Q4 2020 Trex Company Inc Earnings Call
[music].
Good afternoon, and welcome to the trucks company fourth quarter and full year 2020 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by.
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After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now.
One of the conferences over the Victorian Aqua. Please go ahead.
Thank you all for joining us today with us on the call Arent, Bryan Fairbanks, President and Chief Executive Officer, and Dennis Schemm, Senior Vice President and Chief Financial Officer, joining Brian and Dennis is buildup.
Senior Vice President General Counsel, and Secretary as well as other members of trucks management.
The company issued a press release today after market close containing financial results for the fourth quarter and full year 'twenty 'twenty. This release is available on the company's website. This conference call is.
I'd like to to being webcast and will be available on the Investor Relations page on the company's website for 30 days I would now like to turn the call over to buildup Bill.
Thank you Victoria before we begin let me remind everyone that statements on this call regarding the company's expected future performance and conditions.
He is also to forward looking statements within the meaning of federal Securities law.
Payments are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements for a discussion of such risks and uncertainties. Please see our most recent form 10-K and form 10.
<unk> as well as our 1933 and other $19 34 Act filings with the SEC. Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measures can be found in our earnings press release at <unk> Dot Com the company.
<unk> disclaims any obligation to update or revise publicly any forward looking statements, whether as a result of new information future events or otherwise with that introduction I will turn the call over to Bryan Fairbanks.
Thank you Bill and good evening. Thank you all for joining us on today's call to review tricks company fourth.
Quarter full year, 2020 results and discuss our business outlook.
I want to start by thanking the entire treks organization and our extended family of retailers dealers contractors and distributors, who have enabled our company to distinguish itself during one of the most difficult periods in recent history.
Their dedication and collaboration were essential to our ability to remain operational throughout 2020.
And overcome any COVID-19 related challenges and to report record results ending the year with exceptional fourth quarter sales growth.
Demand for trucks products continues to benefit from strong secular trends.
Including growth in the outdoor living category.
<unk> focused on the home.
Shifting population from urban to suburban and smaller metropolitan areas and consumers increasing preference for environmentally sustainable products.
As the recognized leader in product performance aesthetics quality.
Use of 95% recycled content.
Experienced robust demand achieving broad based growth across all of our residential product lines.
Nowhere was that demand more apparent than on are usually slower fourth quarter.
Sales of <unk> residential products increased 40% year on year.
As you'll recall from the past our fourth quarter gross tends to be lower as it is generally more of an inventory infill part of the season.
As our new capacity is completed and inventories get back to standard levels. Our seasonality is expected to normalize where we tend to see higher growth in the second and third quarters.
Orders for the fourth quarter performance was driven by continued success of our premium select and transcend decking and railing and strong sell through of our enhanced product line that has a specific focus on the more cost.
Cost conscious consumer who may otherwise choose what.
As anticipated we experienced.
Increased costs from the fourth quarter related to our capacity expansion program and Covid related costs.
Despite these costs, we reported significant double digit growth across all key profitability metrics.
<unk> commercial performed in line with our expectations in the fourth quarter posting improved revenue.
Spirit as we continue to provide innovative solutions and the commercial railing space.
Our full year and fourth quarter residential product sales growth are clear indicators, we continue to benefit from our long term strategy to convert consumers from wood decking tour eco friendly Trek stacking.
The trend is not only continuing but accelerating.
We estimate the composites gained approximately 200 basis points of share from the traditional wood market in 2020.
And we are looking ahead to similar if not faster conversion rates in future years.
Texas tremendous brand equity leading product lines.
An unparalleled network of distribution dealer retail sales channel and contractors furthers our confidence in our ability to continue to lead the conversion opportunity.
Importantly, the conversion from wood is still on the early stages, providing us with a significant runway.
With the gains in.
In 2020, it's estimated that composite products have approximately 22% share of the decking market and linear foot volume terms.
Moving significant conversion opportunity.
To support that demand our capacity expansion investment program continues on schedule.
The timing of this new capacity.
Lines City furthers, our industry leadership position, allowing trucks to capture additional gross Dennis.
Dennis will provide detail on the cadence of the production ramp up scheduled for our Virginia facility. This year.
2020 was another record year for trucks, and one in which we were able to convert 18% sales growth into an increased.
Capacity, 28% and adjusted EBITDA, and 26% and adjusted EPS, showing the continued leverage opportunity in our business model.
We've seen this is especially strong performance given that we absorbed startup costs associated with our capacity expansion program as well as COVID-19 management costs.
Kris.
Given the experience we've gained in managing operations during the Covid pandemic, we expect 2021 COVID-19 costs to be less but we'll still caused certain production inefficiencies and higher cost as we prioritize the health and safety of our employees.
We are guiding to full year incremental.
Costs EBITDA margin of 35% to 40% on strong double digit sales growth.
During the October call, we announced that we would be taking a mid single digit price increase effective with January orders on certain product lines.
As expected at that time, we have seen inflationary pressure.
Pressures.
But the actual to date and forward projected impact our within our prior projections.
As this year progresses, and our capacity increases we will be reinvigorating, our international sales initiatives and key market, where sales of <unk> products historically have outpaced our domestic sales growth.
Mental Additionally, innovation continues to be a key part of our strategy and you can expect to see more product development and launches from the trucks team moving forward.
Truck company has long been known as a great place to work and we recently received recognition by two widely respected publications.
And magazines.
And Forbes naming us among the fastest growing companies worldwide and the best Midsized company in the U S respectively.
Also we are appreciative of industry recognitions that we receive regularly which honor our organization for the appeal and quality of <unk> products.
Our ongoing commitment to sustainability and our reputation within the industry.
As proud as I am of our outstanding accomplishments in 2020, I'm equally proud of the work we are doing to deliver consistent and sustainable financial performance for the future.
As an example, our initiative too.
<unk> elevated conversion from wood decking to sustainable treks decking will result in more plastic being diverted from landfills and allow us to employ more people.
Which will in turn benefit the communities in which we operate.
The company was founded almost 30 years ago on the premise that we can extract value from what.
<unk> seen as waste.
And today.
We are not only one of the largest recyclers of polyethylene in North America, but also a proof of concept for building a successful business model based off of recycled and reclaimed materials.
Sustainability has been on our DNA since the beginning and.
It was what ignites environmental impact together with our initiatives around fairness in the workplace and corporate responsibility are aimed at meeting the highest ESG standards.
Now I will turn the call over to Dennis Schemm, Our Chief Financial Officer for a financial review of our fourth quarter and full year 2020 results and.
On a regular congratulate him on his promotion to senior Vice President Dennis Thank.
Thank you, Brian and good afternoon, I am pleased to review our record fourth quarter and full year financial performance the progress of our capacity expansion program and our expectations for 2021.
Fourth quarter consolidated.
Efficient sales increased 39% to $228 million led by a 40% growth in <unk> residential products. This robust topline growth reflects sustained broad based demand across all of our product lines and what is usually a seasonally slower quarter.
<unk> commercial products had a positive.
<unk> <unk>, showing this quarter with sales, increasing 20% year on year to $15 million.
Consolidated gross margin in the fourth quarter was 45% compared to 43, 2% in the year ago quarter trucks.
<unk> residential products gross margin was 41, 3% compared to 44.
Positive, 6% in the year ago quarter, reflecting the hiring training and initial startup costs at <unk> residential in advance of our capacity ramp up at the Virginia facility, along with cost of managing our business to respond to the COVID-19 pandemic debt amounted to approximately $2 million this quarter.
For <unk>, we also saw higher inflation and logistics costs associated with our raw materials as we noted during our third quarter conference call.
Gross margin at tricks commercial standard 170 basis points to 28% due to our execution of higher margin projects this quarter as well as.
<unk> and you'd focus on operational improvements.
SG&A expenses increased 9 million to $34 million, primarily due to the timing of incentive compensation on.
On a percentage of sales basis, SG&A decreased 20 basis points in the fourth quarter compared to the prior year quarter.
Our.
The tax rate in the fourth quarter was 25, 8%.
Net income was $43 million or <unk> 37 per diluted share up 22% and 19% respectively from the $35 million or <unk> 31 per diluted share reported in the fourth quarter of 2019.
Our affect adjusted for the two for one stock split distributed on September 14th.
EBITDA increased 28% to 64 million on EBITDA margin was 27, 9%.
For the full year 2020, consolidated net sales were up 18% to 800.
<unk> 1 million trucks residential net sales increased 19% to $828 million net.
Net income was $176 million or $8 51 per diluted share up, 21% and 22%, respectively from $145 million or $1 <unk>.
81 per diluted share adjusted for the two for one stock split in 2020.
EBITDA was up 24% to 250 million, while EBITDA margin was 28, 6%.
In the third quarter, we recognized a one time $6 5 million charge to.
<unk> residential warranty reserve related to legacy surface flaking issue that affected a portion of the products manufactured at our Nevada plant prior to 2007.
Excluding the warranty charge net income was $180 million or $1 55 per diluted share up 20.
On the trucks per cent and 26% respectively.
EBITDA increased 28% to 258 million on EBITDA margin was 29, 3%.
We generated record cash from operations of $187 million in 2020, allowing us to self finance our capital.
Five expenditures of $173 million.
The majority of our Capex spend was related to our expansion program.
As recently announced production in our New Virginia facility started in January of 2021, and we will continue to add lines throughout the first half of 2021.
In addition.
Capital on New Virginia plant, we also added lines to our Nevada plant during 2020.
When our capacity expansion is completed by the end of June. This year. These investments together will increase production capacity by approximately 70% when compared to 2019 volume levels.
Toward looking ahead, we are pleased to provide guidance for our full year 2021 performance that points to another year of strong double digit growth for tracks.
We expect first quarter consolidated net sales to range from 235 million to $245 million representing year on year growth of.
2% at the midpoint.
We expect growth to expand in the second quarter as our capacity and capabilities increase and in the third quarter as we backfill channel inventory.
For the full year 2021, we anticipate incremental EBITDA margin to be between 35% to 40%.
'twenty inclusive of startup related expenses, which will continue as we ramp up production at our Virginia facility higher inflation and more normalized SG&A spending partially offset by cost saving projects.
Our tax rate is anticipated at approximately 25%.
Depreciation will range from $35 million to $40 million, increasing throughout the year and.
And we expect full year spending on capex to be in the range of $130 million to $150 million.
Now I will turn the call back to Brian for his closing remarks, Thank you Dennis.
To demonstrate strong financial and operational performance in 2021 underpinned by growth in the outdoor living category and demand for our trucks products. We continue to be encouraged by key demand indicators from our contractors dealers distributors and the consumers are interacting with our websites and those features.
With the conversion opportunity ahead, we continue to be confident in our business strategy for growth operator, I'd now like to open the call for questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick.
We expect handset before pressing the keys to withdraw your question. Please press Star then two.
Please limit yourselves to one question each.
Our first question comes from Stanley Elliott with Stifel.
Go ahead.
Hey, Brian Hey, Dennis Thank you guys for taking the question.
Quick question.
You were thinking about this year and how it might unfold you know you talk about <unk> kind of back filling some of the channel inventory with the expectation to that point still be that the inventories a little bit light within the channel in terms of product just given how strong demand is shaping up to be over the course of the year.
Yeah, that's our expectation presently I expect that we will.
She is with book to build some chips on channel inventories as we move through Q1, and Q2, but normal normally channel inventories do decline in Q2, and then they start building up through the back half of the year to.
To a much higher level by the end of the year. So I do expect there will be a channel fill occurring in the third quarter.
Thanks.
The next question is from Ryan Merkel with William Blair. Please go ahead.
Hello, everyone. So my question was on incremental EBITDA margin guidance of $35 40 per cent shall we think of this level is normal or does it include some extra cost that get absorbed at the Virginia facility ramps.
Ramps such that 2022, it might be a little bit higher.
Yeah, I think that this would be considered normal for this year, 35% to 40% because what we're dealing with in the first half of the year. Specifically are two fold. We have COVID-19 cost that are in play right now that we did not have <unk>.
<unk>, one so that will be bringing down margins in the first quarter plus we also have startup costs throughout the first half of this year that will be much heavier as we continue to add people in advance of the lines coming on so I think those are the two major influencers that we're seeing on the incrementals.
Q guidance of 35 to 40.
Final one will be SG&A and SG&A I'd characterize this as a return to more normal spending because SG&A was depressed last year because of Covid right. We pulled back on our branding expenses and then in.
<unk> later on in the year, we had to pull back on travel and we pulled back on medical and so in Q2, you know those costs will be coming back and throughout the throughout the full year, we're going to be experiencing that headwind as those SG&A costs come back in.
Without those couple of items you would see.
Liquor mentality.
Being higher than where it is at this point, but I think it's a good rough planning estimate.
Yeah.
Thank you.
Your next question is from Nishu Sood with UBS. Please go ahead.
Yeah. Thanks, so looking at the sales Guy.
That Inc, or <unk> to $2 35 to $2 45, we take out commercial and implies around 225.
For a residential call it that would seem to indicate that the capacity will still be an issue in one Q. So I'm just trying to reconcile.
Guide that with the opening of Virginia, which would have seem to have been a pretty big step change in our in capacity.
Is it that the capacity will more come on towards the end of <unk>, just trying to trying to reconcile those two.
System with what we've talked about this capacity comes on line.
Child, It will increase as we move through the first half of the year. So we announced in January that the first set of lines will come up we will have additional lines coming up later in the first quarter and that continues to build until that entire building will be up and running by the end of the second quarter.
By definition, there's a whole lot more capacity available to us as we get out into the second quarter and then even more available during the third quarter as all of our capacity is installed and ready to go.
Thank you.
The next question is from Matthew Bouley with Barclays. Please go ahead.
Good afternoon, and thanks for taking the question.
The comment you made Brian that inflation I think you said it was in line with your initial expectations. It is a second round of price increases realistic or if inflation moved a little further or does it need to get a fair bit worse from here.
We always take a look at where we stand.
Hey in the marketplace, how we're doing against inflation along the way.
I don't see a need for that is within the projections that we have at this point, who knows as we go through later on the year, where the economy goes along the way, but those are discussions that we would take very seriously.
For implementing something further during.
And force of the busy season.
Okay. Thank you.
The next question is from Keith Hughes with Truest. Please go ahead.
Mr. Hughes. Your line is open on our end is it possibly muted on yours.
Hello can you hear me now, yes, we cancer.
Sorry on the connection issue here.
Going to the incremental EBITDA margin.
You discussed in the release is that going to build throughout the year as capacity comes online I guess can you give us any sort of feel if that is the case how book first.
During the course of secondhand.
That's a great point great question. So that is absolutely our expectation I think the first quarter will be muted just because the lines are not all up and running yet and we're dealing with those heavier on gross margin pressures of inflation.
From a management costs and the start up costs as we move into Q2 more capacity comes online we would expect the EBITDA margin to increase as we're getting more and more leverage into Q3, we would expect the same we would see the full power of our capacity in line and so that should help with margins as well so that's.
How I would think about it I think your question is spot on.
Okay. Just one other quick one too on the DNA of course going on throughout the years U S. You highlighted.
By the time, we get to the fourth quarter, we hit a run rate of what DNA will be going into 'twenty, two where will that accelerate further with the capital Youre spending.
So you bring up another great point, so so we're going from $17 million of depreciation in 2022, a guide of between 35 and $40 million for 2021, and so I would expect that depreciation to increase throughout the year.
Year, especially as those lines come on online in Virginia.
Virginia facility, and then Youll have a half year up depreciation on a relative to the Virginia facility. So that will be an incremental headwind coming back into 2022 as well.
Okay. Thank you Youre welcome.
The next question is from Keaton mentor with BMO capital. Please go ahead.
Thank you I was just wondering with this a huge value that we've seen in lumber prices are you seeing any acceleration in share gains from you know what I know your value proposition is not.
Based on just on the prices, but I'm just curious if this unprecedented run as changing any customer conversations.
We've seen that.
Net run occur midway through last year again, we've seen the price of lumber takeoff.
At this point.
We see people coming in looking for.
Composite products, so the higher price it doesn't hurt us, but it is not the primary thing that we're looking at we've always said that that conversion opportunities start to two times the price of wood and we're not going to be adjusting up and down because of temporary swings may dropdown.
Down to 65 sets of May go up to a $1 five.
Linear foot for wood.
We're going to be on average about two times the price to step into our basic product and then of course, the move up product enhance naturals at about three times the price of wood, which is a key part of the strategy of those two product lines working.
<unk> hand in hand, and bring them in the door show them in a higher level of aesthetics, along the way.
And that improved revenue product.
Thank you.
The next question is from Alex from Roche here was there on Berg. Please go ahead.
Hi, Good afternoon, guys. Thanks for taking my questions.
I noticed in the 10-K that you no longer break out the sales materiality per customer on this mainly applies at Boise U S. Lumbar and Lowe's can you just give us a sense of where the retail versus pro channel split sits today and how you expect that to change after capacity fully comes on line.
Well are over 10% customers are similar.
<unk> to what they were last year and this year, obviously was a strong year for DIY, especially in the middle of the year middle to the early part DIY was open and many of the pro channel locations. We're not as we got to later in the year and the entire channel was reopened again.
Again that percentage split went back to more normalized where we would expect it to be and Thats exactly what we expect for 2022 and 2021 as well.
Okay. That's helpful. Thank you.
The next question is from Phil English Jefferies. Please go ahead.
Hey, guys your.
Capex guidance for 2021 had been more elevated than we would've expected any color on any incremental projects you're embarking on and then on yesterday Nice day, Dennis I appreciate you're expecting a more normalized year is there any any help that we should think about it.
Is that from a dollar perspective or a percentage of sales just kind of give us some guidepost that'd be really.
Helpful.
Sure so from a capacity or Capex perspective, you know where you are going to continue to have.
Capacity capex running through the first half of this year.
Addition to that we've got a bunch of cost out projects lined up for the second half of the year.
Year, So we're going to be looking at automation type projects, we'll be looking at support system projects to make our capacity even work that much more effective. So that's some of the spend that you'll be seeing in 2021.
When you when you asked about.
The SG&A question I think that's a great great question debt to talk about.
Because when I look at SG&A I would look at it from two story lines. One is 2021 and one is the longer term.
And in 2021, I would characterize this as the return to more normal.
After a year impacted and constrained by Covid.
We definitely plan on supporting the brand and returning the brand spend to more normal levels as you recall during the second quarter, we pulled back on branding significantly at the height of the pandemic.
We clearly will be moving forward to support it.
In 2021 also in 2020, we had savings from travel and medical already in 2021, we're seeing travel expenses more or less returned to normal and we're seeing medical expenses returned to more normalcy as well.
So that's the 2000.
'twenty one story.
For the longer term the SG&A stories, all going to be about operating leverage while we will continue to support our growth judiciously and disciplined manner as enhanced continues to grow we will see leverage on net SG&A line as we don't need to spend on branding.
Per enhanced at the same levels that we do for transcend and select.
I hope that answers your question Yeah, that's really helpful and what kind of return are you expecting on some of these cost takeout project it sounds really exciting.
Exciting I know your history from your previous firm and you get you guys were really diligent on debt would be helpful to get a little color on the return profile.
Got it.
<unk> for efficient return expectations from the cost projects, we've been away from those projects as our primary focus from our engineers has been on the capacity, but as we work through those capacity and start lining up.
Those cost outs, you will start to see the benefit in the second half of the year and into next year, but.
Okay.
Can assure you that theres significant returns, but we don't provide the actual numbers.
Okay, great. Thank you guys.
The next question is from Kurt Yinger with D. A Davidson. Please go ahead.
Great Good afternoon, everyone.
Just a two parter on the outlook for a kind of a clarifying point when you talk.
Cigarette growth expanding from the first quarter I assume that's year over year growth accelerating is that right and then secondly could you just maybe talk a little bit about what's embedded within that outlook in terms of underlying growth versus incremental benefit of back filling some of that inventory.
Talk about that would be on a year over year basis, the percentage growth that we would be referred to I guess to a certain extent you can say sequentially as well too.
As it relates to the infill piece of it.
That's a little bit more difficult to answer.
As the demand in the marketplace continues to be extremely.
Namely strong.
The customers that are coming directly to <unk> dot com and interacting with deck stock comp really at unprecedented levels for the month of January and February. So the consumer demand is out there and the question will be when does that inventory.
Start filling into a meeting.
Full degree I won't be able to provide a little bit better insight on that as we move through the year.
Got it thank you very much.
Thanks.
Next question is from Tim will just with Baird. Please go ahead.
Hey, guys nice job I have to kind of capacity related questions. So the first day.
I think you're six or eight months now up with the new lines and firmly in so just just any sort of kind of update how those are running relative to expectations.
And then secondly, just on on installation.
<unk> capacity I mean have you as you talk to some of your contractors and distributors or are you hearing that builders actually add crews.
Meeting so I'm just trying to understand if there's a kind of a natural limitation on how many how many definitely put up this year.
So you're right on the Fernley lines have been running since June July of last year. Those are the first new lines. This company brought up since the mid 2002.
2005, 2006 timeframe, we are getting.
Our expectations out of those lines at this point on it.
Really what excites me the most about those lives.
The learnings on what we need to do for those startups. So that we could then bring our Virginia lines up much more quickly and we absolutely saw that as we brought up the first sets of lines all of those learnings.
Along the way and I expect it will even get more efficient.
Bring up the additional lines beyond debt and could you repeat your second one again.
Yes, just on on as you talk to contractors and maybe dealers do you get the sense that you know just decking contractors are adding crews in terms of just the amount of.
Decking capacity that's out there for installation if that's going on that's going to grow in 2021, yeah contractors are feeling good about where the marketplaces and their ability to be able to support crude like everybody else finding good skilled labor is a challenge for contractors, but those that are able to find it that have.
Strong business backlogs are adding where possible along the way.
Okay, Okay, great well good luck on this year guys. Thanks.
Sure.
The next question is from Alex Rigel with B Riley FBR. Please go ahead.
Thank you nice quarter gentlemen.
Have you made any inc.
Have you made any inroads in expanding your presence into the new homebuilder market and more broadly the international markets.
Yeah, so related to new homes, we do continue to see that as an opportunity as we bring up that additional capacity. We do have individuals that are focused on.
Working.
<unk> directly with the new homebuilders, so I think there'll be some.
News on that probably as we move through late later into the year as it relates to international I, absolutely see that as a ongoing growth opportunity and again is that capacity becomes available.
Refocus and be able to provide.
The material at the level necessary for the growth that these markets demand over the past couple of years because of our capacity constraints, we've not allowed those markets to grow where they potentially could have but we absolutely have the plans in place at this point to focus on that and that'll carry out over.
Over a number of years.
Thank you.
Yes.
The next question is from Reuben Garner with benchmark company. Please go ahead.
Thank you good evening.
Congrats on on the finished the 2020.
Maybe Dennis.
Dennis any way to kind of.
I guess, Brian I either of you obviously can answer this any way to frame the level of startup and COVID-19 costs that you incurred in 2020 relative to what you're baking into your outlook for 2021 will they be kind of similar you know in other words are they offsetting each other because your costs from last.
Don't recur and you have new ones. This year that are of similar radar or are they higher or lower.
Thanks for taking my question.
Yeah. So so reuben great question on the startup so we've been experiencing higher startup costs now.
Since Q3 of 2020 as we prepare to open up the Virginia.
Facility. It was more intense in Q4 Q1, you know very very strong startup expenses going now, especially because not only are we adding people in advance without all the lines coming on but now we're shaking out those lines right and so we're moving from good product too.
Excellent performance and so as you're shaking out those lines. There's some additional costs that are going on there.
We'll expect those costs to continue through Q2, probably be largely behind us by the middle of Q3, that's when you would expect those startup cost to debt.
Relative.
Two COVID-19 management.
In Q1 definitely they are headwinds because we did not have COVID-19 management expenses in Q1 of the prior year and as Brian said, though.
We're getting better at managing Covid now going forward, we have no idea what to expect.
If we're going to see further spikes or further hiccups here, but we are doing better managing and dealing better with crew management as a result.
Great. Thank you guys.
The next question is from Trey Grooms with Stephens. Please go ahead.
Hey, good afternoon, thanks for taking my questions and good job on the quarter.
So.
One from me.
You know you've talked about this in the past, but really trying to get a maybe a update here, but as the.
The mix of composite has taken more share from wood.
Your entry level products have gotten much better as well over time did you guys see any change to that product mix in 'twenty.
Given that accelerated kind of share shift and then.
Maybe more entry level versus higher end or vice versa.
And maybe your expectations.
Around mix as you see the composite share continuing to accelerate.
I think there's really there's two parts to that by introducing enhance basics and naturals basics of course was all new to the marketplace 2019. So that was the second year that we had at.
It grew on an all new market segments, so by definition.
That had on a larger percentage of growth in some of the other product lines, but when we look at how is the overall portfolio doing it's in line with exactly what we expected when we launched the product individuals coming in that are interest.
In wood and being able to get them to trade up to our enhanced naturals product.
And then more of the pro and the customer looking for those higher end aesthetics sticking with our select product or moving up to transcend along the way. So the mix has ended up being exactly.
Interest in where we expected it to be in both of those years, we did a lot of research before moving into the enhanced product line to understand what that consumer behavior would be along the way.
So I don't see concerns with it.
Yep, Okay. Thanks, I'm wondering if I could just housekeeping or maybe even a follow.
Follow up to what Dennis is.
Sponsors earlier.
And it's clear that <unk> is going to be more muted and speaking of.
EBITDA margin incremental EBITDA margins.
But youre looking for 35% to 40 for the full year inclusive of a lot of these star.
Startup expenses and things like that so.
So is it fair for us to consider you know maybe for Q. It should accelerate as we go through the year, but you know as you get to the <unk> that you could be at the high end or maybe even above the high end of net range for kind of a run rate as we exit 'twenty one.
So I think youre spot on I think what.
Youre going to see is a muted incremental EBITDA margins in Q1 because of the cost pressures as more capacity comes online.
We'll see EBITDA, our incremental EBITDA margins increase in Q2 will grow in Q3, and yes, I would I would think that our EBITDA margins in Q4 would be.
<unk>.
Some of the some of the best.
Perfect. Thanks for the color guys. Good luck.
The next question is from easy roam ahead with Exane BNP Paribas. Please go ahead.
Good day gentlemen, thank you for taking my question.
If I could I have two.
Number one is could you give us.
A bit of color on the backlog that youre seeing in the commercial segment.
And two are.
Coming back to the international expansion opportunities given the more fragmented supply base in Europe would the strategy be to explore gained share before setting up a greenfield or could you do look at M&A opportunities as a mean to become our fast forward your presence.
In Europe and become the leader there.
So around the international opportunity we.
Probably we will continue to export for considerable time as we move forward there may be opportunities that are advantageous and things that we would take a look at.
But right now given our cost position, we have the ability to be able to continue exporting and that works well.
And related to the commercial backlog.
Commercial has been a side of the business it's less.
Less than 10% of our overall company.
Been more impacted by Covid.
On the changes and how the commercial industry is operating whether it be the large arenas that we work with.
Many of the call It college.
Pages things like that.
So we have seen some more challenges there with the Abi coming down along the way we do see that we do get back to growth again as that market returns, we're confident in our strategy, but if that side of the business are there probably will be some additional headwinds there from COVID-19.
Management perspective.
Great. Thank you so much.
Again, if you have a question. Please press Star then one the next question is a follow up from Kurt Yinger with D. A Davidson. Please go ahead.
Yeah. Thank you.
Wanted to follow up on the on the last question excuse.
Just remind us you know kind of debt the big areas of international business at present.
On the marketing plan look relative to the U S. Here and what you think is most important in terms of taking that business to the next stage.
We tend to look at the markets.
Higher GDP.
Relatively high family income.
Interest in outdoor living.
Longer away, so that tends to be your larger economies in Europe, and Australia, we shipped product to over 40 countries around the world. So it does it's not limited just to those.
Large large economies.
The smaller countries once you add them all up together in Central and South America ended up becoming a very nice business.
Trucks, along the way.
But because.
We are small players and most of these countries today.
We see the opportunity to be.
Able to significantly increase our penetration in those markets by using some of the same tools that we use in North America building contractor networks, giving everybody access to high quality websites, where they can learn about the product and where to go get the product.
Make it easy for them to buy.
Got it thank you Brian Okay.
Great. Thanks, Kurt.
This concludes our question and answer session I would like to turn the conference back over to Bryan Fairbanks for any closing remarks.
[noise]. Thank you for everybody's participation.
Today, we look forward to keeping you updated on our progress at upcoming conferences and meetings. Thanks good evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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