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Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cornerstone Building Brands' Q1 2023 Lenders Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session. Thank you. Jason Uthe, Senior Vice President, Finance and Investor Relations. You may begin.

Thank you. Good morning, and thank you for investing in Cornerstone Building Brands. Our prepared remarks include comments from Rose Lee, President and Chief Executive Officer and Jeffrey Lee, Executive Vice President and Chief Financial Officer. Please be reminded that comments regarding the company's results and projections may include forward-looking statement that are subject to risks and certainties. Such forward-looking statement in this presentation include but are not limited to the impact of several projects and initiatives which management expects will lead to synergies and cost savings. The risks are described in detail in the company's SEC filings. The company's actual results may differ materially from the anticipated performance or results expressed or implied by these forward-looking statements. Finally, management where we refer to certain non-GAAP financial measures. Specifically in this presentation, we refer to adjusted EBITDA, adjusted EBITDA margin defined as adjusted EBITDA as a percentage of net sales and pro forma net debt leverage, which are non-GAAP financial measures. You will find a reconciliation of adjusted EBITDA and adjusted EBITDA margin, non-GAAP financial measures and other related information in the SEC filing. Our non-GAAP financial measures are not intended to replace the presentation of the comparable measures under U.S. GAAP. Please note we will be referencing our investor presentation on the investor site throughout today's call. Today's call is copyrighted by Cornerstone Building Brands. We prohibit any use recording or transmission of any portion of the call without our expressed advanced written consent. With that, I would like to turn the call over to Rose.

Thank you, Jason. Good morning, everyone. And thank you for joining us today. Starting on Slide 4. I'm pleased overall with our first quarter results in an environment that remains dynamic. We're focused on managing our costs in the downturn while continuing to work closely with our customers and making investments for our future. Volatile macroeconomic conditions and slowing demand continued in the first quarter, and our top-line decreased 18% against a strong comparison in the prior year. Organic volume was down 16% slightly offset by pricing actions. Overall price net of inflation was favorable. Manufacturing productivity was flat for the quarter, but we are seeing sequential positive momentum. Our supply chains are stable, and our hourly workforce retention has improved. Adjusted EBITDA of $141 million was a 27.2% decrease versus prior year, mainly from lower volume in the quarter. Jeff will cover the segments with additional details, but overall EBITDA margin of 11% was 140 basis points lower than prior year. This decline is mainly from our residential businesses, especially the Surface Solutions segment as high price inventory worked its way off the balance sheet. We were pleased to see our U.S. Siding business EBITDA margins within our Surface Solution segment returned to high teens in the month of March. Turning to Slide 5, we continue to effectively manage price and have seen most labor and material availability challenges upside. Overall, residential market demand for both Aperture and Surface Solutions segments remain lower and we continue to take appropriate actions by channel and by region to optimize earnings while meeting customer demands. Strong margins in Shelter Solution segment is the first quarter continues to demonstrate our effective pricing management processes and tools. Over the past two years, we have seen steel costs move in dramatic way. And the team has done an excellent job in optimizing the cost price differential. We're making good progress and advancing our Cornerstone production system and sales excellence capabilities. Our focus remains on managing through the down cycle and preparing the company to meet demand at the market recovers. We believe the overall economic fundamentals of the industry support favorable mid-to-long-term growth. As such, we continue to make significant investments in both CapEx and human capital. In the past year, we have further strengthened our leadership talent with dynamic and proven leaders joining our company. Colleen Pritchett has joined the company as the President of the Aperture Solutions U.S. and Melissa Jones has joined as President of the Surface Solutions U.S. Colleen joined Cornerstone Building Brands in August of 2022 from Hexcel Corporation, where she served as President of America's Aerospace and Melissa joined in July of 2022 from Pentair, where she served as Group President of Commercial Water Solutions. We have already seen their positive impact and are excited to accelerate our company's progress under their leadership. Finally, we have positioned the company with ample liquidity. Jeff will provide more details about our recent actions to strengthen our balance sheet and advance our capital allocation strategy. Now, I would like to turn the call over to Jeff.

Thank you, Rose. And good morning, everyone. Starting on Slide 6, net sales of $1.3 billion was down approximately 18% versus the previous year. This comprised of 15.4% from organic volume, 3.5% impact from divestiture which was partially offset by a 1% increase in price. Our volume decline was from lower market conditions primarily in our residential businesses. As Rose mentioned, we continue to be disciplined in our pricing actions as we continue to see inflation on labor and some other commodity costs. Overall price was able to offset inflationary input costs in the quarter. Adjusted EBITDA of $141 million was unfavorable $53 million, or approximately 27% versus the prior year. This was mainly from lower organic volume of $70 million and impact from coil coders quarter -- excuse me, coil coatings divestiture of $14 million. This was partially offset by net price over inflation, and unfavorable manufacturing productivity of $4 million resulted from specific sites and lower overall volume across the Aperture Solution segment. Turning to Slide 7. The Shelter Solution segment first quarter net sales of $406 million was approximately 24% lower than the same period last year and comprised of 10.3% unfavorable divestiture impact, 9.7% impact lower price with lower steel costs and 3.6% lower organic volume. Adjusted EBITDA was $83 million, resulting in a lower year-over-year impact of $6 million or 6.9%. Impact of the coil coatings divestiture in the prior year quarter resulted in $14 million as well as unfavorable organic volume of $8 million. This was partially offset by effective price management, even with volatile steel costs in the quarter, resulting in a favorable $12 million impact and supported a strong 20.5% EBITDA margin. Favorable year over year net manufacturing productivity with efforts to automate and focus on continual improvement also contributed to a positive $4 million. Turning to Slide 8. The Aperture Solution segment first quarter net sales were approximately 14% lower than prior year, primarily driven by the lower volumes at 23.4% and small foreign exchange impact of 1% partially offset by favorable price and mix of 10.1%. We continue to experience inflation in labor and key commodity costs which have been met with higher prices. Adjusted EBITDA of $65 million was 21.3% lower than the prior year from lower volumes of $43 million partially offset by price and mix over inflation of $39 million. The Aperture Solution segment experienced an improved supply of raw materials, but as mentioned previously, had a few specific locations with unfavorable impact in manufacturing inefficiencies of $10 million. The SG&A was higher as we invested a strengthened sales and marketing capabilities. Turning to Slide 9, the Surface Solution segment first quarter net sales of $269 million was approximately 19% lower than the prior year, primarily driven by lower vol. volumes of 17.4% on favorable price mix of 1.4% and a small impact of foreign exchange. Adjusted EBITDA of $26 million was down $30 million versus prior year due to the softening volume impact of $19 million, as well as price and mix not fully offsetting inflation of unfavorable $15 million. Higher price resin cost and the quarter drove the variance. As anticipated to higher cost resin did work its way off the balance sheet by the end of the first quarter of 2023. As Rose mentioned, we did see the U.S. Siding business EBITDA margins returned to the high-teens in the month of March and continue to improve in the month of April. We continue to invest in a Surface Solution segment and have added high-speed extruders in certain manufacturing locations. The result of automation has demonstrated higher product output and lower labor costs, supporting the favorable net manufacturing productivity during the quarter. Turning to Slide 10. On the left-hand side of the slide, we show our pipeline of unrealized synergy and cost savings of $115 million as of July of 2022. On the right-hand side of the slide, we are showing our unrealized synergy and cost savings pipeline as of the end of the first quarter of 2023. The main difference is the realized synergy savings from acquisitions as we continue to integrate those businesses. We continue to maintain a strong savings pipeline of approximately $104 million across manufacturing freight and procurement initiatives. We continue to identify saving opportunities in our manufacturing plants that has communicated last quarter, we have identified additional freight savings and raw material inputs stabilized and we return to a more normal state of production. Turning to Slides 11 and 12. We have positioned the company with a solid liquidity position. In the first quarter, we were able to deliver unlevered free cash flow of $75 million, down versus the same quarter in the prior period due to lower adjusted EBITDA and some use of cash from primary working capital. Investments to support a stronger second quarter and higher steel costs in our Shelter Solution segment drove the investment in overall working capital. We continue to invest in our core business through capital expenditures and organic growth initiatives. We continue to invest in growth and cost out initiatives that we believe will deliver the highest returns for stakeholders while maintaining proper liquidity. We remain committed to our balance cap -- our balanced capital allocation strategy to invest in cost out and automation initiatives, revenue growth initiatives, remain disciplined on strategic acquisition opportunities, as well as paying down debt. And now I'd like to turn the call back to Rose for concluding comments.

Thanks, Jeff. Turning to Slide 13. We have established leadership positions in our chosen segments, Shelter, Aperture and Surface Solutions, large operational scale, breadth and depth of channel partnerships, and strong product and brand portfolio enable us to create superior and differentiated value with our customers in our chosen spaces. We are advancing our capabilities in Cornerstone Building Brands business systems CBS, which will enable us to serve our customers more effectively with strong service and quality levels, while creating a safe and inclusive work environment for our employees. We're investing for our future with priority toward organic growth while cultivating a strong pipeline of inorganic opportunities. For example, we continue to invest in manufacturing automation to make our plants more efficient, and produce higher quality products. We are investing in process digitization and customer facing platforms to enhance our customer experience. We're hoping our sales teams with processes and tools to engage more deeply with our customers and capture market share. We're making solid progress towards strengthening our cost position, growing our pipeline of businesses and becoming a partner of choice for our customers and remaining a disciplined capital allocator for our shareholders. Operator, we would now like to open up the line for questions

Thank you. The first question is from Terrance Balkaran with Diameter. Your line is open.

Hey guys, really nice to talk to you again. Thanks for taking my questions. So just a couple for me. In the Windows segment, I guess have you fully realized all the glass cost increases, just based on how your contracts are set up as we think about the flow through?

Yeah. Indeed, we are seeing some escalation of glass prices for Aperture, and it's in the cost that we realizing at the moment. But on a full year basis, we are seeing the increase that we estimated.

Okay. And then in the siding business, I think you said that the margins returned to high-teens in March. I guess what is that? Did I hear that correctly to just curious like how low the margins got then in January and February, because obviously the average was much better. And then does that imply that the destock is over for the second quarter?

So the high-teens margin that we realized in the first quarter was specifically to where our vinyl siding segment and within our Surface Solutions. That reporting segment has a number of other product platforms as well that experience different margin levels. And as we mentioned, the margin compression we realizing in the fourth quarter and most of the first quarter has to do with the higher cost inventory that's been sitting in our factories, and our balance sheet. So as we work on productivity improvements, as well as matching the cost of our inventory with the product that we produce, we are realizing the margin expansion that we're -- that we have shared. So we expect to continue to increase that trajectory. And indeed, in the last quarter -- last quarter last year, as well as early part of this year, we saw significant margin compression in that particular vinyl segment.

Got it. But so does it -- I guess, in terms of sort of a destocking that we had seen in vinyl sidings, at least as a category, is that sort of behind us?

For the most part, the destocking in the channels where the vinyl segment is complete in our assessments.

That's great. And then in the Shelter segment, so can you give us a sense of what the book-to-build ratio looks like and just how the backlogs are trending? And maybe a sense of what the mix of projects look like?

Yeah, I'll give you a sense of that. So within our Shelters business, keep in mind, there's really three separate businesses. We've got the pre-engineered metal buildings business, which is a long cycle business. Then you've got the components and the metal residential roofing business that are much more short cycle businesses. So for us long cycle business means more like six months and the short cycle businesses could be anywhere between a week or two weeks to a couple of months. And so it really depends on the mix that's coming in. We've experienced a couple of things as we kind of came into the year in particular. Throughout 2022, the metal residential roofing business looked very similar to our other residential businesses, and had some contraction inside of volumes in particular, as a service that residential space. Components and the pre-engineered metal buildings businesses had quite strong performance as they finished 2022. And as they came into 2023, we are starting to see a little bit of pullback in particular there on the larger projects inside of pre-engineered buildings. So the booking rates are down inside that part of the business. A lot of it could just be timing and weather related and seasonality, but it's also we think the contribution to higher rates that are out there, and just the ability for builders to get financing for some of those larger projects. So we're starting to see some of that slowdown. We anticipated that just thinking about that business in particular, the Shelter segment traditionally follows residential or lags residential between 12 and 18 months. And so as we think about the downturn in the residential businesses starting really in 2022, the beginning of 2020 to the mid-January and kind of June of 2022, we did expect the Shelters business would start to see some of the impact of the commercial application that lives inside the residential space inside of 2023. So early days on that. It's a little bit up and down, depending on the week or the month you're looking at bookings. It's not a consistent flow one direction or the other, but we are seeing some softness inside the building space.

Okay, that's helpful. And then just last for me, on the net working capital. It looked like accrued expenses were down pretty sharply in the quarter. Just curious what drove that, and if part of it is cash taxes, would just love some help, sort of understanding what future model for cash taxes going forward?

Yeah, it's a good question. So keep in mind, a lot of the short term incentive pay gets paid out inside the first quarter of 2023. In addition to that, we also had some of the take private expenses that were paid out. So that's the main driver of the accrued liabilities inside of the first quarter came from the short term and also that take private payments that are going to -- that went out. As we think about cash tax for the year, I'll get some notes here real quick. We estimate the -- probably the 28%. Rate is the right estimate for the company, the 21%, typically plus 5% on state taxes is how we model things. We had a little bit of loss of deferred tax liabilities out there that did push our state tax a little bit higher than 5% and that's why we say 28% is probably the right way.

Okay, great. That's really helpful. I appreciate it. Thanks a lot.

The next question is from Paul Niklason with MacKay Shields. Your line is open.

Hi, thanks for taking my question. I was curious about the kind of margin trajectory and the cost savings plans that you guys are implementing. What do you see, because I do see some windows companies out there that have margins still in the high-teens or in the low-20s even -- what do you think, I realized that may be a stretch for this company, but what is your kind of ultimate goal? And do you think that kind of closing down different product lines or shifting up your product mix is that going to be part of the equation to kind of improving the margins overtime?

Yeah, our Aperture business or Windows business, which is the largest business unit in our portfolio, has the greatest amount of upside opportunity in terms of margin expansion. As you probably realize, it's a business that has come together with a number of different acquisitions. And we have a lot of upside opportunities as we continue to harmonize and introduce efficiencies, both in our factories as well as how we conduct our business. We haven't running the business rally around 12% margin. And right now, in the current quarter, because of the volume declines, and the headwinds, we've seen a little bit of compression. But as we introduced our production system, and as those ways of working take hold in our factories, as we continue to invest in our workforce, and retention and the acquiring of more skilled labor force is improving, certainly over time, we expect that we have several basis points of improvements, that's a rally in the high-teens is kind of the objective that we have in mind that we will build over time to realize to the margin for this business.

Now, I'll add a couple of comments on top of that as well. Just looking at it by segment, the Shelters organization the Shelter segment typically ran around 12% margins, 11%-12% margins. If you look at '22 in particular, we finished inside of the 17% range. And we finished the quarter quite strong as well inside the first quarter. As we've mentioned on previous calls, we don't anticipate that to sustain. We think that the mid-teens is probably appropriate for the margins within that Shelter space. Now nice improvement, right. So think about going from 11% 12% margins, historically to kind of a mid-teens margin. A lot of that comes with the mix of product, it also is price discipline tools that we put in place, making sure that we're chasing the right projects, and that we're not chasing the ones that are not as profitable. In our Surface Solution business, that businesses run a long time in the range of 19% to kind of 23%. And we think that business kind of maintains and stays at that level. Right now, we've been running, as we mentioned inside the months of April and May kind of in that high-19, low-20s. And so we think that that business kind of maintains. There's probably some operational efficiencies we gained through automation that might change those slightly. But that business is going to primarily stay where it is today. And then as Rose mentioned, the biggest opportunities inside of Aperture as we continue to take the efficiencies through the Cornerstone Production System. So we see it. One of the things we look across the businesses, the Apertures. Solution segment is really where the biggest opportunity for us to make margin expansion. And all of the tools and the efforts that are in place are being put in place are in motion at this point.

Great. And then just one last quick one for me. I'm curious about the competitive kind of competitive dynamics. I mean, you can talk broadly not just segment-by-segment, but just do you feel that competitors with respect to pricing are acting rationally or some competitors, cutting prices significantly as the market gets more challenging? Or how would you characterize the environment? Thanks.

I think broadly, all -- like us, our competitors are experiencing the kind of more sticky inflationary factors. One might say, whether it's labor or raw material et cetera, because we as manufacturers are now experiencing a sort of significant inflation, the cost structure that we have to make the products in general I think are what it is. But definitely relative to history at a higher cost levels. On the demand side, certainly, as we're all experiencing the downturn in both new construction and remodeling on the residential side, quite dynamic, because of more recent, due to very few existing homes being available for sale, new construction is realizing a little bit more of a positive outlook that we've been reading about and being discussed in the marketplace. But in a down market, certainly in select projects and select customer opportunities, we are feeling some level of cost down pressures. But I think in general, all the different suppliers are managing through that. And it's part of our job to make sure that you were receiving fair value for the solutions that we're providing. So I would say it vary somewhat by region and also certainly by channel and certain projects. But in general, the inflationary factors that everyone's realizing seems to be there as part of how we're conducting business today.

Great, thanks very much. That's all for me.

The next question is from Nicholas Paskalides with LCM Asset Management. Your line is open.

Hi, I appreciate you guys holding the call on taking the questions. So just to start on the Surface Solutions business, just making sure that you're running at 19% to 20% EBITDA margins in April. I'm just trying to understand what drove the improvement again?

Yeah, so it's our -- so as Rose mentioned within our Surface Solution segment is our U.S. Siding business, right. And that's the business that traditionally runs that 19% to 24% EBITDA margin, right. There's also our stone business that's in that segment as well. But the comments specifically around the U.S. Siding business that was running in the high-single digits to low-double digits, kind of 10%-11% margins through the fourth quarter, and into the first couple of months of the first quarter have returned back to the historical rates, which is that 19% to 24%. The reason behind that was high priced vinyl resin. So we got resin that kind of came in. We have -- we buy this by the train load, basically. And so we had too much inventory as resin went the other direction and our negotiations were favorable, we ended up with high cost inventory on our balance sheet. So that worked its way through the P&L in the fourth quarter and in particular the first couple months of the first quarter of 2023. And now we're back to our more normal state.

Okay, that that's good to hear. And then so will that offset the elevated margins from the Shelter's business that are currently elevated?

Yeah, I don't know if I think about them as combined. They're probably I think about them separately, right. So the Surface Solution segment getting back to more normal state of margins, and the Shelter's business returning to kind of that mid-teens kind of that 15% that ran at 17% last year and historically ran at 12 we think that's going to get back to 15. But it depends. There's a lot happening inside that space with volumes in particular on that, like commercial business in our Shelter segment that we're going to have to continue to watch throughout the year. So far, this year, it's been performing nicely. But we anticipate, as we mentioned, it's going to lag those residential markets. And think about fire stations and libraries and cost goes right. Those are the things that are our end applications for that business. So as that residential move into the suburbs, in 2020, and 2021, it took some time for that commercial business to catch up. And so as things are slowing down in the residential space, we would expect that the commercial business will also lag that by that 12-18 months. And so right now, it's more of an anticipated decrease in what we're actually filling in the first quarter.

Okay, great. Thank you for the color there. And then can you just talk about Q2 and then the full year? Would you be able to quantify what you expect volumes to be in Q2 and for the full year, and just the cadence of the overall margins for the business on Q2 for the full year? It'd be also helpful.

Yeah, I mean, quality -- we can hear some comments how we're seeing other more qualitative basis. Certainly, as we've heard in the first quarter, we've realized all the headwinds and the certainly new construction headwinds that we're all experiencing. It depends on the day is all the different factors are coming into play every day. Our current view is that certainly we'll see some seasonality. The second and third quarter are the higher seasons, more activity. And so on a sequential basis, we think there will be more activity, certainly in the construction, but hopefully, a more thrilling remodeling as well. If we look at a total year, first half versus second half. It's anybody's crystal ball. But right now, we're running our business and have a view that it's not going to be significantly different in terms of end demand. And so we're being judicious in conserving our costs, and putting all the appropriate things in place as the headwinds continue. So that's how we're seeing the year, which is I would admit somewhat different when we were finishing last year. And as we were putting into plan for the current year, we did anticipate that perhaps second half was going to be a little bit better than first half. And I think it's prudent for us to plan and manage our business so that the current headwinds, more or less stay in tact, let's say for most of the current year.

Now, I'll add a couple of follow up comments on that as well. So our two segments that are primarily service the residential space, the Shelters excuse me, the Surface Solutions and the Aperture Solutions, mix on RMR and new construction are a little bit different. So inside of our Surface Solutions business, it's about 60%, RMR and 40%, new home construction. And then inside of the Apertures Solution, it's 60%, new home construction 40% RMR. And so that does cause some change with just what we're hearing. There's a lot of speculation right now that the decline for 2023 for new home construction is improving, right, it's still a decrease, but it's improving. And we are seeing some of that. So within our Surface Solutions segment is our stone -- manufactured stone business, which we get a nice feel for what's coming at us through the new homes at -- large new home construction builders. And we have seen the order rate pick up quite a bit inside that space. So we are filling some of the momentum on the orders. We haven't necessarily turned into revenue yet. But it's a nice indicator that some of that new home construction space is heading in the right direction. But it's going to take a little bit of time for that to kind of work its way to orders for us and then turn into revenue.

Okay, thank you. Thanks for the detail there. And just lastly, do you expect margins to stay above 10% for the full year still? Or do you expect it to be lower now that you're seeing some weakness in the second half of the year?

Qualitatively, again, because of the higher season in the second and third quarter, we expect as we manage prudently that there will be improved margins that will realize and then classically the last quarter in the winter season, we're dealing with higher fixed costs relative to the volume that we will see at that that point in time.

Okay, thank you. That's all for me.

The next question is from Andrew Casella with Deutsche Bank. Your line is open.

Hey, guys. Thanks for taking the question. I guess, can you talk us through a bit on how you're thinking about liquidity? So you guys ended the quarter about $1.4 billion? Obviously, it seems like a very high number more than you need to operate. So just curious if you have an update on just how you're thinking about capital allocation that you bought some bounce back in the first quarter. Just curious if that's still a priority. And then, as far as we've talked previously about asset sale proceeds and how you were thinking about utilizing those if you have an update for us.

Yeah, let me -- so the first quarter, we did end our liquidity at $1.4 billion. I'll give you the breakdown, just so you understand that $379 million, that came from cash on the balance sheet, at the end of the quarter. There is roughly $1.1 billion sitting inside the ABL facility that's out there. We've also got some LC Letters of Credit that offset that, which basically makes that up just at about $1 billion. And so that's how the liquidity gets formed. We are in a good position. We'll continue to be conservative when we think about cash flow management through uncertain times to make sure that we are investing in the company. We don't want to shortchange the investments around cost takeout and growth initiatives, and prepare ourselves for the recovery. So one of the things that's important to us is we not only manage to the downturn, but we manage for the recovery. When it does come back, we can service our customers, we can make sure that we can hit the volume projections as they come. And as we start to hear some of the positive momentum inside the new home, the new home construction space, we want to be prepared for that. Specifically to bonds. We've been opportunistic. We had on the back of our mind, there's the asset sell sweep from the divestitures that we made. And so, as we thought about paying back debt to the banker, we want to make sure that if there's an opportunity for us to be opportunistic to pay back some of that data debt at a discounted rate we did. It feels like that might be slipping away as the bonds prices have been increasing over the last couple of months. But we'll continue to always look at that and make decisions on a case-by-case basis that's out there. But right now, as we look at our capital spending, and as we look at the cash flow forecast for the year, we're not anticipating a big or any at this point, asset sell sweet cash proceeds to go back to pay down debt. So based on the forecast, that's kind of the projection that we have for liquidity will continue to maintain strong liquidity as we go forward. Now, we'll always look at opportunistic acquisitions that come around. Right now, our focus has been on bolt-on type acquisitions that are strategic in nature, that allow us to either increase geographical presence or strategic capabilities within our space, it wouldn't rule out, game changing type of acquisitions, but the focus right now has been on more of those bolt-on type acquisitions.

Got it. And just to confirm. So the takeaway is the asset sale proceeds, you do not expect there to be a bank debt paydown with those just to confirm.

Yeah. At this point, based on our projected EBITDA that we have. And there's still a lot of two more quarters to go, two and a half quarters to go before we can really put a nail on that. But based on the projections that we have in front of us, we are not anticipating and asset sweep at the end of the year.

Okay, got it. That's helpful. And then I wanted to go back to your volume comments. So, it sounds like to me, you were saying, before you were a little bit more bullish on the second half, and having more of an uptick, and now you're planning on the second half not improving from the first half. So as we think about the second quarter volume declines through the month of, April and May. Are those still running at kind of that mid-teens level? Have those improved at all? And then I guess in line with the comments you had made, does that mean you're anticipating mid-teens declines in the second half, where that's going to look just more flattish, because I know I know the comps are a little bit easier.

Yeah. What we're seeing in terms of it varies. So as Jeff was talking about, we are seeing, for example, noticeable uptick in the incoming in our stone business as one example. Some of the other segments of our businesses, we continue to see a comparable level of headwinds, anywhere from depending on the segment, I would say, high-single-digits down to 20, low-20s down in terms of volume that we're experiencing. Again, we're experience -- as we go into the spring months here although as an absolute basis, lower levels, we do anticipate that it will be somewhat better as people are building more and doing more to their homes and like commercial construction. But our current anticipation is that that little bit of uptick sequentially, that will seem the second quarter, relative first quarter will remain at that level in the third quarter, and then come back. We're still on the first half the second half basis, we are managing our business that it is kind of an overall flatfish type of a profile.

Okay, got it. And then a final question for me. Thanks, again. Just wanted to go through the cash flow walk for the year. If you could just update us on everything about CapEx. I think you'd given us the cash tax rate previously, I think you would said there would be an opportunity working capital. So if you could just give us some of those bookings, it'd be helpful for the model for the model.

Yeah, absolutely. So the major drivers as we think about 2023 CapEx, our anticipation right now is about $140 million worth of CapEx for the year. We spent $42 million inside the first quarter. And so you can see the run-rate there is online. The second quarter right now anticipating that's going to be closer kind of $36 million. So we're kind of tracking to that number. We feel good about that number as well. As we think about the cash position, cash taxes, as we look at the full year, and we look at some of the benefits that are in there, we expect it to be about $20 million use of cash. So not high cash tax expense coming out this year. And then cash interest expense is about just under $300 million.

And that's our working capital?

Yeah, working capital is may pull up here real quick. So we anticipated benefit of about $50 million to $100 million worth of primary working capital. And so specifically, accounts receivables accounts, payables and inventories. And, yeah, as we think about last year, we also had a nice benefit inside of 2020 to over 2021. So continue to benefit inside of the working capital for the year. A lot of it's going to depend on the volumes again, and in particular steel costs. Our Shelters business, if you think the first quarter, we realized deflation from steel cost on the P&L. But if you look at the steel index, it was going up. In fact, it almost doubled in the first quarter from December till the end of March. And so it does have a -- because the long cycle, the six months cycle on that business, it does have a use of cash in particular as we're seeing inflation. And so does have some timing impact. And that's why that range of kind of 50 to 100 makes sense in our mind.

Great, thanks so much. I'll get back in the queue.

The next question is from Richard Kus with PGIM. Your line is open.

Hey, thanks for taking my questions. So just first for me, if we can step back into the Shelter Solutions business, just from a margin standpoint, you kind of talked about what you're seeing in terms of steel. How should we expect the normalization of margin into the mid-teens to progress there, as you think about the remainder of 2023 and look into 2024? What needs to happen here, how much of your prices come down relative to lower steel prices, and then how much of that normalization is going to be driven based upon volume.

So, as the strong margins that we were like in the first quarter of 20% plus, as we said, is not a sustainable level. As we put in strong pipeline management capabilities as a function of the cycle. So we have short cycle business, and there's long cycle of businesses. So the way we go about adjusting price, relative to steel, and our ability to put that out in the marketplace, and react quickly has improved significantly because of the tools and processes. And in addition, relative to history, we worked on of course, optimizing our cost structure of the business and efficiencies that we're realized in our factories that we continue to do so. Having said all that, certainly our ability to expand the spread over the price is greater when the still price isn't an upward trajectory. Because everyone is seeing that the indexes are being released the spot price market, et cetera. So we are able to stay ahead of the curve. It compresses when the steel prices coming down. And as you might imagine, because of the different cycles of the business, the amount of compression and the speed of compression is different for the different lead time segments that we have. So as we're monitoring the dynamics of the steel market, we anticipate and we're starting to see it already, that steel price have reached its peak, and it's starting to decline. And so because of that, even with a lower cost structure, we anticipate that the margin that we realized in the fourth quarter will not be possible, because the compression will take place. And we will have to make adjustments to prices as it comes down. We anticipate a more normal level for this. And this is mid-teens level. And so we're enjoying a high level right now. So we see our business normalizing towards that mid-teens level as we progress throughout the year and as the steel prices continues to reduce as we see the world today.

And Richard, just a couple of add on comments as well. Steel volatility -- steel cost volatility isn't new to the company, right? This has been going on now for multiple years really started inside of 2018, we thought at that time was volatile turned out to be a small bump compared to what we really saw inside of 2021-22 and now 2023. But one thing that's really important is our ability to manage through the cycle has been proven now for multiple years. So we've been able to get price over inflation inside this segment by managing those, as Rose mentioned our prices in particular and being very, very disciplined around inventory management, especially as we kind of hit those inflection points at the top and you start to see the steel cost start heading back the other direction, which is what we're seeing right now. So it is a well-run organization. They have a lot of weekly calls and daily calls where they talk about what's going to happen in pricing. It's not something you go out with a list price, a few times a year, this is actually very dynamic, where each job is then quoted based on current steel costs, et cetera. So, but again, the takeaway for me, that I'm trying to leave is, we've been in a very volatile steel market now for some time. And we've managed nicely through that.

Got it. And, I guess my follow on is just like steel prices trajectory overall, I know is lower. But you noted yourself have risen over the course of the past quarter. Is your expectation that normalization happens quickly, like within this next quarter? Or is it something that gradually happens as we move through the year.

I now is our comment pretty dynamic. Steel price is one of those. The insulation that we saw at the beginning of the year, and then tax the war and all that. I mean, it's pretty crazy. But we'll do more seriously. Right now we believe the peak has been reached, and the car has turned down and it's coming down. So we don't know exactly what the scope is. And again, so we manage it daily, dynamically. And so we anticipate that throughout, it will start happening in the second quarter and throughout the third quarter as well. And we'll see where it normalized. But that's a lot of planning.

Richard, we'll don't get into a lot of detail around this, but we have the short cycle business and lifelong cycle business. They do have a tendency to have some offsets. So as the in an inflationary environment, our short cycle business has a benefit in a deflationary environment, our short cycle business has headwinds. And so -- and then for the long cycle businesses the opposite. And so we can -- if you look at it by division, which we don't, we don't show the divisions that are out there, you could see the margin compression and expansion in each one of those businesses that they have a tendency to offset just because of the nature of the inventory and buying steel, et cetera. But we do manage it very tightly. And that's it's a core competency that we have within the company.

Understood, okay. And then just an Aperture business. I think when you guys originally marketed this deal, you were talking about something and correct me if I'm wrong, $100 million worth of manufacturing inefficiency that that business had taken that you thought you were going to get back out of that business. How much of that have you gotten back to this point? Where does that stand? How much of your cost save initiatives have been applied to that business? And what's the pacing in the realization of those cost saves and getting that manufacturing productivity back up?

And Richard, are you specifically talking about the Shelter's business or overall?

No, the windows business.

The Apertures business. Yeah. So a couple things, maybe I'll start and then Rose can add some comments on as well. We have seen positive as a company, we have seen the momentum and the benefits from the Cornerstone Production System show up inside of our Surfaces business in our Shelters business. We've seen progress inside of our Aperture business, but it hasn't been as fast as we've anticipated. And so although the momentum is heading in the right direction for us on the manufacturing inefficiencies, we still have a couple of sites that have been stubborn. And our ability to change those as fast as we would like. Now we've got some good action plans in place to make some of those come to fruition. But I'd say that we're on track, inside of the Shelter's business and inside the Surfaces business. And we're slightly behind inside of our Apertures business, as we kind of think about the last nine months, basically, since we marketed the deal. The good news is that those savings are still real, those opportunities are still in front of us. And so we just have to continue to execute a lot of changes been put in place, a lot of investment around people and resources and processes to make sure that we get after those savings. And so we still believe in the benefits that will come from that. But we have not seen a lot of benefit hit the P&L yet from the Aperture Solution segment.

And just to add a little bit more, I mean, negative unfavorable, $10 million net productivity that we realized in the first quarter for our Aperture Solutions, because of the work that we're doing, we anticipate that those numbers will decrease and get to the point of net positive. This is the most labor-intensive segment for us. And so part of the delay in achieving the type of improvements that we would like is because of what we experienced in terms of employee churn and therefore then the retraining and so forth. And so as the labor force is stabilizing, and as we're putting in more elements of our production system, we anticipate and what we're working towards is net productivity gains that are -- that we should be entitled to in this business unit.

Okay, and what do you think the total dollar value is of the opportunity for that business?

Well, as I said, we run out this business with an improvement relative to when the business was put together, let's say we've demonstrated 12% EBITDA, margin capabilities. And as we put in these improvements over time, now it's a multiyear journey, we think we should be running this business at a high-teens level at a rally 17% 18%. So it's quite a bit of -- it's 5 points rally that's in there that we're working towards achieving.

Got it. And that comes out of the cost initiatives and productivity savings, not that improvement doesn't come out of improved price cost spread, is what you're implying?

Most of that improvement will come with running our factories more efficiently achieving savings in terms of how we buy in our quality initiatives and our efficiency initiatives. The way we're seeing -- we've achieved quite a bit of pricing gains, because of the supply demand dynamic that we experienced. Our view is that we should be able to keep most if not all of those gains that we've achieved, but given the view of how the supply demand and the Building Material industry will unfold, the opportunities gain a lot more relative to what we have other than small adjustments and, and surgical moves. We don't think there's a significant pricing lever out there in the near future.

Got it. Okay. Understood. And then maybe last one for me, just in terms of that $120 million of unrealized synergies and cost savings that you guys are talking to. How much of that becomes realized in 2023?

Yeah, the way the way we think about that chart in particular, the way we measure our cost savings and synergy savings is they have to have begun so it means that they've started the savings process and that they finished within 18 months. So, looking at that, you would say that two thirds of that will be inside of 2023 and there could be a third of it that comes inside of 2024.

Got it understood. Thank you very much.

The next question is from Brian DiRubbio with Baird. Your line is open.

Good morning. A few questions for you, just outside of steel and glass what other war materials are you experiencing inflationary pressures on lately?

Probably the glass is inflationary, steel was inflationary, now it's reducing. And just about all our other raw materials are either stable, and the one that's leaving that -- we've been benefiting from, in terms of deflationary factors is our PVC resin, which is a big raw material for us. And that has reduced in cost. And it seems to be kind of stabilizing in that reduced state.

And not a raw material input, but our labor cost is persistent as well. And as you might recall, through the pandemic, and stretching into 2021, and even 2022, we had quite a labor inflationary impact for the company. We didn't slowdown, we want to make sure we don't that we contribute towards maintaining a stable workforce. And so we had a nice increase for the labor workforce this year as well.

Okay, what is labor as a percentage or cost of goods?

That's 10%, roughly.

Okay, that's helpful with that. Then switching gears, just from the competitive front, you have some competitors that have expanded capacity. You've got a weakening demand environment is the weaker than expected results that you see in second half of the year is that we're just you know, excess supply hitting the market? Or is it really just the end market is not rebounding as you initially anticipated? Here, in particular, I'm focused on the window segment.

Yeah, I think it's the latter, in our view. The end market in terms of whether it's new construction activity or remodeling, that's driven by new homeowners buying homes and so forth. I think the current macroeconomic indicators are saying that it's not going to be as strong as we would all like. I think it's a little bit different. So our current view is that on a sequential basis, new construction, is seeing a little bit more favorable outlook, because the existing home sales are lower than what we anticipated. So overall, for the residential home building market, I think it's a little bit up and a little bit down in the consensus at the moment.

Okay. And then is you mentioned about liquidity and potential M&A. I guess, where do you feel comfortable taking liquidity to, if an M&A opportunity presents itself?

Well, it's always a difficult question, right? It depends. The answer is, it depends on the market, it depends on where we're at in the cycle. And depends on our outlook and the certainty around the outlook. But to give you a sense of how we look at running the company? We like to we'd like to target kind of one to two times EBITDA as a good way to think about liquidity. Now, we can certainly go closer to one, we feel good about the outlook in front of us, we'd like to stay closer to two as we have uncertainty in the marketplace, and depending as well on kind of the acquisition itself and how strategic the acquisition is. So it really just depends. Now, just add on to that a little bit as well, we probably need in cash, just to run the company $100 million to $150 million comfortably on the balance sheet, just to make sure that we've got the working capital, and that we've got cash that's needed inside of different foreign countries, Canada and Mexico in particular. And so just manage that appropriately, kind of that $100 million to $150 million, is a comfortable position.

That's helpful. Thank you. And then final question for me, just pertains to the synergies and cost savings. Is there a certain level of volume that you're assuming in order to achieve that? Put it another way, if limestone pick up will be -- will those cost savings be achieved, probably in '25 versus '24? Just trying to get a sense of the sensitivity there.

Yeah, it's a good question. The synergy projection is in line with our volume projections right now. And so as Rose mentioned, we've kind of expected that we've been experiencing kind of the mid-teens kind of 10% the kind of high-teens decrease in volume inside of our residential businesses. And so our forecast kind of reflects that and the synergy benefits also reflect that type of volume declines.

Fair enough. Appreciate all the color. Thank you.

That will conclude our Q&A session. I'll turn it over to the presenters for any closing remarks.

Thank you everyone for attending our first quarter call. Thank you also for your continued interest. Have a good day.