Jesse Singh: Yeah. So as you point out, we had some modest lapping. I think we called it out in the kind of 20 to 30, range in Q1. But really since then, you should assume that we’re operating under a normal inventory sell-through scenario. So as you look at what we delivered in 2Q and compare that to our fourth quarter, what you’re basically seeing is modestly filling the channel which is pretty normal at this time of the year 3Q sell-through, sell to being closed. There’s always a little bit of movement and then the inventory coming out in Q4. And once again, that’s against an assumption of only 5% sell-through growth and we’ve been operating at a level above that. I think as you move into next year, our focus and the equation is to be roughly 5 to 7 points over the market.
And over the underlying R&R market, I think you’ve seen that probably a little higher this year. In terms of our overall execution. My guess is decking is probably in the 4% to 5% growth range, and we’re five to six points over that which gets us in that double-digit sell-through range. If there’s any positive news as we move through 2025, we should stack on top of that. And so I’ll just leave it at the 5% to 7% above market that we talked about.
Matthew Bouley: Got it. Okay. That’s helpful, Jesse. And then secondly, I know you just spoke about some of the margin benefits of your recycling initiatives. But you called out in the comments sort of new operations in Texas, adding capacity and sourcing capabilities. I’m just curious if you can elaborate a little bit on what this will do to your mix of recycled product? And also if you got kind of anything else cooking for the future, I would love to hear it. Thank you.
Peter Clifford: Yeah. Specifically, the Texas asset is an opportunity for us to source some premium pure white PVC to the portfolio, which is obviously really important to us on the trim side of the business. We’ve got plenty of access to raw inputs on the recycling side. We’ve got plenty of capacity from a conversion perspective. So I think we’re positioned really well on the recycling side from a capacity perspective.
Jesse Singh: Yeah. And the only other thing, Matt, I’d call out just on the utilization side is clearly with a — with a solid season and an expectation of some incremental volume in 2025, our Boise facility is now running. I think we called that out in the comments. It’s running at an appropriate utilization. That’s ramping up very nicely. I think we’ve got an additional line coming online shortly there. But from a utilization standpoint, we’re moving back into a window where our aggregate utilization is moving towards historical norms. And we feel really good about that and our ability to service the market. And we’re always going to be focused on expanding our percentage of recycle. And as Pete pointed out, that high-quality recycle that we get really gives us an opportunity to increase the percentage in our exteriors business, in particular, the exteriors business that’s not painted.
Matthew Bouley: Got it. Thanks, Jesse. Thanks, Pete. Good luck guys.
Jesse Singh: Appreciate it. Thank you.
Operator: Your next question comes from the line of Michael Rehaut with JPMorgan. Your line is open.
Michael Rehaut: Thanks. Appreciate you taking my question. Good afternoon. First, I just wanted to drill down a little bit on the double-digit sell-through during the quarter. And I guess you said into April. Wanted to get a sense of if that was similar across your different channels, retail or wholesale pro and also the exteriors versus the decking and railing, if they were also kind of at similar growth rates? And any indications that those growth rates have changed at all as you’re looking into May?
Jesse Singh: Yes. I think as Pete pointed out on his comments, we given our position in the marketplace on a relative basis, we expect that just the nature of our expansion that retail will be accretive to our growth. And I think we certainly have seen that and we continue to see that and expect to see that moving forward. And we’ve had really nice growth within the pro channel. Now there’s some modest geo — within the pro channel I’d say there’s some modest geographic variations that you would expect this early in the season. But in aggregate it’s that double digit that we talked about. Across product lines if you look out over the last 18months or so you would have seen in a lot of cases our exteriors business or in multiple cases our exteriors business outgrowing the sell-through on our deck rail and accessories business.
And so we will have quarter-to-quarter variations I think on this quarter that we just reported we would — we’re showing our deck rail and accessories business outgrowing our exteriors business within the quarter. And so that’s just how it shakes out this quarter.
Michael Rehaut: Okay. Great. I appreciate that. And I guess just looking forward kind of with the adjustments that you’ve had to make to inventory over the past few years with the restatements. Just want to get a sense for you kind of alluded or highlighted the investigation and you put out all the different preliminary numbers about how it’s affected the past profitability. You know on a go-forward basis and particularly as it relates to the margin profile that you thought of just want to be crystal clear I guess that whatever was kind of uncovered over the past two or three years or more that whatever structure was or numbers that were out there doesn’t really affect the way you think about the business going forward? It appears that way but I just want to make sure that that’s kind of fully understood if there’s any other nuances to the business that maybe weren’t apparent prior to this.
Peter Clifford: Mike, this is Peter. The only impact on 2024 right now is the FIFO impact of $4 million. There really was no disconnect actually in 2024. The FIFO impact is purely due to the fact that the inventory being restated causes the rollback period for us to be recomputed from a FIFO perspective. So the $4 million charge that we have absorbed our year-to-date 2Q results is the only impact that we see to our cost structure moving forward.
Jesse Singh: Yes. And just to highlight our business the way it’s running now we’re really happy how it’s running. And this particular issue while unfortunate is really historical in nature as Pete pointed out with the exception of the FIFO conversation. So moving forward we feel really good about the margin structure and what we’re guiding to and don’t expect any additional impact aside from what we called out on our future numbers. And I think the key here is the team uncovered it, we dealt with it and we’re in the process of documenting it and doing what’s appropriate and it really doesn’t have an impact on the future business.
Michael Rehaut: Great. Thank you.
Jesse Singh: Appreciate it. Thanks Mike.
Operator: Your next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open.
Mike Dahl: Good evening. Thanks for my questions. Just back on the margin discussion. Can you just give us an update on what you’re seeing in terms of your kind of cost basket and you’re thinking about deflation inflation or price cost in total?
Peter Clifford: Yes. Mike, this is Peter. Everything we can see on the commodity side is, stability, I think is the word on the input cost side that I would use. As Jesse mentioned, we’re approaching the completion of Phase 1 here with the last line going into Boise, which is positioning us to start to get some more meaningful leverage on a conversion cost per pound basis as that plant continues to ramp and get more volume and become more productive that helps the entire system out. And then from a pricing perspective, really no surprises, we anticipated. Our pricing in the market to be approximately flat this year and through two quarters that’s what we can see and we don’t see a different pattern in the back half of the year.
Mike Dahl: Okay. Got it. And then just back on the investigation. I appreciate the color you’ve given. Maybe can you just go into a little bit more detail about describing the scope or depth of the investigation that’s giving you kind of the confidence or maybe the scope of the employees’ responsibility, what the motivation may or may not have been behind just specifically this being an inventory or COGS issue? And then in your initial documentation have you been in touch with SEC or other regulatory bodies? Anything you can share at this point?
Peter Clifford: Yes. Just some context on — it’s a former employee that started with the business back in 2016. They left in March. Our very first close after that employee leaving, a new accountant performed traditional account reconciliation for our policy and procedure, identified discrepancy during the close, immediately communicated that up through the channel and the chain got to me. I got out of a plane, investigated it immediately communicated Jesse, the issue which immediately turned a communication to our Audit Committee and our Chairman. At that time our Audit Committee initiated an independent investigation. That investigation is substantially complete here this week. And so, it has clearly laid out what we feel like the appropriate impact ranges are by year.
And based upon that information and the body of assessing that we really came to the conclusion that restatement was the proper outcome, and we filed the 8-K today to inform the SEC as well as our intentions to restate our financials for 2021, 2022 and 2023 and the first quarter of ’24.
Mike Dahl: Okay. Thanks.
Operator: Your next question comes from the line of Rafe Jadrosich with Bank of America. Your line is open.
