number around the inventory destocking for the period of the impact going forward, please, in the second quarter? Any hangover into the second quarter?

Yes. Look, Q1 inventory aside, we believe we performed in line with market, right, which would be down mid-single digits. That's what I would say. And then Q2 and Q3, we think we continue to see some type of destock out there with our customer partners. And going back to our value proposition, as our customer partners are more cautious and making sure they're really vigilant with their inventory. We do have the supply chain with our localized manufacturing that are able to partner with them and be able to supply what they need when they need it.

Your next question comes from Ryan Merkel with William Blair.

I guess, Aaron, first off, the big issue here seems to be the single-family new construction in the South. And if we zero in on that, how did the quarter evolve for that part of your business from sort of April to today? And is it still slowing or is it sort of stabilizing at this point?

Yes. Ryan, I'll just start by saying, as I mentioned before, and just to remind you, and then I'll turn it over to Rachel, she can add some context here is we've talked and linked, right, over the last 2 years of our partnership with the large homebuilders. And we are really value that partnership. We wouldn't trade that for anything. But also, if you think about a lot of or the majority of some of the starts out there, they've really been happening in the South. So that has impacted us. As much as we talk about the outside analysts when we start this out for the year, we said, okay, single-family new construction is going to be flat to maybe down 1. I mean that's changed almost by 10 points. and it's magnified and it's accelerated in areas like the South. But Rachel, do you want to maybe hit this? .

Yes. So the first comment, as Aaron pointed out, single-file construction whether you want to look at the NAHB or burns or on a national level, they are moving their estimates from May until August or July or most recent by over 10 points. That is a very large swing in that time span as you think about from May until now. As you think about South permits as an example, is a leading indicator. If you look at April, it was 5.41, May 5.29 and June 5.17. So again, we're prudently planning that this isn't done. So as we thought about our guidance and we really thought about the 3 factors Aaron's talked about of what could weigh, we thought about the 1/3 was the difference between a mid-single-digit to a high single-digit market decline in single-family new construction, another 1/3 due to the inventory calibration and a final third really with that push out on some of the new product launches and wins that we've initially flagged for the back half of the year.

Okay. And Ryan, just the other thing, I think I mentioned it before. As we look at our new guide, I mean, what we assumed in there, right, is taking stock of the market, which we just walked through. taking stock of the cautiousness and the inventory takedown. And then some of our initiatives out there. But look, on the positive, with this exposure, do you think of longer-term I think we have enviable position, right, of leadership when we think about our partnership with these large homebuilders. They're going to win, right? And we're partnered with them. And then as I said before, as our customer partners are more cautious around things like inventory. We do have the value proposition to partner with them. And that's the localized manufacturing we talk about and be able to deliver high service levels, really short lead times, which is going to be critical as we move forward.

Got it. And then my follow-up is a question on AZEK and the EBITDA contribution. Most of us were sort of penciling in EBITDA of 3.10 to 3.15 and your guidance is a bit below that. you can just walk us through some of the assumptions there? And are you assuming a more conservative outlook for the Deck Rail & Accessories the next 2 quarters.

Yes. I would just start out by saying the 1 month that we've had AZEK's part of the company and what they were able to demonstrate continues to show the leadership and the strength of the business. But Rachel, do you want to walk through the EBITDA?

Yes, absolutely. First, our residential sell-through grew mid-single digits in the June quarter. As we think about our FY '26 outlook, the DR&A sell-through and a growth planning assumption is in the low single digits. And we're not seeing that moderation right now in the sell-through trends but our outlook does contemplate maintaining a conservative channel inventory positioning and potential negative impacts continuing in the macroeconomic uncertainty. So we'll see, it's really to your point about that macroeconomic guide.

And your next question comes from Lee Power with JPMorgan.

Aaron, can you maybe just want to talk a little bit about where you think you sit at the moment with share in the major builders, like you've obviously had a lot of announcements in terms of the top 20, you already controlled a lot of that. Where do you think you are? And maybe are those share gains being kind of matched with those builders who are outside the top 20?

Yes, Lee, good question. Like I started out and saying before is we're in an enviable position. The team has worked extremely hard I think many of you know Sean Gadd, who runs the business for us. He and his team have worked over the last couple of years to build those relationships. And look, we talk about the top 25 builders, but it really extends out to the top 200 builders out there. And we would say, as we look at some of the agreements that we've signed that we continue to take share in our partnership with them. So like I said, single-family new construction as we look at the outlook, we look at some of the partnership we have. This is part of the reason why we are resetting some of the expectations out there. But look, this is a blip on the radar. Again, from a long-term perspective and you think about the industry and who's going to win. I mean these are customer partners that we want to be linked with, and we're fortunate to be able to do that and bring them to the value proposition we have.

And then just a follow-up just on costs. Like in the past, you've chatted a lot about the cost. Like how do you think that plays out in the near term? And then maybe comment from Rachel, just how important that will be around hitting your leverage target that you've put out there post the acquisition?

Yes, Lee, good question. Look, I think we answered this a little bit when we talked about costs in some of the areas in which we can target. I think one of the things we have to remember and look, we take this very seriously as we look at where we're at, and we want to make sure we're delivering upon our commitments is where we can take cost out, we are going to do so. So that means areas like marketing. That means how do we get more efficient in our plants, how do we accelerate some of our procurement efforts. We are very confident in our ability to be able to do that. This has been a dynamic market, as you can appreciate. We also don't want to make any rash decisions that are going to impact our long-term growth. So we are keeping that in mind, and we're balancing that accordingly. Rachel please go ahead.

On the comment around the deleveraging and look, it starts and ends with having a strong margin and the right growth. And as a reminder, James Hardie has been delivering a 10% revenue CAGR, and for a long period. And over the past 5 years, we've delivered EBITDA margins in excess of 25% every single year, and that really reflects our strategic position and is unchanged in our outlook. So as we proceed forward thinking ahead to the 2x leverage position at the 2 full years post close, we do think that we are well positioned to obtain that.

And your next question comes from Timothy Wojs with Baird.

Maybe just a question on just AZEK. Is there -- to kind of go on Ryan's question, is there -- are there any definitional differences between kind of the adjusted EBITDA that you're including in your guidance? And what AZEK reported in the DR&A segment that they had publicly disclosed? Because I know there's some comparison issue -- I mean there's just time frame issues. But I mean the guidance or the EBITDA that we're including or that you're including in guidance, I mean, it is down year-over-year relative to last year. And obviously, we've seen pretty decent growth in EBITDA at AZEK. So could you just help us bridge if there's any sort of technical differences between the EBITDA contributions? And that business seems to be performing pretty well. Why would EBITDA down year-over-year?

Yes, I'll take that. There are some technical differences. First, at the James Hardie definition, we do include the cost of stock-based compensation within our EBITDA. We do not exclude it. We also have some divisional differences. So siding and trim is our former North America Fiber Cement business along with their AZEK exteriors business, whereas the DR&A is the rest of the legacy APAC business. We also have, within corporate, we've given some guidance for that for a run rate of about $225 million on a combined consolidated basis. So we do now have those definitional differences.

Yes. And Tim, we can take you through all of those.

Okay. Yes. I may just be helpful if there is something on Stockholm. I guess the allocation of EBITDA is all kind of in the bag. If there's a big stock out number, I think that would be helpful. Otherwise, we can take it offline.

Okay. Great.

And I guess just maybe to level set everybody. Can you give us what you're expecting for volumes in the North America Fiber Cement business -- legacy business in Q2 and in the back half of the year for the full year, please?

So our guide does anticipate the legacy North American fiber cement business being down low double digits. And that is up more volume-related as we are expecting positive ASP, not only in North America, but frankly, all of our regions. So we are on track for that.

And your next question comes from Keith Hughes with Truist.

Based on some of your answers to questions, here's like in the guide, you're expecting inventory reductions of somewhat similar qualities -- quantities, excuse me, the remainder of the year we saw in the quarter. I don't think I've ever seen that before. That what your largest signings reporting smacks a big share loss. Could you talk about where you think your share position is? I've never seen anything quite like this before.

Yes. So Keith, I think what -- as we look at Q2, Q3, we would say that customers are going to continue to manage their inventory down. And that speaks to the cautiousness that we're seeing out there in the marketplace. We talked a little bit about the market from an R&R standpoint, and then the dynamics from a single-family new construction standpoint as well. So yes, we would see that in Q2 and Q3, Keith.

So therefore, it looks like there's a minimum some share loss going on here. To your comment in the quarter, you performed at the market. Usually, you're above the market. What's going on with the momentum of pace of your share in the siding market?

Yes. So Keith, I think one of the things we have to remember here is the difference from a timing standpoint. When you look at our year, I think the other thing is the segments in which we compete are not apples-to-apples with some of our competitors out there. So I would not say we're losing any share. If we talk about our segments, large homebuilders out there, I just mentioned it, we keep gaining share with the -- with those 200 out there. If we think about some of the geographies in which we participate in more of the metro areas, we do not see that we're losing any share out there. So it is different from a timing. It's a different segment that we can compete in.

Okay. Let me switch to AZEK. You've owned it for a month, we're lowering the sell-through. Trex is not lowering theirs. I -- are there -- are you having some integration obvious -- not problem, but there's always a little bit of hiccups when you do integrations. Are you seeing any of that coming in as you work on these 2 businesses together?

No, Keith. Look, we're not seeing anything but progress. We don't see a slowdown with that business. I think more than anything, we're being prudent as we look at some of the challenges out there in the marketplace. We don't see a slowdown with that business. We're very, very confident in the AZEK business.

And your next question comes from Peter Steyn with Macquarie.

I may just ask you, Aaron, specifically around the commercial synergies, you've put forward a very optimistic view both in volume and -- or sorry, value and time line. And in the context of Ryan going to the COO role. I'm particularly interested in how you're thinking about the integration network-wise between AZEK and highly and how that plays into the realization of your commercial synergies in the dealer channel?

Yes. Peter, really good question. I think it's being 50 days in, probably too early to talk about how we would look at the network. What I can talk to is some of the revenue synergies. And like I mentioned before, we're really encouraged with some of the early wins, what I would call quick wins out there. Look, as we closed this a few days after, I hit the road with Jon Skelly, who's run the legacy AZEK business. and Sean Gadd, who has run the legacy Hardie business. And we've gone out and seen pretty much most of our major customers out there on both sides. So the conversations have been really encouraging. Obviously, on a public call, we're not going to talk about it. But we've had some verbal commitments from some of our large dealer partners with some early wins to be able to come over to and take some of our product. As we talk about with our contractors, what we've been doing and, again, 50 days in is looking at both of our contractor partners and our networks and our loyalty networks. And then able to really distribute leads across those networks out there. Their leads for James Hardie products coming from AZEK reps in the north and for AZEK products come from James Hardie reps in the South and West. And look, this is, I think, more so than anything, just a testament to how these 2 businesses complement each other, and how each business's individual strengths match an opportunity with each other. So we're in early days, but we're very, very encouraged from what we're seeing out there. So everyone, I think we're going to wrap it up here. Appreciate the questions and taking the time. Look, we continue to see significant opportunity ahead for James Hardie as we execute against our focused growth strategies and further accelerate growth through our combination with AZEK. I want to thank all of you for joining today's call, and please reach out to the team with any additional questions you may have. All right. Thank you, operator.

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