Q4 2020 Azek Company Inc Earnings Call
The fiscal year 2020, adjusted gross profit increased $44.2 million or 14% to $359.1 million.
Adjusted gross profit margin expanded 30 basis points to 39.9% the.
The increase in gross profit was driven by higher residential segment sales and manufacturing productivity, partially offset by the impact of code and 19 related costs.
Selling general and administrative expenses increased by $103.4 million to $149.9 million or 56.8% of net sales for the fourth quarter of fiscal 2020.
For the fiscal year of 2020, selling general and administrative expenses increased by $124.7 million or 68% to $308.3 million or 34.3% and net sales.
The increase was primarily driven by a $120.5 million of stock based compensation expense related to our initial public offering and the accelerated vesting of stock based compensation, resulting from the secondary offering additional.
Additional ongoing costs related to operating as a public company, partially offset by lower marketing and selling expenses during the initial COVID-19 disruption.
We recorded and net loss of $64.4 million for the fourth quarter of fiscal 2020 compared to a net loss of <unk> point.
Point $9 million a year ago.
For the fiscal year of 2020, we recorded a net loss of $122.2 million compared to a net loss of $20.2 million in the fiscal year 2019 primary.
Primarily due to increased selling general and administrative expenses as discussed previously as well as $37.6 million of expenses related to the extinguishment of debt and in the fiscal third quarter.
Please note that effective as of September Thirtyth of 2020, we revised the definition of adjusted net income to no longer includes depreciation expense as an adjusted for fiscal 2020 depreciation expense was approximately $45 million.
We have recast the prior periods in our earnings release posted on our web site and in our upcoming 10-K filing to reflect the change.
Adjusted net income was $44.4 million or 29 cents per share for the fourth quarter of fiscal 2020 compared to adjusted net income of $16.8 million or 16 cents a share a year ago.
For fiscal year 2020, we recorded adjusted net income of $72.6 million compared to adjusted net income of $46.7 million in fiscal year 2019.
Adjusted net income would have been $117.3 million approximately $45 million higher in 2020 and increased by approximately $34 million to $80.4 million in 2019. If we had included depreciation expense as an adjustment.
Adjusted EBITDA for the fourth quarter of fiscal 2020 increased by $13.6 million or 26% to $66.1 million and adjusted EBITDA margin expanded 60 basis points to 25% from 24.4% a year ago.
For the fiscal year 2020, adjusted EBITDA increased by $33.9 million or 19% to $213.5 million.
Adjusted EBITDA margin for the fiscal year, 2020 expanded 110 basis points to 23.7% from 22.6% and 2019.
Now turning to more detail on our segment results residential segment net sales for the fourth quarter of fiscal 2020 increased by $53.6 million or 30% to $232.7 million.
We are continuing to see strong acceptance of our new deck rail and exterior trim products and we are benefiting from downstream Salesforce investments, we have made in our exteriors and retail channel teams for the fiscal year 2020, net sales for our residential segment increased by $115.7 million or.
Were 17.7% to $771.2 million. The increase was primarily driven by higher sales and both are deck rail and accessories and exteriors businesses.
Residential segment adjusted EBITDA for the fourth quarter of fiscal 2020 increased by $20 million or 37.3% to $74 million.
For fiscal year 2020 residential segment, adjusted EBITDA increased by $49.3 million per 26.1% to $238.1 million.
Mainly driven by higher sales and net manufacturing productivity improvements, partially offset by higher cold and 19 related production costs.
Commercial segment net sales for the fourth quarter of fiscal 2020 decreased by $5.3 million or 14% to $31.3 million.
For the fiscal year of 2020 net sales of the commercial segment decreased by $10.7 million or 8% to $128.1 million.
The decrease was primarily driven by lower sales in our Viacom business as the effects of Cove, and 19 continued to impact certain end market demand.
This business was affected by the slowdown and commercial repair and remodel and as well as certain challenge.
Challenged and markets, such as retail and trade shows.
Commercial segment adjusted EBITDA for the fourth quarter of fiscal 2020 decreased $3.2 million to $3.9 million.
For the fiscal year of 2020 commercial segment adjusted EBITDA decreased by $6.4 million to $15.1 million. A decrease was primarily driven by lower sales and the Viacom business.
Partially offset by lower manufacturing costs and reductions and selling general administrative expenses.
Looking at our balance sheet and cash flow as of September Thirtyth 2020, we had cash and cash equivalents of $215 million and approximately $129.4 million of of of availability for future borrowings under our revolving credit facility.
Total debt as of September Thirtyth of 2020 was $467.7 million and we have not drawn on our revolving credit facility.
Net cash provided by operating activities was $98.4 million and $94.9 million.
For the 12 months ended September Thirtyth, 2020, and 2019, respectively.
Now turning to our outlook.
Our outlook is based on current strong demand within our residential segment. We remain encouraged by our current strong demand trends external demand signals such as housing starts repair and remodeling activity and insert and internal signals like web traffic and sample order growth.
We have previously communicated that we would expect low double digit sales growth in Q1 21.
Given the strength in the residential market. We now expect total company net sales growth in fiscal <unk>.
Q1 to be in the low 20% range year over year, and adjusted EBITDA growth in the high 20% range year over year.
As it relates to the commercial segment, we continue to see weakness into the first quarter of 2021 and.
And we expect this business to be down in the high teens range.
For the full fiscal year of 2021, we expect total company net sales to increase 10% to 14% year over year and adjusted EBITDA growth in the mid teens range year over year, following 19% growth in fiscal 2020.
This results and continuing adjusted EBITDA margin improvement as additional costs, including startup from our capacity expansion raw material and labor inflation and cost of being a public company or more than offset with pricing and manufacturing cost savings from our recycling initiatives.
From a segment perspective based on our leading indicators, we expect residential segment net sales growth in the range of low to mid teens year over year.
This outlook reflects the visibility we have for the next three to six months and recognizes macro uncertainty and the strong performance. We saw in the second half of fiscal 2020.
In the commercial segment, we are assuming there will be economic stability with some improvement in the second half of the fiscal year, leading to our projection of net sales declining at the mid single digit range year over year.
We expect total capital to be in the 125 million to $135 million range as we work through our capacity program, primarily and decking and the addition of a third low density polyethylene recycling line.
To assist and modeling our tax rate for 2021 is estimated to be approximately 26% and our diluted share count is estimated to be approximately 157 million shares.
I'll now turn the call back to adjusted for some closing remarks.
Thanks, Ralph I.
I would also like to recognize our team for their continued leadership and our response to the pandemic and its impact.
Consistent with our core value do the right thing.
Our first priority has been and will continue to be the safety of our employees our customers and our communities.
Thank you to the entire Asia Pac team and our channel partners per year commitment and dedication.
With that operator, please open the line for questions.
Correct range as a reminder to ask a question. Please press star followed by the number one on your accounts on pad point type question. Please press the pound.
We ask that you please limit yourself to one question and one follow up question. Thank you al.
Our first question comes from lapping delay from Barclays. Please go ahead. Your line is open.
Good morning.
Congrats will result, and thanks for taking the questions.
First one on the 21 revenue guidance of 10% to 14% growth.
So you're guiding Q1, and the low twentys, so, suggesting the balance of the years, perhaps and that 10% range.
You've got new capacity coming online, there's presumably at some price flowing through and there is there anything specific that would cause some deceleration on the volume side offsetting those thinking about maybe and sustainability of this type of demand and a post vaccine world are mainly just kind of general conservatism.
This early point in there. Thank you.
Okay.
Look as as we've talked about we we see some really really positive signs relative to.
The signals that we see we see strong.
Demand profile strong backlog.
Currently.
And we see the leading indicators.
Very very positive as we.
As we've mapped this out we.
We take all of that.
Into account.
And specifically the forecast that we have laid out we think reflects.
The combination of of these positive factors.
Also understanding that Weve got some strong quarters.
And the and the back half of the year I'll pause there Ralph is there any additional color you'd like to add to that.
And just.
And just the visibility.
The tight visibility, we clearly have is and in the first three to six months and the fiscal year. So we factor that end and and.
We're very mindful of where.
We're providing guidance on a full year one.
Most of the visibility sits in the first half of the year at this point in time, but all the indicators is just you mentioned are.
Our positive in terms of leading indicators, we just want to be.
Appropriate in terms of looking out that far.
Understood. Okay. Thank you both for that so.
The second one on the pricing side.
You disclose the low single digit price increase I guess is the second year in a row that you've now raised price. So going forward do you think pricing is is going to kind of remain that sort of opportunistic tool that I think it once was or are you kind of looking that condition the industry to mark.
Consistent annual price increases.
Yes, I think as you look at the structure of the market. We believe that were in a market that provides the right kind of value equation, such that we should be able to.
Ill appropriately offset inflation and inflationary costs with with pricing actions then as you mentioned, it's really been three out of the last four years that.
That we've taken pricing actions as there has been both labor and raw material inflation, but we believe we're you know and.
And that type of an industry.
Okay. Thank you Jesse Thanks, Rob.
Your next question comes from sales and Macquarie from Goldman Sachs. Please go ahead. Your line is open.
Thank you good morning, everyone.
Good morning, Susan It is also on on.
Digging a little bit about the revenue guide for fiscal 2020 line and what.
And to 14% can you from.
Color on how you factored in the incremental capacity that's coming on line over the course of next year into that and does that suggest that maybe there is some potential upside as we think about that range that you provided.
And the suit Susan as the capacity.
Comes online as we talked about it's.
70%, 70% increase over the next now 15 to.
And months or so coming on so.
That is factored in we we.
But it builds and builds during the year.
Particularly as we get into the second half the second half of our fiscal year end calendar year and 21.
So so some of that's factored in as you would expect we put guidance out there that we clearly have a line of sight to be able to produce too and and have and have and have some room to go above that but.
That's how we thats, how weve factored in.
Yes, and I'll, just add and as we bring capacity online.
Clearly in the short term the and that capacity is needed.
You know as as we highlighted on the call.
As we move into the out months, we also want to make sure that we have capacity to continue to provide appropriate service to our customers and so as you think and the back half of the year of the capacity coming online. Its a combination of meeting demand, but also making sure that we're in a good position to service customers.
Got you Okay. Thank you and then my follow up question is just as we think about the very low levels of inventory that are sitting across the channel and there. How are you thinking about seasonality per 21 and are there any changes that we should be aware of as we kind of think about the modeling and and perhaps the cadence and the quarters next year.
Yes.
You know typically what you and just to remind folks on the call typically what you see from a seasonality perspective with us is a slowing.
And you know and demand as northern climates.
Compressed their activity and.
A process by which stocking increases.
At.
The various stages in the and the channel system.
And so at a high level ill.
That thesis and that normalcy will play out I think the the variability that you might see this year just has to do with that.
Two key elements I highlighted right, what's the demand process, which you have in any year whats the demand as you move and seasonal months and whats the inventory level.
And the channel so I think the.
There's normal seasonality I think you're just dealing with slightly different variables.
What you will every year.
Okay. Thank you.
Your next question comes from Phil Ng from Jefferies. Please go ahead. Your line is open.
Hey, good morning, everyone. Congrats on a very impressive quarter, Jesse I think you kind of flat and the call that some of the greenfield capacity, you're adding right now is going to be.
Its target on the West, which he was doing from me does that open door for new opportunities that perhaps wasn't available previously now that you have more of a national footprint out west and does that provide any real cost savings on the logistics and transportation side of things.
Yep, Yeah first off we had a really nice national footprint actually a footprint that strength and last year with with some of the distribution changes. So so weve been and a good position to service the market just because we maintain inventories through.
Our distributors on the ground, obviously, when you put a facility closer to a customer set.
And that potentially gives.
Some advantages relative to what you highlighted bright shorter transportation times lower logistics costs, So I think incrementally and.
And natural part of our expansion.
As a as a company to continue to get capacity.
Closer to the customers. So I I think incrementally there and there might be a benefit but I want to highlight that we were well position prior to this but but getting that capacity out there. We just we like the potential.
Benefit of adding additional capacity closer to Tibet.
Various customer sets GAAP.
Got it and that makes a lot of sense and then some of the strength that you're seeing at least and the first quarter from your residential business.
Are you seeing any lift perhaps from some pre buying ahead of your price increase and the load and you talked about how inventory levels are still relatively low on a year to year basis.
When you kind of expect your your channel partners to have inventory levels at a more normalized level.
Yes on R&D with respect to.
Whether or not theres pre buy we really don't view that as impasse.
Impacting our results right now we announced the the pricing changes we talked about.
You know actually last quarter, and it's just working its way through the system and and we give relatively long lead times.
To our channel partners to make sure that they can appropriately adjust what they need to adjust.
And I forgot your second question I'm sorry.
You talked about how inventory levels are still kind of lower on a year over year basis as you kind of ramp up this capacity.
Is there a good way to think about how.
When that when do you expect that to me at a more normalized level in terms of inventories at your channel partners or lead times and general.
Yes, I think as I mentioned and I mentioned earlier, it's really an outcome of of what's our demand and our ability to service that demand. We continue to see and expect over the next three to six months that.
We'll have an opportunity to continue to rise.
Ramp up some of the inventory at our channel partners.
To to come to more normalized and and pre season levels. So we would expect that to occur.
On a normalized pace.
During the next quarter, the specifics of whether or not we get the you know and the demand cycle.
The amount of inventory that's going to be placed.
Got it Thats Super helpful. Thank you.
Your next question comes from Mike Dahl from RBC Capital markets. Please go ahead. Your line is open.
Hi, Thanks for taking my questions.
To ask first about recycling.
And like just on on the numbers you laid out I think you hit.
Your targets were about 54% of recycled overall and you talked about the split.
Between the products, obviously, you're continuing to integrate return polymers sound like Theres some other.
Initiatives can you just give a sense of as we think out over the next year and potentially beyond how we should be thinking about the kind of.
Continued migration towards recycling and any quantification you get there.
Yes, I'll give it to you at a high level as we as I mentioned on the call.
The first stage and the first aspect of this is increasing our use of recycle and you don't.
Polymers is really been an asset there you know on our deck boards.
No and.
Our PVC boards.
There might be some additional opportunity to expand that over the next 18 months or so.
So in terms of the percentage.
And there might be additional opportunity to expand our use of recycled and some of our non decking products, which as you know.
Where return polymers comes and so at a very high level. We're in a really good spot on the percentage, we use and there might be some additional opportunity there specifically on vertical integration, which is the second component I talked about.
We have our third line polyethylene line coming on online over the next few months.
And that gives us some additional in sourcing capability and will continue to expand.
And incrementally invest and returned polymers to make sure we're in a good.
Position, there so thats relative to in sourcing and then the third component relative to formulation that we talked about which is basically moving to lower cost recycle materials, when we see and opportunity to do that through sourcing and we talked about a couple of the initiatives that we have we can can.
And you to do that and we'll continue to do that on an ongoing basis think of that as as sourcing savings that's an opportunity to continue to.
And did that has a longer tail relative to the specific re formulations, we will as we talked about on the last call, bringing that in on a phased basis.
And we need to make sure that thats well aligned with our capacity addition, so just at a very high level. Those are the types of of milestones that we work internally in aggregate as you can see it gives us an opportunity for an ongoing execution across those three items.
Okay. Thanks Jesse.
Aside from one grew and the competition and clearly its.
It's a unique and robust environment from a demand standpoint, and book you and your largest competitor and even.
The demand is and as you've articulated.
But we have seen a number of new product launches and.
No low and so I understand.
And then some of these aren't quite as broad as product offering.
That.
To kind of competitive.
Dynamics, what you're seeing on on new entrants or expansions from some of your second or third tier competitors and how should how we should be thinking about.
And of your.
Against.
Further penetration from us.
Yes, you know as we've talked about in general we believe that.
We have significant strength in terms of our presence on the ground and the contractors that we work with it in general you know given the demand environment and.
Some supply constraints, what you see geography to geography is in certain geographies, we pick up share against all competitors and and certain other geographies.
You know there are some small transactional volume.
Occurrences were.
As you mentioned some of the and the third tier players may pick up a job.
Or a specific situation in general as we look at it in aggregate I think it's important to see our growth rates.
The fact that between ourselves and our nearest competitor we make up.
A significant part of the market and you can see from our growth rates visa be the rest of the industry that our share position at an aggregate level.
We believe is in a really nice position and continues to be in a.
In a nice position.
So hopefully that answers your question in general we don't like to summarize we're not seeing a significant shift in competitive dynamics and and I think thats borne out when you take a look at our deck rail and accessories growth relative to the industry and also what we we guided you to.
Yes that helps I appreciate the insight thanks.
And one last just quick comment here.
On a relative basis, if someone launches a product and picks up you know a few a few jobs that is miniscule compared to really what we see as the aggregate competitive dynamic which is continuing to drive conversion.
From wood to our types and materials.
And in general what I would say its day to day, that's that's really where we're focused is to make sure that we're expanding the market.
Right, Okay. Thanks, Jeff.
Your next question comes from cash appears from two West Your line is open.
Okay.
Thank you.
Digging into your recycling the 54%.
And so its being recycled and 2020 is that a combination of polyethylene and PVC usage or what is that referring to.
That refers to all extrusion that we do and so extrusion roughly 90% of what we sell so think of extrusion as.
Ill.
All of our products effectively that's.
Thats, not the fabrication or or.
Are the other elements. So so that number is off to a very large base.
So what are you stand right now on non polyethylene and versus versus PVC.
So on on our polyethylene, which is used in our cap composite.
Dashboards, we used a 100% wood and the core and a 100% recycled polyethylene in the core.
We do use Virgin and in that cap that surrounds that core and we will continue to use verge and there we find that the aesthetic and and and.
And weathering performance.
Is is really what we like with having Virgin and the core similarly on the PTC side on our PVC decking.
We're right around 50% recycled in the core and that's primarily plastic with a little bit at or in the core.
And then the Caf once again is is 100% Virgin.
Okay. Thank you.
Your next question comes from Ryan Merkel from William Blair. Please go ahead. Your line is open.
Hey, everyone. Two questions from me first accident 21 guidance seems to imply flat or slightly higher ready segment EBITDA margins. So is this due to startup costs offsetting aims and recycling Kelly.
Hey, Ryan and good morning.
Growth.
First just.
And back to my and my remarks that that a share we we do expect.
In 21, continuing adjusted EBITDA margin improvement and.
Just to remind you that the puts and takes there are we.
We do have additional startup costs from capacity expansion.
We also have raw materials, and labor inflation, and and importantly, there is cost of being a public company.
That's all in total more than offset.
Pricing and manufacturing cost savings from largely the recycle initiatives.
You know and public company the public company cost step up doesn't hit the segments. So when you look at that and segment level, you'll get a little bit of a different different view.
Because our segments wont have most of the company public company cost and them.
So we feel good about the progress we we we grew our EBITDA margins 110 basis points and.
In 2020, and as I as I remarked, we're expecting and aggregate that.
Yes.
Operating in aggregate improvement again and.
And 21.
But the segments or and weighed down by some of the public company expenses that we we have to take on.
Got you and just as a reminder, and we only had one quarter really.
A little more than a quarter as a GAAP.
You know as a public company and so we have additional year over year public company costs that we'll incur in 21 so.
Guidances.
Is all in relative to those increase and cost.
Perfect Thats helpful. And then secondly, Jesse and maybe just talk a little bit more about the new products that you just announced lie is shingle siding and cladding attractive what's the opportunity that you see.
Yes, and you know on the.
And when you take a look at our exteriors business.
It is in effect day.
Yeah.
Very niche selective exteriors business.
We focus on.
On trim, which is one of our core products and that market is still 40% would.
And so you know trim as a great product for us Unlike siding, which as you know and the low teens in terms of its what percentage. So there's still a significant opportunity. There and then you add to that you know the additional products that we have right now which are value added products that provide some benefit.
On the outside of homes and and so for US that's been things like column wraps and and additional.
Accents and corners on the outside of the house. So if you think of of shingles siding and the way it's positioned it's typically a niche product.
That's used as an accent on the outside and our value proposition fits really well in terms of much easier to handle.
Easier to install you don't have some of the environmental concerns that you might with other products and it's very very lightweight and payable and so it's a natural extension for us in terms of those high value added niche products.
And then similarly on the cladding side.
Our unique aesthetics relative to what we can do with our timber Tech and A's Act.
Dec boards, whether its wide with or.
The the very high end hardwood a static that particular static is it's becoming more and more important.
Either on commercial buildings as they look to refresh it or on houses as.
As people look to upgrade the exterior look and in fact, we do AI a training and.
Using our high end Dec boards as cladding.
Is one of the most sought after training modules that we have and and so these are natural niche extensions of our product line that sustain the value and and focus on what replacement.
That's helpful. Thanks, I'll pass it on.
Your next question comes from and Seldon Clarke from Deutsche Bank. Please go ahead. Your line is open.
Hey, good morning, Thanks, and have questions. So net leverage is well below what you.
Talked about coming out of your IPO and just over.
One times net debt to EBITDA. So can you just give us a sense of how you're thinking about leverage moving forward and maybe they will your appetite for M&A is from here.
Yes, and maybe I'll start I'll start their sales and good morning.
You will first as you point out our leverage is.
Is low and.
Especially relative to what we said is our ongoing sort of target range and the.
And the low to mid twos.
So we're in great position and it gives us a lot of flexibility.
And.
So when you go back to our capital priorities. The first is use that use of cash is to invest in the business to.
Drive continued organic growth.
And then secondarily is.
Use using cash to availability to to from selective M&A that strategically is additive to to the core organic piece. So it's a great opportunity for us and we're in a good position.
Okay, and when you talk about some of those M&A potential opportunities are you thinking more from a product category perspective were or could that be more on the recycling side again like you saw the polymers investment like how you kind of just thinking about the the scale there.
So so when when we really really like our business model.
The ability to have branded products that have differentiated R&D.
That leverage integrated manufacturing and recycle that have sticky customers that play and this would conversion exteriors market. So so given that we like that business model that really ends up being the filter for any acquisition that we look look at.
And and as you highlighted it if you look at our.
Our recent acquisitions.
One was a bit of a market consolidation.
One was a tough.
Tuck in product that that's really given us some nice momentum and.
And the rail business and the third was a vertical integration on recycle I think all of those are indicative of the types of acquisitions that we will continue to to look at we really like our core we really like the market opportunity here and we believed.
There could be opportunities to really strengthen that core value proposition.
Okay. That's helpful. I appreciate it thank you.
Your next question comes from Tim Walsh from Baird. Please go ahead. Your line is open.
Hey, guys. Good morning, Thanks, Jimmy and just a couple of quick ones I guess first on on trend relative ZR M&A as you are thinking about the outlook any meaningful difference and in growth rates there and from your perspective and then the second is.
On price cost do you expect price cuts and the positive in your guidance and you expect most of the incremental costs from raw materials and just some some people cost guidance Atlanta.
Yes, let me take the first one and Ralph you can you can take the second one I you know we are we've.
We've obviously talked about that rail and accessories and and you can see.
The growth rate there.
Our exteriors business has been doing.
Quite well the combination of new products would conversion.
And you know a really nice share position.
And a solidifying share position all of those variables.
Have led to above market growth.
And so as you as you look back we would without giving specifics on the break down between the two businesses.
I think what would be relevant as just a look back historically and and see how we've done there and we fully expect to be able to.
We continue to grow both businesses at a healthy level, so Ralph I'll turn it over to you for the the other question.
Hey, Tim and good morning.
As it relates to pricing.
Clearly we're seeing.
Raw material and labor inflation.
That that clearly factored into the timing and depths of pricing that we took again as it come back to just give.
If you step back on overall EBITDA margins.
That were that were also managing and we do expect some improvement and 21 as I said in my remarks.
So the pricing that we took as a lever clearly the.
Cost savings and from recycling and Marines initiatives are a lever to help offset the raw materials and labor.
And some of the costs that will.
We'll see related to the capacity expansion and the and the public company costs. So.
When you put that together.
We feel like we're continuing to move our margin improvement program well.
Okay. Okay, great. Good luck on your guys. Thanks for all the color that's great. Thanks.
As a reminder, we ask that you. Please limit yourself to one question and one follow up question. Thank you. Your next question comes from Alex Rygiel from B. Riley Securities. Please go ahead. Your line is open.
Thank you nice quarter gentlemen, one quick question.
You mentioned in your prepared remarks demand is greater than current capacity. What is your current lead time today and what is your targets.
And when do you think you might achieve that target.
Yes, we you know relative to that.
You know we happened to be a if there is a pause on my part we happened to be in a early buy period and.
When we're in that period, we work with our channel partners to make sure that.
We're creating a schedule of shipments so at at this time of the year.
The concept of lead time.
It is not as relevant as it might be and season, it's really really important that we continue to work with our channel partners such that they have the right inventory in place to offer the right service.
To to their customers.
In General I would say lead time depends on specific products and typically weve historically, we've been and.
Let's say three to four week lead time.
Scenario and as we rebuild inventory in the channel and as we bring additional capacity online we hope to be in a position.
Over the summer to.
To start moving back to that sort of direction, but as we've talked about and on the call right now we see robust demand we've.
We've got additional capacity coming online and it's really that combination.
That will determine the specific timing of when that occurs.
Thank you.
Your last question will come from Trey Grooms from Stephens. Please go ahead. Your line is open.
Hi, good morning, everybody. Thanks for for sneaking me in here.
One from me, it's really around the recycling.
Recycled material.
Just diving into that just a little bit further so on the composite decking piece, you're at 80% recycled content in the cap composite products and you noted in the presentation and you've talked about it in the past optimizing the formulation there from high density polyethylene to load and.
For the.
Where are we right now and that process, but kind of what's the mix and where do you see that going overtime and kind of what's the opportunity there.
Yes, we don't disclose specifics.
You know relative to that let's just say that from a journey perspective, we're still some place and the first half of <unk>.
And that journey and.
You know as we bring capacity online.
We will stay age in the transition to the lower.
Cost formulations, and so you know the.
The specifics of that.
You know as I mentioned, it's a sub component of the aggregate recycling the specifics of that.
We're not disclosing except to say that we are very much on track with that execution.
You can see it and our.
Our margin structure and and you can see it in the fact that we continue to see positive leverage.
In aggregate.
As we move forward, but over the long run.
We should expect to continue to see that both percentage shift shift and also.
The way in which we source those lower cost materials improve.
Okay got it and so.
I guess with the new capacity come on coming on it will be.
Step function in that.
Initiative to increase that.
Lower cost material content.
We are once again I I want to make sure we.
We highlight were not given any specifics on that except to say that we're staging.
We're staging the.
We're staging that conversion to be consistent with getting our capacity up and running so in some cases, we do a before some cases, we do it after.
So those those are staged not necessarily always in sync.
Okay fair enough. Thank you.
We are out of time for questions today, I would like to turn the call back over to Mr. Jesse thing for any closing remarks.
Hey, Thank you all for for taking the time.
Really appreciate it as you can tell we're pretty excited about.
The opportunity that we see ahead of us and we're excited about our execution. So just once again I want to thank all of.
Not only all of you on the phone, but all of the great Associates, we have within the company and our great customers for.
Partnering with us and growing with us during a.
Very unique and challenging year, and we look forward to more of that to come. So thank you and we'll chat with you on the next call.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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