The AZEK Company Inc. (NYSE:AZEK) Q4 2023 Earnings Call Transcript

The AZEK Company Inc. (NYSE:AZEK) Q4 2023 Earnings Call Transcript November 28, 2023

The AZEK Company Inc. beats earnings expectations. Reported EPS is $0.36, expectations were $0.29.

Operator: Welcome to The AZEK Company’s Fourth Quarter Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to Eric Robinson, please go ahead. Eric.

Eric Robinson: Thank you, and good afternoon, everyone. We issued our earnings press release and a supplemental earnings presentation this afternoon to the Investor Relations portion of our website at investors.azekco.com. The earnings press release was also furnished via 8-K on the SEC’s website. I am joined today by Jesse Singh, our Chief Executive Officer; and Peter Clifford, our Chief Operating Officer and Chief Financial Officer. I would like to remind everyone that during this call, we may make certain statements that constitute forward-looking statements within the meaning of the federal securities laws, including remarks about future expectations, beliefs, estimates, forecasts, plans, and prospects. Such statements are subject to a variety of risks and uncertainties as described in our periodic reports filed with the Securities and Exchange Commission that could cause actual results to differ materially.

We do not undertake any duty to update such forward-looking statements. Additionally, during today’s call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. These non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of such non-GAAP measures can be found in our earnings press release which is posted on our website. Now, let me turn the call over to AZEK’s CEO, Jesse Singh.

Jesse Singh: Good afternoon, and thank you for joining us. The AZEK team once again delivered strong results this quarter, including a 27.6% net sales growth year-over-year, a net profit margin of 11%, and a record fourth quarter adjusted EBITDA margin of 27.4%. Our Residential business grew 37.6% in the fourth quarter and approximately 5% year-over-year, delivering an eighth straight year of net sales growth. I’m very proud of how the AZEK team was able to navigate in an uncertain market and consistently deliver against our commitments. The team outperformed by driving above-market revenue growth and by delivering against productivity initiatives, resulting in significant adjusted EBITDA margin expansion in the second half of the year.

Our focus on cash conversion and capital allocation throughout the fiscal year, including working capital efficiencies and disciplined capital expenditures, delivered strong free cash flow generation of $274 million and returned a $115 million to shareholders through share repurchases. AZEK sales performance was driven by continued double-digit sell-through growth in our Residential business overall and in each of our leading Deck, Rail and Accessories, and Exteriors categories, which outperformed in an uncertain repair and remodel market. We saw growth in both our Residential Pro and our Retail channels as we benefited from the execution of our initiatives. In addition to our shelf space gains and core decking interim growth, we saw great results from new products and planning in our Exteriors business and aluminum rail in outdoor living.

Our Residential segment’s 5% year-over-year net sales growth in fiscal year 2023 was stacked on top of 12% growth in fiscal 2022, and 35% growth in fiscal 2021. On a calendar year basis, we see similar results with the business growing 31% in calendar 2021, and 4% in calendar 2022 during the inventory unwind within our channel. We expect this growth to continue in this calendar year. Assuming the midpoint of our December quarter-end guidance for calendar 2023, we would expect our Residential segment to grow approximately double digits year-over-year in calendar 2023. We believe that this highlights not only the resiliency of our sub-segment but also the specific and unique capability of the AZEK growth model. Our fiscal fourth quarter margins improved significantly and we delivered 750 basis points of adjusted gross margin of 45% and 600 basis points of adjusted EBITDA margin expansion to 27.4%, as we realized the benefits of excellent execution by our operations team delivering on productivity initiatives and increased production levels while reinvesting in marketing and branding.

Cash conversion and disciplined capital expenditures continue to be a focus and in the fourth quarter, we generated free cash flow of $92 million, growing $83 million year-over-year. Our strong free cash flow generation during the quarter supported approximately $61 million worth of share repurchases. Channel inventories have been conservatively positioned through our fiscal year-end and we are proactively managing our finished goods inventory levels to maintain high levels of service. In addition, the business has operated with normalized operating and inventory cadence with lower lead times and our channel partners continuing to purchase as needed and managing inventory below historical averages. In October, we also announced the sale of our Vycom business which closed earlier this month.

Vycom is a great business and is a leader in industrial plastic sheet manufacturing. We believe that the transaction puts both businesses in a better position to achieve future success. This strategic move simplifies our portfolio and further focuses AZEK on our strategic higher growth and margin opportunities in the repair and remodel and outdoor living markets associated with our Residential segment. As stated in our strategy, we also take a portfolio approach to revenue growth and margin expansion. During 2023, we successfully launched new products including TimberTech Advanced PVC Landmark in Boardwalk and TimberTech Composite Reserve, and retrained Chestnut along with railing options and an expansion of our Exteriors portfolio. We recently hosted hundreds of our contractor and dealer partners in our TimberTech Championship PGA Tour Champions event where we had the opportunity to engage in valuable discussions, gather feedback, and preview our new products for the 2024 building season.

Among these product launches are the introduction of the new and improved TimberTech Composite Terrain+ Collection, new TimberTech Aluminum Substructure Framing, new TimberTech Railing Horizontal Cable Infill, and new AZEK Exteriors Bevel Siding. We are expanding our position with the homeowner with better style, design, and performance and strengthening our already strong position with Pro, with an expanded offering of products that increase contractor labor, productivity, and efficiencies. Our partners are excited about the opportunity created by these new products. During the year, we continued to make progress on our recycle initiatives and increased the amount of recycled content we use in our TimberTech Advanced PVC decking and our Exteriors products.

We also expanded the geographic reach of our high recycle content, PaintPro Prefinished Siding and Trim solutions, and welcomed Lumbermen’s and Weyerhaeuser as new prefinishing partners. The expansion enables us to provide high-quality Prefinished Siding and Trim from the Northeast to Washington State. Overall, we are well positioned to capitalize on the momentum from both our shelf space gains and brand awareness increases in 2023 as well as our slate of new products for 2024. We are also pleased to be recognized for several workplace awards this past quarter. For the first time, AZEK was named a 2024 Best Company To Work For in the construction and materials category by U.S. News and World Report, as well as a top Chicago Workplace for the third year in a row.

One of our core values is, the best team wins, and we’re pleased to be recognized for our commitments and actions towards this shared goal, further strengthening AZEK’s position as an Employer of Choice. As we look towards 2024, we are confident in our business strategy and our ability to deliver long-term above-market growth and margin expansion. Key digital metrics highlight continued elevated interest in our TimberTech brand and we continue to see growing consumer engagement with website traffic, leads, and sample orders showing year-over-year growth during the fourth quarter. Outdoor living spaces have been ranked the number one most popular Home Exteriors remodel for the last 10 years according to the American Institute of Architects. Our October quarterly total contractor and dealer surveys indicate they remain busy and have a cautious outlook for growth in 2024.

Contractors continue to add backlogs of approximately eight weeks overall and anecdotally, some have indicated that their sales process is returning to a pre-pandemic normal. In addition to the stability of our existing contractors and dealers, we continue to expand our network, allowing us to access more of the market and drive incremental share and wood conversion. In fiscal 2023, we added over 1,000 contractors into our Pro Loyalty Program, driven by continued education and awareness of the composite category, and the TimberTech brand. We continue to see positive Residential sell-through growth and demand indicators such as our customer surveys and digital metrics remain constructive as we begin the fiscal year 2024. While we continue to see favorable demand indicators, we acknowledge the continued macroeconomic uncertainty, mixed consumer confidence, and the potential for a slower repair and remodel market.

Our fiscal year 2024 planning assumptions assume a flat to down repair and remodel market and consistent with our historical track record, we would expect to outperform the market driven by AZEK-specific initiatives, including materials conversion, channel expansion, new product innovations, and customer journey initiatives. We believe that our business model combined with our margin opportunities, will provide us an opportunity to continue to grow sales and EBITDA for our Residential business in fiscal 2024. For the full fiscal year 2024, we expect that the sale of the Vycom business will reduce Commercial segment sales by approximately $77 million and adjusted EBITDA by approximately $17 million on an annualized basis. Taking that adjustment into account, AZEK expects consolidated net sales in the range of $1.335 billion to $1.395 billion and adjusted EBITDA in the range of $320 million to $335 million.

Adjusting for the Vycom sale, our net sales guidance would imply 3% to 8% year-over-year growth and 15% to 20% year-over-year adjusted EBITDA growth. Peter will provide more context on our guidance as we continue to see the opportunity to drive above-market growth and margin expansion. I will now turn the call over to Peter to provide some additional context on our financial results and outlook.

Peter Clifford: Thanks, Jesse, and good afternoon, everyone. As Eric highlighted at the beginning of the call, we have uploaded a supplemental earnings presentation on the Investor Relations portion of our website. Before we get into the fourth quarter and fiscal year 2023 results, I wanted to take a moment to reflect on the past year. When we offered our planning assumptions back in November 2022, we were operating in an uncertain environment at the time the market was digesting the unknown impact of the Fed’s cumulative interest rate hikes on both the repair and remodel spend and consumer sentiment. At the time of our guidance, we were getting questions around, would material conversion continue in a down market. Would pricing hold in a deflationary environment?

Would we see the expected deflation and a slowdown? Could we manage our plants effectively from both an efficiency and capacity perspective to see if the upside of the market was better than expected? Could we manage our channel inventory conservatively and keep best-in-class service levels? Could we drive strong cash conversion to support a repurchase program to take advantage of dislocations? On all these points, the AZEK team was able to effectively manage the business and outperform expectations in fiscal 2023. Our new product development and growth initiatives drove continued material conversion. We were able to sustain pricing in a more normalized commodity environment. We appropriately managed capacity and manufacturing costs and were able to quickly react to stronger decking season by ramping production, while continuing to maintain industry-leading service.

And finally, our strong results and healthy cash generation allowed us to support our share repurchase ambitions during the year. To sum it all up, we had set challenging targets at the outset of the fiscal year in a period of uncertainty, and we led the business to exceed those commitments. And when we talk about fiscal 2024, we once again encounter a similar economic backdrop. Despite this backdrop, we have confidence and credibility to deliver in fiscal 2024 based upon the execution we demonstrated in fiscal 2023. As Jesse mentioned upfront, during the fourth quarter, we continued to see a positive demand environment in our Residential business. Sell-through remained equally strong through the season, and contractor backlogs have been stable for the last four quarters at approximately eight weeks.

At the same time, our digital KPIs remained strong and we used our positive sell-through and results to continue to accelerate investment and brand awareness in both the quarter and the year. We believe we are already reaping the benefits of these brand investments. From an operating perspective, our production returned to normalized levels in the fourth quarter, albeit up substantially year-over-year due to the lapping of a large fiscal 4Q ’22 channel inventory reduction. We continued to maintain strong service levels during the quarter while executing against our own full-year inventory reduction plan, drawing down inventory year-over-year by $79 million. On the commodities front, key raw materials have remained stable at meaningfully lower input costs, supporting our material savings.

The combination of double-digit residential sell-through growth, coupled with strong execution against our material savings, conversion cost, and recycling initiatives, helped us achieve record adjusted EBITDA margins during the fourth quarter. For the fourth quarter of fiscal 2023, we grew net sales by 28% year-over-year to $388.8 million, which was above our guidance expectations. The fourth quarter growth was driven by the strength in the Residential segment, partially offset by declines in our Commercial segment. 4Q ’23 gross profit increased by $77.8 million, or 108% year-over-year to $149.7 million. 4Q adjusted gross profit increased by $60.6 million or 53% year-over-year to $174.8 million. Our adjusted gross profit margin percentage increased 750 basis points year-over-year to finish at 45%.

The adjusted gross profit increase was driven primarily by material deflation, manufacturing productivity, execution against material cost productivity initiatives, and a one-time utilities reimbursement of approximately $2 million. SG&A expenses increased by $17.5 million to $85 million. The bulk of the year-over-year increase was driven by our continued commitment to make investments in marketing and brand awareness. Adjusted EBITDA for the fourth quarter increased by $41.3 million, or up 63% year-over-year to $106.4 million. The adjusted EBITDA margin rate for the quarter increased 600 basis points year-over-year to 27.4%. The primary driver of the year-over-year change in adjusted EBITDA was the impact of material deflation, manufacturing productivity, execution against material cost productivity initiatives, and a one-time utilities reimbursement of approximately $2 million, partially offset by continued investment in marketing and branding.

Net income for the fourth quarter increased by $47.4 million to $42.6 million, or $0.28 per share. Adjusted net income for the fourth quarter increased by $29 million to $53.5 million, or adjusted diluted EPS of $0.36 per share. Now turning to our segment results. Residential segment net sales for the fourth quarter was $350 million, up 38% year-over-year. Within the Residential segment, we saw positive growth in both Deck, Rail, and Accessories, and Exteriors, while our StruXure smart pergolas business navigated some destocking during the year. Residential segment adjusted EBITDA for the fourth quarter came in at $118 million, up approximately 83% year-over-year. Residential segment adjusted EBITDA margins were up 830 basis points year-over-year to 33.7%.

Commercial segment net sales for the quarter were $39.2 million, down 22% year-over-year. These results were in line with our previous quarter’s commentary and expectations. Within our Commercial segment, Vycom net sales came in at $17.5 million, down approximately $8.6 million year-over-year. Commercial segment adjusted EBITDA for the quarter came in at $9.2 million, a decrease of $5.3 million year-over-year. Within our Commercial segment, Vycom adjusted EBITDA was $3.3 million. It is important to note, despite a softer demand backdrop, we were able to hold our EBITDA margins for the segment at 23.6% in the quarter. From a balance sheet and cash flow perspective, we ended the quarter with cash and cash equivalents of $278 million and approximately $147 million available for future borrowings under our revolving credit facility.

Working capital defined as inventory plus accounts receivable minus AP was $223 million, down $118 million year-over-year. We ended the quarter with gross debt of $672 million, which included approximately $79 million of finance leases. Net debt was $394 million and our net leverage ratio stood at 1.4 times at the end of the fourth quarter. Net cash from operating activities was $127 million during the fourth quarter, an increase of $87 million year-over-year. Capital expenditures for the quarter were approximately $35 million. For the full year fiscal 2023, free cash flow increased by $339 million year-over-year to $274 million. As expected, we were active during the quarter with our share repurchase program, repurchasing approximately $61 million worth of shares at a weighted average of $32.70 per share.

Given the strength of our cash position, we expect to be active again in the fiscal first quarter with our share repurchase activity. As a reminder, the remaining authorization under our share repurchase program is approximately $202 million. Our capital allocation priorities remain the same. As we previously communicated, we will continue to invest in our business, both organically and inorganically, and to the extent we have excess cash flow, we will look to repurchase shares opportunistically. As we turn to the outlook, let me provide some context and color on what we are assuming for the upcoming fiscal year. As a reminder, we announced the divestiture of our Commercial segment’s Vycom business in October 2023. Starting in fiscal 2024, from a reporting perspective, we expect to combine all corporate expenses into the Residential reporting segment and will continue to report Scranton Products within the Commercial reporting segment.

In other words, the new Residential segment adjusted EBITDA definition combines Residential EBITDA plus corporate expenses. We believe this change in segment reporting will help investors more easily compare our Residential business with fellow building products peers. To assist with modeling, Vycom net sales and adjusted EBITDA ended the fiscal year 2023 at $77 million and $13 million, respectively. As a result of the divestiture, we will incur new expenses associated with an arm’s length supply agreement between Vycom and Scranton Products to supply sheet with a total additional impact of approximately $4 million per year. Adjusted EBITDA for fiscal 2024 as a result of the transaction will be impacted by approximately $17 million, which is reflected in our planning assumptions for fiscal 2024.

As previously communicated, the Vycom sale will result in cash taxes of approximately $21 million to $23 million and an effective tax rate of approximately 53% to 56% in the first quarter due to the gain on the sale and a 32% to 33% effective tax rate for the full year. Normalized to exclude the gain on the sale from the Vycom transaction, the effective tax rate is approximately 27%. I also wanted to revisit the previously communicated known carryover tailwinds that we have headed into fiscal 2024, adding to our confidence and conviction heading into the year. As a reminder, about what we’ve discussed over the past few quarters, we experienced approximately $20 million of negative impact from underutilization in the first half of fiscal 2023, which we expect not to reoccur in fiscal 2024.

We also carry approximately $20 million in known deflation currently on our balance sheet, which will flow through the P&L in 2024. The sale of Vycom business modestly reduces some of the underutilization and deflation carryover tailwind by approximately $5 million, and we will continue to expect to invest in marketing growth activities. Finally, on the revenue side, recall that in prior year 1Q ’23, we experienced approximately $30 million to $35 million of net sales headwind from our channel inventory reductions, which we expect not to reoccur in fiscal 2024. With that context, let me move to the planning assumptions for fiscal 2024. We are assuming for the full year that repair and remodel will be flat to down low single digits. For the items in our control, we are confident in our execution skills and ability to continue to drive above-market growth.

We are carrying over AZEK-specific initiative wins into 2024. We will lap the 1Q ’23 channel inventory reduction, which gives us confidence in our ability to grow our Residential net sales by approximately 5% year-over-year in fiscal 2024 at the midpoint of our planning assumptions. The sum of these carryover impacts and growth assumptions drives our high-level planning assumptions for the year to $1.335 billion to $1.395 billion in revenue and $320 million to $335 million in adjusted EBITDA. Adjusting for the Vycom sales, our net sales guidance range would imply 3% to 8% year-over-year growth and 15% to 20% year-over-year growth in adjusted EBITDA. Our Residential segment planning assumptions for the year is $1.262 billion to $1.318 billion in net sales, and $306 million to $319 million in segment adjusted EBITDA, representing 3% to 8% sales growth year-over-year and 18% to 23% segment adjusted EBITDA growth when combining corporate expenses with our Residential reporting segment, as mentioned earlier.

A few other assumptions to share include the following. We expect strong gross margin performance, enabling us to continue to invest in growth-oriented marketing and brand awareness initiatives. We’re expecting capital expenditures in the range of $70 million to $95 million, consistent with our publicly stated target of CapEx of approximately 5% to 7% of revenue. We are expecting depreciation of approximately $87 million to $90 million. We are targeting working capital reduction of approximately $10 million to $20 million for the year. And finally, as detailed earlier, we are expecting a GAAP tax rate for the full year of 32% to 33%. For additional planning assumptions to assist with modeling fiscal ’24, please refer to the supplemental earnings presentation we have posted on our Investor Relations website.

Before we turn to our guide on the first quarter, I wanted to provide context for the operating environment we expect in fiscal 1Q ’24. For the quarter, we are expecting sell-through growth in the mid-to-high single-digit range, which as we know, is a seasonally smaller quarter as much of the country winds down the building season. From an inventory staging perspective, we expect the channel to remain conservative in line with last year’s behavior. As a reminder, this is the period of the year in which the industry negotiates shelf space positions and stages inventory in the channel ahead of the upcoming building season. AZEK historically ships the majority of our channel inventory build, otherwise known as early buy, in our second fiscal quarter, and we are assuming that effectively all of this volume will ship in fiscal 2Q.

Channel inventories were positioned conservatively at fiscal year-end and we are proactively managing our own finished goods inventory levels to maintain high levels of service. As a reminder, we are lapping a fiscal 1Q ’23 channel inventory reduction of approximately $30 million to $35 million. From a margin perspective, we expect to have approximately $20 million of carryover benefits, including approximately $10 million from lapping the prior year’s underutilization and $10 million of deflation in the first quarter. Taking these factors into consideration, our guidance for the quarter is $230 million to $236 million in revenue, and $45 million to $48 million in adjusted EBITDA. Adjusting for the Vycom sales, our net sales guidance range would imply 17% to 20% year-over-year growth and $33 million to $36 million year-over-year growth in adjusted EBITDA.

We are expecting an effective tax rate of approximately 53% to 56% for the quarter, which again is higher as a result of the gain on the sale of Vycom business. Our team is excited, engaged, and well-prepared to tackle the environment in front of us in fiscal 2024. With that, I’ll now turn the call back to Jesse for some closing remarks.

Jesse Singh: Thanks, Pete. I would again like to thank our dedicated team members, channel and supplier partners, and contractors that support the AZEK Company. Thank you for your contribution and a strong finish to the fiscal year. We remain incredibly excited about the long-term material conversion opportunity ahead of us in the large and fast-growing Outdoor Living and Home Exteriors markets that AZEK plays in. Our Residential segment has continued to show remarkable resiliency and growth capability. The business has delivered a compounded annual growth rate of 11.6% over the last 10 years and 17.7% over the last five years. Our fiscal year 2023 results reflect the strength of our industry-leading position, our focus on strategic growth initiatives, the resiliency of our markets, and the significant margin expansion opportunities ahead of us.

Our strong free cash flow generation puts us in a great position from a capital allocation perspective to invest in growth opportunities and opportunistically participate in share repurchases. Our team’s focus on operational excellence to drive above-market growth and margin expansion across any market condition puts us in a position of strength as we begin fiscal year 2024. With that, operator, please open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Tim Wojs from Baird. Please go ahead.

Tim Wojs: Yeah. Hey, guys. Good afternoon. Nice job. Maybe just kind of starting on the sales guide. So, I guess at the midpoint, you’re guiding about 5% to 6% Residential growth. In an R&R market that’s maybe down, 1% to 2%. So, 7% to 8% outgrowth. Maybe just talk about, the big pieces of that and kind of what’s internal, what do you kind of have visibility to? And if there is outperformance in your eyes in fiscal ’24, does it really come from internal initiatives or is it really going to be a better market at this point?

Peter Clifford: Yes, Tim. This is Peter. The geography of the 7%, there about two points of that is the inventory lap, and then the other 5% is really our initiatives. And I would say right now, a little more than maybe half of that is carryover from Commercial initiatives and shelf space wins from last year at both Pro and Retail.

Tim Wojs: Okay. Good. And then just on shelf space, I mean was there anything, I guess, unique in fiscal ’23 on some of the shelf space gains? Just double digits, kind of sell-through growth, I think it’s faster than what some of your peers are reporting. I’m just kind of wondering if there’s anything in there that’s kind of chunky or is it really just, representative of some of the investments you guys are making?

Jesse Singh: Hi. Excuse me. By the way, I apologize for my voice. Apparently, I’ve been talking to customers a bit too much here. So, relative to your question, most of the pickups we’ve had or, expansions that you talk about, were pretty normalized volume feathering in. And so, as Pete pointed out, you should think of it as, as we expand our position, there’s not a huge amount of sell-in. A lot of it is just incrementally being added to a position which then yields benefits, month-to-month. And obviously, we added it in some cases at the beginning of last year, in some cases in the middle of last year. So, you start to see the benefit as we move forward. And just as you highlighted, we saw double-digit sell-through growth in both of our core channels, both Retail and in the Pro channel.

Tim Wojs: Very good. Good luck on the — to you guys. Thanks.

Operator: Your next question comes from the line of Keith Hughes from Truist. Please go ahead.

Keith Hughes: Yeah. Thanks. Building on that, you talked about double-digit sell-through in the quarter, kind of mid-single digits in the fiscal first quarter that’s coming up. I guess the question is, has something slowed or is this a function of comps or taking a conservative stance? Maybe just talk around what’s happening in these periods.

Jesse Singh: Yeah. There’s a natural question of, where we sit now. Have we seen any kind of a slowdown from what we described in the fourth quarter? And I would say things continue as we’ve seen it in the last quarter, as we moved into this quarter. We just think it’s appropriate, given that December tends to be a light month, to assume a more conservative average as we go through the end of this quarter. But in general, things have continued pretty consistently for the last six months with that double-digit sell-through growth. And if we do happen to see some incremental volume, I mean, we would probably use that as best we can to, to manage inventory even more conservatively in the channel.

Keith Hughes: Okay. And you’re at the point that your customers, your distributor customers, are just ordering to replace things that are going out the door. Is that correct?

Jesse Singh: Yes.

Keith Hughes: Okay. One final question. In the reported quarter and in your guidance, have you seen or are you expecting any price, or is the growth you’re describing here all volume?

Peter Clifford: You should think price is kind of negligible for the year, to be modestly positive, but again, negligible.

Keith Hughes: Okay. Great. Thank you very much. Thank you.

Operator: Your next question comes from the line of Matthew Bouley from Barclays. Please go ahead.

Matthew Bouley: Hey. Good afternoon, everyone. Thanks for taking the questions. Sticking on the same topic of sort of outperforming the end market growth next year. Did I hear you say that a lot of that outperformance is actually just kind of the carryover of some of the wins that you built on last year? And so, if that’s the case, my question is, do you have line of sight the potential for new business wins, additional new products as you kind of roll out through the year, things like that? Things that are sort of reminiscent of your Investor Day, where you spoke about that kind of annual, internal drivers of above-market growth. Is there room for additional, beyond just that kind of carryover that you’re speaking to?

Peter Clifford: Yes. I, first, on the point of carryover. As Pete mentioned, we have a little bit of inventory lapping carryover pretty modest, and then we’ve got some additional carryover where we feel confident that the wins we’ve already secured will give us an opportunity. And then on top of that, we expect to continue to drive our initiatives. I think the way you should think of, our focus on driving above-market growth is, we’re not trying to land the plane at a specific number or a specific percentage. I think our intent is to always continue to drive over-performance. And in this particular case, we’re giving you a range that we feel comfortable that we’re able to achieve given an uncertain market, and given the execution that we already see ahead of us.

We’re going to constantly, focus on expanding our portfolio. We announced a number of new products, and many of those allow us to access some adjacencies and incremental positions. And so, you should assume we’re always striving for something bigger. We’re just giving you what we think is an appropriate planning assumption as we move into next year.

Matthew Bouley: Got it. Thanks for that, Jesse. Second one, just thinking about recycling and the progress there, again, going back to the Investor Day, you guys had outlined, a potential material uplift to margins from mixing towards, greater usage of recycled materials. So, my question is, where are you on that now, and kind of thinking about that EBITDA bridge for next year, what’s implied in the guide around, benefit from, mixing towards recycled materials?