Collin Verron

Collin Verron sought a deeper understanding of the top-line and margin benefits derived from the product mix, specifically whether it's driven by a shift from Pipe to Allied and Infiltrator products or within categories, and if this improvement is structural.

Answer

Scott Barbour, President and CEO of Advanced Drainage Systems, explained that the company's long-standing growth strategy involves selling Allied and Infiltrator products at a faster pace than Pipe, driven by greater market participation opportunities and a desire for more resilient profitability. He affirmed that this is a structural improvement, aiming for 50% or more of revenue from Allied and Infiltrator, though percentages may fluctuate. Verron also asked about the sequential tracking of raw material costs into February and early thoughts on calendar year 2026 material costs. Scott Cottrill, CFO, noted favorable price-cost dynamics in the EBITDA waterfall for the current year, emphasizing that profitability is influenced by volume, demand, mix, and ongoing self-help initiatives, not solely resin costs.

Collin Verron asked for a deeper understanding of the top-line and margin benefits from product mix, specifically differentiating between the shift from pipe to allied/Infiltrator sales versus mixed shifts within categories, and whether this improvement is structural or temporary. He also inquired about the sequential trend of raw material costs heading into February and any preliminary outlook for material costs in calendar year 2026, building on the favorable year-over-year commentary.

Answer

Scott Barbour, President and CEO, explained that the strategy to prioritize allied and Infiltrator products over pipe is a long-standing growth algorithm aimed at achieving more resilient profitability, affirming it as a structural improvement. Scott Cottrill, CFO, declined to provide sequential raw material cost trends but emphasized that price-cost dynamics, volume, demand, product mix, and self-help initiatives collectively drive profitability, not just resin costs.

Collin Verron followed up on the price-cost discussion, asking for specifics on what contributed to the better-than-expected $30 million EBITDA tailwind in the second quarter. He also inquired if the increased transportation costs related to inventory shifts and realignment are expected to be an ongoing trend, given the volume-driven second-half guidance.

Answer

Scott Cottrill (EVP, CFO, and Secretary) attributed the favorable price-cost performance to stable pricing, better resin costs, and effective management, along with exceeding expectations in conversion costs, transportation/logistics, and the mix/organic growth of Infiltrator and allied products. Scott Barbour (CEO and President) clarified that transportation costs were due to necessary inventory movements following a plant closure and demand shifts, highlighting ADS's scale and logistics capabilities to manage such movements.

Collin Verron followed up on price-cost, asking what specifically came in better than expected in the second quarter to generate the $30 million EBITDA tailwind, given prior expectations for neutrality. He also asked if the transportation costs related to inventory shifts due to network realignment are expected to be ongoing.

Answer

CFO Scott Cottrill attributed the better-than-expected price-cost to stable pricing and favorable resin costs, along with improved conversion across all product lines (pipe, Infiltrator, allied) and exceeding expectations in transportation/logistics and mix. CEO Scott Barbour explained that transportation costs for inventory shifts are due to optimizing the network (e.g., plant closure in the Northwest) and servicing customers, which ADS can manage due to its scale and logistics capabilities, confirming it's an ongoing operational aspect.

Collin Verron with Deutsche Bank inquired about the implied EV to EBITDA multiple for the joint venture based on the proceeds and second lien debt. He also asked for a timeline for establishing the JV and for other strategic actions concerning AMES Australia and AMES United Kingdom, and about future capital allocation plans.

Answer

Brian Harris, CFO, indicated that the cash proceeds alone imply roughly a 4x multiple, with a larger multiple if the second lien debt is included. He expects the JV to close by the end of June, with updates on Australia and the U.K. to follow. Ron Kramer, Chairman and CEO, emphasized continued stock repurchases, debt reduction, and increased dividends as key capital allocation priorities.

Collin Verron asked about the implied EV to EBITDA multiple for the joint venture, the timeline for establishing the JV and other strategic actions for Australia and the UK, and Griffon's future capital allocation plans for the proceeds.

Answer

Brian Harris, CFO, indicated that the cash proceeds alone imply roughly a 4x multiple, which would be larger if including the second lien debt. He expects the JV to close by the end of June, with updates on Australia and UK actions to follow. Ron Kramer, Chairman and CEO, reiterated that Griffon views its stock as the best acquisition, plans to be an active buyer of its stock, will continue deleveraging from free cash flow, and expects to be an increased dividend payer.

Collin Verron asked about the drivers of the Home and Building Products (HBP) segment's sequential EBITDA margin decline in the quarter and how Griffon anticipates offsetting these headwinds to maintain its robust 30%+ margin guidance for fiscal year 2026. He also inquired if the fiscal year 2026 guidance has a greater weight towards the back half due to near-term consumer softness or if it anticipates steady performance.

Answer

Brian Harris, EVP and CFO, explained that the sequential margin performance was due to varying product mix, not headwinds, and that HBP saw favorable price index with relatively flat volume (commercial slightly up, residential slightly down). Ron Kramer, Chairman and Chief Executive Officer, added that trends are on track halfway through the first quarter. For the fiscal year 2026 guidance, Brian Harris expects a slight 1-2% decrease in the first half, followed by a pickup in the second half, aligning with normal seasonality.

Collin Verron inquired about the drivers behind the sequential EBITDA margin decline in the Home and Building Products (HBP) segment and how Griffon plans to offset these headwinds to maintain a 30%+ margin in fiscal year 2026. He also asked if the 2026 guidance anticipates a greater weight towards the back half of the year due to near-term consumer softness.

Answer

Brian Harris, EVP and CFO, stated that the quarter-on-quarter margin fluctuation was due to varying product mix, not headwinds, and expected similar favorable price mix trends in 2026 with flat commercial volume and lower residential volume. Ron Kramer, Chairman and CEO, confirmed that Q1 trends were on track. Brian Harris further clarified that the guide expects a slight 1-2% decrease in the first half, with a pickup in the second half, aligning with normal seasonality.

Collin Verron of Deutsche Bank asked for quantification of the annual tariff impact beyond fiscal 2025 and inquired about differing mitigation strategies for the fan and long-handled tool businesses.

Answer

Chairman and CEO Ronald Kramer stated it was "premature" to speculate on fiscal 2026 impacts, asserting the company has multiple levers to mitigate any final tariff policy. Executive Brian Harris added that supply chain diversification for lawn and garden tools should be complete by the end of the fiscal year, while alternate supply for the fan business is expected by the end of the calendar year.

Collin Verron asked for clarification on the amount of cost savings realized in the third quarter and year-to-date 2025 from the cost-saving actions taken in Q1, as well as the expected annualized benefit of these actions into 2026.

Answer

Rob Kuhns (CFO) stated that the Q1 cost actions are annualized at approximately $35 million in savings. He confirmed that Q3 saw its share of these savings, along with additional productivity improvements, which collectively helped drive margins up in the quarter.

Collin Verron asked for clarification on the installation segment's strong margins, specifically inquiring about the amount of the $35 million annualized cost savings realized in Q3 and year-to-date 2025, and the expected annualized benefit moving into 2026.

Answer

Rob Kuhns, CFO, confirmed that the annualized cost savings from actions taken in Q1 2025 amount to approximately $35 million. He stated that Q3 realized its "quarter share" of these savings, along with additional productivity improvements, which contributed to the strong margins.

Collin Verron from Deutsche Bank inquired about the timeline for executing M&A in commercial roofing via Progressive and the size of deals in its pipeline. He also sought clarification on the guided $30 million second-half headwind.

Answer

CEO Robert Buck stated that Progressive has 'nice chunkier deals' in its pipeline and that TopBuild is investing to maintain M&A momentum in that space. He expects acquisition multiples to be similar to traditional deals. CFO Rob Kunins clarified that the $30 million headwind is a net figure, reflecting both price and cost dynamics.

Collin Verron of Deutsche Bank inquired about the revenue visibility in the C&I business, asking how far the company is booked out and if there is a risk of a demand 'air pocket' in late 2025 or 2026.

Answer

President and CEO Robert Buck stated that the company has good visibility with an average backlog of about six months in the C&I business. He expressed confidence for the remainder of the year, citing a combination of secured projects, delayed 2024 projects coming online, and strong execution by field teams driving share gains through a vertical market strategy.

Collin Verron asked about the magnitude of raw material cost declines from their peak, when these might begin to help margins in early 2026 given inventory lags, and the expected order of magnitude across segments. He also questioned if the Flooring Rest of the World segment had bottomed out and if year-on-year growth was anticipated for Q4.

Answer

CFO James Brunk noted raw material prices easing in Q4, but energy, wages, and tariffs would remain higher, anticipating continued input cost inflation into 2026 with a 3-4 month inventory cycle. President and COO Paul De Cock described slow European housing conditions due to geopolitical events and stretched budgets, but expected improvement over time from decreasing interest rates, record household savings, falling inflation, and declining energy prices.

Collin Verron asked if Flooring North America sales would have been up low-single-digits excluding the system conversion impact and what drove that improvement. He also inquired about the sustainability of commercial trends.

Answer

President and COO Paul De Cock confirmed performance was in line with expectations and that the company performed well despite low residential remodeling demand. He attributed strength to capturing volume with differentiated products, promotions, and strong performance in the commercial business. He added that incoming commercial orders are not tapering down, providing hope for the remainder of the year.

Collin Verron inquired about the surprising decline in meter sales, asking how much was due to project delays, expectations for meter sales through the rest of the year, and the long-term growth outlook for the category. He also asked about the decision-making process between greenfield and M&A opportunities, associated expenses, and the ramp-up time for new branches.

Answer

Mark Witkowski (CEO) explained that the meter sales decline was primarily due to a difficult comparison to last year's 48% growth, with project delays creating a backlog expected to ship in the second half. He stated that greenfield locations are evaluated in conjunction with M&A in priority markets, noting that greenfields typically break even within the first couple of years and reach company average metrics in three to five years, and the company is accelerating its greenfield strategy.

Collin Verron asked about the company's strategy for choosing between greenfield expansions and M&A, including the associated expenses and the typical ramp-up time for greenfield locations to reach average company metrics.

Answer

CEO Mark Witkowski stated that both greenfield and M&A are evaluated for priority markets, with greenfields taking longer to ramp but typically breaking even within the first couple of years and reaching company average metrics in three to five years. He noted an acceleration of the greenfield strategy.

Collin Verron asked for more detail on the expected magnitude and timing of the slowdown in the residential construction market. He also inquired about the drivers of the 10% growth in the meter product category and the outlook for its volume versus price mix.

Answer

CEO Mark Witkowski stated that residential lot development, while resilient in Q1, is expected to be neutral to slightly down for the year based on customer feedback about smaller project sizes. Regarding meters, he highlighted the 10% growth was on top of 30% growth in the prior-year quarter, driven primarily by volume gains from winning large contracts and increased adoption of smart meter technology.

Collin Verron questioned whether IBP's market outperformance was driven by direct market share gains within specific geographies and asked about the sustainability of these gains over the next twelve months.

Answer

EVP, CFO & Director Michael Miller clarified that IBP's strategy is not to take share from competitors, but rather to 'gain share through our customers' by partnering with the most successful builders in a given market. Regarding sustainability, Miller noted it is 'difficult to say' due to increasing challenges in the single-family and multifamily markets in the second half. However, he expressed confidence in the team's ability to manage effectively in a difficult environment.

Collin Verron from Deutsche Bank asked for an explanation for the increase in the inventory balance and the potential for cash flow generation from inventory adjustments.

Answer

CFO Michael Miller explained that the higher inventory balance was primarily driven by the strategic build-out of new facilities for the company's internal distribution initiative, which requires stocking these locations. He reiterated that working capital components like inventory will naturally decline in a lower volume environment, becoming a source of cash flow.

Collin Verron from Deutsche Bank inquired about the sell-out demand outlook for the remainder of the year and asked for details on recent pricing actions.

Answer

President & CEO Bryan Fairbanks stated that Trex expects full-year sell-out growth of 5% to 7% and that channel inventories are well-positioned. He also confirmed that the company implemented a mid-single-digit price increase across many of its decking products but not on its railing products.

Collin Verron from Deutsche Bank inquired about the sell-out demand outlook for the remainder of the year and asked for details on recent price increases, including which product lines were affected.

Answer

President & CEO Bryan Fairbanks stated that the company expects full-year sell-out growth of 5% to 7% and that channel inventories are at comfortable levels. He confirmed a mid-single-digit price increase was implemented across many decking products but not on railing products.

Collin Verron questioned the flat Q2 sales guidance, given the strong demand trends observed in March and April. He also asked for potential quantification of the cost benefits from the Arkansas recycling facility's start-up later in the year and into 2026.

Answer

CFO Brenda Lovcik explained that the flat Q2 sales guidance is due to a difficult year-over-year comparison, as H1 2024 accounted for an unusually high 65% of that year's total sales. CEO Bryan Fairbanks stated that while the Arkansas facility will contribute to efficiency, the company views its benefits as part of a broader continuous improvement program and will not break out the specific financial impact of individual projects.

Collin Verron of Deutsche Bank asked about the trend of Builders FirstSource's single-family revenue underperforming single-family starts, questioning if the revenue-per-start metric is nearing a bottom.

Answer

CFO Pete Beckmann explained that the gap has narrowed significantly, with Q2 single-family sales down only 2-3% relative to lagged starts. He noted that the trend of shrinking home sizes has leveled off and de-contenting is becoming smaller, suggesting the metric is stabilizing. CEO Peter Jackson added this stabilization gives them confidence in their balance between maintaining share and margin.

Collin Verron from Deutsche Bank sought clarity on whether the company's guidance includes any tariff mitigation efforts. He also asked about the magnitude of pricing headwinds in the windows, doors, and millwork category.

Answer

CFO Pete Beckmann clarified that the guidance does not bake in any specific impact from tariffs, as the provided $175-250 million figure is a high-level estimate of potential costs. CEO Peter Jackson added that while there will be an impact, it is not expected to push results outside the guidance range. Jackson also corrected the premise of the second question, stating the pricing environment is stable to inflationary, not one of price cuts.

Collin Verron of Deutsche Bank inquired about the new commercial construction market, asking how it has trended and when the weakness indicated by the ABI index might appear in backlogs. He also asked about the potential impact of the decline in new residential construction on future maintenance growth.

Answer

CEO Doug Black stated that the new commercial market has remained flattish, but he acknowledged 'clouds on the horizon' due to smaller customer backlogs and the weak ABI index. He explained that maintenance growth is very steady and tied to the large installed base, making it resilient to fluctuations in new construction. He further noted that maintenance is a key area of strength and market share gain for SiteOne.

Collin Verron asked to quantify the expected benefit from 2025 cost actions, inquired about potential decremental margins if the market softens, and requested guidance on 2025 free cash flow generation.

Answer

Executive Vice President John Guthrie explained that the benefits from cost actions are already factored into the 2025 guidance, with most profit improvement expected from SG&A leverage. CEO Doug Black added that the company has flexibility to reduce labor and other variable costs if markets soften further. Regarding cash flow, Guthrie expects continued incremental improvement, with the only caveat being a potential increase in inventory to ensure customer service amid supply chain uncertainty.

Collin Verron asked for color on monthly demand trends during the quarter and into July, and inquired about the potential for further supplier price increases in the second half of the year.

Answer

CEO Peter Arvan described April and May as strong, with a brief moderation in early June before demand picked up again, a trend that continued into July. He does not expect further in-season price increases but noted that manufacturers are beginning to announce typical end-of-year hikes for the next season, which are factored into guidance.

Collin Verron asked for management's thoughts on why the Texas market is underperforming other large states and inquired about the growth opportunity for private label products in the current macro environment.

Answer

CEO Peter Arvan suggested that wet weather in Texas during the first quarter impacted new construction, though the maintenance business there has been good. He noted that feedback from dealers in other states does not suggest the weakness is spreading. He also affirmed that there is still significant runway to grow private label sales, which is margin accretive and enhances the value proposition for their dealers, despite it being a longer sales cycle.

Collin Verron asked for more color on the Doors market, including underlying trends and the drivers behind the outlook for a seasonal demand step-up.

Answer

CEO Brian Chambers explained that the business is outperforming a weak market impacted by lower housing starts and sluggish remodeling. He noted that volumes appear to be stabilizing at a trough. This stability, combined with typical seasonality in construction and remodeling, is what drives the outlook for a modest sequential pickup in Q2, though year-over-year volumes are still expected to be down.