Q1 2020 Earnings Call
[music].
Good afternoon, and welcome to the trucks company first quarter 2020, <unk> earnings Conference call.
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I would now like to turn the conference over to Victoria Nacala. Please go ahead.
Thank you all for joining us today.
Well, that's a nickel or Jim Cline Charlotte.
And Brian Burbank, President and Chief Executive Officer.
Joining Jim is why don't golf Senior Vice President General Counsel and Secretary, They Shan, Vice President and Chief Financial Officer.
Other members of trucks management.
The company issued a press release today after market close containing financial results for the first quarter 2020.
It's really being available.
On the company's website, because that's cool is also being the wet gas and will be available on the Investor Relations page of the company's website for 30 days.
I would now like to turn the call over to build got Bill.
Thank you Victoria before we'd be good luck.
Everyone that statements on this call regarding the company's expected future performance.
<unk> constitute forward looking statements within the meaning of federal Securities Law. These statements are subject to certain risks uncertainties that could cause actual results to differ materially from those expressed in forward looking statements for discussion of such ritual uncertainties, we see our most recent form 10-K informed.
10-Q's wells are Nike 33, and other 1934 act filings with the FCC. Additionally, EBITDA will be referencing is called that's considered non-GAAP measure a reconciliation of EBITDA that income can be found in our earnings press release trucks Dot com.
The company expressly disclaims any obligation to update or revise publicly any forward looking statements whether as a result of new information future events or otherwise forgot introduction I'll turn the call older Jim Cline.
Thank you Bill and thank you all for joining US this afternoon to discuss our first quarter results and review our business outlook.
These are certainly unprecedent at times.
I am pleased the trucks was able to report an outstanding first quarter and that our facilities are virena operational during this crisis.
Our employees and leadership teams have done an excellent job and deploying our business continuity plans quickly and efficiently.
Part of strong business planning is a focus on succession and even with the crisis at hand, I'm extremely confident in the current transition that we have underway with Brian stepping into his new role as president and Chief Executive Officer.
Brian will review the first quarter results and provide additional color on our strategy.
Operational results and outlook and a few minutes.
I would like to focus my remarks, I think matters most in times of uncertainty.
And that his leadership.
Brett is unique and that we offer leadership strikes and many important areas, namely people.
The trucks brand.
Low cost manufacturing and innovation.
These leadership strengths will enable tracks to not only whether this period of economic uncertainty.
But to emerged from that as even stronger market leader.
Next is clearly the brand new leader.
And in the growing.
Positive decking arena with market.
With leading market share in the industry and strategy is to accelerate conversion of the large wood market.
We just supporting this brand leadership Trex recently swept the annual awards from builder magazine brand you study.
Receiving the most votes for brand familiarity.
Brand years, most in the last two years.
Brand use most.
Hi, yes, and overall quality.
In addition trucks was awarded Rina stacking.
By Green builders meet your readers choice awards.
These awards reinforce the reputation.
For product performance easy installation sustainability and best in class channel relationships.
From a low cost manufacturing perspective, we saw significant year over year improvements.
And the start of the process to remove the material from enhanced to hit our original design intent.
Hi, This all together are the people that tracks and our leaders most of whom have worked together for the past 10 years.
And are responsible for making tracks resilient company. It is today.
Yeah, that's been a privilege to lead this talented group of people and I look forward to continuing to work with the Trex team in my new role as chairman.
And I'm proud to turn this call over and the CEO.
True Bryan Fairbanks, Brian.
Thank you Jim before I begin my remarks in the quarter I'd like to follow up on Jim's comments I commending the trucks team for their tremendous dedication and recognizing the excellent job that our employees have done in deploying our business continuity plan quickly and efficiently.
We're being prudent and taking actions beyond CDC recommendations, including physical distancing that all facilities.
Appointment temperature scanners.
No working and many other precautions.
Not only have we focused on the safety of our people. We've also look for ways. We can help in our communities.
R&D team produced phase shields for medical use to help our local hospital and we made monetary donations to local and national charities.
I'm proud of the way our entire organization has responded how quickly they have adapted to the changes and the way we need to operate today.
Well the last 60 days have brought unprecedented change to the business landscape Trex continues to focus on a strategic initiatives, including providing leading products for the outdoor living market furthering our cost leadership by engineering, our enhanced products factor original design parameters.
Building capacity to support market demand.
Continuing our efforts to convert the large what market to Trex composite products.
First quarter results were strong.
Key highlights included a 12% increase in consolidated revenue led by a 13% sales growth in the next residential products.
We also expanded consolidated EBITDA margin by 570 basis points to 29.4% and deployed $23 million in capital primarily related to our expansion inline with our expectations.
The first quarter results reflected broad based demand across all product lines and channels.
Traffic to Trex Dot Com index Dot com indicates that the consumers engage with our brand and with that planning design and purchase decisions even during these challenging times.
Paired to the prior year site visits were up over 15% during the quarter.
These growth numbers indicate that the conversion from would continues to accelerate thanks in part to launch of it had the basics and naturals decking, which has significantly expanded the size of our addressable market and the popularity of transcend which continues to take market share.
Well our revenue growth was strong our gross margin performance demonstrated or operational excellence advancing by 620 basis points to 44.8%.
This exceptional improvement resulted from production efficiencies.
The absence of enhanced startup cost.
In the early stage benefits removing material from our enhanced profile to achieve the original design intent.
We estimate that enhance will return to its original design before the end of this years third quarter.
However, as we continue to expand our capacity, we will experience headwinds from additional labor.
Cost with associated startup of the new capacity, along with unplanned incremental cost related to covert 19.
We expect to offset much of these costs through additional operational improvements.
With respect to touch commercial products revenues were similar to last year and EBITDA margin increased to 15.1% from 3.7% last year.
Reflecting roll off of prior year lower margin projects improvements in overall execution and favorable project mix.
Production efficiencies stable raw material cost it spending controls drove strong operating leverage in the first quarter, resulting in 39% consolidated EBITDA growth and a 35% increase and diluted earnings per share.
Now I would like to discuss how we're working through the cobot 19 crisis and our business outlook.
Our facilities have remained fully operational through the crisis and we've been able to continue production in a safe and effective manner to meet demand for Trex products.
We are confident in our sourcing strategy and are well positioned to meet customer demand with no sourcing issues and ample safety stocks raw material inventories, which we believe will protect us against any potential short term supply chain disruptions.
Our sales teams are maintaining close contact with our distributors dealers and retailers understand the impact of the crisis on their business engage the status of market demand in different geographies. So that we can support them most effectively.
My discussions with many of our channel partners and the truck sales team confirm that we're doing all of the right things to support them.
We are mindful of the impact is pandemic as our own team and business partners I'm proud of the way our teams have remained focused and supportive our partners needs.
The collectively work to navigate the current environment.
While our production and sales volumes for April were in line with our internal plans, we have experienced lower demand in certain geographies, specifically, we're seeing the greatest impact in New Jersey, New York, and Pennsylvania, Tristate areas as well as Michigan and Washington.
We entered this period with of uncertainty with a growing demand for composites in most geographies and a customer base. That's increasingly more educated on the benefits of composites as a reminder, over 90% of our demand comes from the remodeling sector rather than new built.
And public data shows at less than 10% of deck replacement and additions are funded by refinancing or home equity loans and in fact fewer than 10% of the contractors on our website offer financing, which speaks to the resilience of our market sector in times and credit may type.
We're pleased with the results we've seen in April and it less current conditions substantially change.
We are projecting second quarter sales of 180 million to $190 million.
Given the uncertainty of closures and their duration and the further impacted cobot 19 economic pressures were temporarily suspending all previously provided full year guidance.
Despite this uncertainty we continue to experience strong traffic on Trex Dot Com index Dot com.
We believe that stay at home consumers are prioritizing home improvement projects, especially those that will add lasting value enhance enjoyment and minimize maintenance.
We see this as a positive trend for our business as our product lines, especially traction hats meets the needs of our more cost conscious d. I want to consumers.
Additionally, crexus entered this crisis in an extremely strong financial position.
This is the result of our conservative financial management practices as we generally only carry short term seasonal debt.
Our balance sheet remains very healthy with ample liquidity, including $221 million available borrowing capacity under our revolving credit facility and healthy annual operating cash flows, which together provides more than enough funds to execute our strategy and continue our capital investments.
During the quarter, we repurchased 442000 shares for $39 million as part of the share buyback program approved by the board of directors.
Due to economic uncertainty and market volatility, we have temporarily halted our repurchase program.
When the economy recovers, we expect to see significant increases at home improvement spending specifically in the outdoor living category.
In addition to our flagship products of transcend and select decking and railing be enhanced product like considerably expands our ability to drive further market share gains from wood in the coming years.
This confidence in future growth is reflected in our decision to proceed with our capital expansion program to support robust consumer demand for our products that we anticipate and will continue as economic conditions improve.
As previously announced the ramp up of three additional lives. The Nevada facility entered additional line in Virginia will be completed by the end of the second quarter of this year.
Meanwhile, the construction of the building for a new Virginia facility is well underway and on schedule.
Before closing I want to thank Jim Cline for his dedication to building the trucks company and delivering a strong team that will continue to drive growth and shareholder value.
Working under Jim's leadership has been a rewarding experience for us all and I look forward to continue and her team work as he assumes the role of chairman of the board.
Jim led the Trex team to gains in revenue EBITDA market capitalization, all well ahead of market indices.
As impressive as this performance has been there remains significant opportunities ahead of us.
Trex isn't there early innings of the word would conversion opportunity with approximately 80% of the decking market available for conversion to composites.
Our expanded capacity will empower tracks to aggressively gainshare within the industry.
We have built strong operations engineering, and R&D teams, which continue to drive product innovation throughput increases and cost saving opportunities for years to come.
Finally, we have a strong leadership team with many years of experience and with a proven skills to drive customer satisfaction and shareholder value.
Also I'm pleased to announce the newest member of the Trex team Dennis Schemm.
Dennis was appointed Vice President and Chief Financial Officer of districts Company.
His extensive industry knowledge financial experience and collaborative style make him an excellent business and cultural fit for trucks.
I look forward to working closely with him and together with our leadership team and executing on our strategic growth plans.
In summary, so we face it difficult economic environment, no that as a leader in a growing market. We're confident that tracks is strongly position to effectively navigate tough times. Thanks to our people channel partners brand leadership low cost manufacturing.
[noise] and strong financials.
Entire trex team hopes that you and your family's Stacy.
Operator, I'd like to now open the call for questions.
We will now begin the question answer session.
Asking question you May Press Star then one on your Touchtone phone.
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Anytime your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question comes from John Baugh Stifel. Please go ahead.
Good afternoon, congratulations on the great first quarter and a welcome Dan as to the team or do you think is.
First quarter I believe the gross margin of 44.8% matches from two years ago first quarter and yet you got.
The enhanced sports still has more material I think then then you want and of course, the enhanced product has.
Lower margin I assume.
And it's a meaningful part of the mix. So I'm curious yeah, what in those two year timeframe has enabled I'm sort of degree adjust those factors gross margins to go up.
Yeah. If you look at over that a couple of year timeframe, we've continued to see benefit and our raw material sourcing with recycled polyethylene also other operational improvements we've talked about our cost projects over the years also a lot of work has been done.
Over the past two years during the first quarter of this year, we did start to see material rolling out primarily from our Virginia facility.
With the lighter weight design. So we saw a little bit of benefit from that we will see more of that through the second quarter and then be fully implemented as we get through the third quarter of this year.
Uh huh.
And.
Could you tell us kind of what you're seeing.
And your typical to stuff versus say the T.I. why more oriented yeah, why home center business in in April March and April may be.
Yeah, I've been trying to stay as close to that as possible talking with our sales team on a regular basis as well as folks within the pro channel.
Regularly been hearing there was about a two week slow down to where the phones were ringing a little bit less about the phones are really starting to ring now and those contractors are starting to build their backlog through the summer months again.
So there's not really the panic that potentially thought there was going to be looking back third 30 days people are still actively engaged in shopping for trex products, whether they're doing it from a DIY perspective, or whether they're working with a contractor and what we're excited about that even though.
The the there are challenges out in the marketplace.
And finally, my last question and I'll defer in the states that were essentially closed the construction that you've mentioned is there a way to delineate a the business sort of X those states.
We haven't provided any geographic guidance audit all of those states are significant states or the growth of up Detracts company. All of those states are in various process of reopening at this point to Michigan as it reopens there.
Lumber distributors as well as dealers Washington is slowly reopening a there are parts of New Jersey, and Pennsylvania, mostly mostly in the further north east side. That's still may be closed at this point, but I kind of look at our overall volume.
Hey, population perspective, where do you have the largest population centers in the suburbs you tend to find the largest sales.
Yes.
Great. Thanks, Good luck.
Appreciate it.
Our next question comes from Ryan Merkel of William Blair. Please go ahead.
Hey, guys, let me say congrats on nice quarter.
So first off to Q sales down 10% is a little bit better than I was thinking can you just shared with us some of the assumptions that you're making it sounds like you had positive growth in April and so I'm wondering how much do you think sales decline in May and June and then are you assuming any recovery in the states with harsh.
Sure restrictions and the guide.
Yeah. Thanks, Thanks ride for the comments.
We are seeing primarily weakness.
States that I already talked about.
We do expect that that will come back again, and there will be some pent up demand within those marketplaces.
Given that we're only 60 days and there are still a lot of uncertainty of what's going to happen in the hardest hit marketplaces.
We've not been too aggressive on assuming large backlogs in those those marketplaces.
What we're hearing has been positive thus far and all of those considerations are baked into the guidance that we provided at this point.
Yeah, that's what I thought you'd say I figured you stay pretty conservative, which makes sense second question. I know you won't give numbers, but have you seen any big differences in sell through her transcend versus enhance starting in late March and what I'm getting at is are you seeing the high end hold up better or is there any trade.
With that a softer consumer demand.
It's very early still we're still seeing a very balanced portfolio across all of our product lives had the first quarter came in line with our expectations. A the month of April was also in line with our expectations and the orders that we have at this point offer may continue along that line. So we are not.
Seeing a significant demand shift we may see more of that as we go through later in the summer, but right now everything is a inline with what we expected going into the year.
Got it Okay. Just lastly on rise have you seen recycled plastic prices decline recently and could this be a tailwind later this year.
Well, we've seen stability in that marketplace.
Those materials do sell at a pretty low price at this point. So you don't see the same benefit flow through.
On recycled material that you might in the Virgin marketplace, we do use a little bit of Virgin and some of our some of our products. So we will see a benefit on that part of it.
But we have not really seen much of a shift on that recycled materials, whereby we may get a little bit more later in the year on that well talk about that as we as we see what happens in the marketplace.
All right Thanks, Brian pass it on.
Thanks.
Our next question comes from Tim Logia of Baird. Please go ahead.
Hey, guys get a good afternoon and nice job on Q1.
Thanks, Dan welcome.
Thank you. Thank you.
Maybe just on margins.
Just want to kind of kind of understand the comments. So so you should see some benefits on a year over year basis shrunk from enhance.
From the enhance a material.
Improving as well as some startup costs.
But it does sound like there'll be some absorption and some labor and things. So should we think of gross margins.
Being kind of flattish relatives.
So last year as you kind of look over the next three quarters or how would you kind of frame that for us.
Yes, let me I'll step back to the comments, we made in the last call, where we said that we would see there'd be some front loading of the incremental margin improvement because we would start to see more of those cost flow into our Nevada plant and the second quarter as.
We're bringing on employees and add additional costs in the back half of the year as we start ramping employees for our Virginia facility. Neither of those things have changed at this point, we have withdrawn that guidance on a full year basis as we wait to see what happened in the market settles out over the coming.
<unk>.
Okay. Okay. Thanks, and then how would you think about SGN a in terms of some managing that relative to your prior expectations. Do you think there's more leverage opportunity there if there's a little bit more volatility you think you'll continue to invest that at the same speed that you you were investing prior.
Yeah, we'll continue to invest in the branding programs as well as building the personnel to support the growth of the organization.
Looking at it out over the long term.
As a better way as Weve talked about in the past our enhanced basics product line does not carry the same SJ load that are higher end products carry those higher end products are going to carry a branding load along with them, which we don't spend far and have the basics.
So as we move out into the future I would expect to see continued operating leverage on the S. DNA side of the business driving the overall profitability of the company.
Okay. Okay.
That's what I have good luck on the other every year and and thank you extend appreciate it.
Our next question comes from Alex Reichel of B. Riley FBR. Please go ahead.
Thank you could even Brian.
Hi, Alex.
Two quick questions first can you comment on commercial bidding activity and maybe comment on status of your backlog I know you don't quantify it but at least the status of it.
Right now the status is quite strong we recently just booked a $4 million project.
In the office building space that was booked a well after the covert 18 crisis started.
That doesn't mean that there won't potentially be weakness in that sector as we move forward.
We all know the A.B. I numbers came out at a record low.
That tends to impact.
Much much farther out sales so 2021 2022.
We'll be keeping a close eye on that to understand if projects are being deferred within the existing backlog and what overall bookings look like but thus far we've continued to see a nice level of bookings inline with our expectations.
And then secondly, how you gauge inventory on hand and in the channel.
First quarter or whether it was pretty darn. Good so most of the channel was selling.
Product that they were bringing in that if you have bad weather there just building inventories for the second quarter.
So inventories are in good shape to be able to support the season.
But there are far from overstock I think it we would have seen a bad weather first quarter across most of the country. My answer. This question probably would be very different right now.
But sell through has remained strong for the first three months of the year.
Thank you great quarter, and Jim enjoy your new role.
Thanks, Alex Thank you I appreciate it.
Our next question comes from Filmic of Jefferies. Please go ahead.
Hey, guys and we kind of parse out how we should think about demand for Twoq. You gave some color down 10% is the midpoint, how much of that sell through the mad versus destocking.
Any and any issues on the channel partner for being able to supply product.
I'm not hearing anybody use the word de stocking.
Yeah, we're going into what is the busiest time, the second and third quarter every year for composite decking. So will there be some economic challenges during that time period absolutely.
But we're going into whats normally a strong period anyways. So the distributors are ensuring that they have appropriate inventories to be able to support the market.
Oh, so whatever you're guiding for Twoq you at least seems like a pretty good read for delta demand because it does I mean, it sounds like your channel partners. Some of the May have some issues, but doesn't sound like it seemed tariff.
Remember, we tend to build inventories in the channel going into the end of the first quarter and then those channel inventories will tend to decline through the end of the third quarter. So I expect the sell through a that there will be lower channel inventories coming out of the second quarter and there will be high.
Higher sell through a than what we have and that's always going to be a timing difference.
That you have with tracks given the seasonal nature of the business and the fact that we need to get inventory out to the market before the season starts.
Got it and given some of those states you called out there Big States.
And hopefully we went back up in terms of.
<unk>.
Be proactive outdoors and whatnot do you kind of you Twoq you as a trough quarter for you from sales standpoint.
We withdrew guidance because we just don't have the visibility in the market to be able to answer that question.
That's that's fair enough.
And I guess lastly from me.
How much flexibility you have to kind of scaled back from the capacity you're ramping up I know initially the target was 70% expansion.
The Greenfield pieces, what I'm trying to get a better pulse on in terms of how much of that can use throttled back and what kind of incremental margins would you be able to sustain.
Whatever offering right in that 40, I guess do sustained at mid 45% incremental margin what kind of operates would you need.
To keep it at those levels.
So the building is well underway and we will be putting equipment in that building. We do have the ability to pull back on some of that investment later in the year.
For additional lines that we see that <unk>, they aren't necessarily need it.
At this time I think when you look at incremental margin.
And probably more importantly, going forward with the impact it impact of enhance basics and naturals is going to be EBITDA margin.
So focused on the gross margin as well as the leverage that we have with SGN a as we continue to grow the organization.
Looking historically this is a management team that is focused on margin, whether its EBITDA margin or gross margin.
We don't have an intent to start dropping things backward, but we also know that we will need that additional capacity to be able to support the market demand. That's out there are times like this can be opportunities for organizations that have the capital to be able to set themselves up coming out the other end to even be more so.
Successful.
Thanks, I appreciate the color.
Our next question comes from Keith Hughes of Suntrust. Please go ahead.
If your line is open on our end or you need it on your line.
I'm sorry can you hear me now.
We got ticket how are you, okay, I'm fine sorry about that.
Questions on <unk> question on production rates.
Second quarter production rates, how they're going to compare to the second quarter last year.
We will be continuing to run all of our lives. So it's similar to last year, we have a little bit more capacity.
In place at this point really the biggest different oh, our throughput will be up because we're not facing.
The same startup difficulties the first quarter was clearly the most difficult quarter last year for startup we lost a lot of throughput and both of our plants [laughter] second quarter. It was much less of an impact but there was still an impact up we will get all of that back in more with throughput this year.
Okay. That's ultimately thank you thanks.
Our next question comes from current linger of D.A. Davidson. Please go ahead.
Yeah, good afternoon, everyone and thanks for taking my questions.
Hey, I just wanted to circle back to Winchester and could you talk about the thought process, they're pushing hard I mean, it seems like from a longer term perspective, the opportunity cost being caught short on capacity, you know ways that risk, having a little extra capacity over the near near term, but any color.
There are about how you're thinking about that would be helpful.
Well you head to head of spot on a there's definitely the opportunity to continue moving forward with that capacity, we know that demand will be there as we continue to grow the company.
Strategy of going after would converting more of that market has been successful I've started before the launch of and have a but it really took off with that strategy of allowing there to be more price points to be attractive till a larger portion of the overall buying public.
We have the ability of ticket the construction labor out there at this point and things continue to move on so we strongly believe that building that capacity. So that we are prepared to serve all of our customer needs as we come out the other side is much more important than pulling back in.
The short term.
To save a few dollars a capital right now.
Right right, Okay that makes sense and and just quickly.
The branding and advertising piece within SGN I could you maybe just provide some color about how you were thinking about that coming into the year from kind of a growth in dollars or percentage terms and then.
You know, maybe how you might be reconsidering that spend.
Yes, so branding during the first quarter, we pulled back on some of our spend because we saw such good weather across most of the country that people were continuing to buy decks.
When we look at our branding we want to be in front of the consumer when they're making the majority of those buying decisions that tends to be a little bit later in the years, we pulled back on some of that.
In the early part of the year, but we are still well prepared to execute that branding spend this year to ensure that consumers are engaged attracts dot com. It's also important to note that the decks dot com investment.
It really paying many dividends with a company here. It is a great on ramp for those consumers that are starting in the marketplace to upgrade their decking, they're able to get the information about how do they build the deck. What is the bill of material look like but also as you're doing that they're receiving hence that there are.
Our products out there that are affordable both of the basics product and then products with a little higher level aesthetics, a that will meet the needs they have and still be very affordable, we're seeing very strong traffic across both of those sites and we'll continue to support our branding to drive people there.
Well as engage with consumers, where they're making the buying decision.
Great appreciate the color, Brian will turn number.
Thanks.
Our next question comes from Alex Smoky out of Berenberg. Please go ahead.
Hey, good afternoon, and thanks for taking my questions do you have any visibility into consumer behaviors at the end of March and April and it people and started accelerating their spending on outdoor projects given the stay in place orders in many states.
We have some visibility through the month of April.
Because we do track sell through a at our various channel partners.
We do not have really a whole lot of that data moving moving into may or what those expectations are now we do have enough based off of what our channel partners have shared with us that we're able to provide the guidance that we did for the second quarter.
But really what that longer term expectation that consumer has it's really too easy to say, that's really more of a third quarter call than it is the second quarter.
Okay, then I'll make sense.
Then my second question is focused on the inventory what kind of flexibility do you have to bleed down the existing inventories since they ended the quarter, but higher than last year and that's what the understanding that the end of March is probably a bit slower than what you expected.
I'd like to actually see a little bit more inventory undergrad, especially at our decking products, we tend to come out of the first quarter with a much higher railing inventory pick a second and third quarter tend to be much higher demand for that so there's more safety stock there.
But I would like to build some more decking inventory to support the marketplace. So right now I have no concerns with where inventories are.
All right that's great. Thank you.
Our next question comes from Rueben Garner the benchmark company. Please go ahead.
Thanks, Good evening and good evening everybody.
Right I guess, the gym buying them on one or two.
The information they need Lucky most of my questions have been answered the one I wanted to follow or a follow up on the comments you made about the over 90% your businesses, we modeling and less than 10% or funded by Wi Fi or you are I thought that was.
Very interesting do you have any more statistics on what percentage of Dax or either lie what percentage of docs are just what percentage of your business is just to restasis medac, rather than having to build a new structure of the house is getting that you know how much of your business can that consumer actually did go to.
Total loans pickup that Gordon do themselves versus eating.
Labor out there how.
Sure. So that's one of the real advantages with our our channel partners as we have over 6700 locations, where the consumer can get our product and they can shop at whatever type.
Retail outlet to that they're they're most interested in shopping at when we look at the split of DIY versus contractor Trex historically has been about 60% contractor installed 40% D. I why.
With the launch of enhance a we expect to see that shift.
Probably more to a 50 50 type level.
If you look at the would marketplace. It's the opposite from tracks approximately 60% of D. I y and 40%.
As contractor so over time I expect that we'll see it well, we'll see more of a convergence to a 50 50 and we're seeing some of that right now with people being very interested and home improvement projects that they can do while they're at home.
I expect in a short time, some of that DIY and their shopping throughout our entire channel.
That that percentage is changing and longer term I expect we'll see that converge.
Okay very helpful. Brian and just a quick follow up on that so the proportion.
Oh your business, that's just read facing a deck versus the whole structure any idea, they're just getting that you know your folks calling out the cost of doing that a deck. That's obviously a lot cheaper. If you just want resurfacing. It then if you're having to build a whole new structure do you have any oh that's there.
Yeah for idea why customer clearly resurfacing is going to be much easier you need a much higher level of technical skill to be able to build the sub structure.
Essentially saying post deal with all the code listings that need to be done. So it's much easier to do a resurfacing where or when do you have a full deck a a contractor I don't have any great numbers out there that that are able to provide a more insight on that.
That's right they start on congrats on the quarter and good luck navigating through all the.
Sector of appreciate it.
Again, if you would like to ask a question. Please press Star then one.
And our next question will come from Seldon Clarke Deutsche Bank. Please go ahead.
Hey, good afternoon. Thanks, a question on how should we think about the moving pieces as it relates to decremental margins in the second quarters kind of given the speed and.
Neatness of the slowdown alongside the ramp in some of these capacity investments that you're making.
We haven't provided the margin guidance for for the rest of the year.
But we will be continuing to run our assets at 100% along the way.
So I don't really see their bidding any any decker, Matt because we are taking capacity down at this point as I mentioned earlier, we will start bringing labor and early ahead of time, so that we can ramp up those those lines out in Nevada.
Okay were there any of those.
Startup costs as it relates to ask DNA that we're supposed to happen first quarter delay in the second quarter or anything along those lines.
There were some personnel cost mostly out in our Nevada facility as we were were bringing them on but it was minimal in the first quarter.
Okay got it.
Just a longer term question. If you do decide to forego some of these capacity that sent to you as planned for later year. How quickly can you sort of ramp those back up a.
Demand starts to pick up a little faster you going as expected in 2021 or later this year.
But that's always the key question once you start stop with something how long did take to get those contractors, reengaged again, and and moving things forward.
That's why part of the reason, we're continuing to move forward with that capacity, we want to be sure that we can serve as all of the market demand out there might that man. There's a couple lines that we decided to back off on at some point sure it's possible but.
But we'll still be moving forward with a building a as well as lines in those buildings.
We can support market demand.
Well I appreciate the Tom Thanks.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to Bryan Fairbanks for any closing remarks.
Thank you for your questions and comments today, the Trex team remains fully committed and energized to execute on the strategy is reviewed earlier, we have great opportunities ahead of us and we look forward to reviewing our results with you at the end of the second quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.