JELD-WEN Holding Inc (JELD) 2017 Q1 法說會逐字稿

Greetings and welcome to the JELD-WEN Holdings first-quarter 2017 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to John Linker, Senior Vice President Corporate Development and Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. We issued our press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors. JELD-WEN.com. We will be referencing the slides during this call. I am joined today by Mark Beck, our Chief Executive Officer, and Brooks Mallard, our Chief Financial Officer.

Before we begin I would like to remind everyone that during this call JELD-WEN management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects.

Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our earnings release posted on the website and provided in our 10-K and final prospectus as filed with the SEC.

JELD-WEN does not undertake any duty to update such forward-looking statements including the guidance we are providing with respect to certain expectations for 2017 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 their most directly comparable financial measure calculated under GAAP can be found in our earnings release which is posted on our website and page 21 of this presentation. I would now like to turn the call over to Mark.

Thanks, John, and good morning, everyone. Thank you for joining us for our second earnings call as a public Company. We are pleased with our first-quarter performance and we believe these results show that our strategy and operating model are working.

But before we get into the details, and given that many investors are new to the JELD-WEN story, I'd like to step back and provide a brief overview of the Company, our strategy and our operating model. Then I will turn the call over to our CFO, Brooks Mallard, who will take you through the financials in more detail. Finally, I will wrap up the call with our updated financial outlook for full-year 2017 before we open the line for your questions. I will start on slide 4 of the presentation.

JELD-WEN is a global leader in windows and doors with a broad product offering and a scaled platform, operating 115 manufacturing facilities in 19 countries. We hold the number one position by net revenues in the majority of the countries and markets we serve. 67% of our revenues come from doors, 24% from windows and the remaining 9% from other building products.

From a geographic standpoint, we operate in three reportable segments: North America is our largest segment followed by Europe and then Australasia. The majority of our business is tied to residential construction markets with about equal exposure to the residential repair and remodel market and the residential new construction market.

We believe that the diversity of our mix across products, geographies and applications provides a competitive advantage and also mitigates business cycle risk. We have earned our leading market positions by offering well-designed, high-quality products and by reaching consumers through multiple channels.

We have also enhanced our strong portfolio of brands with six strategic acquisitions over the past two years. These deals are accretive to EBITDA margins and are expected to add more than $275 million in revenues this year.

Now turning to slide 5, I'd like to highlight several reasons why I feel confident about the future of our Company. First, we are in the early stages of an exciting business transformation which began back in 2014 with a new leadership team. As you can see on the chart, we have delivered more than 670 basis points of margin expansion since 2013. Even so, we believe that there remains significant runway ahead for further improvement.

Second, the Company has great assets that provide a solid foundation for future growth. And third, we've built a talented leadership team with deep experience driving results at top-tier industrial companies. And we are leveraging that experience to transform JELD-WEN into a world-class Company.

I will now get into some of the detail on how we are driving this business transformation on slide 6. Our operating model starts with a foundation of talent management, our business system called JEM or JELD-WEN Excellence Model, and enabling technology. Built upon that critical foundation we have our three pillars of operational excellence, profitable organic growth and strategic M&A. Within each pillar we have defined initiatives with clear ownership, action plans and targets. As we execute on these initiatives our goal is to deliver best-in-class financial and operational performance.

During Q1 we made solid progress in all three pillars. First, our initiatives in the operational excellence pillar continue to build momentum. In the past few months I've visited multiple plants in North America, Europe and Australia and I saw firsthand the adoption of our JEM culture and tools in our operations. We see measurable improvements in safety, quality, delivery and cost. While we have a long way to go, I am very encouraged by the progress I've seen and I will share more on our JEM business system in a moment.

We also see that our global sourcing efforts are delivering cost savings in quarter one and we added even more cost-saving projects to the pipeline. Additionally, in the first quarter we commissioned a new state-of-the-art glass processing facility in Queensland, Australia to support our customers in the region. This new glass processing facility is our second in Australia and we expect it to drive significant cost savings and improved quality as we ramp to expected volumes.

We've also continued to make progress in the pillar of profitable organic growth, delivering another quarter of positive core growth. Since our last call I have met with key customers in Europe, Australia, Canada and the United States. The recurring theme I've heard was that they can see and feel the progress we are making in quality, service and innovation.

Our recent product launches have been well received by the market, including Woodview prefinished doors in North America, the Charisma door collection in Europe and the Alumiere window line in Australia.

Lastly, and for the third pillar, which is strategic M&A, we feel good about the deals we have done and the state of our pipeline. The integrations of recent acquisitions continue to be on plan and targeted synergies are being realized. Additionally, the M&A pipeline is healthy in all three reporting segments and we are actively evaluating several strategic bolt-on M&A opportunities. As we do, we will remain highly disciplined, stay true to our strategy and select only the best assets.

On page 7 I'd like to highlight the JEM business system. JEM drives our operational excellence cadence, defines how we work and is the backbone of our Company. We now have over 80 full-time JEM professionals driving operational improvement across the Company. We are building a culture around JEM by focusing on what we call the fundamental five JEM tools, which are visual management, 5S, standard work, basic problem solving and model area. We are still in the early days of embedding JEM in the DNA of the organization yet we are already seeing it make a great impact.

Turning to slide 8, you can see that our business transformation has driven a substantial improvement in earnings and free cash flow in the first quarter. Net revenues increased 6.4%. Adjusted EBITDA increased 32.4% with a margin of 9.5%. And free cash flow increased $31 million. Brooks will now walk you through the quarterly financials in more detail.

Thanks, Mark. I will start on slide 10. For the first quarter, net revenues increased $51.2 million, or 6.4%, to $847.8 million compared to $796.5 million for the same period last year. The increase was largely driven by core growth which I will address in a moment.

Gross margin increased $27.8 million, or 17.6%, to $186 million compared to $158.1 million in 2016. Gross margin as a percentage of net revenue expanded 200 basis points from 19.9% in 2016 to 21.9% in 2017. The increases in gross margin and gross margin percentage were due to profitable core growth, improved cost productivity and the impact of our recent acquisitions.

SG&A expense increased $15.1 million, or 11.4%, to $147.1 million from $132 million in the same quarter a year ago. SG&A expense as a percentage of net revenues was 17.3% compared to 16.6% for the same period a year ago. The increases in SG&A expense and SG&A expense percentage were primarily due to legal costs of approximately $5.8 million as well as increased audit and tax fees related to our recent IPO and yearend filings. Additionally, the acquisitions of Trend and Breezeway resulted in higher SG&A expense on a year-over-year basis.

Net interest expense increased $9.9 million to $26.9 million from $17 million in the same quarter a year ago. The increase was primarily due to the write-off of $7 million of original issue discount and deferred financing fees related to the February 2017 repayment of $375 million of debt with our IPO proceeds.

Net income increased $0.4 million to $6.4 million from $6 million in the same quarter a year ago. Net income in the first quarter of 2017 was unfavorably impacted by the previously mentioned items of financing fee write-offs and legal costs. Net income in the first quarter of 2016 included a favorable $3.6 million gain from the sale of property that was excluded from adjusted EBITDA.

Adjusted EBITDA increased $19.8 million, or 32.4%, to $81 million from $61.2 million in the same quarter a year ago. Adjusted EBITDA margin expanded 180 basis points in the quarter to 9.5% compared to 7.7% a year ago. The increase in adjusted EBITDA and adjusted EBITDA margin was primarily due to profitable organic growth, improved cost productivity and the impact of our recent acquisitions.

Slide 11 provides a buildup of our revenue growth. For the first quarter the 6% improvement in our revenues was driven by 6% core growth comprised of a 2% benefit from pricing and 4% from volume and mix improvement. Recent acquisitions in our Australasia segment contributed another 1% to growth while the negative impact of foreign exchange in Europe reduced our total growth in US dollar terms by almost minus 1%.

The increase in volume/mix was primarily a result of increased shipping days in the first quarter of 2017 versus prior year, offset by the unfavorable impact of North American retail channel door ordering patterns and year-over-year weather impacts in North America and Australia. We had four additional shipping days in the first quarter of 2017 compared to the first quarter of 2016. The year-over-year benefit of shipping days will reverse in the fourth quarter.

Next I will move to the segment detail beginning with North America on slide 12. Net revenues in North America for the first quarter increased $23.9 million, or 5.2%, to $484.1 million from $460.2 million in the same period a year ago. The increase in net revenues was primarily due to an increase in core growth of 5% comprised of an increase in volume/mix of approximately 3% and an increase in pricing of approximately 2%.

Adjusted EBITDA in North America increased $18.5 million, or 58.3%, to $50.2 million from $31.7 million in the same period a year ago. EBITDA margins expanded 350 basis points to 10.4%. The increase in adjusted EBITDA was primarily due to favorable pricing, profitable growth and cost savings initiatives.

On slide 13 net revenues in Europe for the first quarter increased $3.8 million, or 1.6%, to $242.3 million from $238.5 million in the same period a year ago. The increase in net revenues was primarily due to an increase in core growth of 6% comprised of an increase in volume/mix of approximately 5% and an increase in pricing of approximately 1%. The increase in core growth was offset by the negative impact of foreign exchange of minus 4%. Adjusted EBITDA in Europe increased $2.5 million, or 10.2%, to $27.2 million from $24.7 million in the same period a year ago. Margins expanded by 80 basis points to 11.2%.

On slide 14, net revenues in Australasia for the first quarter increased $23.6 million, or 24.1%, to $121.4 million from $97.8 million in the same period a year ago. The large increase in net revenues was primarily due to a 12% increase from the recent acquisitions of Breezeway and Trend as well as 7% core growth and positive foreign exchange impact of 5%. The increase in core net revenues was comprised of a 6% increase in volume/mix and a 1% increase in pricing.

Adjusted EBITDA in Australasia increased $4.3 million, or 48.5%, to $13.2 million from $8.9 million in the same period a year ago. Margins expanded by 180 basis points to 10.9% as a result of profitable core growth and the accretive benefit of the Breezeway acquisition.

Now I'd like to provide a brief update on our balance sheet and cash flow on slide 15. Cash and cash equivalents as of April 1, 2017 were $185.5 million compared to $102.7 million as of December 31, 2016. Total debt as of April 1, 2017 was $1.2 billion compared to $1.6 billion as of December 31, 2016.

In the first quarter we received net proceeds from our IPO of $472.7 million and used a portion of those proceeds to repay $375 million of debt that was raised in our November 2016 dividend recapitalization. As of April 1, 2017, our net leverage ratio was 2.6 times compared to 3.8 times as of December 31, 2016. Our net leverage ratio is now within our medium-term target range.

Cash flow from operations improved $20 million in the first quarter of 2017 to minus $8.2 million from minus $28.2 million in the same period a year ago. This cash flow performance was consistent with our expectations as our first-quarter operating cash flows are typically negative due to the seasonality of our working capital.

Free cash flow improved $31 million to minus $18 million from minus $49 million in the same period a year ago due to improved operating cash flows and reduced capital expenditures. Our balance sheet remained strong and our capital structure, liquidity and free cash flow generation continue to provide us with the flexibility to fund our strategic initiatives. I will now turn the call back over to Mark for closing remarks.

Thanks, Brooks. We posted strong results for the first quarter and we continued our progress in improving margins on a year-over-year basis. It is important to remember that we are still in the early stages of a multiyear turnaround. Our experienced leadership team and our operating model have us well-positioned to continue delivering operational and financial improvement in 2017 and beyond.

Slides 17 and 18 highlight our framework for success and the multiple drivers for our continued revenue growth and margin expansion.

Looking at revenue on page 17, our long-term core growth target of 4% to 5% will be driven by attractive end market growth, pricing opportunities, continued innovation and channel investments. To complement our organic growth strategy we have robust M&A opportunities. Our global platform, strong free cash flow generation and ready access to capital markets will allow us to be an active M&A player to further drive our financial performance.

As we turn to EBITDA margin expansion on page 18, we are focused on operational excellence opportunities through our JEM business system, including cost productivity and strategic sourcing. We expect to see profitable organic growth from new products, share gains, pricing and operating leverage. And finally, our disciplined approach to M&A focuses on accretive transactions with attractive synergies. These factors drive our long-term adjusted EBITDA margin target of 15% or more.

I will wrap up on slide 19 with our updated outlook for full-year 2017. Our outlook is based on underlying market assumptions, specifically that new construction and repair and remodel growth in North America and Europe will continue and that the housing market in Australia will soften.

Our assumptions also include continued margin expansion by executing on the initiatives of our operating model. So for the full year, we continue to expect total net revenue growth in the range of 1.5% to 3.5%.

As we discussed last quarter, we do expect revenue headwinds in 2017 from portfolio rationalization and the impact of foreign exchange. These revenue headwinds will be offset by positive core growth and the incremental impact of 2016 acquisitions.

Based on our strong margin performance in the first quarter, we now expect 2017 adjusted EBITDA to be in the range of $440 million to $460 million. This compares to our previous guidance of $435 million to $455 million. Lastly our outlook on capital expenditures is unchanged at $90 million to $100 million.

In conclusion, I want to thank all of JELD-WEN's employees for their hard work. We would not be able to achieve any of these results if it wasn't for their commitment and passion. With that, I will now ask the operator to please open the lines up for your questions.

(Operator Instructions). Bob Wetenhall, RBC.

Good morning and congratulations on a phenomenal quarter. Just wanted to ask maybe Brooks if you could give me a little bit of a walk through trajectory and the cadence of the improvements you are anticipating in the second, third and fourth quarters that are implied by your full-year guidance? And what are the factors that would put you at the high-end of the range or the low end of the range as you go through the year?

Hey, Bob, this is Mark. I'm going to go ahead and start this one off and then I will hand it over to Brooks to get into the detail that you just asked for. But I think it's important to step back and just take a look at the annual guidance before we do the quarterly look.

As you might know, you've heard us say before that it is our intent to provide annual guidance and update this guidance each quarter, but that we won't be providing specific detailed quarter-to-quarter guidance. The reason we do this is while over the course of the year things tend to even out. We have seen that, from one quarter to another, things can be a little bit lumpy.

And so, while we had a very good first quarter, we would just remind ourselves and everyone it's still early in the year and there remain some uncertainties. For example, the downturn in Australia that we have been talking about for some time, it does appear to be starting. March permits were down and so we are obviously studying to see when this might start to impact us and by how much.

We are also beginning to see some pressure on material costs. And while our sourcing program is going great, obviously inflation is always a bit unpredictable and, of course, FX is always an unknown that we have to pay attention to.

So we are very confident that we can work through these headwinds and that's why we've raised our adult guidance by the $5 million. And now I will go ahead and invite Brooks to comment a little bit -- without giving specific quarterly guidance, a little bit how it might play out throughout the year.

Thanks, Mark. So, the way you think about it is there's a few levers that are going to move the needle for us one way or the other. If you think about pricing, we did have some pretty good carryover in pricing in Q1 and that's going to moderate over the balance of the year. And then I think the other thing is the operational initiatives.

We have a few pretty significant operational initiatives that are actually going to be a little bit of a headwind through the middle of the year. As an example, if you think about the Australian glass plant, we are still in the startup phase there. We don't have full production volumes, although we are fully staffed. So that is a bit of a headwind from a productivity and a margin perspective.

And so, as we gain traction there and get to the second and third quarters, we should start to see some uptick as we get to the fourth quarter and exit the year. And I would say those are the big movers that are going to affect the moderation of the margin expansion through the middle of the year before it starts to pick up toward the end of the year.

And then obviously the shipping days is going to be one. There were more shipping days in Q1, less shipping days in Q4. So that's obviously going to affect the top line. When you think about what's going to put us at the upper end and lower end of the range, if you think outside the operational initiatives I talk about, whether we gain traction faster or slower, I think some of the big drivers are going to be things like material inflation.

We have seen some I guess precursors to material inflation with some anti-dumping tariffs around steel and different things like that, the Canadian softwood which actually doesn't affect us, but you can just see these things out in the market. So how quickly does material inflation ramp up or doesn't ramp up and then I think FX.

If the euro and the pound, Australian dollar remain relatively moderate where they are now, that's good for us. If they weaken that's something that could lead us to the lower end of the range.

So those of the factors that we really look at that guide us between that $440 million and $460 million number. And then hopefully that gives you some sense of how we are thinking about the year is going to transpire in terms of where we are getting the margin improvement through the middle of the year toward the back half of the year.

Got it. That's really helpful, Brooks. And the other thing I was -- just one other question; actually two other, kind of a trick question. Can you talk about your expectations in terms of being able to realize price over cost inflation? And with that any comments on North American market share? On page 11 of your deck you show 3% volume growth. What is driving that? Is that share gains or is that just the strength in the market? Thanks and good luck next quarter.

Thank you very much. So first on price versus material inflation, I think there is really three things that we would want to think about when we put this equation together and the third is our sourcing initiatives. And as you know, our objective is to drive significant EBITDA expansion through our sourcing program.

We believe that when you put the three together we will deliver significant bps of improvement. Price, as Brooks mentioned, will moderate through the year and we think as we get through the year we may see more pressure on material.

So it may be that in the front half of the year price actually was greater than material inflation. When we get to the back end of the year that might invert. I think our best estimate at this point is that the two will balance one another out leaving us the opportunity to bring back to the Company and to shareholders the value created from our sourcing program.

The only thing I would add to that is if you think about material inflation in terms of transactional FX and where you see that move around, we have shown the ability to raise price within the year even after we've gone out with a price increase to help offset that. So we do feel pretty comfortable that we are not going to see any dilution from any material inflation increase, that we can offset that where it starts to get a little bit outside our normal bands of what we expect.

So, just to clarify, or just to confirm, you don't see any situation where input cost inflation creeps up against pricing and starts to dilute some of the operational improvement because you can take price ahead of cost inflation without a lag?

That's our current plan is to not let that happen and that's our expectation. Let me quickly jump onto the second part -- or the third part of your question and then we will get to someone else.

Around market share in North America, first of all I would say is we think that when we aggregate all the markets around the world we think we are basically keeping pace with the markets that we serve. When you get down to North America I think it's a little bit tricky.

As you might recall quarter one of last year was very strong, for the market in general it was very strong for us. So these are relatively tough comps against which we feel like we performed well. But I'm not sure that the resolution and our ability to see share can tell us precisely if we gain share or just kept up with market. We think it was a decent market and it's likely that we kept up with market maybe a little bit better.

Good. Thanks and good luck.

Mike Dahl, Barclays.

Hi, thanks for taking my questions. Mark, just to pick up on the conversation around margins and your own operational improvement initiatives, it sounds like clearly this is a multiyear opportunity, but it sounds like as you've progressed through the past six months or so that the uptake and the progress you are seeing as you visit your operations is potentially running ahead of schedule.

And I think you mentioned seeing opportunities for additional cost savings. So I was hoping you could give a little more color on that. Is it related to -- are the additional savings opportunities related to the sourcing initiatives? Is it related to more on the operational improvement side? And just how to think about maybe quantification of that.

Sure, thank you, Mike. Let's step back and I would say that we have to be pleased with 180 bps of EBITDA improvement. And as you know, we've said many times, we target to deliver between 100 and 150 each quarter, and so 180 feels pretty good. As we step back and look at why was that stronger than the 100 to 150 target, it really probably comes down primarily to slightly better pricing realization than we had in the plan.

So I would say that our initiatives around operational excellence are right on target. My comments during the opening of the call were really meant to indicate that I have been in a lot of plants, which I have, and it's been great to get back into the plants after -- to the IPO process. And very pleased to see that the fundamental five JEM tools are being adopted, they are being used and they are making a difference.

But I would not characterize it as we are running far ahead of our plan. I would say it's working. It's working according to plan. There are certainly pockets that are far ahead of the average and then unfortunately there is always a few laggards and of course we are paying attention to those guys as well.

In terms of productivity versus sourcing, which I think you alluded to, we would say that on the operational excellence success that we had in the first quarter, about 50% of that is coming from our sourcing initiatives and about 50% is coming from the more traditional productivity gains.

Got it. That's helpful. And then shifting gears, you talked about the Australian glass plant coming online. I was hoping you could give us a little more color on that one, what you expect the benefits to be, but also are there additional -- what are some of the additional capacity investments that we should be thinking about over the next year?

This is Brooks. Let me take that. So I am not going to -- based on how quickly it comes online and how quickly we are able to get up to speed, I'm not going to quote a specific figure on the glass plant. I will give you some more color around how we are thinking about it.

We have been spending the last, gosh, 18 months or more building that plant. And as you get the plant online there's a lot of stuff that goes into the programming of the glass and how you optimize the glass to the plant and different things like that.

And so, you work up to really starting to move all your sourcing of all that glass both internally and then some of it we sell externally, you really start to move up the value chain there or the supply optimization chain there to where you are fully optimized. But that really takes a couple of quarters to get through.

So once you get the plant operational, which we did in Q1 of this year, then it takes another couple of quarters to really get your whole production scheduling and your optimized capacity to where you are getting at run rates, it takes another couple of quarters.

So you really won't see the full benefit of that until Q4 this year and we will actually see a little bit of headwinds because there is significant fixed cost investment that you have there, as well as you are staffing up for full production as you get everybody trained up and things like that.

So I apologize for not being able to give you a rock solid figure, but you should just think about it in terms of as we go through Q2 and Q3 there's actually going to be some headwind and some unfavorable productivity as we ramp up.

Then as we get to Q4 you are going to see that really start to accelerate because you are going to get all the cost savings associated with doing that internally versus getting it externally, as well as you are going to leave some of those unfavorable variances behind that you experienced in Q1, 2 and 3. Hopefully that's helpful.

Yes, that's helpful. It makes sense. Then the last one for me. There was a comment about retail ordering patterns impacting 1Q. Could you just clarify what you were seeing there and have order patterns normalized as you've gotten into 2Q?

Sure. I'm happy to do that, Mike. What I would tell you is that we always see -- and at the outset of the Q&A session I talked a little bit about lumpiness quarter to quarter and this is one of those dynamics that I was referencing.

We work with all three of the largest retail outlets in North America and we work with retail outlets in Europe as well. And they will adjust their inventory levels from time to time. That will have a bit of a bullwhip effect on us and we obviously respond and take care of our retail customers. So the comment earlier was simply just some shifts in their desired inventory levels and our need to adjust our production accordingly.

Okay, thank you.

(Operator Instructions). Jason Marcus, JPMorgan.

Good morning. So going back to Australia for a minute, the core growth there was very strong that you saw in the quarter and it picked up nicely from levels that you've seen over the last year.

I wanted to see if you could talk about some of the drivers that really stood out to you there and if there were any major differences as you look at the different end markets and product lines? And then I guess more broadly if you could talk about the overall pricing environment in Australia that would be helpful.

Sure, I'd be happy to do that. We really love our business in Australia. We have a fantastic market position. Our brands there are well known not only by the trades but even by consumers in Australia.

What is happening there, first and foremost you've got to look at shipping days. We did have additional shipping days in Australia in this first quarter versus others. I would also tell you that in Australia, although we've been watching for and the industry prognosticators have been calling for this downturn, we did get through first quarter without feeling any real impact.

As I said earlier, in March the latest numbers from AVS show that permits are down and obviously that will likely translate into fewer starts and then it will have an impact on our business as well. But that has not yet hit.

We are very pleased with the acquisition we did of Trend and have been able to realize the synergies both operationally and some revenue synergies associated with that. We completed the Breezeway acquisition, which is also -- it's a premier brand in that part of the world and that's also on track in terms of synergy realization.

And I think we are executing very well just across the board from a commercial standpoint. So we feel like our business in Australia, in spite of the fact that we are likely to be heading into some softness, is executing well. Brooks, would you like to add something?

Yes, the only other thing I would add is if you think last year, certainly for a lot of the year Western Australia had some pretty significant downturn because of the mining industry and commodities just weren't doing well. And so, we have a pretty significant door business over there in Western Australia and that's really recovered nicely in the first quarter as that's come back. So that's been another pretty good driver for us in terms of top-line growth.

Okay great. Then moving to North America, as you look at the windows business versus the door business, were there any major differences in terms of the demand trends that you saw as well as what you saw from a pricing dynamic?

I would say no, there has not been any significant differences. If you look at our windows business in North America versus our door business, I think as we shared before, the door business got started a little bit earlier on JEM and that's going well in both businesses. But from a demand standpoint it's been very consistent across both.

Okay, thanks.

Nishu Sood, Deutsche Bank.

Thank you. So the days -- extra days of shipping, Brooks, I think you mentioned that that would reverse in the fourth quarter. Against the size of the sales, the quarterly sales cadence for the fourth quarter, what type of effect should we expect that to have on the fourth quarter?

So, I guess the good news is that the shipping days happen primarily in January versus December, which are really our lowest shipping days of the year simply because of seasonality and holidays and different things like that. But let me give you a little bit of a breakdown of Q1, how we think about Q1 and the impact on Q1. And then hopefully that can lead you to the right answer on Q4 because I'm not trying to predict sales on a quarter-to-quarter basis. We are not providing guidance on that.

So overall for the whole business volume, volume was 4% and price was 2%. So we believe that the increase in shipping days in Q1 of 2017 over 2016 was about a 5% favorable volume impact. And then that was offset in Q1 by the lower retail ordering patterns primarily for doors in Q1 and then some unfavorable weather particularly in the Northwest of North America and then also on the coast of Australia where they had torrential rains.

So from a year-over-year perspective, we think that was about a 2% headwind. So when you add all that up, basically we are looking at volume of 1% and price of 2%, which 3%, which is at the top end of our 1.5% to 3.5% guidance that we gave for the year. But when you think about it from a days perspective, 5% is what we calculated in into Q1, so I wouldn't think it would be too far off of that when you think about Q4.

Got it. That is very helpful. The margin improvement story is obviously going very well, but if you look at the sales, particularly in North America, against the cyclical backdrop for resi and non-resi, I think there is a sense, perhaps unfair if you compare it against your primary comp, that your sales have the potential to grow at a much faster pace if they are growing fully along with the cycle.

The idea that perhaps the internal focus, and obviously you've been shedding some unprofitable lines, I think contributes to the sense of where some of that shortfall might be coming in. So my question is at what stage will you have progressed far enough in your margin improvement strategies such that your sales might begin to capture the cyclical revenue trends more closely?

I think you've nicely articulated our strategy and we have -- we've provided guidance this year of this 1.5% to 3.5% range, which we certainly acknowledge that the markets are a bit more robust than that. There's a number of reasons that we've explained before. There is the business that we shed in Florida. That's occurring in quarter two and has been proceeding in a very orderly way.

There's also some top-line FX headwinds that we have that we are facing. And you are right, we've over the last couple of years been quite focused on EBITDA repair. But we have begun our investments in growth, and those investments actually started 18 to 24 months ago as we invested heavily in R&D and innovation. We have been investing in our brands, we have been investing in channel strategies such as our [True Blue] program.

There is a bit of a lag on many of those types of investments; when you spend on R&D it takes a while for those products to come to market. And then once they come to market there is this natural ramp process. We typically look at product hitting its stride in the third year after launch.

So we are very pleased that we've doubled the number of new product launches from just three years ago. We are pleased that we are seeing our vitality index rising around the world. But they are not yet driving significant needle moving impacts on the top line, but we think they will. And while we are not yet giving guidance for 2018, I would expect our 2018 top-line performance to be much closer to market than this guidance we've given for 2017.

Got it. That's very helpful. Thank you.

John Lovallo, Bank of America.

Hey guys, thank you for taking my call. The first question is on the $5.7 million in legal costs. Was this related to Steves first of all and how should we think about this going forward and maybe an update on Steves would be helpful.

We can't comment on ongoing litigation whether it's in terms of the cost or what's potentially going on with any litigation that's active. I would tell you that what we will say is those are legacy legal costs. We do believe that they are temporary in nature. We think they will be there for the balance of the year. We do think over the medium and long-term though that they will go anyway. That's about all I can say about it.

Okay. And then you guys mentioned a pretty robust pipeline for M&A. Are you guys seeing this from smaller private companies that you are looking at or are there larger maybe even larger public companies with windows and doors divisions that you think could be potential targets?

John, this is Mark. We do have a very robust pipeline at this time. As you might expect, as we went through the IPO process we had to take a little pause in terms of M&A, but coming off of the IPO we got right back at it. And of course a big part of our strategy is the cultivation of interesting targets.

So we are out there visiting and meeting with folks that are not actually for sale but that we think would be an interesting part of the JELD-WEN family. So as a result of that cultivation that we've done now for a few years we were able to step right back into M&A activity quite quickly.

And we never will comment on anything until it's done because, as you know, on the journey to completing a deal there's many roadblocks. But I am very encouraged by where we are. We have got a number of very active situations. They are bolt-on very strategic but very close to the core. And I would describe them as if you look at the six deals we've done in the last two years, they look very similar to those.

In terms of larger deals, we are not afraid of larger deals at the right time. And if the right opportunity comes along we would be interested in larger situations. But at the moment we don't have any such situations in play.

Okay, thank you, guys.

Keith Hughes, SunTrust.

Thank you. Your comments regarding covering raw materials with pricing before they hit was really interesting. Do you have pricing actions that are at or coming in the market before these come down the pike? I just don't see that in this industry a whole lot.

Well, we look at it, as Mark said, in three pieces. We have what we expect to see from an inflation perspective. We have what we expect to deliver from a pricing perspective. And then we have what we expect to deliver from a sourcing perspective. And as we pull our plan together, whether it's our financial plan or our commercial pricing plan, we take all these things into account and we try to make sure we have coverage on each end.

And so, what I would say is there is two pieces of it. One is for normal expected material inflation we feel confident we are able to cover that. If you start to see material inflation creep outside those bounds, if you start to see some things tick up, then we certainly wouldn't be afraid to go out with additional price increases if we thought it was going to cause us some margin dilution. But I think based on the way that we have planned it for this year and the pricing actions that we have taken that we are in pretty good shape.

Raw materials, I think they run about half the cost of goods sold. Can you just list off for everyone the top two or three that are most important for you?

Yes, well, do you want the top two or three that we are seeing the inflationary pressures or do you want to see the ones that are the biggest piece of our spend I guess?

Probably the biggest piece if we are looking at perspective.

Glass, vinyl, wood products -- those are all big pieces of the spend. I would say as you look forward from a material inflation perspective the two things that are probably first and foremost right now are steel where you are seeing some anti-dumping things going on with steel. So you are seeing a little bit of material inflation there.

And then I would say you are starting to see some chemical inflation on things like resins and things like that, you are starting to see that creep up a little bit. This whole Canadian softwood thing doesn't impact us at all. We don't get any of that softwood so we are not concerned about those tariffs.

But those are the three buckets that are the biggest spend for us. And then the ones where we are seeing material inflation I just listed off. So hopefully that gives you some color.

Yes, just the wood -- just to clarify for everyone the woods, you are primarily in hardwoods, is that correct, and other waste woods and (inaudible)?

Yes, mostly hardwoods.

We are not sourcing any meaningful amount of wood products out of Canada.

Thank you.

Stephen East, Wells Fargo.

Thank you. Congratulations, Mark and Brooks. The EBITDA, 180 basis points up year over year, well above your target. As I sit here listening to you talk about the raw materials and pricing and the global sourcing, etc., it sounds like you think you all can continue to offset anything that's flowing through the channel.

So, the question here is the 180, if you look at it, is that something we should expect is sustainable as you go through the year? Or because of other issues that maybe I'm not quite clear on it drops back down into that 100 to 150 target?

Yes, I think we stay pretty committed to this 100 to 150 bps target. Obviously we were pleased to over deliver in quarter one. There is a number of things that can impact that. As we start some of our cost savings programs, the timing at which they hit can vary. You might have a quarter where a few hit all at the same time and then you may have another quarter while you are working up to your next big hitters.

So I would not try to extrapolate the 180. And I think specifically the things that may not repeat, first of all, as Brooks already mentioned, price is probably going to moderate as we go through the year. And so, I think I also said that the main driver for the over delivery of the 180 was price and that is probably not going to continue all year long.

But there are other things, again, that we mentioned here on the call; the startup of the glass plant and then some of these other headwinds. So I think you should continue to forecast that we will be in that 100 to 150 bps range.

Okay, thanks. And then on that price, given that it looks like your businesses and the building products universe in general have started to see some nice acceleration. And it looks like most everybody has some pricing power. As you look at price moving through the year, do you think you have legitimate opportunities to price or is this sort of what you see today is what you get until we probably turn the calendar?

Well, most of our price increases -- we go through a negotiation period in Q1 and we agree on what the price increase is going to be for the year. A lot of it is just published, some of it is more negotiated.

Where you will see us get additional price over and above those negotiations would be if we were to see some extraordinary material inflation or we were to see some extraordinarily FX moves that caused us some transaction pains say someplace like Canada or someplace like Australia.

That is where you would see us move pricing out of period I guess would be the best way to put it, kind of out of our normal pricing increase timing. So that's really the way it works from a timing and a process perspective.

Okay, thanks a lot.

Tim Wojs, Robert W. Baird.

Hey guys, good morning, nice job. I guess just first maybe on that last question, pricing moderating through the year. Could you just maybe give me a little bit of color on maybe where that slippage would come? Just with maybe raw material inflation being a little bit heavier in the back half of the year, I'm curious why we'd see a little bit of moderation in price. And then secondly, just on free cash flow, is there a way to think about your expectations for the year on free cash flow generation?

Sure. So on price, as Brooks said, we publish new prices late in the year. For our biggest customers we spend much of quarter one negotiating how much of that is going to stick and then those prices start to take effect in quarter two and beyond. So in quarter one what we had was some carryover from the previous year's price increases.

And you may recall that if you go back for the last couple of years, we were doing larger than market price increases as we were playing catch up and trying to reset pricing where we thought they should be. And so, while we are very pleased that we've got what we think are solid price increases going forward, they are not quite as strong as what we've had in the past. And I think, as we have talked about before, that was something that we had been expecting.

And so, that's why as we transition to this next phase of price increases, it's a little bit moderated from where we were. I think the most important thing for us is to get the market comfortable that every year to expect that there's going to be a price increase and of course we will adjust that based on the amount of pricing power, how much demand there is and what's happening with raw material inflation. Brooks, do you want to talk about the cash?

Yes. In general our expectation is that we are going to deliver free cash flow in excess of net income on a year in and year out basis. And I would say that we continue to expect that, so no difference.

We were a little bit light on CapEx spending in Q1; however, that was more due to timing. We had some projects come in at the end of the quarter and we do have some pretty significant projects that are going to go on throughout the year. So we are still comfortable in delivering free cash flow in excess of net income.

Okay. And since you guys don't guide to net income, is there any way to just think of maybe an absolute number?

No, we don't provide guidance for that.

I think -- folks, I think we are out of time. So let me just wrap up with a couple of comments. We feel good about Q1; we feel good about the rest of the year. We have raised our guidance accordingly. We want to thank all of you for your interest and for your support. And again, I'd like to thank all the JELD-WEN associates for their hard work and diligence here in the first quarter. Thanks for coming to our call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.