JELD-WEN Holding, Inc. (NYSE:JELD) Q1 2025 Earnings Call Transcript

JELD-WEN Holding, Inc. (NYSE:JELD) Q1 2025 Earnings Call Transcript May 6, 2025

Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I’d like to welcome everyone to the JELD-WEN Holding, Inc. First Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to James Armstrong, Investor Relations. You may begin.

James Armstrong: Thank you, and good morning. We issued our first quarter 2025 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I am joined by Bill Christensen, Chief Executive Officer; and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC.

JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today’s call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix of our earnings presentation. With that, I would like to now turn the call over to Bill.

William Christensen: Thank you, James, and good morning, everyone. Before we begin, I want to take a moment to express my sincere appreciation to our employees. Your continued dedication, adaptability and focus have been essential to the progress of our transformation, enabling us to consistently deliver for our customers even in the face of significant market challenges. I also want to thank our customers for their ongoing trust and collaboration as we jointly navigate this highly dynamic market environment. The strength of these partnerships is critical to our long-term success, and we remain fully committed to providing the exceptional quality, dependable service and product reliability that you have come to expect from JELD-WEN.

Today, I’ll start by providing a high-level overview of the quarter, after which Samantha will discuss our detailed financial performance and outline the impacts of the evolving tariff situation. Following Samantha’s remarks, I’ll return to offer further insights into current market dynamics and our approach to managing them. Turning to Slide 4, and our first quarter highlights. The soft demand environment and corresponding adjusted EBITDA performance, we anticipated during our previous earnings call, largely materialized as expected. Volume pressures intensified notably during the quarter with both our North America and Europe segments experiencing double-digit volume declines. Further complicating this landscape, tariffs have introduced additional planning uncertainty into our market outlook.

As a result of this significant short-term volatility, we are withdrawing our full year guidance. Despite these challenges, we remain focused on controlling factors within our direct influence. We continue to successfully advance our transformation projects, achieving important milestones and operational improvements as well as safety. We also announced 2 additional network changes since the beginning of this year in Grinnell, Iowa and Chiloquin, Oregon. However, as Samantha will detail shortly, even with recent reductions in headcount, we have faced ongoing productivity headwinds as costs have not decreased at the pace required to fully offset the lower demand levels experienced in the first quarter. To address this gap, we are taking steps to align our operations with current order rates while actively pursuing additional opportunities to strengthen our partnerships with key customers in support of focused growth initiatives.

With that, I’ll hand it over to Samantha to review our financial results in greater detail.

Samantha Stoddard: Thank you, Bill. Turning to Slide 6. As Bill noted, the first quarter was indeed challenging. However, our results were largely in line with our prior expectations. Revenue for the first quarter was $776 million, representing a 19% decline year-over-year. Of this decline, approximately 15% was due to lower core revenues, reflecting anticipated volume reductions across both our North America and Europe segments. The remaining 4% primarily resulted from the court order divestiture of our Towanda operations, which also negatively impacted our year-over-year comparisons. Adjusted EBITDA for the quarter came in at $22 million, a decrease of $47 million compared to the prior year. This was mainly driven by significantly lower volumes and slightly unfavorable mix, resulting in an adjusted EBITDA margin of 2.8%.

Turning to cash flow. Free cash flow was a use of $125 million in the first quarter, including $42 million in capital investments. This compares to a $46 million use of cash in the first quarter of 2024. The year-over-year decline was primarily driven by lower EBITDA combined with unfavorable working capital dynamics. Specifically, working capital was a $30 million use of cash this quarter, compared to a contribution of $22 million in the first quarter of 2024, primarily related to the timing of accounts receivable last year. Additionally, in the first quarter, we received approximately $110 million of net proceeds from the court order divestiture of our Towanda facility. Given the pressure from lower EBITDA and continued investment in our transformation initiatives, our net debt leverage ratio increased to 4.6x.

This level of leverage exceeds our targeted range of 2 to 2.5x and reducing leverage remains one of my highest priorities. To accomplish this, we remain intensely focused on driving EBITDA improvement, exercising disciplined capital allocation and carefully managing working capital as we progress through 2025 and beyond. As shown on Slide 7, the first quarter revenue decline was primarily driven by a 16% decrease in volume and mix, about half, which was due to the carryover of the loss of business at the Midwest retailer and the court order divestiture of Towanda, with the other half associated with ongoing market declines. While product mix had a more pronounced impact in prior quarters, it has now largely stabilized. And the current revenue pressure is predominantly related to continued weakness in volumes.

Additionally, revenue was negatively impacted by the divestiture of our Towanda operations as well as the modest headwinds from unfavorable foreign currency translation associated with the Canadian dollar. In a few moments, I’ll provide additional context and more detailed insights into the underlying market trends affecting our North America and Europe segment. As shown on Slide 8, adjusted EBITDA declined by $47 million year-over-year, primarily reflecting the significant volume declines experienced during the quarter. As anticipated, we continue to face notable cost pressures from labor and material inflation, resulting in negative price cost dynamics. Additionally, the lower volume levels created operational inefficiencies across our manufacturing network, further weighing on overall productivity and EBITDA performance.

Moving to our segment results on Slide 9. Our North America segment reported revenue of $531 million for the first quarter, representing a 22% decline compared to the prior year. Of this, core revenues decreased by 17%, primarily driven by lower volumes. Unlike last year, when product mix significantly impacted results, first quarter decline was predominantly driven by volume reductions. Adjusted EBITDA for North America declined to $16 million, compared to $61 million in the same quarter last year. This decrease reflects the negative impact of lower volumes, slightly unfavorable price cost dynamics and productivity challenges resulting from the reduced manufacturing throughput. In Europe, revenue for the first quarter was $245 million, down 12% year-over-year driven almost entirely by lower volume.

Adjusted EBITDA was $11 million, a decline of $4 million from the prior year, resulting in an adjusted EBITDA margin of 4.3%. While we achieved productivity improvements in the region, they only partially offset the adverse impacts from reduced volume and modestly negative price cost pressures. Before I hand it back to Bill, I’d like to briefly address the topic we know is top of mind for many investors, tariffs. Turning to Slide 10, we provide a detailed breakdown of our estimated tariff exposure by country based on current tariff rates. At today’s tariff levels, we anticipate an annualized impact of approximately $55 million, with roughly $30 million of this amount expected to affect our 2025 results. Importantly, we expect to offset these tariff costs by passing them through to our customers, though we anticipate minor timing-related impacts in the second quarter.

As illustrated in the graph, we remain relatively well positioned with regard to direct material costs with only 13% of our Tier 1 and Tier 2 supplier spend currently exposed to potential tariffs. Additionally, direct material sourcing from China represents less than 1% of our total material spend. The total exposure, including our Tier 2 suppliers, is closer to 5%. We believe our limited direct exposure provides us a relative advantage in the near term. However, should tariff levels stabilize, we expect significant activity in our sector to optimize supply chains and adapt to the new market dynamics, but this will not happen overnight. That said, this remains a highly fluid and evolving situation. We remain focused on planning proactively and maintaining flexibility.

Again, we anticipate recovering the majority of tariff-related costs. However, the demand implications are unpredictable, given the unprecedented nature of this situation. With that, I’ll turn it back over to Bill, who will now provide further details on our updated market outlook.

William Christensen: Thanks, Samantha. We are currently navigating an exceptionally challenging macroeconomic environment. Interest rates remain elevated, consumer confidence has declined to levels comparable only to those seen during the pandemic and the early 1980’s, affordability remains a key topic, new homebuilder traffic did not experience the typical seasonal spring increase and many economists now estimate that the likelihood of a global recession is approximately 50%. These conditions have already begun to weigh heavily on new home construction and continue to put further pressure on repair and remodel activity. Despite these significant headwinds, we remain focused on controlling the factors we can control, as outlined on Slide 12.

First, we are actively enhancing our production capabilities to improve both quality and lead times. At our [Kisimee], Florida facility, for example, which was impacted by volume shifts related to our network consolidation as a receiving site, we recently completed a focused 10-week sprint. This sprint resulted in substantial improvements in both product quality and our on-time in full performance metrics. While there is still room for further improvement, the facility is on track to meet our targeted goals this quarter. Second, we are adapting swiftly to meet the evolving needs of new homebuilders. Given ongoing affordability concerns, we are collaborating closely with select builders to help reduce their total costs and enhance their service experience.

These targeted efforts have already enabled us to secure meaningful new business, placing us ahead of our internal plan for the first quarter of this year. Nevertheless, we see further opportunities to increase our relatively low market share among new builders. Finally, we have made difficult, but necessary decisions to significantly reduce head count during the quarter. By consolidating workflows and further optimizing staffing levels, we continue to adapt our workforce to the realities of our current business environment. However, additional efforts are required, particularly regarding direct labor, and we are moving rapidly to address these productivity challenges. Turning to Slide 13. Despite the decisive actions we continue to take as a company, market uncertainty has recently increased significantly.

As we see it, the broad range of outcomes in the economy yields a wide distribution of potential outcomes for building products as well as our business. That being said, we do want to provide some clarity around near-term expectations and anticipate that our second quarter adjusted EBITDA will be slightly above first quarter levels. Although we continue to experience softer-than-expected demand in our North America operations across both new construction and the repair and remodel segment, our cost reduction initiatives are rapidly taking effect and helping offset some of this pressure. We remain focused on cash flow maintenance and generation in light of the increased probability of a potential recession. We continue to fully commit to the transformation journey and have taken significant cost out of the business.

We believe this will both position us well for the future and allow us to weather any coming turbulence this year. In addition, we expect our transformation initiatives this year to achieve approximately $100 million in ongoing transformation benefits and $50 million of additional benefits from short-term actions with about 40% of the total benefits realized in the first half of the year and the remaining 60% in the second half. Consistent with our strategic plan, we still anticipate investing approximately $150 million in capital expenditures this year as we continue to further strengthen the business and position us effectively for the future. Despite the ongoing market turbulence, we are executing diligently on the next phase of our strategic plan, positioning JELD-WEN effectively for long-term success.

Turning to Slide 14. I would like to reiterate our 3 key strategic priorities. First, we continue to reestablish strong partnerships with our customers. We are actively enhancing our service levels across all parts of our business, reducing lead times and doing so safely, demonstrated by meaningful year-over-year improvements in our safety metrics. By consistently emphasizing safety, quality and on-time delivery and linking variable compensation to these critical metrics, we are increasingly able to deliver precisely what customers expect, the right product with the right quality, on time and in full. Second, we are optimizing our manufacturing and distribution network. The recent market challenges underscore that we still have excess capacity with too many facilities operating below optimal utilization levels.

We are taking a disciplined and strategic approach to realigning our long-term operational footprint, carefully balancing the right level of capacity with the need to minimize disruption and improve customer service. Finally, we are continuing to invest in automation to drive efficiency and reduce costs. As we have noted previously, historical underinvestment has resulted in a fragmented and inefficient network. We remain committed to investing in automation and process improvements to enhance productivity, reduce complexity and strengthen our competitive position. Entering 2025, we anticipated challenging market conditions. However, the magnitude of disruption we are currently experiencing global markets and its potential impact on consumer demand for doors and windows has exceeded our initial expectations.

In response, we are focused on measures to adapt quickly to these market realities, while still maintaining our commitment to the long-term improvement of JELD-WEN’s financial performance. I remain incredibly proud of our team’s dedication and hard work. We continue investing in the right systems, processes and people to drive sustainable long-term value creation. I’m confident in our team’s ability to navigate the current challenges effectively and I firmly believe we will be well positioned once markets stabilize and return to growth. Thank you once again for your continued support and interest. With that, I’ll now turn the call back over to James for the Q&A.

James Armstrong: Thanks, Bill. Operator, we are now ready to begin Q&A.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of John Lovallo with UBS.

John Lovallo : The first one is how confident are you in your ability to pass along the $30 million in [2020] — sorry, in 2025 tariff impact to your customers? I mean price cost is flat to negative across your business, pre-tariff. Customers are obviously large and growing. So I’m curious your ability to pass it along. And are there any other initiatives that you’re taking in terms of mitigation actions?

William Christensen: John. So we are in constant negotiation with our key customers as the tariff reality evolves. We have a great internal team that has been working almost around the clock when this was all being structured to really try and define what are the opportunities that we have, but also what are the challenges in our sales organization is in close contact with our customer base. Obviously, a lot of our customers are being faced with multiple inbound requests on different product cost increases. So negotiations are going well. I think the big issue, John, is the certainty around what are the corridors that will stick longer term? And how many more changes are coming. So we’re remaining as agile as possible when we’re thinking through the long-term implications of our sourcing cost base, and we’re already working with some of our key suppliers on reshoring opportunities, and we are onshoring capacity that we have available to create maybe in the short term, a higher cost base, but longer term, a lower cost base because it’s domestically sourced.

So we don’t see significant challenges in getting the surcharges into the market because at the end of the day, this is something that the whole market is going to have to work together to be as effective as possible. We continue to invest in a lot of the initiatives that are taking cost out of our system and making ourselves more effective, and that’s the counterbalance for us. So it’s basically 2 levers, working with our customers to pass through surcharges, but at the same time, continuing to optimize our cost structure, and that’s why the investments remain elevated to make sure we’re doing as much as we can to balance. And I think the big issue right now is maybe not the near term, it’s the longer term and the uncertainty in the second order that the tariffs could potentially have on demand in the channel, and that’s I think the bigger issue that people are really trying to figure out what’s the cone of probability, and it’s extremely challenging to define that given the current reality of uncertainty.

John Lovallo : Okay. Understood. And then on average, 2Q EBITDA has historically improved, call it, 40% to 50% quarter-over-quarter from the first quarter. I mean, how should we sort of think about the phrasing of your outlook that 2Q EBITDA will be slightly better seasonally compared to the first quarter in the context of that historical number? And how should we also think about sales quarter-to-quarter from 1Q to 2Q?

William Christensen: Yes. So I mean, I think you’re thinking about it correctly, John. As we look at it, typically, we experience a seasonal uptick in 2Q versus 1Q. It was very muted last year. It was there, but it was very soft. We are not seeing a significant rebound this year that would be typical with kind of a spring reload for a summer build. So I think that’s the first message. The second message is we would expect a seasonal uptick, albeit off of a low base. And if we look at kind of how things were tracking, Samantha went through some of the details on our Q1 sales down roughly 19%, we see similar rates as we’re rolling into April. So it’s muted the rebound, and I think that has to do with the uncertainty. So we’re thinking that there will be a quarter-over-quarter uptick, but off of a lower base. And maybe Samantha has more detail on that for you.

Samantha Stoddard: Thanks, John. I think in terms of this year, looking into Q2, I agree with everything Bill shared, but we haven’t really seen a lot of the tariff-related impact into the demand in Q1. And we saw, I would say, in April, again, more muted activity and demand than we would have expected. And just given where we are in the year and the range of the different outcomes, we want to be able to provide as much commentary on the near term where we have the most visibility.

Operator: And your next question comes from the line of Phil Ng with Jefferies.

Philip Ng : I appreciate all the good color and an uncertain macro backdrop. Bill, it was encouraging to hear you say you’re expecting the $150 million in mitigation actions from transformation and cost out to kind of still kick in. The flow-through in the first half seems relatively muted. How should we think about that dropping through in the back half? Appreciating volumes did have an impact in 1Q productivity was negative? Just kind of help us think through that flow through in the back half?

William Christensen: Yes. So I think roughly 40-60, Phil, so [indiscernible] reason why it’s loaded more to H2 as some of the cost measures. So again, we have 100 transformation and 50 of on top cost. A number of those measures were actioned at the end of 1Q, so they’ll start dropping into 2Q and as we roll forward through the rest of the year. I think the one big variable and you hit it, Phil, on really us being able to capture the $100 million of transformation benefit is how do volumes develop because there are some productivity assumptions in there based on volumes as we roll forward. And as we’ve said in the prepared remarks, a number of our sites still remain underutilized. And with the limited rebound, we think that there’s going to be a challenging back half situation and potentially we’re going to see negative underlying productivity just based on that reality.

Hard for us to really pinpoint it, but we still feel confident in the transformation. We’re tracking it diligently and the additional 50, as I said, we’ve taken a lot of action in 1Q that will start dropping.

Samantha Stoddard: You can also see, Phil, in terms of the corporate costs, we were able to action that earlier in the year, and you’re starting to see that materialize in Q1. Expect that to continue in Q2 through Q4. When it comes to kind of the other cost actions, we talked about the plant-related actions in 2 plants that we’ve announced shutdown so far this year. So you will see that benefit in the latter half of the year. Unfortunately, to Bill’s point, because of the volume uncertainty and how that implies with our capacity, we would see a negative productivity underlying, that would be in addition to the cost actions that we’re actively pursuing.

Philip Ng : Okay. Appreciating dynamic environment, Sam. Your leverage was, call it, 4.5x in 1Q. You’re not calling for much of the seasonal improvement in earnings going to 2Q. I mean the quick math kind of implies leverage could be as high as high single digits. So kind of help us think through how you’re kind of managing that liquidity risk and what are some of the options you have to kind of improve your balance sheet in the near to medium term?

Samantha Stoddard: Sure. So first, I want to address the leverage comment. Our lending base does not have restrictive covenants, so we do not have issues from that standpoint. However, we do realize that that’s an unacceptable level, and we are closely managing both working capital as well as diligently reviewing every single CapEx request. We have not cut back at this point on CapEx because you can see the benefit from a cost action standpoint of our investment in the transformation, but we are reviewing every single project to make sure that it fits within our strategy, and it has the payback necessary. We are also, as we talked about prior, evaluating potential options like a sale-leaseback or other asset sales to further strengthen our balance sheet.

But I want to make sure everyone understands that we have ample liquidity for the foreseeable future, including our undrawn revolver. So from that standpoint, we feel we are on a good standpoint. We’re managing our cash appropriately, and we’re continuing to evaluate options that will further strengthen.

Operator: And your next question comes from the line of Susan Maklari with Goldman Sachs.

Susan Maklari : My first question is thinking about your position as a largely U.S.-based producer for your North America operations. Are you seeing or thinking about the potential that, that could help you regain some share in the market? Have you heard anything from customers initially? And any thoughts maybe on how some of those benefits could come through over time?

William Christensen: So I think the short answer is, yes, we see opportunity. I think the longer answer is it’s highly complex currently, Susan, given the uncertain nature of tariff corridors and magnitude. There are a few areas specifically I will name one, just to highlight fiberglass doors, there’s been a pretty significant uptick in imports — Asian imports on the lower end and obviously, the tariff levels that are currently in place and potentially going to hang around for a while, it makes those products extremely prohibitive from a price standpoint in the domestic market, ourselves and others our domestic manufacturers of fiberglass doors, so there’s clearly opportunities there. And we have been investing significantly in a number of our component manufacturing site, so that’s also opportunity that we’re already utilizing to pull some offshore components back onshore.

So I do think that there’s opportunity. I think it will take a while to settle, and I think a couple of things need to happen. Number one, ourselves and others in the supply chain need to have some longer-term certainty on what the levels really will be and then that will help. I think the industry, in general, start to reprice different products and allow people to really understand what’s the most effective sourcing strategy for those components given inflated price levels due to tariffs. And once that is set, and I think there’s going to be a much clearer path for us than others as to where are we investing domestically and what kind of opportunity do we see to bring business back in, but there are already discussions going on with key customers in certain areas that we think would be an opportunity for us.

Susan Maklari : Okay. That’s great color. And then you’ve mentioned efforts to improve your service levels, reducing your lead times to customers. I guess, can you just talk a bit more about how you’re thinking of those projects that you’re taking on this year? Any change given the macro environment? And anything we should be looking for as we think about just the path for margins this year or even in the back half relative to the weaker volumes that might come through?

William Christensen: Yes. So we’re — obviously, we’re staying very close to the volume reality and really going through different scenarios as we should to really try and understand what our impact range is based on volume scenarios, given tariff expectations and obviously then making assumptions on certain outcomes. As we look at our capital and what we’ve been doing to invest in our — strengthen the foundation piece of the work we’ve been doing, at least 50% of our CapEx is locked in to larger scoping projects that are really transforming our cost base in our domestic manufacturing. So that’s great news for us, and we’re starting to bring online one of our first large investments in Texas in the next couple of months that we’ve released 18 months ago.

So some of these things are starting to take shape, and we feel that will give us a pretty great opportunity to bring our cost to serve down, however, with the softness in the market, and the short-term uncertainty, we still are investing as we need to be in our footprint, which still is too large and we need to optimize, and some of these things are longer-term projects that we don’t feel that we should be turning off because we want to reap the long-term benefit. There are other shorter-term things where we’re shifting and reprioritizing as Samantha mentioned. But we feel very comfortable that we are absolutely on track with what we’ve set out to do. We’ve always said we need fewer sites, and we need to overinvest in those fewer sites. And when the market volume turns, and it will, it’s a cyclical business.

We know that, but we’re preparing ourselves and getting our service levels and our quality levels as well as the asset base up to speed. And that will give us, we believe, a very interesting upside when the volumes turn, and that’s what we’re getting ready for and have been working on for the last 2 to 3 years.

Susan Maklari : Okay. Thank you for the color and good luck with everything.

Operator: And your next question comes from the line of Matthew Bouley with Barclays.

Anika Dholakia : You have Anika Dholakia on for Matt today. The first one I want to talk on mix. So you mentioned that mix has stabilized this quarter, wondering if you can parse out how much of that $39 million volume mix headwind was volume versus mix and how you’d expect this to trend? I’m just wondering kind of if there is a risk, maybe customers mixing down moving forward, given a more pressured affordability backdrop?

Samantha Stoddard: So the mix downturn is really what we experienced in 2024. And as you referenced, that was when we saw a significant shift to the, I would say, lower priced, more entry-level products. We have not seen a significant mix change in 2025 thus far. So we expect to be at that lower level that we saw the transition happen in ’24. We expect to be at that lower level going into 2025. So I would tell you the vast majority of what you’re seeing in terms of that volume mix decline is truly volume. We have not experienced any kind of significant downturn, as I said, as we did last year.

Anika Dholakia : Great. That’s super helpful. And then on the second question, just maybe on the timing of the tariff impact. How we should be thinking about that $30 million flowing through 2Q versus second half?

Samantha Stoddard: So as Bill talked about, we do intend to fully pass through that $30 million in terms of the tariffs on to our customers. There is a, I would call, an immaterial difference of timing of when that takes effect in Q2, but it is insignificant in the grand scheme of what we’re passing through. So I would expect that we’re going to start to see the impact of the surcharges in Q2 throughout the rest of the year. And of course, that based on current levels, and I think it’s anyone’s guess on where those will settle.

Operator: Your next question comes from the line of Trevor Allinson with Wolfe Research.

Trevor Allinson : You guys had previously talked about offsetting $50 million of cost inflation with pricing. You’ve got the $30 million incremental now with tariffs, you’ve expressed confidence in offsetting that portion. Can you talk about your confidence in offsetting the $50 million of nontariff inflation? And is $50 million still a good number for us to use on that?

Samantha Stoddard: Yes. So I think, Trevor, this is [indiscernible], it is still a good number to use in terms of, I would say, nontariff-related input cost increases. We have seen, I would say, an overall softening in terms of the competitive — overall softening of the market in terms of the competitive landscape, which is why we are focusing on not just price, but also how we can compete on service, quality, et cetera, which is why there is significant investment in those areas. I do expect us to be slightly price cost negative this year, again, because of the challenging demand outlook. But I think in terms of your overall read, the cost input increases would be about the same.

Trevor Allinson : Okay. Got you. Makes a lot of sense. And then second, when you guys announced the Towanda divestiture, you gave a pretty wide range on both sales and EBITDA impact, depending on how customer retention, I think the EBITDA range was like $25 million to $50 million. Can you provide an update there to which end of that range are you guiding towards as you have some more visibility into customer retention?

Samantha Stoddard: So I would say on that standpoint, we are seeing slightly more towards the higher end of that range. It was a pretty broad range. But what happened in terms of the last few weeks, the muted seasonal uptake from Q1, those are all factors that are playing out. But I would say, in general, we are expecting slightly to the higher end of that range.

Trevor Allinson : Thank you for all the color, and good luck moving forward.

Operator: And your next question comes from the line of Jeffrey Stevenson with Loop Capital.

Jeffrey Stevenson : So [indiscernible] priorities has been standardized and build specifications and processes across your manufacturing network. And I just wondered how far along are you in this initiative? And will it help drive further footprint consolidation in the future if needed?

William Christensen: Yes. So we’re making progress. There’s 2 things that we’re doing here, Jeffrey. As we’ve talked in the past. One is really to optimize our cost to serve. And how we’re doing that is investing in pretty significant automation in some of our door slab sites. And as I just mentioned on a prior question, we are just starting to first install on one of those systems at a Texas facility. So that’s coming along. Second thing that we’re working through now, obviously, based on tariffs and sourcing, we are taking a very hard look at our product complexity and working through optimization opportunities that we have to simplify our offering and to make sure we can get the right product cost stack in our doors and windows that meet customer expectations.

So that’s a second topic. That’s more broader from a complexity reduction, but both of those are progressing according to plan. I’d say we’re further along on investing in automation, and hence, still elevated CapEx this year, but we feel comfortable with the progress we’re making on both of those fronts.

Jeffrey Stevenson : Okay. Great. And then could you provide more color on the new business ones you talked about with builder customers you saw from our recent collaboration efforts? And then some early successes, maybe you’ve seen from increasing your production builder sales concentration from Windows stock and service program that you implemented last year, Bill?

William Christensen: Yes. So we’re making progress. As we said in prepared remarks, we’re ahead of our expectations for gaining new business. Again, that is acquisition of new business and not delivery of product. You’ve got to think there’s a 6- to 9-month window between the book and the build, so to speak. So we are making progress. And that’s one of the things that we really want to get better at is utilizing the strength that we have on the interior door side of the house, and combine that with a window offering that meets expectations of some of the production builders that we’re developing relationships with [indiscernible] we feel comfortable. But again, this is what we’re seeing in our pipeline and not yet a dramatic materialization of that sales on the P&L, and that’s still to come.

But again, as I also suggested in my prepared remarks, the spring build season is pretty flat. So traffic for new homebuilders is below expectations. I’d say just in general. Obviously, there’s pockets that are outliers in both directions. But in general, we’re not seeing the rebound that we would expect. And again, coming back to what do we think are driving those low traffic levels, it’s affordability and its interest rates, and then you add in the uncertainty of tariffs and potential further cost increases, it’s creating a challenging environment right now to make big ticket decisions whether it be on large window or sliding door renovations or purchasing new homes, which obviously pull through into your doors and exterior doors and windows.

Operator: And your next question comes from the line of Steven Ramsey with Thompson Research.

Steven Ramsey : Wanted to follow on to the topic of production builder wins. Clearly, at some point, this will be a volume benefit. My first question is, will this — or is this expected to be a benefit in the second half? And then secondly, is this line of business going to be a mix headwind or tailwind or neutral?

William Christensen: Steven, thanks for the question. So I’d say, yes, I expect something in H2. It will be small. I’d say it’s not material in the grand scheme of things. More importantly, for us, it’s really starting to cement the relationships where we’re selling systems into our builder partners and not just an interior door package. But again, the builder of volume that is currently tracking is at the lower end. As Samantha mentioned, there was a pretty significant mix down just in general in production builders last year, and we’re still seeing that this year. So what we’re acquiring is at a lower end. But we would expect that to materialize later in H2, but it won’t be material if you look at our overall earnings for this year.

Steven Ramsey : Okay. That’s helpful. Second question would be on the CapEx outlook. Looks like you’re holding that. I guess what would cause you to change your view on CapEx? You’ve made a great case for a lower footprint with more automation. But given this backdrop, are there any benefits you see to pulling down the CapEx a bit? Or another way to ask how much flexibility do you have with your CapEx in 2025?

William Christensen: Yes. So we — there’s definitely flexibility there, and we are taking a very — a very targeted approach as really balancing the short term and the long term. A lot of the projects in the pipeline are obviously for the longer-term transformation of our network, which are materializing in different stages. So as we said, kind of above 50% of that spend is allocated to projects that are already in flight, and we’re sharpening our pencil on everything else. If we do see things develop in a very negative fashion back half of the year, driven by further tariffs, shocks, uncertainties, clearly, we would be reducing the CapEx spend. And as Samantha mentioned, there’s other avenues that we’re actively looking at sale leaseback, asset sales to really make sure the balance sheet it’s very secure and to continue that, and we have a credit line that’s undrawn.

We just want to make sure that we are going to win the long game, which is what we’ve always said we want to do. So we are doing everything we can to continue funding those projects, and we still continue to do that given the environment. And again, at our next call, you’ll hear more depending on how markets are developing and what the expectation is. But right now, we’re still pushing hard on these projects, which are important for the long term.

Operator: [Operator Instructions] Our next question comes from the line of Mike Dahl with RBC Capital Markets.

Mike Dahl : My first question, just drilling into 2Q a little bit. Look, if 2Q is only up slightly sequentially, I think your prior guide had implied that you were looking for something more like in, kind of $65 million range for 2Q EBITDA, and now we’re talking — I don’t know if we’re talking 25 or 30, maybe you can clarify that a little bit. But that’s, let’s call it, like a $40 million delta. That’s very meaningful. That would be like 15% to 20% of your entire prior fiscal year guide. So just help us break that down if there’s no real net tariff impact there. It’s all kind of core market, help break down what exactly changed? Maybe you like give us an update on your market expectations. I think you were down kind of like low to mid-single digits for new construction and R&R prior? And what are you thinking about now, help us drill down.

Samantha Stoddard: Mike. So when you think about Q2 and we’ve — we’re guiding directionally, we are not giving a specific range because as Bill mentioned, those range of outcomes have really increased pretty sizably. So in terms of looking at how we’re going to land in Q2, it really comes down to the sales. So back to the original conversation around what sales are going to do, we expect a pickup, but we expect a very muted pickup, which we had not expected it to be as muted as we saw going into Q2 and towards the end of Q1. So I think it comes down to that. Then you have essentially the flow-through of that to the bottom line with the additional cost takeouts that we’ve talked about. So I think you’re trying to frame up an exact guidance range.

And the truth of the matter is, we don’t know how the demand is going to settle. So the tariff impact on our company, as Bill has stated, we feel very comfortable with how we’re positioned. It’s how the tariff impact is affecting the macroeconomic landscape in every other company, and it’s really going to determine how things settle over the next few weeks as to where we, the sales and demand outlook is positioned in Q2.

Mike Dahl : Okay. Understood. Fair enough. And then, I guess, Samantha, just a follow-up on the response to Bill’s question. In terms of covenants, I thought that your revolver does have restricted covenants and so you’re undrawn today, so you’re not subject to them. But look, like it does seem like the credit metrics are going to continue to deteriorate. I think you already expected limited operating cash this year and negative free cash flow. So to the extent you do need to draw on the revolver, can you just help us understand those — what the covenant levels are and how much is available to borrow at this point? Or as you think about kind of the balance of the year?

Samantha Stoddard: Yes. So looking at the free cash flow metrics, the one thing that a lot of folks have not factored in is the inclusion of the proceeds from the Towanda divestiture. So when you look at the free cash flow, you got to add another, let’s call it, approximately $110 million to that. The — from a covenant standpoint, even on the revolver, are — we do not have restrictive covenants. We’ve evaluated kind of every one of our debt instruments and where it comes across. And we do not see — foresee any issues even if we are to draw on the revolver. So hopefully, that addresses your question. I mean we are positioned well, as I said, for the foreseeable future. So this is something that we continue to invest in ourselves.

We are seeing the benefits of that investment in terms of now multiple years of $100 million annual cost out. And we feel in a comfortable position. Keep in mind, right now, our revolving line of credit is up to $500 million that we have not touched. So hopefully, that addresses your questions, but happy to answer anything else.

Mike Dahl : Yes, I appreciate that. We’ll follow up off-line.

Operator: And there are no further questions at this time. James Armstrong, I’ll turn the call back over to you.

James Armstrong: Thank you for joining our call today. If you have any follow-up questions, please reach out, and I would be happy to answer. This ends our call, and please have a great day.

Operator: This concludes today’s conference call. You may now disconnect.