Q4 2023 Trex Company Inc Earnings Call

Operator: Good afternoon, and welcome to the Trex Company fourth quarter and full year 2023 earnings conference call. All participants will be in listen-only mode.

Good afternoon, and welcome to the trucks company fourth quarter and full year 2023 earnings conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star and one on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

Operator: To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Kasey Cotery. Please go ahead.

Let's try your question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over to Casey Cutlery. Please go ahead.

Kasey Cotery: Thank you, everyone, for joining us today. With us on the call are Bryan Fairbanks, President and Chief Executive Officer, and Brenda Lovechick, Senior Vice President and Chief Financial Officer. Joining Bryan and Brenda is Amy Fernandez, Senior Vice President, Chief Legal Officer, and Secretary, as well as other members of Trex Management. The company issued a press release today after the market closed containing financial results for the fourth quarter and full year 2023. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. I will now turn the call over to Amy Fernandez. Amy?

Casey Cutlery: Thank you everyone for joining us today with us on the call are Bryan Fairbanks, President and Chief Executive Officer, and Brenda loss check Senior Vice President and Chief Financial Officer, joining Brian and Brenda is Amy Fernandez Senior Vice President Chief Legal Officer, and Secretary as well as other members of trucks.

Casey Cutlery: Management the company issued a press release today after market close containing financial results for the fourth quarter and full year 2023.

Casey Cutlery: Elyse, it's available on the Companys website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days I will now turn the call over to Amy Fernandez Amy.

Amy Fernandez: Thank you, Casey. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statement. For a discussion of such risks and uncertainties, please see our most recent Form 10-K and Form 10-Q, as well as our 1933 and other 1934 Act filings with the SEC. Additionally, non-GAAP financial measures will be referenced in this call.

Amy Fernandez: Thank you Casey before we begin let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward looking statements within the meaning of federal securities laws.

Amy Fernandez: These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements.

Amy Fernandez: For a discussion of such risks and uncertainties. Please see our most recent Form 10-K and Form 10-Q as well as our 1933 and other 1934 act filings with the SEC.

Amy Fernandez: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measure can be found in our earnings press release at trucks Dotcom.

Amy Fernandez: A reconciliation of these measures to the comparable GAAP financial measure can be found in our earnings press release at trex.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. With that introduction, I will turn the call over to Bryan Fairbanks. Thank you, Amy.

Amy Fernandez: 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 with that introduction I will turn the call over to Bryan Fairbanks. Thank you Amy good evening and thank you for joining us to discuss our fourth quarter and full year 2023.

Bryan H. Fairbanks: Good evening, and thank you for joining us to discuss our fourth quarter and full year 2023 results, along with our outlook for 2024. The fourth quarter capped a year of solid performance with revenues coming in slightly above our guidance range. I want to thank our channel partners and the dedicated team members at the Trex Company for making these achievements possible.

Bryan H. Fairbanks: Results, along with our outlook for 2024.

Bryan H. Fairbanks: The fourth quarter capped a year of solid performance with revenues coming in slightly above our guidance range I want to thank our channel partners and a dedicated team members at the treks company for making these achievements possible.

Bryan H. Fairbanks: Channel sell-through growth was in the mid-single digits, in line with the levels we experienced in the second and third quarters and representative of the power of the Trex product portfolio. The resilience of the Trex brand was demonstrated throughout 2023. And our return to market-leading profitability represents a solid baseline from which to achieve our long-term targets. In Q4, we unveiled a robust selection of new product offerings that expanded our portfolio within existing categories and extended our range into complementary category adjacencies. These introductions contributed to both fourth quarter and year-end results and will be key contributors to our long-term strategic growth. The newest additions to our decking portfolio, Trex Transcend Lineage and Trex Signature, appeal to the premium customer segment seeking the realistic aesthetics of wood with the low maintenance and eco-friendly benefits of composite. Lineage Decking, offering a refined finish and fresh colors coupled with proprietary heat mitigation technology, quickly gained traction in both the pro channel and within the special order category with our home center partners.

Bryan H. Fairbanks: Channel sell through growth was in the mid single digits in line with the levels, we experienced in the second and third quarters and representative of the power of the trucks product portfolio.

Bryan H. Fairbanks: Resilience of the <unk> brand was demonstrated throughout 2023, and a return to market leading profitability represents a solid baseline from which to achieve our long term targets.

In Q4, we unveiled a robust selection of new product offerings that expanded our portfolio with an existing categories and extended our range into complementary battery category Adjacencies.

Bryan H. Fairbanks: These introductions contributed to both fourth quarter and year end results and will be key contributors to our long term strategic growth.

Bryan H. Fairbanks: The newest additions to our decking portfolio treks transcend lineage and trek signature appeal to the premium customer segment seeking the realistic aesthetics of wood with the low maintenance and eco friendly benefits of composites.

Bryan H. Fairbanks: Lineal staffing offering a refined finish in fresh colors, coupled with proprietary eat mitigation technology quickly gained traction in both approach handle and within the special order category with our home Center partners.

Bryan H. Fairbanks: Trex's premium signature decking replicates the look of the finest tropical woods and is sold at a premium price commensurate with its groundbreaking aesthetics and performance characteristics. Following successful regional introductions in 2023, Signature launches nationally in 2024. On the railing side of the business, we launched several additions to our portfolio to drive our objective of significantly increasing our railing attachment rate by offering railing choices at every price point, replicating the success of our tiered decking program. Trek Select T-Rail, our high-performance, value-priced railing system, competes favorably with popular vinyl railings and opens a new $300 million total addressable market to the company. The new Signature X-Series Cable Rail and X-Series Frameless Glass Rail add two modern, streamlined specialty options to our premium railing line and will be available in the spring of this year. Additionally, we launched our own Trex-branded fastener collection, which includes a range of solutions for every composite deck fastening need, from color-matched screws and plugs to specifically engineered bits, depth setters, and clips.

Bryan H. Fairbanks: <unk> premium signature decking replicates the look of the finest tropical wood and is sold at a premium price commensurate with its groundbreaking aesthetics and performance characteristics fall.

Bryan H. Fairbanks: Showing successful regional introductions in 2023 signature launches nationally in 2024.

On the railing side of the business, we launched several additions to our portfolio to drive our objective of significantly increasing our railing attachment rate by offering railing choices at every price point.

Bryan H. Fairbanks: Replicating the success of our tiered decking program.

Bryan H. Fairbanks: <unk>, our high performance value priced railing system competes favorably with popular vinyl railings and opened a new $300 million total addressable market to the company.

Bryan H. Fairbanks: The new signature series cable rail and X series framework Frameless glass rail at two modern streamlined specialty options to our premium railing line and will be available in the spring of this year.

Bryan H. Fairbanks: Additionally, we launched our own trucks branded fastener collection, which includes a range of solutions for every composite deck fastening need from color match screws and plugs, specifically engineered bps <unk>.

Bryan H. Fairbanks: Or is it eclipse all designed to deliver a claim cohesive aesthetic, while making installation easier and more efficient for contractors and DIY installers alike.

Bryan H. Fairbanks: All designed to deliver a clean, cohesive aesthetic while making installation easier and more efficient for contractors and DIY installers alike. This new product offering will also be available in the spring of this year. These products and other future launches will provide our channel partners a competitive advantage by delivering end-to-end solutions from one supplier for a seamless deck-building experience. In addition to investments in new product development, 2023 was a year of increased spending on branding and other sales and marketing programs, which helped drive outperformance against the larger repair and remodel segment. Notably, our forward-looking demand metrics, such as web traffic and sample sales, posted strong year-on-year gains. And throughout 2023, we will work closely with our industry-leading channel partners to efficiently allocate marketing spend and optimize inventory levels with lead times to ensure that, together, we meet growing consumer demand.

Bryan H. Fairbanks: This new product offering will also be available in the spring of this year.

These products and other future launches will provide our channel partners, our competitive advantage by delivering end to end solutions from one supplier for a seamless deck building experience.

Bryan H. Fairbanks: In addition to investments in new product development 2023, it was a year of increased spending on branding and other sales and marketing programs, which helped drive outperformance against the larger repair and remodel segment no.

Bryan H. Fairbanks: Notably our forward looking demand metrics, such as web traffic and sample sales posted strong year on year games and throughout 2023, we work closely with our industry, leading channel partners to efficiently allocate marketing spend and optimize inventory levels with lead times to ensure that together.

Bryan H. Fairbanks: We service growing consumer demand.

Bryan H. Fairbanks: Our intense focus on product development and ensuring success for every partner throughout the channel resulted in new account conversions to the Trex brand, along with the continued expansion of our Trex Pro network. We're also proud of the improved profitability that Trex achieved in 2023. Our gross margin for the year expanded by 480 basis points, returning to more normalized levels, even as utilization rates were below those of the prior year. This strong showing was driven primarily by production efficiencies and fast return cost-saving projects. Notably, price and deflation were not major factors.

Bryan H. Fairbanks: Our intense focus on product development and ensuring success for every partner throughout the channel resulted in new account conversions to the <unk> brand along with the continued expansion of our tax Pro network.

Bryan H. Fairbanks: We're also proud of the improved profitability that <unk> achieved in 2023, our gross margin for the year expanded by 480 basis points, returning to more normalized levels, even as utilization rates below those of the prior year.

Bryan H. Fairbanks: This strong showing was driven primarily by production efficiencies and fast return and cost saving projects.

Bryan H. Fairbanks: Notably price and deflation were not major factors.

Bryan H. Fairbanks: Trex is honored by the many recognitions received in 2023, which include three high-profile accolades for our ongoing commitment to sustainability. In addition to the Low Sustainability Vendor Partner of the Year award, Trex was named one of the 100 best ESG companies for 2023 by Investors Business Daily and earned a ranking by Newsweek as one of America's most responsible companies. As a company founded on sustainable principles, environmental stewardship and corporate responsibility are embedded in the DNA of Trex, and these honors affirm that our core values resonate with customers and the national media.

Bryan H. Fairbanks: <unk> is honored by the many recognitions received in 2023, which include three high profile accolades for our ongoing commitment to sustainability.

Bryan H. Fairbanks: In addition to the lowest sustainability vendor partner of the year Award.

Bryan H. Fairbanks: She was named one of the hundred best ESG companies for 2023 by Investor's business Daily and earned a ranking by Newsweek as one of America's most responsible companies.

Bryan H. Fairbanks: As a company founded on sustainable principles, environmental stewardship, and corporate responsibility are embedded in the DNA of trucks and these honors affirm that our core values resonate with customers and the national media.

Bryan H. Fairbanks: Now I'd like to turn to our outlook for 2024. As shared in today's earnings release, we expect a strong year with double-digit revenue and EBITDA growth. However, several factors underpin these assumptions.

Speaker Change: Now I'd like to turn to our outlook for 2024.

Speaker Change: As shared in todays earnings release, we expect a strong year with double digit revenue and EBITDA growth.

Speaker Change: Several factors underpin these assumptions.

Bryan H. Fairbanks: First, we have the benefit of the early buy program. By shifting from December to this year's first quarter, we expect 60 to 80 million in incremental sales in the first half of 2024, primarily in the first quarter. Second, we anticipate mid-single-digit underlying demand growth despite our expectations of the larger repair and remodel market being flat down in low single digits in 2024. Consumers are staying in their homes longer and want to increase the enjoyment of their outdoor space while adding value to their homes. Trex decking and reeling does just that.

Speaker Change: First we have the benefit of the early buy program.

Speaker Change: Shifting from December to this year's first quarter, we expect 60 to 80 million in incremental sales in the first half of 2024, primarily in the first quarter.

Speaker Change: Second we anticipate mid single digit underlying demand growth, despite our expectations of the larger repair and remodel market being flat to down low single digits in 'twenty four.

Speaker Change: Our consumers are staying in their homes longer and want to increase the enjoyment of their outdoor space, while adding value to their home <unk>.

Speaker Change: <unk> decking and railing does just that.

Brenda Lovechick: Our robust product portfolio with options for every budget provides homeowners with the most relevant choices. And thanks to our industry-leading distribution network, Trex products are available in more locations than anyone else. Third, in addition to approved utilization, we expect ongoing gross margin benefits from our continuous improvement cost-out programs. We have a well-established group that is responsible for developing and implementing these programs, and I'm pleased to say that the project pipeline for 2024 is filled and presently in the implementation phase. Also, they are actively developing our actions for 2025 and beyond. Finally, channel stocking behaviors are normalizing. Year-end decking inventories were down approximately 15% from the prior year's lows, and that lower year-end inventory in part relates to our increased growth expectations for the first quarter of 2024. We entered the year with a high level of confidence in our brand, our product, our channel partners, and Trex's growth potential. At this point, I'll turn the call over to our CFO, Brenda Lovechick, for the fourth quarter and full year financial review.

Speaker Change: Our robust product portfolio with options for every budget provide homeowners with the most relevant choices and thanks to our industry, leading distribution network trucks products are available in more locations than anyone else.

Speaker Change: Third in addition to improved utilization.

Speaker Change: We expect ongoing gross margin benefits from our continuous improvement cost out programs. We have a well established group that is responsible for developing and implementing these programs and I am pleased to say that the project pipeline for 2024 is filled and presently in implementation phase.

Speaker Change: Also they are actively developing our actions for 2025 and beyond.

Speaker Change: Finally channel stocking behaviors are normalizing yearend decking inventories were down approximately 15% from the prior year lows and that lower year end inventory in part relate to our increased growth expectations for the first quarter of 2024.

Speaker Change: We entered 24 with a high level of confidence in our brand our product our channel partners and <unk> growth potential at this point I'll turn the call over to our CFO, Brendan Love Chick or fourth quarter and full year financial review Brenda. Thank you, Brian and good evening everyone.

Brenda Lovechick: Thank you, Bryan, and good evening, everyone. I am pleased to review our fourth quarter results, which represented a strong finish to the year. Given the divestiture of Trex commercial products at the end of 2022, and to provide a more meaningful comparison, I will compare our fourth quarter and full year 2023 financial performance to the fourth quarter and full year 2022 Trex residential results, unless otherwise stated. In the fourth quarter, net sales were $196 million.

Speaker Change: I am pleased to review fourth quarter results, which represented a strong finish to the year.

Speaker Change: Given the divestiture of trucks commercial products at the end of 2022 and to provide more meaningful comparison I will compare our fourth quarter and full year 2023 financial performance to the fourth quarter and full year 2022 tracks residential results unless otherwise stated.

Speaker Change: In the fourth quarter net sales were $196 million eight.

Brenda Lovechick: 8.4% above the $181 million of net sales reported in last year's fourth quarter. This growth was driven by increased volume and the absence of the residual channel inventory de-stocking we experienced in the fourth quarter of 2020. Gross margin was 36.1%, which was last year's fourth quarter and above expectations. Selling, general, and administrative expenses were $42.5 million, or 21.7% of net sales in the fourth quarter, compared to $32 million, or 18% of net sales, a year ago.

Speaker Change: Eight 4% above the 181 million of net sales reported in last year's fourth quarter.

Speaker Change: This growth was driven by increased volume and the absence of the residual channel inventory Destocking, we experienced in the fourth quarter of 2022.

Speaker Change: Gross margin was 36, 1% flat with last year's fourth quarter and above expectations.

Speaker Change: Selling general and administrative expenses were $42 5 million or 21, 7% of net sales in the fourth quarter compared to 32 million or 18% of net sales a year ago.

Brenda Lovechick: As discussed in prior quarters, we have returned to more normalized SG&A spending levels as we continue to see positive returns from our branding, marketing, and R&D initiatives. In addition to the normalization of our marketing, fourth quarter SG&A was elevated due to the spending related to new product launches for 2024. Net income was $22 million in the fourth quarter, or $0.20 per diluted share, compared to $24 million or $0.22 per diluted share in the fourth quarter of 2022, which delivered EBITDA of $41 million, or 21% of net sales, compared to 44 million, or 24.1% of net sales in the year-ago quarter. Moving to a brief overview of our FOIA results.

Speaker Change: As discussed in prior quarters, we have returned to more normalized SG&A spending level as we continue to see positive returns from our branding marketing and R&D initiatives.

In addition to the normalization of our marketing fourth quarter SG&A was elevated due to the spending related to new product launches for 2024.

Speaker Change: Net income was $22 million in the fourth quarter or <unk> 20 per diluted share compared to $24 million or 22 cents per diluted share in the fourth quarter of 2022.

Speaker Change: We delivered EBITDA of $41 million or 21% of net sales compared to 44 million or 24, 1% of net sales in the year ago quarter.

Speaker Change: Moving to a brief overview of our full year results.

Net sales totaled $1.095 billion in 2023 compared to $1 billion $60 million in 2022.

Brenda Lovechick: Net sales totaled $1,095,000,000 in 2023 compared to $1,060,000,000 in 2022, which despite moving the early buy program out of Q4 2023 and into the first half of 2024 is an increase of 35 million, or 3% growth over the prior year. Gross margin expanded by 360 basis points to 41.3% from 37.7% in 2022. This year's gross margin benefited from the absence of the inventory recalibration done by our channel partners in 2022. Additionally, our cost-out initiatives and improved plant performance were important contributors to the gross margin recovery and more than offset the higher depreciation and utility costs.

Speaker Change: Despite moving the early buy program out of Q4, 2023 and enter the first half of 'twenty 'twenty four is an increase of $35 million or 3% growth over the prior year.

Speaker Change: Gross margin expanded by 360 basis points to 41, 3% from 37, 7% in 2022.

Speaker Change: This year's gross margin benefited from the absence of the inventory Recalibration done by our channel partners in 2020 Q. Additionally.

Speaker Change: Additionally, our cost out initiatives and improved plant performance were important contributors to the gross margin recovery and more than offset the higher depreciation and utility costs.

Speaker Change: Selling general and administrative expenses were $176 million in 2023, or 16% of net sales compared to 132 million or 12, 4% of net sales in 2022.

Brenda Lovechick: Selling, general, and administrative expenses were $176 million in 2023, or 16% of net sales, compared to 132 million or 12.4% of net sales in 2022. The year-over-year increase is driven by additional investments in branding, marketing, and R&D, which continue to provide good returns. Full year 2023 net income was $205,000,000 or $1.89 per diluted share compared to $201,000,000 or $1.80 per diluted share.

The year over year increase is driven by additional investments in branding marketing and R&D, which continue to provide good returns.

Speaker Change: Full year 2023, net income was $205 million or $1 89 per diluted share compared to $201 million or $1.80 per diluted share.

Speaker Change: We delivered full year EBITDA of 326 million up from $311 million and EBITDA margin expanded to 29, 8% a 40 basis point improvement from the 29, 4% reported in 2022.

Speaker Change: During the 2023 fiscal year, we recognized a benefit of $3 8 million from a reduction in attacks residential warranty reserve related to the surface flaking issue that affected a portion of our products manufactured at the Nevada plant before 2007.

Brenda Lovechick: We delivered full-year EBITDA of $326 million, up from $311 million, and EBITDA margin expanded to 29.8%, a 40 basis point improvement from the 29.4% reported in 2022. Additionally, during the 2023 fiscal year, we recognized a benefit of $3.8 million from a reduction in the Trex Residential Warranty Reserve related to the surface flaking issue that affected a portion of our products manufactured at the Nevada plant before 2007. Excluding the warranty benefit, 2023 adjusted gross margin was 41%, and adjusted net income was $203 million, or $1.86 per diluted share.

Speaker Change: Excluding the warranty benefit 2023, adjusted gross margin was 41%.

Speaker Change: Net income was 203 million or $1 86 per diluted share.

Speaker Change: <unk> EBITDA was $323 million.

Speaker Change: And the adjusted EBITDA margin was 29, 5%.

Speaker Change: We generated a healthy consolidated operating cash flow of $389 million considerably higher than the $216 million in 2022.

Speaker Change: Capital expenditures were $166 million, primarily related to the buildout of the Arkansas manufacturing facility.

Speaker Change: During 2023, we returned $15 6 million to shareholders through the repurchase of approximately 265000 shares of checks outstanding common stocks.

Brenda Lovechick: Adjusted EBITDA was $323 million, and the adjusted EBITDA margin was 29.5%. We generated a healthy, consolidated operating cash flow of $389 million, considerably higher than the $216 million in 2020. Capital expenditures were $166 million, primarily related to the buildup of the Arkansas Manufacturing Facility.

Speaker Change: <unk> remains committed to a disciplined capital allocation plan, which includes the repurchase of up to $10 8 million shares or approximately 10% of outstanding shares.

Speaker Change: As he turned to our outlook, we are expecting a strong year with double digit revenue growth and further margin expansion for the trucks company.

Brenda Lovechick: During 2023, we returned $15.6 million to shareholders through the repurchase of approximately 265,000 shares of Trex outstanding common stock. Trex remains committed to a disciplined capital allocation plan, which includes the repurchase of up to 10.8 million shares, or approximately 10% of outstanding shares. As we turn to our outlook, we are expecting a strong year with double-digit revenue growth and further margin expansion for the Trex Company. We anticipate full-year net sales to be in the range of $1,215,000,000 to $1,235,000,000, representing year-on-year growth of 12% at the midpoint. Given that year-on-channel inventories reached exceptionally low levels, coupled with the change in the timing of our early buy program, we estimate that approximately 60% of full-year revenues will occur in the first half of the year.

Speaker Change: We anticipate full year net sales to be in the range of $1 billion $215 million to $1 billion $235 million representing.

Speaker Change: Representing year on year growth of 12% at the midpoint.

Speaker Change: Given that your own channel inventories reached exceptionally low levels, coupled with the change in the timing of our early buy program. We estimate that approximately 60% of full year revenues will occur in the first half of the year.

Speaker Change: If you have other details regarding our expectations for 2024.

Speaker Change: We expect first quarter 'twenty to 'twenty four sales to be in the range of 360 million to $370 million inclusive of the $60 million to $80 million from our early buy program.

Speaker Change: Full year EBITDA margin is expected to range from 30% to 35% and seven.

Speaker Change: 75 basis point expansion from the 'twenty two 'twenty three levels at the midpoint.

Speaker Change: Full year SG&A expenses are expected to drive 20 to 30 basis points of leverage and we are assuming an effective tax rate of approximately 25% to 26%.

Brenda Lovechick: A few other details regarding our expectations for 2024. We expect first quarter 2024 sales to be in the range of $360 million to $370 million, inclusive of the $60 to $80 million from our early buy program. Foyer's EBITDA margin is expected to range from 30 to 30.5 percent, a 75 basis point expansion from the 2023 levels at the midpoint. Full year SG&A expenses are expected to drive 20 to 30 basis points of leverage, and we are assuming an effective tax rate of approximately 25 to 26 percent. In addition, we expect interest expense to range from $4 to $6 million, and depreciation expense to range from $50 to $53 million.

Speaker Change: In addition, we expect interest expense to range from $4 million to $6 million depreciation expense to range from 50 to 53 million.

Speaker Change: And 'twenty 'twenty four full year capital expenditures are assumed at approximately $220 million as we continue the development of the Arkansas facility.

Speaker Change: With that I'll now turn it back the call back to Brian for his closing remarks. Thank you Brenda 2023 performance demonstrated the strength of the <unk> brand and the relevance of our products in the outdoor living segment. These attributes will continue to drive trucks to outperform the underlying repair and remodel market in the coming years.

Brian: And achieve our objectives of 11% to 13% annual revenue growth and 500 basis points of EBITDA expansion through 2028.

As Brendan noted in 2024, we will continue to invest in those areas, which have historically driven our success. We will also focus on the consumers' wants and needs to the guide our roadmap for growth.

Bryan H. Fairbanks: In 2024, full-year capital expenditures are assumed at approximately $220 million as we continue the development of the Arkansas facility. And with that, I'll now turn the call back to Bryan for his closing remarks. Thank you, Brenda.

Brian: The <unk> team is forging ahead with our strategy to capture an increasing share of decking and railing and adjacent products, which together represents a $14 billion addressable market for trucks, while remaining mindful of the strengths that have gotten us where we are today.

Operator: 2023's performance demonstrated the strength of the Trex brand and the relevance of our products in the outdoor living segment. These attributes will continue to drive Trex to outperform the underlying repair and remodel market in the coming years and achieve our objectives of 11 to 13 percent annual revenue growth and 500 basis points of EBITDA expansion through 2028. As Brenda noted, in 2024, we will continue to invest in those areas which have historically driven our success. We will also focus on the consumer's wants and needs to guide our roadmap for growth. The Trex team is forging ahead with our strategy to capture an increasing share of decking, railing, and adjacent products, which together represent a $14 billion addressable market for Trex, while remaining mindful of the strengths that have gotten us where we are today, brand strength, aesthetics, durability, products at every price point, the excellence of our dealers, contractors, home improvement retailers, distributors, and the dedication and commitment of our Trex team members. I look Casey, I'll turn it back to you. We will now begin the question-and-answer session. To ask a question, you may press star, then one, on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.

Brian: Brand strength esthetics durability products at every price point, the excellence of our dealers contractors home improvement retailers distributors and the dedication and commitment of our <unk> team members and I look forward to even greater achievements in 2024 port.

Brian: Casey I'll turn it back to you.

Casey Cutlery: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

Casey Cutlery: They withdraw your question. Please press Star then two.

Casey Cutlery: In the interest of time, please limit yourself to one question and one follow up.

Casey Cutlery: At this time, we will pause momentarily to assemble our roster.

Casey Cutlery: Today's first question comes from Rafe <unk> with Bank of America. Please go ahead.

Rafe: Hi, good afternoon, Thanks for taking my question.

Speaker Change: Uh huh.

Rafe: I wanted to just ask on on.

Rafe: The revenue growth assumptions for the full year, if I look at the first quarter guidance. It. Obviously includes the early buy and then you have some additional growth on top of that.

Rafe: Sort of implies that there's very little underlying growth for the remainder of the year. What are you sort of assuming in terms of the overall either R&R backdrop.

Rafe: As we move past the first quarter, because I think.

Rafe: Underlying kind of growth.

Rafe: It has almost no growth in the second half of the year.

Rafe: So I think it's important to note our underlying growth assumption for sell through is going to be in the mid single digits. We've talked in the past before about there not being enough inventory in the channel last year to be able to support the market. When it really turns on in the April may timeframe. So in addition to getting the inventory.

Operator: To withdraw your question, please press star then 2. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our. Today's first question comes from Rafe Jadrosich with Bank of America. Please go ahead. Hi, good afternoon. Thanks for taking my question. I won.

Rafe: To the right level in 2024, you are seeing the impact of that December portion of the early by transferring out to 2024. So the first quarter will have much higher growth because of those couple of actions along the way and then the rest of it will be dependent upon how the consumer behaves we've got great.

Rafe Jason Jadrosich: I wanted to just ask about the revenue growth assumptions for the full year. If I look at the first quarter guidance, it obviously includes the early buy, and then you have some additional growth on top of that. It sort of implies that there's very little underlying growth for the remainder of the year.

Rafe: So we're hearing from the channel today that they are building to the right levels and at between tracks with inventories and our channel inventories will have what we need to support the marketplace on a timely basis.

Rafe: What is the I mean after the first quarter, what's the sellout assumption that you're using for the remainder of the.

Rafe Jason Jadrosich: What are you sort of assuming in terms of the overall R&R backdrop? As we move past the first quarter, I think the underlying kind of growth assumption is almost no growth in the second half of the year. Yes, so I think it's important to note our underlying growth assumption for sell-through is going to be in the mid-single digits. We've talked in the past about there not being enough inventory in the channel last year to be able to support the market when it really turns on in the April-May time frame. So in addition to getting the inventories to the right level in 2024, you're seeing the impact of that December portion of the early buy transferring out to 2024.

Rafe: Your crews on a full.

Rafe: Full year basis, it's a mid single digit sell out we've not provided the sell out on a quarterly basis.

Speaker Change: Okay. That's that's helpful and then on the capacity expansion that you're planning for next year and some of the Capex can you talk about is there an SG&A component of that that falls into <unk> 'twenty 'twenty four and what's the uptake on the expense side that you would expect to support that.

Speaker Change: The vast majority of the spending is going to be related to little rock and that will be that'll fall above the gross margin line that $220 million guidance as I referenced at the end of the third quarter is higher than what we were originally expecting because we've now elected to be.

Rafe Jason Jadrosich: So the first quarter will have much higher growth because of those couple actions along the way, and then the rest of it will be dependent upon how the consumer behaves. We've got great confidence that we're hearing from the channel today that they're building to the right levels and that between Trex's inventories and our channel inventories, we'll have what we need to support the marketplace on a timely basis. What is the, I mean, after the first quarter, what's the sellout assumption that you're using for the remainder of the year? On a full year basis, it's a mid-single-digit sellout. We've not provided the sellout on a quarterly basis.

Speaker Change: Build our own warehouse on the facility. Our original plans were to lease that space, but after seeing where the warehouses were and the total cost we're better off and putting our own capital into that so it's driving the capital number higher for the one year.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Thanks Ray.

Speaker Change: Thank you. The next question comes from Keith Hughes with <unk>. Please go ahead.

Keith Hughes: Oh, Yeah first question on the SG&A spend it looks like I think you'd said theres going to be some deleverage.

Keith Hughes: In the year is the deleverage D C ratably through the year it would be more as we progress because they've got some new products out there promoting.

Bryan H. Fairbanks: Okay, that's helpful. And then on the capacity expansion that you're planning for next year and some of the CapEx, can you talk about whether there is an SG&A component of that that falls into 2024? And what's the uptick on the expense side that you would expect to support that? The vast majority of the spending is going to be related to Little Rock, and that will fall above the gross margin line. That $220 million guidance, as I referenced at the end of the third quarter, is higher than what we were originally expecting because we've now elected to build our own warehouse on the facility. Our original plans were to lease that space, but after seeing where the warehouses were and the total cost, we're better off putting our own capital into that. So it's driving the capital number higher for the next one year. Thanks, Rafe.

Keith Hughes: So you'll see leverage this is brendan. Thank you for the question you will see leverage throughout the year, but most of that will come closer to that well in the beginning part of the year with the higher revenues that we'll be seeing coming in but we are continuing to make sure we invest in that marketing investing and the new products for <unk>.

Keith Hughes: 24, which we're hearing a lot of excitement around.

Speaker Change: Okay and just on gross margin for the year can you give us any sort of feel for what that's going to look like first half versus second half, obviously going be stronger than the first with a lot of production, but how does that bypass the rest of the year.

Keith Hughes: Yeah.

Keith Hughes: You'll see stronger numbers in the first half of the year and we expect additional opportunity in the back half of the year. If the market is stronger than what we expect as you saw in the fourth quarter as those volumes decline our gross margin does fall off so we tend to see the biggest numbers during the long.

Bryan H. Fairbanks: Thank you. The next question comes from Keith Hughes with Truist. Please go ahead.

Keith Hughes: Just revenue quarters.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks.

Speaker Change: The next question comes from Susan Mcclary with Goldman Sachs. Please go ahead.

Keith Hughes: Yeah, first question on the SG&A spin looks like, I think you said there's going to be some deep leverage in the year. Will the leverage be seen ratably through the year, or will it be more as, and then you've got this new product. You'll see leverage. This is Brenda.

Susan Marie Maklari: Thank you good afternoon, everyone.

Susan Marie Maklari: Hi, Sue.

Hey, Brian My first question is you did a nice job of outlining some of these new launches that you had last year and and the plans for this year as well as you think about these products gaining traction out in the market can you talk about the potential upside that could mean for the revenue and how we should be thinking about the benefits of that.

Brenda Lovechick: Thank you for the question. You will see leverage throughout the year, but most of that will come closer to the well in the beginning part of the year with the higher revenues that you'll be seeing coming in. But we are continuing to make sure we invest in that marketing, investing in the new products for 2024, which we're hearing a lot of excitement about. Okay, and just on gross margin for the year, can you give us any sort of feel for what that's going to look like in the first half or second half? Obviously, they're gonna be strong in the first with a lot of production, but how does that slide path the rest of the year?

Susan Marie Maklari: That's starting to come through.

Brian: Yes, generally takes a couple of years for these new products to really be well seeded into the marketplace. So as we get out to may of this year will be about a year into the T Rail program and we've got a lot of opportunity. There still are cable railing system glass rail system as well as the fasteners all law.

Brenda Lovechick: You'll see stronger numbers in the first half of the year, and then we expect additional opportunity in the second half of the year if the market is stronger than we expect. As you saw in the fourth quarter, as those volumes decline, our gross margin does fall off. So we tend to see the biggest numbers during the largest revenue quarter. Okay, thank you. Thanks. The next question comes from Susan Maklari of Goldman Sachs. Please go ahead. Thank you. Good afternoon, everyone. Hi Susan. Hi. Hey Bryan,

Brian: In the spring of this year, so all new to the marketplace and then of course lineage, which we've launched over a year and a half ago. At this point has really gained significant traction as we continue to launch more colors within that product line and Ive heard great things from our channel and then from those that are using our product.

Brian: Yeah.

Speaker Change: Okay, Alright, that's helpful. And then you also mentioned one of the benefits to margins. This year will be ongoing cost take out programs that you have going on can you just talk a bit about what some of those efforts are and anything just around how they will start to come through in <unk> and the forward pipeline of opportunity as well.

Susan Marie Maklari: My first question is, you know, you did a nice job of outlining some of these new launches that you had last year and the plans for this year as well. As you think about these products gaining traction in the market, can you talk about the potential upside that could mean for revenue and how we should be thinking about the benefits of that perhaps starting to come through? It generally takes a couple years for these new products to really be stocked into the marketplace. So, as we get out to May of this year, we'll be about a year into the T-Rail program, and we've got a lot of opportunity there still. Our cable railing system, glass rail system, as well as the fasteners, all launch in the spring of this year, so they are all new to the marketplace. And then, of course, Lineage, which we launched over a year and a half ago at this point, has really gained significant traction as we continue to launch more colors within that product line.

Speaker Change: Yes.

Speaker Change: I'm, probably most proud of with the team is that there is no opportunity to small there are a lot of items that are in the pipeline, where we're looking at a fairly small operation and how do we make that more efficient and everybody throughout the company is interested in having these efficiency reviews done and when do you bring.

Speaker Change: The small projects together it ended up being big dollar on top of that we also have some big programs that we're going after as well we have a program within our poly processing, our plastic processing operation, which will allow us to clean and pelletize plastic at a higher rate than what we see across the IND.

Speaker Change: History, and what we've developed in the past and then we also have other opportunities that we're bringing in from outsourced vendors that will start to occur later on this year and into next year.

Speaker Change: Okay, alright, thanks for the color and good luck with everything.

Bryan H. Fairbanks: And I've heard great things from our channel and then from those that are using the product. Okay, all right, that's helpful. And then you also mentioned one of the benefits to margins this year will be ongoing cost takeout programs that you have going on. Can you just talk a bit about what some of those efforts are and anything just around how they will start to come through and the forward pipeline of opportunity as well? Yeah, there's a thing I'm probably most proud of with the team is that there's no opportunity too small.

Speaker Change: Thank you. The next question comes from Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel: Hey, everyone. Thanks for taking the questions. My first question is on the first quarter, Brian that the revenues coming in a lot higher than all of US expected and we knew about the shift of the early buy can you maybe tell us how much was was destock last year and <unk> 23, and if theres anything else that is driving the first quarter. So much.

Ryan Merkel: Higher than we all expected.

Brian: You've got $60 million to $80 million.

Brian: Coming in from December and the majority of that will be in the first quarter. Some of it will be pushed out to Q2, you've got extremely low inventories within the channel itself at year end and if you go back to the first quarter call from last year I believe the numbers I threw out where I would've liked to have seen an additional 40 to 50.

Bryan H. Fairbanks: There are a lot of items that are in the pipeline where we're looking at a fairly small operation and how we can make that more efficient. And everybody throughout the company is interested in having these efficiency reviews done. And when you bring those small projects together, it ends up being big money.

Brian: <unk>.

Brian: Of inventory within the channel itself. So when you bring those together that's why you're seeing such a significant number in the first quarter and it's important that we get this material stage before the season and ready for when things turn on.

Bryan H. Fairbanks: On top of that, we also have some big programs that we're going after as well. We have a program within our poly processing, our plastic processing operation, which will allow us to clean and pelletize plastic at a higher rate than what we see across the industry and what we've developed in the past. And then we also have other opportunities that we're bringing in from outsourced vendors that will start to occur later this year and into next year. All right. Thanks for the call and good luck with everything. Thank you. The next question comes from Ryan Merkel, with William Blair.

Speaker Change: Got it and just to be clear the first quarter revenue assumption includes mid single digit sell through.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: And then just my second question, what sort of the feedback from contractors how are their bookings looking how is how are the backlogs.

Speaker Change: Just anything you can help us with there.

Speaker Change: I'm still hearing confidence from the contractor is generally were on average you're looking to be between five to six to seven weeks.

Ryan Merkel: Please go ahead. Hey everyone, thanks for taking the questions. My first question is about the first quarter. Bryan, revenue is coming in a lot higher than all of us expected, and we knew about the shift of the early buy. Can you maybe tell us how much was destocked last year on 1-2-23 and if there's anything else that is driving the first quarter so much higher than we all expected? So you've got $60 to $80 million coming in from December, and the majority of that will be in the first quarter. Some of it will be pushed out to Q2. You've got extremely low inventories within the channel itself at year end.

Speaker Change: The contractors, which is back to an average type of lead time in the marketplace. Their phones are ringing actually we are hearing.

Speaker Change: That projects seem to be getting bigger. So it's definitely supports that higher end consumer is still doing well in the marketplace and are looking to add on to their existing homes.

Speaker Change: Great to hear best of luck.

Speaker Change: <unk>.

Speaker Change: The next question comes from Joe <unk> with Deutsche Bank. Please go ahead.

Joe: Hey, good evening everybody.

Joe: I don't know I'd also kind of like to talk about the sales guidance, maybe a different way to frame it.

Joe: Maybe this is the wrong way you can tell me, but if I take 70 billion.

Bryan H. Fairbanks: And if you go back to the first quarter call from last year, I believe the numbers I threw out were I would have liked to have seen an additional $40 to $50 million of inventory within the channel itself. So when you bring those together, that's why you're seeing such a significant number in the first quarter. And it's important that we get this material staged before the season and ready for when things turn on. Got it.

Joe: Out of your guide and put it back into the prior year. It actually makes the year over year flat I would've expected that to be around 5%. If that's the core underlying sell through growth. So maybe there's just that's not the way to look at it.

Speaker Change: No I think when you take $70 million to $80 million or are we still have about 20%.

Growth in a quarter or so.

Speaker Change:

Speaker Change: And I'm talking about the year.

Speaker Change: Oh got it.

Speaker Change: Got it yeah, so that'll be dependent upon where the inventories and our work with the channel at year end, we do know that the channel has said.

Bryan H. Fairbanks: And just to be clear, the first quarter revenue assumption includes mid-single-digit sell-through? Yes. Okay. And then, yeah, just my second question. What's the feedback from contractors? How are their bookings looking?

Speaker Change: <unk> said this consistently theyre looking to be very efficient on their inventories and what we decide to do with the early buy program next year, well, we'll decide that as we get later in the year and provide more details on that.

Bryan H. Fairbanks: How are their backlogs? Just anything you can help us with there. Yeah, I'm still hearing confidence from the contractors. Generally, we're seeing on average, you're looking to be between five to six to seven weeks for the contractors, which is back to an average lead time in the marketplace. Their phones are ringing.

Speaker Change: Okay understood.

Speaker Change: Maybe the other part of it I was confused about is the implied back half maybe kind of similar to <unk> question earlier is kind of flattish versus last year's back half, which would have had the pushout of the 60 million. So adjusted for that is actually down by <unk>.

Bryan H. Fairbanks: Actually, we are hearing that projects seem to be getting bigger. So that definitely supports that the higher end consumer is still doing well in the marketplace, and they're looking to add on to their existing home. Great to hear.

Speaker Change: $60 million to $80 million year over year I'm, just trying to reconcile that along still with the first question, we expect inventories to be higher in the channel as we ended the second quarter.

Speaker Change: Okay. Thanks.

Ryan Merkel: Best of luck. The next question comes from Joe Ahlersmeyer with Deutsche Bank. Please go ahead. Hey, good evening, everybody.

Speaker Change: Thanks.

Speaker Change: The next question comes from Trey Grooms with Stephens. Please go ahead.

Trey Grooms: Hey, good afternoon.

Trey Grooms: So I guess, the one that I had touched on earlier and I appreciate the help with the cadence of the top line.

Joe Ahlersmeyer: I'd also kind of like to talk about the sales guidance, maybe a different way to frame it. And maybe this is the wrong way you can tell me, but if I take 70 million out of your guide and put it back into the prior year, it actually makes the year-over-year flat. I would have expected that to be around 5% if that's the core underlying sell-through growth. So maybe there's just, that's not the way to look at it. No, I think when you take 70 to 80 million out, we still have about 20% growth in a quarter. So, I'm talking about the year... Oh, God.

Trey Grooms: And high level, Brian you mentioned first half would be better margin than second half.

Trey Grooms: That's pretty clear, but I mean, just given the strength in <unk> as we're thinking about.

Trey Grooms: You know the contribution there is is there any are there any <unk>.

Trey Grooms: Additional color you could give us any other detail to help us kind of think about that especially as it relates to the margins just given how.

Bryan H. Fairbanks: So that will be dependent upon where the inventories end with the channel at year end. We do know that the channel has said this consistently; they're looking to be very efficient with their inventories, and what we decide to do with the early buy program next year, we'll decide that as we get later in the year and provide more details on that. Okay, understood. Maybe the other part of it I was confused about is the implied back half, maybe kind of similar to Rafe's question earlier, is kind of flattish versus last year's back half, which would have had the push out of the 60 million. So adjusted for that, it's actually down, 60 to 80 million year over year. I'm just trying to reconcile that along still with the.

Trey Grooms: You know I'm sure production rates in the winter you were going to be you know.

Trey Grooms: Significantly higher than than what we've seen.

Trey Grooms: Our production rate will be higher than what we saw in the first quarter of last year.

Trey Grooms: What higher than what we even saw in the fourth quarter of this year, but not not materially higher from that perspective, and again, you've got the the highest sales numbers in the first quarter and second quarter. As you look at our numbers historically youll see that that tends to correlate pretty well with higher margins and then.

Trey Grooms: Declining in the back half of the year.

Trey Grooms: Again looking at trends on a quarter by quarter basis.

Trey Grooms: Different when you look at it from a full year basis, when we deliver our full year numbers, we deliver improved margins, we deliver sales growth all of those things that come along with it. So we don't tend to manage the company for a quarter's worth of margin.

Bryan H. Fairbanks: We expect inventories to be higher in the channel as we end the second quarter. Okay, thanks. Thanks. The next question comes from Trey Grooms with Stevens. Please go ahead. Good afternoon.

Speaker Change: Understood and the color you just gave me on the production of Super helpful. So thanks for that.

Trey Grooms: So I guess the one that I had, you touched on earlier, and I appreciate, you know, the help with the cadence of the top line. And at a high level, Bryan, you mentioned, you know, first half would be a better margin than second half. I mean, I think that's pretty clear.

Speaker Change:

Speaker Change: I guess the second one is you know the.

Speaker Change: The mid single digit demand.

Speaker Change: That you're that you're calling for this year are you seeing any or expecting any material difference in the channel you know pro channel versus maybe DIY consumer and that isn't that number.

Bryan H. Fairbanks: But I mean, just given the strength in one cue, as we're thinking about, you know, the contribution there, is there any additional color you could give us any other detail to help us kind of think about that, especially as it relates to the margins, just given how, you know, I'm sure production rates in the one key are going to be, you know, significantly higher than what we've seen. Our production rate will be higher than what we saw in the first quarter of last year. Somewhat higher than what we even saw in the fourth quarter of this year, but not materially higher from that perspective.

Oh, no I expect that our mix between those two channels will remain similar.

Speaker Change: We saw good strength in the pro channel in 2023, and while some of the reports within DIY in other sectors were not nearly as positive. We were very pleased with the performance that we saw and we fully expect that we will continue.

Bryan H. Fairbanks: And again, you've got the highest sales numbers in the first quarter and second quarter. And if you look at our numbers historically, you'll see that that tends to correlate pretty well with higher margins and then decline in the back half of the year. Again, looking at Trex on a quarter-by-quarter basis is different when you look at it on a full-year basis.

Speaker Change: To develop good numbers through those channels.

Speaker Change: Got it alright, great. Thanks, Brian I'll pass it on.

Speaker Change: Okay.

Speaker Change: The next question comes from Tim Weiss with Baird. Please go ahead.

Hey, everybody good afternoon.

Timothy Ronald Wojs: Maybe just hey.

Bryan H. Fairbanks: When we deliver our full-year numbers, we deliver improved margins, we deliver sales growth, all those things that come along with it. So we don't tend to manage the company for a quarter's worth of margin. understood, and the color you just gave me on production is super helpful. So thanks for that.

Timothy Ronald Wojs: Maybe I'll ask the same question a different way.

Timothy Ronald Wojs: Where would you expect that I guess in your guidance. What are you assuming 2024 and from a channel inventory perspective, I know you said 23 ended down about 15% I mean would you expect that to effectively be up.

Trey Grooms: I guess the second one is, you know, the mid-single-digit demand that you're calling for this year. Are you seeing any or expecting any material difference in the channel, you know, pro-channel versus maybe the DIY consumer in that number? Uh, no. I expect that our mix between those two channels will remain similar. Uh, we saw good strength in the pro channel in 2023. And while some of the reports within DIY and other sectors were not nearly as positive, we were very pleased with the performance that we saw, and we fully expect that we will continue to develop good numbers through those channels.

Timothy Ronald Wojs: Relative to 2023 levels inclusive of that really by timing and then also it sounds like symptom added inventory and channel.

Timothy Ronald Wojs: Thank you Tim for the question. This is Brenda right now our assumption side of the 5% sell through and that channel inventory would remain flat at your at.

Speaker Change: Okay. So we aren't planning to have any increases.

Speaker Change: Okay. Okay, Gotcha, and then I guess just bigger picture question on the portfolio I know you're about a year in on some of the new decking products anywhere if you think three to five years out.

Speaker Change: Is the portfolio of the truck look like if you would take kind of an entry level products.

Speaker Change: We select and transcend and then kind of lineage and signature on requirements you'd want to lump it that way, but how would you think the portfolio kind of looks for trucks and maybe three to five years I guess, what's the plan.

Bryan H. Fairbanks: All right. Great. Thanks, Brian. I'll pass it on.

Timothy Ronald Wojs: The next question comes from Tim Weiss with Baird. Please go ahead. Hey, everybody.

Timothy Ronald Wojs: Good afternoon. Hey, maybe I'll ask the sales question a different way. Where would you expect, I guess, in your guidance, what are you assuming 2024 ends from a channel inventory perspective? I know you said 23 ended down about 15%.

Speaker Change: You look back to the analyst day that we had this summer one of the key strategies, we talked about was a property with top of the marketplace and making sure that we had the appropriate premium products that as those customers are in the marketplace, they're making the trek decision and that's why you saw a focus on launching.

Timothy Ronald Wojs: I mean, would you expect that to effectively be up relative to 2023 levels, inclusive of the early buy timing, and then also sounds like some added inventory and channel? Thank you, Tim, for the question. This is Brenda.

Speaker Change: Our lineage product as well as signature product along the way, but it doesn't mean that we've walked away from the wood conversion marketplace.

Brenda Lovechick: Right now, our assumptions are the 5% sell-through and that channel inventory would remain flat at year-end. Okay. Okay. Okay, okay. Gotcha.

Speaker Change: <unk> product line is still extremely important for us that strategy of having basics at roughly two times the price of lumber and then giving that option for the consumer to walk up to our enhanced naturals product line at roughly three times the price of wood that continue to be an effective strategy in 2023.

Timothy Ronald Wojs: And then, I guess just a bigger picture question on the portfolio. I know you're about a year in on some of the new decking products. I mean, where, if you think three to five years out, you know, what does the portfolio for Trex look like if you took kind of the entry-level products, you know, maybe select and transcend, and then kind of lineage and signature? I don't know if you'd want to lump them that way.

Speaker Change: And we've not seen any indications that that won't continue to be effective as we go as we continue with that and we are continuing to see new opportunities for that product line as well as the rest of our decking and railing as the marketplace sees the opportunity to optimize their overall working cap.

Bryan H. Fairbanks: But how do you think the portfolio kind of looks for Trex in maybe three to five years? Or, I guess, what's the plan? If you look back to the analyst day that we had this summer, one of the key strategies we talked about was propping up the top of the marketplace and making sure that we had the appropriate premium products that as those customers are in the marketplace, they're making the Trex decision. And that's why you saw a focus on launching both our lineage product as well as our signature product along the way. But it doesn't mean that we've walked away from the wood conversion marketplace.

Speaker Change: By focusing on one or two brands rather than potentially three or four brands.

Speaker Change: Okay. Okay very good good luck I totally forgot.

Speaker Change: Okay.

Speaker Change: The next question comes from Michael Rehaut with J P. Morgan. Please go ahead.

Mr. <unk> your line is open.

Michael Jason Rehaut: Sorry about that had it on mute.

Michael Jason Rehaut: Good afternoon, and thanks for taking my questions.

Michael Jason Rehaut: I'd love to understand.

Michael Jason Rehaut: You're talking about in effect growing with the broader market in.

Speaker Change: In 2024.

And just wanted to kind of understand you know given the fact that you have you know significantly.

Bryan H. Fairbanks: The enhanced product line is still extremely important for us; that strategy of having basics at roughly two times the price of lumber and then giving that option for the consumer to walk up to our enhanced naturals product line at roughly three times the price of wood will continue to be an effective strategy in 2023. And we've not seen any indications that this won't continue to be effective as we go as we continue with that. And we are continuing to see new opportunities for that product line as well as for the rest of our decking and railing as the marketplace sees the opportunity to optimize their overall working capital by focusing on one or two brands rather than potentially three or four brands. Okay, okay, very good. Good luck on 24 guys. The next question comes from Michael Rehaut with J.P. Morgan. Please go ahead. Mr. Rehaut, your line is open. Sorry about that. I had it on mute.

Speaker Change: Significantly expanded your capacity over the last two or three years.

Speaker Change: How does you know some of those additional growth strategies.

Speaker Change: Hey into lets say you know what I would consider to be more of your typical outperformance of the decking market relative to the underlying R&R, you know, 5% to 7%, let's say, you've obviously highlighted a lot of opportunities around.

Speaker Change: Either international perhaps aligning yourselves with certain you know production builders.

Speaker Change: You've highlighted the railing opportunity. So just trying to kind of reconcile where some of those growth strategies, how do those fit into the 'twenty four outlook or you know, perhaps with that those strategies more kind of.

Speaker Change: Supercharged growth, let's say for lack of a better word than in 'twenty five or 'twenty six.

Speaker Change: A couple of things to unpack with that you are seeing kind of the supercharging of our product launches as we move into 'twenty to 'twenty four are at a higher level than you've ever seen with trucks in the past, but I think it's also important to note that we believe the numbers that we're providing.

Michael Jason Rehaut: Good afternoon, and thanks for taking my questions. First, I'd love to understand, you know, I think you're talking about, in effect, growing with the broader market in 2024. And just wanted to kind of understand, you know, given the fact that, you know, you have, you know, significantly expanded your capacity over the last two or three years. How do some of those additional growth strategies...

Speaker Change: Is that there's still some uncertainty in the economy.

Speaker Change: We expect the repair and remodel sector as a whole to be flat to down single digits versus us talking about sell through in the mid single digits.

Bryan H. Fairbanks: I want to play into, let's say, you know, what I would consider to be more of, you know, your typical outperformance of the decking market relative to the underlying R&R, you know, of, you know, 5 to 7%. Let's say, you know, you've obviously highlighted a lot of opportunities around either international, perhaps aligning yourselves with, certain production builders, you highlighted the railing opportunity. So just trying to kind of reconcile where some of those growth strategies, how do those fit into the 24 outlook? Or, you know, perhaps with that, those strategies could achieve more kind of supercharged growth, let's say, for lack of a better word, in 25 or 26. Well, there are a couple of things to unpack with that.

Speaker Change: So you see that 5% to six 7% type.

Speaker Change: Performance of repair and remodel as the repair and remodel market stabilizes I fully expect that we'd get back to that sell through on a low double digit type rate and getting back to those sort of numbers that our trucks as well been known for over the years. So there is some <unk>.

Speaker Change: <unk> is in there.

Speaker Change: We continue to navigate the uncertainty of economy and I hope as the year goes on we'll be able to further update that number and we continue to see strength, especially in those higher end consumers and get back to more of a normal economic environment.

Speaker Change: No that's great Brian I appreciate that and I guess, just secondly to make sure I properly heard an answer earlier regarding SG&A you are expecting some leverage I think you know I'm a year ago, you had talked about 23, maybe originally being in that 15% to 16% range.

Bryan H. Fairbanks: You are seeing kind of the supercharging of our product launches as we move into 2024 at a higher level than you've ever seen with Trex in the past. But I think it's also important to note that we believe the numbers that we're providing recognize that there's still some uncertainty in the economy. We expect the repair and remodel sector as a whole to be flat to down single digits versus us talking about sell-through in the mid-single digits growth. So you see that 5 to 6, 7% type outperformance of repair and remodel. As the repair and remodel market stabilizes, I fully expect that we get back to that sell-through rate of a low double-digit type rate and get back to those sort of numbers that Trex has been well known for over the years. So there is some conservatism in there as we continue to navigate the uncertain economy. And I hope as the year goes on, we'll be able to further update that number, and we continue to see strength, especially in those higher-end consumers, and get back to more of a normal economic environment.

Speaker Change: If I remember correctly is that kind of the right way to think about 'twenty four off of 2023 16.1.

Speaker Change: Would that be a number that you could lever as well in in the next couple of years.

Brian: Yes, exactly and that is that is the plan for this year. We are again expecting 20 to 30 basis points of leverage off of that number and again going forward. We will continue to lever SG&A to drive incremental EBITDA margin.

Speaker Change: Great. Thank you.

The next question comes from John Lovallo with UBS. Please go ahead.

Hi, Good evening guys. Thanks for taking my questions. The first one is the 2024 guide seems to imply you know incrementals of around $35 37 ish percent.

John Lovallo: Curious what.

John Lovallo: Mount of startup costs from Arkansas are embedded in there and if you expect more of those to hit in 2025 versus 24.

Brenda Lovechick: I appreciate that. And secondly, just to make sure I properly heard an answer earlier, regarding SG&A, you are expecting some leverage. I think, you know, a year ago, you had talked about 23 maybe originally being in a 15 to 16% range, if I remember correctly. Is that kind of the right way to think about 24 off of 2023, 16.1? And would that be a number that, you know, you can leverage as well in the next couple of years? Yes, exactly.

John Lovallo: Going into this year it will see minimal startup costs at the Arkansas facility, you'll start to see more of that ramp up in 2025 as in Q1, we'll start to see the repro line come up and then Q4 of 2025, we're expecting compounding to come up and then in 2026 and start to see that.

John Lovallo: So that's when you'll start to see more.

John Lovallo: Significant costs that hit our financial statements and at that time, we will be sure to saipem.

Brenda Lovechick: And that is the plan. So for this year, we are again, expecting 20 to 30 basis points of leverage off of that number. And again, going forward, we will continue to leverage SG&A to drive incremental EBITDA margins. Thank you. The next question comes from John Lovallo with UBS. Please go ahead.

Speaker Change: Typing out.

Speaker Change: The cost of that start up related to Arkansas versus normal everyday.

Speaker Change: Operating activities.

Okay. That's helpful and then I.

Speaker Change: I guess as we look at the bigger picture here and think about the mid single digits sell through that you're talking about I mean, if you had to characterize risk being skewed to the upside or to the downside there and maybe what are the factors that could drive either either that upside or downside.

John Lovallo: Hi, good evening, guys. Thanks for taking my questions. The first one is the 2024 guide seems to imply, you know, incrementals of around 35, 37 ish percent. Curious what amount of startup costs from Arkansas are embedded in there? And if you know, do you expect more of those to hit in 2025 versus 2024? Going into this year, we'll see minimal startup costs at the Arkansas facility.

Speaker Change: Considering we're here earnings call day, I think we've balanced the risks on the on the upside and the downside as I mentioned I feel as though given what we know about the consumer that and it's very early in the year, we've got to see the season actually kick off but everything that I'm hearing from the channel as they are.

Speaker Change: About the opportunity to grow with tracks the consumers are coming through the door. The contractors are getting their backlog filled as they go into the summertime.

Brenda Lovechick: You'll start to see more of that ramp up in 2025, as in Q1 we'll start to see the repro line come up, and then in Q4 of 2025, we're expecting compounding to come up, and then in 2026 we'll start to see decking. So that's when you'll start to see more. And at that time, we will be sure to siphon out our cost of the startup related to Arkansas versus normal everyday operating activities. Okay, that's helpful.

Speaker Change: Okay. Thank you very much.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: The next question comes from Truman Patterson with Wolfe Research. Please go ahead.

Trevor Allinson: Hi, This is Trevor allinson on for Truman. Thank you for taking my questions.

Trevor Allinson: I just wanted to touch on inventory levels again, it sounds like by the end of the year you guys are still expecting channel inventories could be near historical low levels that they are now what do you think gets the channel to start taking on some more of that inventory you guys bring on more capacity.

Bryan H. Fairbanks: And then, I guess as we look at the bigger picture here and think about the mid-single-digit sell-through that you're talking about, I mean, if you had to characterize risk being skewed to the upside or to the downside there, and maybe what are the factors that could drive either that upside or downside? Considering we're here on earnings call day, I think we've balanced the risks on the upside and the downside. As I mentioned, given what we know about the consumer, and it's very early in the year, we've got to see the season actually kick off. But everything that I'm hearing from the channel is that they're excited about the opportunity to grow with Trex. The consumers are coming through the door.

Trevor Allinson: Here's the industry have also brought in more capacity do you think inventory levels going forward more intermediate term will continue to remain low or do you think over time as the macro provides.

Trevor Allinson: Provides some more certainty that we'll get back to those normal days on hand type levels.

Trevor Allinson: What's most important with what we're talking about is getting inventories to the right level as we go into the season. If you go back to the historical years attracts usually inventory would be at its lowest point coming out of November and then we would start the early buy program start to build some in December and then through the first quarter of the year in this case, we elect.

Trevor Allinson: To go ahead and do that early by all of the first three months, we will decide how we handle 2025 as we get closer to that but I'm not particularly concerned by those inventory decisions at the end of the year, whereas if you were to tell me were looked like we were going to have historically low inventories at the end of the first or second quarter.

Bryan H. Fairbanks: The contractors are getting their backlog filled as they go into the summertime. Okay, guys. Thank you very much. The next question comes from Truman Patterson with Wolf Research. Please go ahead.

Truman Patterson: Hi, this is Trevor Allenton on behalf of Truman. Thank you for taking my questions. First, I just wanted to touch on inventory levels again. It sounds like by the end of the year, you guys are still expecting channel inventories to be near the historical low levels that they are now. What do you think gets the channel to start taking on some more of that inventory? Will you guys bring in more capacity? Other players in the industry have also brought in more capacity. Do you think that inventory levels going forward, in the intermediate term, will continue to remain low? Or do you think, you know, over time, as the macro provides some more certainty, that we'll get back to those normal days on hand type levels?

Trevor Allinson: <unk> I would have great concern as to how the channel was managing their inventories and their responsibilities I don't see that being the case I'm very pleased with what I'm seeing from all of the partners and our channel that will have the appropriate material to be able to support the marketplace and where the year end. It comes out from an inventory.

Trevor Allinson: Perspective, we'll either be able to address that by putting some in in December or again doing it in the first quarter.

Speaker Change: Okay. Thanks, Brian, but that's really helpful. And then maybe a longer term question EBITA margin target at 34% can you talk about where you think gross margins land within that 34% longer term guide and then within that.

Truman Patterson: I think what's most important with what we're talking about is getting inventories to the right level as we go into the season. If you go back to the historical years of Trex, usually, inventory would be at its lowest point coming out in November, and then we would start the early buy program, start to build some in December, and then through the first quarter of the year.

Speaker Change: How much do you think comes from leverage on volumes and just your compete continuous improvement and cost out initiatives.

Bryan H. Fairbanks: In this case, we elected to go ahead and do that early buy all in the first three months, and we'll decide how we handle 2025 as we get closer to that. But I'm not particularly concerned by those inventory decisions at the end of the year, whereas if you were to tell me we looked like we were going to have historically low inventories at the end of the first or second quarter, I would have great concern as to how the channel was managing its inventories and its responsibilities. I don't see that being the case.

Speaker Change: Yes, I think to to split it from a gross margin perspective.

Be roughly split between continuous improvement as.

Speaker Change: As well as our capacity utilization, but gross margin will have some impacts as it relates to depreciation coming on with little rock as well as some of those startup expenses, which Brenda mentioned that we'll be transparent on what those costs are going to be but early on we won't have as favorable of a cost basis.

Bryan H. Fairbanks: I'm very pleased with what I'm seeing from all of the partners in our channel that we'll have the appropriate material to be able to support the marketplace, and where the year end comes out from an inventory perspective, we'll either be able to address that by putting some in in December or, again, doing it in the first quarter. Okay, thanks, Bryan. That's really helpful. And then maybe a longer-term question.

Speaker Change: Does the facility won't have the same kind of volumes at our Virginia facility has along the way. So there will be some headwinds as that plant gets up to running at full output, but over the long term, we expect that plant, we'll have our best cost basis across the company.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Still the opportunity to be able to leverage SG&A over the next five years from where we are today on on top of that 20 to 30 basis points that we've talked about for 'twenty four.

Bryan H. Fairbanks: EBITDA margin target 34%. Can you talk about where you think gross margins land within that 34% longer-term guide? And then within that, how much do you think comes from leverage on volumes and just your continuous improvement and cost-out initiatives? Thanks. Yeah, I think to split it from a gross margin perspective, it would be roughly split between continuous improvement and capacity utilization. But gross margin will have some impacts as it relates to depreciation coming on with Little Rock, as well as some of those startup expenses, which Brenda mentioned that we'll be transparent about what those costs are going to be. But early on, we won't have as favorable of a cost basis because the facility won't have the same kind of volume that our Virginia facility has had along the way.

Got it thanks, good luck going forward.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session I would now like to turn the call back over to management for closing remarks.

Speaker Change: Thanks for everybody's attendance at today's earnings Conference call. We look forward to speaking with many of you in the upcoming weeks good evening Bye.

Speaker Change: The conference has now concluded. Thank you for your participation you may now disconnect your lines.

Speaker Change: [music].

Bryan H. Fairbanks: So there will be some headwinds as that plant gets up to running its full output, but over the long term, we expect that plant will have our best cost basis across the company. And then there's still the opportunity to be able to leverage SG&A over the next five years from where we are today on top of that 20 to 30 basis points that we've talked about for 24. Thanks. Good luck going forward. Thank you. This concludes our question and answer session. I would now like to turn the call back over to management for closing remarks. Thanks for everybody's attendance on today's earnings conference call. We look forward to speaking with many of you in the upcoming weeks. Good evening. Bye. The conference has now concluded. Thank you for your participation. You may now disconnect your line, www.thevenusproject.com BF-WATCH TV 2021, BF-WATCH TV 2021 BF-WATCH TV 2021 BF-WATCH TV 2021

Speaker Change: Yeah.