JELD-WEN Holding, Inc. (JELD) Earnings Call Transcript & Summary

All right. Well, good afternoon, everyone, and thanks for joining us. I'm John Lovallo. I'm the senior U.S. homebuilding and building products equity research analyst here at UBS. We are very excited to have JELD-WEN with us today. Bill Christensen, CEO and Board Director; and Julie Albrecht, who is EVP and CFO, are with us. So we're looking forward to having a good discussion here. And as most of you know, JELD is one of the largest manufacturers of windows and doors. Recently went through a strategic review, which we will talk about, which culminated in the sale of the Australasia business, that will be in our discussions. But Bill and Julie, thanks so much for joining us.

Pleasure to be here, John. Thank you.

Yes.

So let's start sort of as we typically do here at a higher level. Bill, you've been in your current role as CEO now since December, I think, from mid-December.

Yes, correct.

And Julie, I think, mid-July?

That's right, last year.

Let's talk about sort of how you frame maybe the biggest opportunities and sort of biggest challenges since you guys have been in your seats.

Sure. So I actually joined JELD-WEN in April of '22 to run Europe, stepped into the global CEO role in December. So it gave me a good opportunity to kind of ramp up and understand a little bit more about culture and performance and expectations. We're focused on 3 different areas. So people, performance and strategy, spending a lot of time on people, really trying to improve the culture, activate the organization and really drive performance more in a short term. We're going to get to strategy, but that's less of a focus currently. So those are 3 areas where we see a lot of potential. Some of the challenges are -- clearly, there's a macro headwind in both Europe and North America. There's some cleanup that we have to do on the balance sheet and some deleveraging, which is something that we'll probably address today in the call. And I think probably the third point is just creating a culture of execution within JELD-WEN. That's definitely not in our strength in the past, but we want to work on changing it. So those would be my observations.

Julie?

Yes. I guess I'd echo of course, some of what Bill said. But definitely, JELD-WEN is a fairly complicated business. And just as we reflect and as a reminder, JELD-WEN's only been public for about 6 years. And so family owned for, let's say, 50, then under private equity. And so we see a lot of opportunity to kind of unravel and streamline the operations in the business. And so it makes sense, I think, from where the company has been and it grew, but I think a real kind of challenge and opportunity is around standard work across the operations, across our administrative functions and again, really simplifying and focusing the business.

Okay. And as you guys have become emerged in your roles and in the conversations, you've had with channel partners and with folks in the investment community, what are the things that they tell you that they would like you to do differently than perhaps was done in the past?

Well, there's a couple of things. I'm reminded on many occasions that I'm CEO #7 in 11 years. So there's definitely an interest for more continuity of leadership to strengthen the senior relationship, which is clearly what we want to do and deliver. Second message would be they want us to continue doing what we're doing. So delivering great products and services as we do today. I think the third point is more of a constructive dialogue about how we can win and grow together. And at times in the past, we haven't been, I think, as focused as we should have been on market and customer. So we're really trying to put more effort into getting into the markets and also meet our teams, which is starting to pay off.

Okay. Makes sense. Anything to add?

Yes, I'd just add maybe more from an external investor perspective, I think we've heard a few times, ourselves referenced as a black box. Again, I'll get back to my comment about complexity, but we're working hard, Bill and I, with our teams and James and Investor Relations to really be more transparent and clear about our financial and market driver communications. And so we've been trying to make improvements this year, and we'll absolutely stay focused on that. So I think that's another -- you think about external stakeholders. Even internally as well, again, it gets back to simplicity and clarity about our business and how to understand it, what our assumptions are, that type of thing.

That makes sense. And the strategic review that I alluded to resulted in more -- one of the results was the sale of the Australasia business, which was a good business, and I think a lot of people liked it. What drove that decision for it to be...

There was a couple of things. And we spend a lot of time, and we really wanted to make the right decision, both for JELD-WEN as an enterprise but also for the organization in Australasia because they are performing well. There was clearly a focus aspect. Julie mentioned the black box. So we are complex, multiple geographic regions that we serve, multiple product lines, multiple segments. So one of the things was we want to do less but do it more effectively. So that was helping us focus on our core regions, which would then be North America and Europe post divestment. Number two, clearly, we need to delever and strengthen the balance sheet. We want to get ourselves at or below 3x by the end of the year to give more financial flexibility. And third point is we wanted to have the right platform to really continue the growth in Australasia with a focus, and Platinum Equity is a partner who clearly has done that in the past, and we'll do that in this transaction. So it was a win-win in our view and kind of the right time to step back and focus on improving North America and Europe.

Right. Okay. So we'll have the sale complete, pay down a good chunk of debt, get down to under 3x levered. What happens from there? Does it become -- does JELD-WEN get back in growth mode? Acquisitions back on the table? How do you guys think about what the next kind of phase is?

So I would say getting at or below 3x is not a destination, rather it's kind of a milestone on our journey to strengthen the balance sheet. So we need to continue to delever is the right. Number two, is it above? Is it below? I don't know, but definitely needs to be significantly lower than 3x. So that's message number one. Number two, there's a lot of internal opportunities to invest in ourselves, and there's very attractive payback. So we need to have capital available for that. We also want to maintain flexibility for bolt-on acquisitions if there is something that we think fits well within what we want to do in the future. And third, we do need to make sure that we retain some flexibility. Share buybacks are also an option but in a longer term, not short term. So those are the areas. It's basically generating more flexibility because clearly, we don't have that today with where we are on leverage.

I think what I'd add, Bill, to that is, I think we all, I think, would agree, we have lots of room for improved profitability. And so you think about things we're focused on, not really what's next even, but today and absolutely going forward, I'd say probably indefinitely at this point is how are we improving our margins. And so to this point of leverage ratio, right? We're focused on improving our EBITDA, which obviously we would expect to drop through the cash flow and ultimately helps that leverage ratio as well.

Maybe along those lines, as we think about the improvements or the simplification of the business, the improvements of the cost structure, where do you guys' sort of see trend margins for the company?

Well, first message would be definitely higher than today, right? The second message is that we haven't given guidance to the market yet on kind of that long-term view. That's what Julie and I are working on as we start fixing and strengthening the foundation and developing kind of long-term growth plan, clearly, we'll also add margin expectations to that. So that's something that we're going to be working towards the end of this year, early next year to have a roadmap, a detailed roadmap with kind of gates where we think we need to be, what's the lift to get there, what's the cost to achieve. So stay tuned, more to come. But definitely, there's a lot of potential that we already have line of sight on. So we feel confident in the next 6 months that we're going to be able to discuss that in more detail.

Makes sense. Let's talk about JEM. JEM is one of the things that the JELD-WEN Excellent Model that has sort of underlie the business for some time. How do you guys envision this evolving? And is this the optimal sort of strategy for the company?

So for JEM, for those of you who are not aware, I'd put it in the bucket of continuous improvement and clearly something that I would call table stakes in any well-run manufacturing organization. So we are doing it, and we continue to do it, but I think there's other aspects that we want to introduce. We need to simplify the business, so we need to make sure that we're focusing efforts and resources on areas that we want to maintain and grow in the future. So that's one area of focusing the business and doing more with less areas, so over investing. That would be one bucket. Second is helping the organization to understand that we want to activate their know-how and really understand what do they want to do to improve the business. So continuous improvement, obviously, is a team effort, but it's across all areas of the business. We were at a plant yesterday actually on our way into the city. And there's a lot of great work that the organization is doing, but they're already talking to us about, hey, we can do more if we have additional capital, and we want to further optimize the business. So one of the focus areas in people is explaining to the organization that we need to delegate the response in authority to them, and they need to come back and tell us what they want to do to improve the business. And JEM is one of the tools that we're doing to improve, but it's not the only lever that we have. So it's a much broader holistic transformation effort that we're rolling out.

Got it. And if we think about just windows and doors as an industry, help us understand some of the innovation that's coming into this market? And where has it been maybe over the past 5 years? And where is this kind of going from an innovation standpoint?

So I think millwork, in general, millwork and windows. So innovation cycles are long. There's a few areas where the industry, ourselves included, have been working on. There's a lot of material science work going on. There's a lot of work around energy efficiency of the products, which is clearly important. I think as we kind of start looking into the next dimension, there's going to be a lot more work around connected home. There needs to be a lot of work around how do we help optimize the inefficiency and the construction process in itself globally. There's too much waste in a construction process, Europe, Australia, Asia, U.S., different realities, but all are still very inefficient. And the third thing that we see, which is very important, is sustainability. So starting to think about how can you close some loops, how can you create ecosystems where you're harvesting products, you're integrating it back into new products. And I think those are the 3 pillars that we're working on and expect will really be driving the industry forward. And it's going to be an interesting journey. And I hope we're able to close the cycle on innovation and improve the expectations that consumers have about what windows and doors can do in a home.

And you mentioned being at one of your manufacturing facilities on the way over, and I'm sure you visited many. If we think about the technology that's in the facilities today, how do you view that relative to your peers? I mean, is there a real opportunity for JELD-WEN to improve sort of the technology of underlying a lot of these manufacturing plants?

There is. I would say that over time, we've probably under-invested in some of our sites. So our focus clearly is to streamline, focus on less but overinvest in what we're maintaining and holding. So we have 130 sites around the world, including Australia. If you take that, then we're down around 90. So that's still a pretty significant global footprint that we need to fund. We need to maintain. And there's going to be a lot of discussions as we look at our transformation on how do we use automation and how do we start to balance technology and cost of labor because, obviously, a lot of our sites are close to areas that are built up and have high labor costs. So these are some of the things that we need to get caught up on, and this is why we expect we'll be spending more on CapEx as we go forward, not only to fund internal projects, but also to automate plants more effectively. I do think we're in a catch-up mode here.

I think as well in addition to automation, just think about investing in ourselves is, and again, thinking about the plant visits yesterday and ones we've done recently is we have a lot of opportunity around working capital and inventory. And so you think about how those technology, whether it's tracking in the site or better tools, systems and data analytics around things like working capital, especially inventory. And so it's kind of a different twist on kind of -- again, looking for cost reduction opportunities, better cash flow and that type of thing. But there's a different type of, you might say, technology play there, obviously, very different than automation that are real -- the type of investment we can make to really improve our results. So just as an example.

Right. Right. Okay. That's helpful. If we think about the current operating environment today, how are you guys feeling about just the general health of the consumer?

It's -- it differs based on region. I would say in North America, I would call consumer sentiment okay. There's definitely no optimism. I'd say, if anything, it's more on the side of caution. Europe is different. Europe has had some macro shocks. War in Ukraine, significant spikes in energy costs and inflation that's high and still sticky, which is creating a lot of turbulence, especially in Northern Europe on spending. And people are very cautious. So we don't expect that to change anytime soon. And there's a lot of people who are waiting. So the good news is, as soon as things settle down and there's visibility and more certainty, I do think that there's going to be a pretty big swing in volumes up because inventory is very tight in the channel. Everyone is cautious. So people are waiting, and the pent-up demand is growing, but there needs to be a few positive signals, at least a stabilization. And clearly, one of the signals that we need in Europe is an outcome of the war in the Ukraine. So there are some pretty big, I'd say, macro topics that need to be solved in Europe, and I think it's more of stability and the consumer understanding that, okay, interest rates will be stabilizing, likely won't go higher, may stay high, but at least we know that we can start pricing our budgets and anticipate better cost inflation because, clearly, cost of building is becoming an issue that we hear more and more when we're talking to more of our partners in the industry, and that's saying that we all need to be worried about that we don't price the industry out of reach of too many of the consumers, especially in a high interest rate environment.

Yes. That makes a lot of sense. Okay. And in terms of how you're thinking about modeling the business, you guys talked about sort of 15% to 20% declines in single-family new construction, high single digits for R&R. How do you feel about those estimates as it stands today? I mean, do you see the potential -- if you had to guess if there's more sort of risk to the upside or downside on that, how would you sort of peg that? And let's say things were not quite as bad, where would we see the sort of the benefits flow through? Would it be in the incremental margins? Or how do we think about that?

I guess I can start at a high level, and I'll throw it over to Julie on some of the details. So I think our expectations are actually quite close to what the market reality is shaping up to be. We took, I'd say, a neutral to pessimistic view at the end of last year when we plan, and that's kind of what we're seeing. So R&R down high single digit, new down kind of low double digit. And obviously, it depends on what markets you're in. But we're actually quite close to that currently, and we're tracking in our months April and May at or around those levels. So there's no warning signals that we're seeing in our current results that would lead us to believe we're way off the mark, and we're also hearing and seeing signals from customers that lead us to believe they're staying cautious on inventory levels in the channel. They're not changing significantly their look forward into the second half of the year. So we feel that we're actually at the market, which is good. If things get better, we're well prepared because we're cleaning up internally now, but we're making sure that we're doing things in a way where we can recover quickly with labor if there is a quick upturn in volume. And then maybe Julie, on some of the...

Yes, I think from like a drop-through perspective, we've mentioned this year, of course, we've had a lot of questions about decremental margins, right? So as volume has weakened, what are we losing? I mean we've mentioned 25% to 30%. So I'd say on the upside, which we would love to see some upside to the forecast, is, again, that type of kind of contribution margin from higher sales. And so I think what we're optimistic and excited about is that we're obviously working through a difficult market environment. But as we've mentioned, we've got so much opportunity to control what we can control, which again is a lot of our cost base as well as the culture and engagement up and down the organization. And so I think the point there is when there is a turnaround, whenever it is or if this year is not as bad, we demand as we are currently expecting, we've got some really nice upside there from an earnings perspective. Again, as we've already mentioned, we know, we need, and we can do better. And so we're just in a kind of delivery, execution, planning and execution paths there.

Makes sense. So there's been certain companies in the industry, certain building product companies, but also think about the big box retailers that have talked about a bit of slowing bigger ticket projects relative to lower ticket projects. How do you sort of see windows and doors fitting into that? And have you seen, I guess, along the same lines, any sort of mix down? Because it sounds like mix has actually been reasonably good across some of your product lines.

So we were pretty happy with mix in Q1, and we over-indexed on wood windows. I think that was -- there was some of a market reality, but we're helping our organization to understand, as we push the responsibility deeper and we're asking them to really identify what areas of the business do they want to grow, what areas of the business do they want a question, and they're coming back and they're realizing there are certain things that we can be doing more effectively, and selling wood windows as one of them. So they're really focused on that. We have strong lead time reductions. I think we're well positioned versus some of the competitors who are hung up with some longer lead times in the industry. So all in, we're controlling it. What we're seeing from our retail partners is confirming our belief that there was not a load in April or May for a seasonal build, which is unusual, but it had been planned. So we're weak there. The inventory remains thin. Clearly, I would say a customer is more willing to swap out a door than a window. Typically, when you're doing a window renovation job, you'll do everything because you can really improve the energy efficiency of the shell of your home. So doors are being swapped, a full window swap, people are thinking twice, same with renovation of your kitchen. It may just be a cabinet and not the full kitchen renovation. So we do see and sense that some of the bigger ticket items are clearly more discretionary and being reduced, but it's in line with the expectations that we have for the volume.

Got it. Okay. That's helpful. All right. Let's talk about price/cost as we move through the year. Are you guys kind of thinking about that?

You want to take that, Julie?

Yes, definitely. I guess, we think about price on the top line and then we think about price/cost from an earnings and cash flow perspective. So definitely, when we think about the top line, because in '22, we were what we would think of as a little slow in getting some of the inflationary price increases into the market, it really was second half of the year that we saw better pricing. It was really, again, it's us being more proactive there, and quite frankly, ultimately, better price/cost second half of last year versus the first half. What that means, though, is this year, because we're in a relatively flat pricing environment, so we're pretty neutral on, let's say, price increases. But year-over-year comparisons, we've got more top line growth first half over second half. And that really flattens out is our expectation in the second half of the year, but that's top line. So when it comes to managing price/cost, which is ultimately what is so important for, again, earnings and cash flow is we're just working to protect that spread, price over cost. So carefully watching, we still have inflation. It is less than we expected, but we have inflation. So when is there deflation and what pockets, et cetera, and really just trying to, again, protect the top line and then manage that spread of price over cost. And so again, first half -- or first quarter was better price/cost than we expected. A lot of that was less energy inflation in Europe. So it wasn't just JELD-WEN. It was a very macro type of thing. But we're -- so we're again, a little more optimistic this year about price/cost on the bottom line, but a little difficult to predict, because of inflation, deflation, et cetera, on the cost side. But what we're focused on again, as having as much of that drop to the bottom line as we can possibly protect there.

That's helpful. If we think about margins in both North America and Europe, it's -- the outlook seems to imply we could see improvement in both, I mean, on a year-over-year basis. I mean, is that the right way to think about it? And can we think about what are sort of the drivers maybe outside of volume that could sort of impact those results?

So I think it's a fair statement to expect improvements in both. I think if you kind of look at our Q1 results, you'll see kind of the expectation on where Europe is and where North America is, and that ratio is probably pretty fair on the mix. We don't disclose, obviously, forward-looking margin detail on regions. There's a number of different drivers. Julie talked about price/cost. Our strategy this year is a big bucket of self-help, and we're less worried about the macro conditions. So there's a lot of cost measures that we have in flight. There's a lot of things that we can do to improve the cost structure. Speaking of one of the plants that we just toured, a lot of the plants, in the past, here in North America, have been buying transportation on their own. We're putting together a global transportation by North America, managed transportation setup. That's $15 million of annual run rate improvements. So there's a lot of things that we just haven't managed effectively in the past that we're really starting to hone in on and deliver, and these are going to, in our expectation this year, deliver about $50 million of cost saves in 2023, combined with $50 million as rolling forward from last year. So that $100 million of improvement is clearly the lever that we're really working hard on delivering. And the market is what it is. We definitely are not losing share. We're potentially gaining some share. Even in Europe, we see some of the smaller fragmented customers have gotten overextended during the last couple of years and are starting to suffer on delivery metrics, and we're picking up some volume there. So we feel that we're controlling what we can control and doing that well, and we're less worried right now about the macro reality.

So if we think about that $100 million of cost saves, $50 million seems like it's attributable to actions in 2022, and you mentioned the transportation. What are some of the other initiatives that are -- that have happened that are carrying that $50 million?

Footprint is a big area. So we -- I mean I spoke of kind of 130 sites, 90 if we eliminate the Australasia sites. So we're really taking a hard look at where are we making what we're making, what's the cost to serve our customers, and how can we optimize our footprint. So we took 5 sites off-line last year. We took Australia off-line first part of this year. There's additional sites that we have targeted. We're not communicating yet names and numbers, but the process is running. So that's one area. Another area is commercial excellence. So really focused on understanding how are we doing in local markets on pricing? How are we doing on sales efficiency? And how effective has the organization been? And this is holding the organization more accountable than we have in the past, and we haven't done a good job in the past of holding ourselves accountable. So those are some of the areas. Managed transportation we talked about. And these buckets start to add up pretty quickly. So that's -- I don't know, is there anything else that you want to add, Julie, to that?

Well, I mean, I think, we've taken -- especially looking at last year and to be honest Q3, Q4, when interest rates were going up and demand was going -- we were pretty aggressively, I would say, looking at our SG&A up spend. A lot of that is headcount. So we were taking headcount out of the organization, really up and down across the regions from, again, an overhead perspective. I mean really then other tightening the belt of SG&A, taking a really hard look at that. So I think in addition to what Bill has mentioned, that's an end action. And a lot of that has started in Q2, but it really picked up steam Q3, Q4 as we were positioning for what we were expecting this year from a demand perspective.

And how should we think about the timing of that $100 million flowing through? Is that largely going to flow through this year? Or will it be some tail into next year?

Well, the $100 million that we've been talking about is what we expect in this year. So it's some tail of 2022, into '23, and its new actions that literally are going on ongoing. So some things were like Atlanta, was -- Board approved and announced. I believe it was in January -- late January, right? So that was early in the year. That will go into effect actually in Q3, the actual cost savings. So it's really this continual kind of like flow of activities into savings. I think the -- because of that, it's kind of a 40-60 kind of first half, second half of that $100 million. And because of what we expect, again, price/cost is still a little hard to put the exact forecast on, but demand potentially continuing to weaken, and that's our outlook. So really, again, it is really pulling in more and recognizing that balance and strong cost savings that are going to help us deliver the guidance and the outlook for this year.

I think for us, it's more of a, I'd say, execution rigor which we've had aspirations at JELD-WEN in the past, but we haven't delivered. And so the question that we get all the time is what's changing. One of the things that we're doing is setting up TMO, so transformation offices at the HQ in Europe and in North America. It's exception-based reporting. We're defining the value streams. We're putting the resources on the page. We're detailing the cost to achieve. And we're tracking and we're doing that on a weekly basis. So it's a completely different level and way of managing a cost package and a savings package in an organization. It's part of the culture change. It's uncomfortable because you have visibility deep into the organization all the way up to the top on a weekly basis. So as we ramp up and we drop different value streams into the overall machinery, we're going to get better line of sight on the projects that we're running. So we're doing things differently. I think that's one signal that we'd want to send. The second signal is that there is ample opportunity. It's all about sequencing, pricing and staffing to make sure that we can get to the goal line. And some things are more challenging than others, like taking sites offline in Europe, for example, takes longer because of all of the European labor law requirements that you have to observe and respect. So that's just to give, I hope, potential investors a greater level of confidence that we're doing things in a different manner. And I would argue that the first couple of quarters that we've disclosed since we've started are starting to show some of the traction that we're getting on the bottom line.

How much more challenging is it to take some of these cost savings actions and actually get the benefits to flow through in an environment that's challenged from a demand perspective?

Well, I guess it's -- I see more of an opportunity because it's a lot easier to clean up the basement when demand is down because you need to do it. We need to get our house in order. We need to sweep the corners, and that's what we're starting to do. And it gives a burning platform. And everyone is aware. I think where we're going to create more long-term value is activating the organization and understanding what do they see and what do they want to do to improve the areas that they've been in for 15, 20, 30 years that just never gets up to the senior level to where we have visibility. And that's part of the people stream to create a culture of trust and pushing responsibility down and trusting the organization to do what's right. So we really are expecting a strong effort in a broader group of people to drive benefit into JELD-WEN, which is clearly different. That's what we're hearing when we're traveling into different locations. They haven't seen senior management in years. They're thrilled to talk to us. They're exchanging. We're -- hey, what's wrong, what's good? How can we help? So it's starting that positive dialogue and getting people engaged. And we have great people around the world in our manufacturing organizations, years of service. They started at JELD-WEN after college, still here after 40 years. It's fantastic. So I think that's the strength. We need to activate it.

Right. Okay. If we think about the industry, maybe the windows industry, I think historically raised prices, I think it was once a year. There's been a number of price increases over the past couple of years just given inflation. How do you see that dynamic sort of playing out? I mean do we normalize here?

Yes. So it's not only windows. I was in plumbing products for a [ line ]. I mean every industry and building products typically had one increase in the spring, and they printed new catalogs with the wholesalers, and that was it. The world has changed. The volatility and the cycles have changed dramatically. And I think last year was a fantastic example. You had to be very dynamic in how you adapted because if you didn't, and Julie said, we were late. So we suffered for at least a quarter, not balancing price and cost. And I think the industry learned last year that once a year is not enough, you have to do what it takes. And clearly, we're learning as an industry to become more adapt as an industry of identifying and passing through more rapidly. So I think the once-a-year price increase has gone, and people are adapting as required. I do hope, however, and this is a bit the view that we have as we're getting close to the top, I do think things are going to start turning at least leveling off and maybe potentially turning down. So that's at least the outlook. But once a year is, I think, no longer status quo.

Yes. That makes sense. How about in the interior door side, how should we think about the pricing opportunity there?

Yes. So we typically won't disclose detail on pricing outside of saying, and I think Julie mentioned it, the inflation expectations are baked into our model and the price that we put through last year that's now carrying into this year based on our expectations, we'll cover. So we don't anticipate any significant moves from our side on pricing in the market unless things change dramatically. But as I said, through April and May, we haven't seen any dramatic changes that would lead us to believe we would have to recalibrate. So nothing dramatic, thank goodness, and that we see.

That's helpful.

Yes. I would agree. I think the only thing I would add there, as Bill mentioned commercial excellence as an opportunity earlier. So as we dig into that more actively in the regions, we'll be -- it will be more opportunistic, kind of more digging into the details of customer profitability and where do we see pockets maybe of opportunity there, but that's -- there's a lot of work to do yet before we're kind of be able to bring that into like guidance and expectations. But that, ultimately, we view as an opportunity.

Right. And can you just remind us what your current inflation expectations are that are baked into the model?

Around 5%.

Okay. Got it. All right. A lot of wrangling over Towanda for a number of years, the interior door facility. If we think about that industry, now with the sale and then with one of your customers bringing a plant online, it seems like what was a 2-company industry now potentially can be 4 companies. Any risk that you see that from a pricing standpoint with that dynamic playing out?

So obviously, and we've stated this publicly on a number of different occasions, we can't comment on how we think the Towanda process will end. Its court ordered. We're pushing the process ahead, working together with the court. Clearly, there will be a different dynamic in the competitive landscape. There will definitely be 3 players. So there's 1 additional competitor who's already stated publicly, and he's standing up a new plant. So there will no longer be 2. There's definitely 3, maybe more depending on how things play out. Clearly, that will impact price in the industry. There's always an impact if there's different competitors or players coming into a market. We feel comfortable because we're fully vertically integrated. Even with a divestment, if it does occur, we have enough internal capacity to service our own expectations for a number of years. So we feel confident that we're covered. So we don't see any major implications for ourselves from a supply chain standpoint. But as I said, we do expect that there'll be changes in price. I think it would be naive not to expect that.

Okay. Makes sense. Let's take a couple here from the audience. First one is here, do you think JELD could become solely focused on North America? Why is Europe core?

Yes. So we've had this question a number -- on a number of different occasions. I think our first message is that there's a lot of opportunity in both regions. So we first want to improve what we're doing before we really take a step back and think through what's the right geographic mix in our portfolio. Europe is not a continent. It is a number of different markets, and we have leading brands in some very strong countries. So we are very well positioned. We clearly have a lot of work to do on our profit, but we have line of sight as to what we want to do. So our motto is, fix it and then take a step back and think through more of what's the right portfolio fit and set up for us. But we really like what we have, but we have some homework to do.

Makes sense. Next one is JELD recently discussed bolt-on M&A as a potential use of excess capital. What types of acquisitions are most attractive?

So I would venture to say that we would definitely not be doing something completely off the grid. So if we are going to be doing something, it's clearly a bolt-on that fits into one of our existing businesses, either from a geographic logic, so augmenting a white space that we may have, or clearly, bolting on something where we already participate. We really like the industry. We like the profit profile. We like the growth profile and then create more scale through M&A and then really start building out that into a broader pillar within our portfolio.

Got it. Okay. Next one is, curious if you think more new resi demand is coming from completions versus new starts?

So our products -- I'm talking more in North America because there's a longer cycle in Europe. Our products are built in kind of 3 to 6 months after a start. If we kind of think back in '22, in Q2, starts started declining, the interest rates started increasing. So we are linked to starts in kind of 3 to 6 months out. What we're seeing in different areas and some of the things that are trends for us are what's the trust sales in, what's kind of the concrete and the rebar for the foundations and so we can start to see. No major changes yet. So we think we're pretty well synced to kind of the market reality and what's into the segment. I'd say it's... [Technical Difficulty]

Bit up against time here anyway. Actually, did it come back on for you?

I think. Yes, there we go, we're back on.

Maybe we'll ask one more quick one here from the field. What level of cash flow does JELD expect to achieve this year to get under 3x levered?

Yes. Well, what we've mentioned before is when we look at last year, it was definitely an anomaly on the low side. So we absolutely did not generate the cash flow that the business is capable of. That was lower EBITDA, but it was also really dramatically increased from early in '22 working capital balances that we really never recovered from. So what we expect this year is to really get back to prior year pre-2022 levels of operating cash flow. We will, of course, lose Australasia once we close the divestiture, which again we expect to be in early Q3. But quite frankly, it's not really that material from a -- if you think about, it's about 10% to 12% of our business. So it really doesn't have a big impact on cash flow. But for this year, we're expecting to be closer to the levels we would have been in like 2020, 2021.

All right. This has been great. We really appreciate it, guys.

Thanks, John. Appreciate it.

Thank you.