JHX

• Overall Q1 Performance

  • Total Q1 net sales reached $1.47 billion, growing 64% reported and 12% pro forma, exceeding the high end of original guidance
  • Adjusted EBITDA hit $422 million with a 28.6% margin, also beating the high end of original guidance, even without the new share-based compensation exclusion
  • The company redeemed $400 million of unsecured notes ahead of maturity, reducing net leverage to 2.7x, on track to hit leverage targets of ~2.4x by end-FY2027 and <2x by Q2 FY2028
  • Free cash flow for Q1 was $254 million, driven by higher profitability, lower capex, improved working capital, and lower acquisition/integration costs

• ASIC Acquisition Integration & Commercial Synergies

  • Integration is progressing ahead of plan, with management reaffirming the $125 million run rate commercial revenue synergy target for FY2027, with potential upside possible
  • Announced an expanded nationwide full-line distribution partnership with Boise Cascade, plus expanded partnerships with 6 major regional distributors that now carry the entire James Hardy portfolio, extending reach into the repair and remodel segment
  • Cost synergies are ahead of schedule and under budget, with no impact to customer service or execution
  • The combined 500-person sales force has been unified under one strategy, and the James Hardy Operating System (lean manufacturing framework) has been rolled out to the legacy AZAC manufacturing network, improving productivity, procurement discipline, and cost visibility

• North American Growth Strategy Progress

  • Five core pillars to capture the $17 billion+ North American material conversion opportunity: material conversion, channel expansion, innovation, brand building, and simplified consumer journey, with progress across all pillars in Q1
  • Fiber cement growth initiatives (Color Plus, Statement Essentials, Trim Over) gained traction in the underpenetrated Northeast and Midwest, with 20% organic growth driven by strategic execution, lapping prior year inventory destocking, and price/mix
  • Strong growth is seen in higher-end market segments (repair and remodel, multi-family new construction) where James Hardy is more concentrated, and competitors have left supply gaps that the company has captured
  • For DRNA, underlying demand remains healthy with nearly double-digit sell-through growth accelerating through the quarter, driven by ongoing wood-to-composite deck conversion and a shift to premium products

• Q2 FY2027 Guidance: Net sales expected between $1.485 billion and $1.575 billion (14.9% to 21.9% year-over-year growth); adjusted EBITDA expected between $420 million and $455 million
• Full Year FY2027 Guidance: Management raised the full year outlook from prior ranges. Now expects total net sales of $5.564 billion to $5.723 billion (5.9% to 9% pro forma year-over-year growth); adjusted EBITDA of $1.536 billion to $1.625 billion
• Full year free cash flow is expected to exceed $500 million, with capital expenditures projected to be 6% to 7% of net sales
• Management maintained the prior expectation of $80 million to $100 million in total annual cost pressure from raw materials, freight, and energy, despite modestly improved raw material cost assumptions that are offset by higher-than-planned freight spot rates
• The $25 million in annualized plant closure savings from Fontana and Somerville remain on track to be realized in FY2027
• Management expects quarter-to-quarter sales volatility over the next two quarters due to distribution transition timing, though underlying sell-through is expected to remain strong, with transition-related marketing and onboarding costs built into the current guidance

1. Siding and Trim: Net sales of $859.8 million, up 34% year-over-year with 20% organic growth. This segment contributed 58.5% of total Q1 net sales, with an adjusted EBITDA margin of 33.5%.
2. Deck Rail and Accessories (DRNA): Net sales of $305.1 million, down 5% year-over-year. This segment contributed 20.8% of total Q1 net sales, with an adjusted EBITDA margin of 27.1%. The year-over-year decline reflects planned channel inventory normalization, not weak underlying demand.
3. Australia and New Zealand: US dollar net sales of $153.3 million, up 26% year-over-year. This segment contributed 10.4% of total Q1 net sales, with an EBITDA margin of 34.9%.
4. Europe: Net sales of $156.4 million, up 15% year-over-year. This segment contributed 10.6% of total Q1 net sales, with an EBITDA margin of 19.4%.

• The broader housing market and macroeconomic environment remains uncertain: mortgage rates are elevated, builder confidence and consumer sentiment remain cautious, and overall housing starts have declined
• Freight market volatility: elevated spot freight rates and network dynamics are running above original planning assumptions, creating ongoing cost pressure that is not fully offset by lower oil prices
• Distribution transition execution risk: unanticipated costs or delays in onboarding new distribution partners and winding down legacy relationships could impact near-term financial performance
• Any material inventory buybacks associated with distribution transitions are not fully incorporated into current guidance, which could create incremental unplanned cost if volumes are larger than expected
• The implied second half EBITDA sequential decline reflects management's prudence in planning for continued macro uncertainty, but actual results could differ if market conditions weaken more than expected

Q: What drove the 20% organic growth in North American fiber cement, which beat guidance, and why is growth inflecting now?

A: Aaron Erter breaks growth into three equal buckets: execution of strategic initiatives, lapping last year's inventory destock, and price/mix. Key initiatives include expanded rollout of Color Plus, Statement Essentials, and Trim Over, with mobile Pro Lab training that trained over 1,200 contractors in Q1. Strong growth in multi-family (15% of fiber cement volume) and underpenetrated growth regions like the Carolinas, plus competitors' service gaps that James Hardy was able to capture, also contributed to outperformance.

Q: What is the long-term impact of the new Boise Cascade distribution partnership, and which business segment benefits more?

A: Aaron Erter notes the partnership builds on an existing proven relationship with James Hardy's fiber cement business, and adds full distribution access for TimberTech and AZEK products for the first time. It aligns Boise's incentives fully with James Hardy's portfolio, combining Boise's national logistics with James Hardy's downstream demand generation and 500-person sales force to accelerate growth. While both fiber cement and composite decking will grow, TimberTech and AZEK will see larger immediate gains as the partnership unlocks new distribution access for those lines, accelerating planned revenue synergies from the ASIC acquisition.

Q: What drives the implied year-over-year second half EBITDA decline after a strong first half, and is this just cautious planning?

A: Management confirms the sequential decline from the first half is primarily normal seasonality, as DRNA's lowest sales quarter seasonally falls in October-December, which naturally creates margin pressure from lower volume. In addition, all expected transition costs for the new distribution partnerships have already been included in the current guidance, which creates modest incremental margin pressure. Most importantly, management intentionally maintained a prudent outlook for the back half given ongoing macroeconomic uncertainty, rather than overextending guidance based on first quarter strength.

Q: With 40% year-over-year DRNA growth guided for Q2, one third of which is channel load-in, can this underlying EBITDA improvement be annualized?

A: Ryan Latta notes that Q1 DRNA sales were intentionally depressed by planned channel inventory normalization, which pulled down absorption and margins. Q2 growth just brings DRNA volumes back to normal trend levels, so annualizing just Q2's improvement is overly aggressive. Management recommends averaging results over 2-3 quarters to get an accurate view of underlying DRNA profitability, as the channel transition creates temporary quarterly noise.

Q: How much of the 20% fiber cement growth is attributable to lapping last year's destocking, and what is the impact of the adjusted EBITDA definition change on guidance comparability?

A: Aaron Erter estimates destocking contributed roughly 1/3 of the 20% fiber cement growth, equal to the contribution from strategic initiatives and price/mix respectively. Ryan Latta clarifies that prior original guidance included share-based compensation in adjusted EBITDA, while the new guidance excludes it. To align comparisons, add ~$50 million (the full year expected share-based compensation expense) to the low and high end of the original adjusted EBITDA guidance to make it comparable to the new definition.