Rafe Jadrosich: Hi, good afternoon. Thanks for taking my question. Peter, just appreciate all the detail you’ve provided so far on the inventory side. Just to through explicitly. Is there like which part of the financials do we have 100% confidence are correct and don’t need restatement? And is there any cash or cash flow impact or uncertainty around the cash balances? And then just on the FIFO accounting definition is this just related to inventory accounting before ’24 that you have to take higher COGS on in ’24 due to the FIFO accounting? Or are there still kind of accounting issues sort of running up into March?
Peter Clifford: Yes. Again, there will be no accounting issues or cost accounting impact beyond our year-to-date 2Q results. And again, you want to think of it as your FIFO calculation is based upon a rollback of your inventory that you have on hand obviously with the information we would have been using before which had inventory overstated. When you restate that inventory it becomes lower the rollback becomes shorter and that in essence you should think of it Rafe as it moved favorable FIFO from ’24 into ’23 and really the impact of the $4 million that we’re feeling in our year-to-date results that we wouldn’t have anticipated at our last guidance.
Rafe Jadrosich: Okay.
Jesse Singh: And then I think your question relative to cash, it doesn’t have any impact on cash on hand or any of that sort of accounting it’s really a statement of inventory in past years.
Peter Clifford: It’s also important to just communicate the investigation when it concluded there was no evidence of anyone else being implicated or any scope beyond sort of inventory and cost of goods sold. It was a long former employee and everything that we can see from the investigation conclusion is that they did not benefit in any way in terms of any cash flow or payments or anything like that. So this is a self-contained issue.
Rafe Jadrosich: Okay. That’s helpful. And then just on the residential guidance raise, I think you’re raising the revenue $20 million, the EBITDA is going up $9 million but I think that’s inclusive of a $4 million headwind from the inventory change plus another $4 million to $5 million in loading costs. Am I thinking about that right? It implies very high incremental margin almost 100%. Just how should we think about that high incremental margin? And am I doing the math right on the guidance raise?
Peter Clifford: Yes. I mean you’re doing the flow-through analysis properly. I mean as we’ve kind of said over the last two quarters when we — every incremental dollar sales brings an incremental pound of production which we get meaningful leverage on right now. It’s an incremental pound to get recycled savings on. It’s an incremental pound to get deflation on I’m not going to commit Rafe that 100% flow through is a target for us going forward. We kind of said that, look, our own expectation for the back half of the year was — if we got upside it would probably be closer to 40% to 50%.
Rafe Jadrosich: Thank you. Appreciate all the color.
Operator: Your next question comes from the line of John Lovallo with UBS. Your line is open.
Spencer Kaufman: Hey, guys. Good evening. This is actually Spencer Kaufman. I’m for John. Thank you for the questions. The first one, how much of retail strength in the quarter is driven from business wins versus “organic”? And then just thinking about the entire portfolio, did you guys see any material differences in demand across different price points?
Jesse Singh: Yeah. On the latter point on price points, I’d say it’s too early to tell. We’ve seen nice demand really across the portfolio. So I don’t know that we can give any color on mix at this point. Obviously, it’s something we look at. And then relative to the difference between, call it same store versus incremental ads, we saw nice growth in particular on the deck rail and accessory side within the same footprint in addition to the expansion that we’ve experienced in retail. So I would say the growth is really an outcome of both.
Spencer Kaufman: Okay. Fair enough. And pricing was flat in the first half and I think is expected to be flat in the back half here. Do you guys still view that pricing can become a more important part of the growth alga over time?
Jesse Singh: Yeah. As we’ve said on previous calls, I think as we approach 2025, I think we would expect a return back to more traditional pricing opportunities on an annual basis.
Operator: Your next question comes from the line of Adam Baumgarten with Zelman & Associates’. Your line is open.
Adam Baumgarten: Hey, guys. Good evening. I think you mentioned, the possibility at some point for inorganic growth. Maybe if you could give us a sense for kind of what types of products, and I’m assuming that’s in residential, but any additional color there would be great?
Jesse Singh: Yeah. Certainly, our focus is continuing to build out the residential business. The Investor Day in 2022, we laid out what we thought was a pretty good growth algorithm, but we also laid out the areas that we would define as core and adjacency. And if you just look at our track record, we for the most part have acquired tuck-in acquisitions, acquisitions where we can benefit from their existing customer base, but we can also take the product and move it into our existing channels and really leverage that. We’ve done that recently with INTEX and Structure. We’ve done that over a long period of time with the Ultralox acquisition, and so I think that kind of a feel of what we would look at, I think is gives you a good sense of the opportunity.
And then clearly there’s opportunities within the supply chain. We’ve continued to take advantage of the opportunity we see to expand our capability and recycling. And so those are directionally the areas that we would look at. I think the most important takeaway is we really like our business model. We’re really well set up to continue to drive above-market growth in our core. So anything we do is really going to be around strengthening the core and making sure that we set ourselves up for continued growth in the segment that we love, which is the segment that we planned.
Adam Baumgarten: Got it. Thanks. And then just back to the sell-through being up double digits. Maybe if you could put a finer point on how much you think the composite decking market is growing versus that number?
Jesse Singh: It’s — I don’t know that I have a great sense of that. I think if you look over the last give or take, 12 months. I think what you would have heard is, in general, probably, give or take, around 5%, and we’ve been growing 5% over that. I think, unfortunately, we’re in a market where you make judgments on market growth looking backwards. But I certainly think there’s enough data to show that as a market segment, we — the composite decking area, deck, rail and accessories is outgrowing the underlying R&R market. And I think it just highlights the resiliency and the continued material conversion.
Adam Baumgarten: Got it. Thanks.
Operator: And that concludes the question-and-answer session. I’ll turn the call to Jesse Singh for closing remarks.
Jesse Singh: Really appreciate everyone taking the time once again in the evening to have a discussion with us, as always, reach out with questions. We look forward to having ongoing dialogue and chatting with you again next quarter. Thanks, and have a great evening.
Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect your lines.
