Q1 2024 Trex Company Inc Earnings Call

Good evening and welcome to the check Company, Inc. First quarter 2024 earnings Conference call. All participants will be in listen on Tonight should you need assistance. Please signal a conference specialist by pressing the star keep on it.

After today's presentation there'll be an opportunity to ask a question you May Press Star then one on your touch Trackpad withdraw your question. Please press Star then two.

Please Matt dispensers being a quake.

Now, let's turn the conference over to Katie Patrick. Please go ahead.

Katie Patrick: Thank you everyone for joining us today with us on the call are Bryan Fairbanks, President and Chief Executive Officer, and Brendan Love Chick Senior Vice President and Chief Financial Officer, joining Brian and Brenda If Amy Fernandez Senior Vice President Chief Legal Officer, and Secretary as well as other members of management the company.

Issued a press release today after market close containing financial results for the first quarter of 2020 for this release is available on the Companys website. This conference call is also being webcast and will be available at the Investor Relations page of the company's website for 30 days I will now turn the call over to Amy Fernandez Amy.

Amy M. 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 M. 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 M. 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 M. Fernandez: Additionally, non-GAAP financial measures will be referenced on this call. A reconciliation of these measures to the comparable GAAP financial measure can be found in our earnings press release tracks Dotcom. The company expressly disclaims any obligation to update or revise publicly any forward looking statements whether as a result of new informed.

Amy M. Fernandez: Future events or otherwise with that introduction I will turn the call over to Bryan Fairbanks.

Bryan Horix Fairbanks: Thank you Amy and good evening.

Bryan Horix Fairbanks: Thank you all for participating in today's call to review, our first quarter performance and discuss our business outlook.

Bryan Horix Fairbanks: This was an outstanding quarter for trucks, reflecting our leadership position in the growing outdoor living category within the quarter, we demonstrated excellent execution across our organization along with strong channel demand for trucks branded decking and railing products.

Bryan Horix Fairbanks: First quarter sales came in above the high end of our guidance range.

Our early buy season added approximately $75 million.

Bryan Horix Fairbanks: Incremental sales in the first quarter as our channel partners Restocked ahead of the season after ending 2023 with historically low inventories.

Bryan Horix Fairbanks: Beyond the normalized seasonal inventory build we saw strong growth in contribution from our recent premium decking product launches treks transcend lineage <unk> signature.

Bryan Horix Fairbanks: These additions to our portfolio have continued to gain traction helping to drive double digit sell through of <unk> premium products in the first quarter.

Bryan Horix Fairbanks: <unk> channel partner inventories ending the quarter are at appropriate levels to service consumer demand during the busy decking season.

Amy M. Fernandez: Feedback from our contractor network.

Amy M. Fernandez: They have strong backlogs with projects trending towards larger deal sizes and premium products and average lead times ranging from six to eight weeks, while many of our <unk> Pro Platinum's have lead times through late summer.

Amy M. Fernandez: These indicators were shared consistently with our leadership team gathered with over 300 of our largest tricks probe platinum contractors during the month of April.

Amy M. Fernandez: These data points, along with other internal data support our view that business conditions, especially at the high end of the market continue to be favorable and reflect a return to more normal seasonality.

Amy M. Fernandez: In the first quarter, we continued to see mid single digit increases in sell through of our total product portfolio, which has been designed to offer products at every price point and now includes a broader price range of railing options to complement our complete line of decking.

Amy M. Fernandez: There are numerous demand drivers that have and will continue to support <unk> growth.

Amy M. Fernandez: First the average age of housing stock continues to increase yielding record growth in homes between 20, and 40 years old over the next five years. These homes are prime candidates for remodeling projects in many cases. These homes will also have decks, we estimate that approximately half of the 50.

Amy M. Fernandez: To $60 million ex in existence are either at or beyond the age for replacement.

Amy M. Fernandez: Next with higher mortgage rates and the rising cost of housing consumers remain in their homes longer and are prioritizing investments in their outdoor spaces that enabled them to gain fuller enjoyment of their existing footprint.

Amy M. Fernandez: One of the most affordable ways to add square footage to your home is to add a deck.

Amy M. Fernandez: <unk> is well positioned to take advantage of the trend of creating functional spaces beyond the walls of the home with outdoor living areas complete with couches fireplaces Tvs and cooking areas.

Amy M. Fernandez: Lastly, we continue to see the opportunity to convert more wood decks to treks composite decking and railing. We estimate this conversion to be occurring at a long term average of 150 to 200 basis points per year.

Amy M. Fernandez: With a comprehensive product portfolio, a robust branding and marketing program, the industry's strongest dealer and distribution network and a leading share of home center shelf space and sales.

Amy M. Fernandez: <unk> is well positioned to benefit from that wood conversion.

Amy M. Fernandez: Our financial outperformance in the first quarter was primarily related to exceptional gross margin expansion the.

Amy M. Fernandez: The combination of high utilization with continued production efficiencies and fast return cost saving projects led to a 45% gross margin for the quarter.

Amy M. Fernandez: While we do not expect to replicate this margin level in subsequent quarters. This year. It is a strong indicator of our ability to leverage our existing capacity in tandem with volume growth.

Amy M. Fernandez: To support and ensure the channel inventories are appropriate to serve the decking and railing season trucks has been running at high capacity utilization. This utilization will decrease as the year progresses.

Amy M. Fernandez: During the quarter, we implemented new cost saving projects as planned while also developing new projects for future cost savings pipeline.

Amy M. Fernandez: One notable project is the development of a new plastics recycling and processing technologies that will allow tracks the process contaminated materials more efficiently and allowed for the use of a larger variety of recycled materials.

Amy M. Fernandez: Additionally, we continued to increase our investments in branding and other sales and marketing programs. These programs are designed to engage with homeowners seeking to update their outdoor living spaces with the broadest array of decking and railing.

Amy M. Fernandez: Other outdoor living products at price points to serve a large range of household income levels.

Amy M. Fernandez: As noted in prior calls and our Investor day New.

Amy M. Fernandez: New product development is a key priority and a future growth driver for trucks as we seek to expand our share of the addressable market.

Amy M. Fernandez: Following the launch of select T rail last year, our high performance value price system. We added two modern specialty premium railing options to our portfolio. The trek signature X series railing available in both cable and Frameless glass in fills.

Amy M. Fernandez: The positive response to these product announcements now translate into orders as these new high end railing products begin shipping this quarter.

Amy M. Fernandez: Additionally, we began taking orders for tricks branded decking fasteners in the first quarter for shipment in the second quarter Treks is long sold our market, leading hideaways hidden fastening system and now were broadly expanding into traditional decking and face of fastening solutions with the launch of color match screws and plugs.

Amy M. Fernandez: Specialty engineered bids etcetera and clips.

Amy M. Fernandez: All of which are designed to deliver a clean cohesive aesthetic, while making installation easier and more efficient for contractors and DIY installers alike.

Amy M. Fernandez: This is a great example of penetrating an adjacent market, where we are directly related to our core products of decking and railing, while further strengthening our leadership position and creating competitive advantages for our channel partners.

Amy M. Fernandez: During the quarter, we received many accolades from independent third parties treks was recognized as the overall supplier of choice from builders first source by winning the Morris colleague National supplier of the year Award.

Amy M. Fernandez: Other awards recognize our commitment to sustainability innovation and corporate responsibility and naming tricks America's most trusted outdoor decking for the fourth consecutive year, which highlights the enduring connections between consumers and to trek spread.

Amy M. Fernandez: All of US at tracks are honored and humbled to receive these awards and I want to thank all our <unk> team members as well as our channel partners and our suppliers for their contributions to these important recognitions.

Speaker Change: Now I'll turn the call over to our senior Vice President and CFO, Brenda Love Chip for a financial review Brenda.

Speaker Change: Thank you, Brian and good evening, everyone. I am pleased to review our exceptionally strong first quarter 2024 results, which represent an excellent start to the year end support our expectations for above market growth in 2024.

Speaker Change: In the first quarter net sales were 374 million, 57% above the $239 million and net sales reported in last year's first quarter.

Speaker Change: This growth was driven in part by the shift of our early buy program from Q4 2023 into the beginning of 2024, resulting in approximately 75 million of incremental sales in this year's first quarter.

Speaker Change: Sales also benefited from the restocking of channel inventories in preparation for the beginning of the decking and railing season.

Speaker Change: Gross margin was 45, 4% and 580 basis point expansion from 39, 6% in the first quarter of 2023 and above expectations incur.

Speaker Change: Increased capacity utilization along with related production efficiencies and the continued benefit of cost out programs were the key drivers of this exceptional margin performance, which more than offset higher labor costs.

Speaker Change: I continue to be impressed by the discipline and the success the company has around continuous improvement programs.

Speaker Change: It is part of our DNA and it's embraced at all levels within the organization.

Speaker Change: As Brian noted, while we do not expect to replicate this margin level in subsequent quarters. This year. It is a good indicator of our ability to drive substantial operating leverage.

Speaker Change: Selling general and administrative expenses were 51 million or 13, 5% of net sales in the first quarter compared to $37 million or 15, 7% of net sales a year ago, representing considerable leverage as a percent of sales due to the strong sales performance in this year's first quarter.

Speaker Change: The year over year dollar increase is primarily due to accelerated branding and marketing spend mainly related to new product launches and preparing for the busy season.

Speaker Change: We made the decision in 2023 to increase our branding spend back to historical levels as we continue to invest at this level in 2024, we see evidence of it helping to drive the market to track products.

Speaker Change: Net income was 89 million in the first quarter or <unk> 82 per diluted share more than double the $41 million or 38 cents per diluted share reported last year, we delivered EBITDA at 133 million or 35, 6% of net sales compared to 69 million.

Speaker Change: Or 28, 8% of net sales in the year ago quarter, driven by increased sales volume and higher gross margins.

Speaker Change: Consistent with historical trends first quarter cash flow from operations represented a use of cash primarily for working capital needs cash used in operations was 174 million compared to cash used in operations of $115 million in 2023, primarily due to the shift in <unk>.

Speaker Change: <unk> at the early buy program and subsequent increase in Q1 sales volume.

Speaker Change: We invested 38 million in capital expenditures, primarily related to the build out that'd be Arkansas manufacturing facility.

Speaker Change: As noted in today's earnings release, our first quarter results support our expectations for substantial above market growth. In 2024, we are pleased to reaffirm our full year guidance for this year, we expect net sales to range from one point to one 5 billion to one point to three 5 billion representing year on year.

Speaker Change: Growth at 12% at the midpoint.

Speaker Change: EBIT margin is expected to range from 30% to 35%.

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%.

Speaker Change: With our early buy program completed in Q1, we expect Q2 sales in the range of $380 million to $390 million.

Speaker Change: With that I'll now turn the call back to Brian for his closing remarks.

Brian: Thank you Brenda.

Brian: I noted in our last conference call I have a high level of confidence in the trucks consumer in our brand our products and product development capabilities, our channel partners and <unk> growth potential our first quarter results have only strengthened our confidence.

Brian: <unk> is well positioned to continue to benefit from the strength of the outdoor living category and new product introductions are further distinguishing us from a competitive standpoint.

Brian: Our channel partners are best in the industry trucks products are available in over 6700 locations far more than any other brand in our industry and consumer recognition of the attributes of tricks decking and railing products continues to build.

Brian: We are looking ahead for a year of strong growth for trucks in 2024 and to capturing a greater share of the much larger addressable market in the coming years.

Speaker Change: Operator, we'll now open the call for questions.

Speaker Change: We will now begin the question and answer question to ask a question you May Press Star then one on your touch sensor.

Speaker Change: Speakerphone, please pick up your handset before pressing the key can withdraw your question. Please press Star then Kate.

Speaker Change: Our question today, we ask you. Please ask one with one follow up.

Speaker Change: Your first question comes from Stanley Elliott with Stifel.

Stanley Stoker Elliott: Brenda Thank you guys for the question.

Stanley Stoker Elliott: Congratulations on the strong start to the year.

Stanley Stoker Elliott: Brian could you help could you help us with your expectations maybe for sell through embedded in the full year guide and maybe what happens with inventories at the end of the year based upon that framework.

Stanley Stoker Elliott: Sure.

Brian: Still embedded within our guide is a mid single digit increase in overall sales on a full year basis, and we expect inventories as we get to the end of the year to be similar to the level that we were at the end of last year. So we've built a plan, which does put more inventory into the.

Brian: Annul earlier than what we've done in the past couple of years, but if we take this back to pre pandemic timeframe. This is getting back to a little bit more normalized way that the channel operates of making sure that inventories are peaking out at the end of the first quarter and then as the season really kicks in that inventory starts decreasing through Q2.

Brian: Two in Q3.

Brian: And nice to hear about the higher end luxury being up double digits, especially with so much around consumer trade down.

Brian: What's driving the strong market outgrowth.

Brian: Maybe kind of any feedback you've received thus far from the channel.

Speaker Change: Yeah, we see it as an overall economic indicator that those higher end households, they are not as heavily impacted by inflation with food fuel and all of the other things that are hitting those families. It's easier for them to be able to invest in their existing homes with lower mortgage rates, along the way and.

Speaker Change: We just see that there's a bit of a difference between that higher end consumer at lower end consumer and we've seen that results in our business at the entry level versus some of those high low higher end products and that was one of the strategies as we launched lineage and signature we understood as the economy had the potential for more.

Brian: <unk> times that high end consumer would be there in either marketplace and we wanted to make sure that we had the right premium Mark part.

Brian: Products to appeal to those consumers.

Speaker Change: Perfect. Thanks, everybody and congratulations best of luck.

Speaker Change: Thanks Sterling.

Brian: Your next question comes from Tim Weiss with Baird.

Timothy Ronald Wojs: Hey, everybody good afternoon, nice a nice job on the results.

Brian: Thanks.

Timothy Ronald Wojs: Maybe just to start on the on the gross margins.

Timothy Ronald Wojs: Could you give us I guess, a little bit of a flavor of how you think those should sequence through the year just my back of the envelope math kind of suggests that you know.

Timothy Ronald Wojs: Maybe it doesn't quite a little bit of year over year decline as the year progresses. So I just kind of want to make sure I kind of understand the pace of gross margin.

Brian: Through that through the year.

Speaker Change: So yes.

Speaker Change: Yes, we do.

Brian: It's typical that you would see us to have the higher gross margin both in the Q1 and Q2. So the first half of the year and then in the back half bright as we start to.

Brian: Bring down utilization in the factory, you'll start to see those gross margin declines.

Brian: In Q3, and Q4, but still expecting again nice improvement for the full year from a full year perspective.

Speaker Change: Okay. Okay. I mean is my math, right and that you're probably somewhere in like the 41, 542% range for kind of gross margins for the year.

Brian: To get to the EBITA Guy you're within the range yet.

Speaker Change: Okay Gotcha.

Brian: And then secondly, just.

Brian: You know Brian during Covid I think some of the smaller players.

Brian: The industry got some shelf space in wholesale due to just supply chain constraints.

Brian: You know where are you in kind of like regaining some of that share.

Brian: In terms of getting it it's about shelf space back and I guess, where are you in that kind of journey.

Brian: We saw that start to turn around a meaningfully last year and we further saw that as we were out in the selling season during the fourth quarter. It now selling into the 'twenty 'twenty four year that a lot of those accounts that were really forced to take in some excess product because.

Brian: Their existing suppliers didn't have enough capacity at the time, we have seen them turn back to the brands that they've trusted before we've seen all of those consumers come back to <unk> again.

Speaker Change: Okay. Okay, great. Good luck on rest of the year. Thanks for the time thanks.

Speaker Change: Our next question comes from Ryan Merkel with William Blair.

Ryan James Merkel: Hey, everyone. Thanks for the question Hey, Brian can you just tell US how you were thinking about guidance for the full year on revenue I know it's early in the season and then maybe comment on April if that looked like the first quarter.

Brian: Yes. So it is a key comment there. It is early in the season and we are encouraged with what we saw during the first quarter. We continue to be encouraged with what we saw in the month of April we've talked to our contractors, we've talked to our dealers and there's still that feeling that that consumer is out there. They are looking to do though.

Ryan James Merkel: Type of projects in the marketplace, but we also don't want to get too far ahead of ourselves, we need to get well into the busiest part really the meat of the season in Q2 in Q3 to deliver that level of confidence that the consumer is going to be above that mid single digit type growth level.

Ryan James Merkel: <unk> comments are pulling some of that capacity back later in the year. If we see that number is higher we will continue to run that capacity longer so that results in higher revenue and also improvement in gross margin.

Speaker Change: Yep Perfect makes sense Alright. My second question you called out an expanded product portfolio is one of the drivers of the strong growth any callouts there by category that you want to frame for us.

Speaker Change: It's really across all of the new products, we've not broken out specific revenue on those products, but the lineage product with heat mitigation technology is doing extremely well in the marketplace. Our signature product is a high end product $910 of linear footage.

Speaker Change: For that truly discerning buyer, that's looking for the look of real hardwood, but the ease of maintenance of a <unk> composite decking board, we're seeing that move into the channel nicely as well. We just went national on that so inventories are being built and we are starting to see the sell through pick up on that T rail, we launched midway through last.

Speaker Change: Year, So we're about a year into that now and again starting to see some really good takeaway with that product and then of course, we've got the new products coming in in the second quarter and that's going to be a continuing story with the company here of new products entering the market to drive our growth.

Speaker Change: Alright, good thanks.

Speaker Change: Thanks Ryan.

Speaker Change: Your next question comes from Blake Gendron with Bank of America.

Blake Gendron: Hi, good afternoon. Thanks for taking my my question.

Blake Gendron: Just the first quarter after the margin performance was really strong.

Blake Gendron: If your second half.

Speaker Change: Revenue.

Blake Gendron: It sort of implies 5% declines year over year.

Blake Gendron: If the second half revenue ended up staying kind of in line with where were tracking now and does it come in better how do we think about the second half incremental margins like would you start to read you see margins.

Speaker Change: It's kind of tracking more in line with what we saw in the first quarter like what are the puts and takes of that second half margin guidance type debt wasn't impacting the first quarter.

Speaker Change: Yeah. Thank you for the question Ryan.

Speaker Change: So if we break down Q1 gross margin, we highlighted the impact of our continuous improvement programs.

Speaker Change: Production efficiencies.

Speaker Change: As as well as just utilization and so if you break that apart. It we did about a third a third a third from those areas. So you think about utilization.

Speaker Change: That will definitely help us in the back half if we continue to see that the the strong pull through that that we're experiencing right now.

Speaker Change: Thank you that's helpful and then just as we.

Speaker Change: Step back and look at the long term guidance you have is for 12 points around 12% revenue growth.

Speaker Change: Your revenue growth guidance for this year is the mid points around that but you do have a 6% to 7% tailwind from the timing of early buy can you just talk about what gets you to the long term guidance piece relative to the underlying trend this year.

Speaker Change: A year.

Speaker Change: Yeah, So I think we're being conservative and where we see the consumer at this point, we do have those long term expectations could deliver.

Speaker Change: <unk> percent type revenue growth on average through now 2028 timeframe. It doesn't mean that every year, we'll deliver that number there will be economic differences that come along I expect some years will be higher than that and will probably be some other years that are lower than that but we still have great confidence in those targets that we just laid out last September.

Speaker Change: Thanks I appreciate it.

Speaker Change: Thanks.

Speaker Change: Your next question comes from Susan Mcclary with Goldman Sachs.

Susan Marie Maklari: Thank you and good afternoon, everyone.

Susan Marie Maklari: My first question Bryan as you noted that you are seeing a positive mix shift just given that the higher end consumer is a bit more.

Susan Marie Maklari: Gauged in housing and taking out some of these larger projects can you talk about how that is flowing through to the results is there a lift that you're getting in the margin and if we do see that mix. Eventually does normalize with some of those lower end consumers coming back what would that mean for margins and some of the other metrics in the business.

Susan Marie Maklari: Now recall, when we launched our enhanced product line back in 2019, the strategy with that product line was to have an entry level product at two times the price of wood and then our step up product enhance naturals, having that product there to bring the consumer in show the consumer.

Susan Marie Maklari: They can afford a <unk> composites and then move them up to that next level and with those two products, but is a very attractive margin when you mix out the volume between those products. It wasn't about bring people in the door and lets just go sell as much basics as possible was really about that upsell opportunity. So you saw the kind of.

Susan Marie Maklari: Margins that we delivered even when that entry level was quite a bit stronger and we are heading into the part of the season. When we will see more sales coming through the DIY channel that ends up being more of a summer time Q2, Q3. So we'll see some of that come back in more heavily in Q2, so I'm not concerned about.

Susan Marie Maklari: The margin performance. This organization is highly focused on driving margins and as we look at new products coming in we're making sure that we've got the appropriate margins with that and understanding that we're going to have to meet the needs of all income levels. So that we can deliver the kind of growth that we're expecting as well as you're expecting.

Susan Marie Maklari: Us.

Speaker Change: Yes, Okay that makes sense and then you mentioned that you were running at a fairly high utilization rate to start the year can you just perhaps quantify that for a bit and as you do think about that sequential deceleration in that where do you expect to get to and is there any offset in there in the back half as you add some capacity perhaps.

Speaker Change: We haven't quantified what our capacity utilization is it's fair to say that we are running extensively and it's important as an organization given the size that we are today.

Speaker Change: We have to build that inventory and run that capacity earlier in the year, if we see that demand hit at a higher level. During the busy season, we can't turn on enough capacity to be able to make up the difference. So that inventory has to be there and so that's why you see a higher capacity utilization and I expect that'll be consistent as.

Speaker Change: We move forward and then we start pulling that back.

Speaker Change: We enter into the latter part of the year as I mentioned before the upside is that consumer remains stronger we get into the heavy part of the season that inventory in the channel comes down more quickly and we keep running that capacity at a higher level.

Speaker Change: Okay, Alright, thank you for the color and good luck with everything.

Speaker Change: Thanks.

Speaker Change: Your next question comes from Phil <unk> with Jefferies.

Phil: Hey, guys congrats on another strong quarter.

Phil: Brian I mean interest rates are obviously higher than you kind of called out maybe the lower end of the consumers a little squishy here, but if I've heard you correctly just based on what your channel partners are seeing in your sell out it doesn't sound like you've seen any slowdown it's been pretty steady and strong. So if I look at your full year sales guidance.

Phil: <unk> guided effectively the first half.

Phil: The back half implies 6% to 8% sales decline is that effectively just all inventory draw down and is that what your channel partners had signaled that they're looking to do as well or are you baking in some conservatism with a more choppy macro backdrop.

Speaker Change: Let me provide the definition of how we are using sell through and that is point of sale at our pro channel locations as well as our home Center partners. So it is just pure year over year are they selling more are they selling less and we think that thats going to be mid single digits. So to your point, yes, there will be inventory.

Speaker Change: We drawdown, we needed to get it out there early when the season really turns on those products will be there in the right mix to be able to service all of the needs of the channels. So that is what what's driving that and we'll see that inventory drive down as we move into Q2 and Q3.

Speaker Change: What is your channel partners signaled that they have a desire to kind of work down their inventory pretty hard because I think last year. You just finished a year like Ed.

Speaker Change: <unk> historical lows released at least in the channel.

Speaker Change: Yeah, I don't know that its probably not fair to say they really want to go after they want to ensure it would the same thing as we do we want to ensure that we have the right amount of product in the market to serve all of the needs that are out there, but as the year moves on if we go back to the historical way the industry has run that inventory starts.

Speaker Change: Coming back down again, there is no reason to hold that level of inventory at the end of November and December than we enter into the next early buy season that inventory build all over again, so I don't see that part of the channel necessarily changing and I don't think that's unhealthy either.

Speaker Change: Okay. That's helpful.

Speaker Change: One of your larger competitors called out last night that they want a fair amount of shelf space in 2025.

Speaker Change: Any major losses on your end or is that.

Speaker Change: Someone else I guess effectively.

Speaker Change: Yes, we've picked up a number of the pro channel locations that we've worked with exclusive are.

Speaker Change: Locations for us as we moved into this year, we picked up some additional stocking destocking within the home centers as well on a year over year basis. Okay.

Speaker Change: Okay. So when we think about 'twenty 'twenty four no big negative event on the horizon right.

Speaker Change: Correct.

Speaker Change: Awesome. Thank you appreciate it.

Speaker Change: Your next question comes from Jon <unk> with UBS.

Jon: Good afternoon, guys and thank you for taking my questions.

Jon: The first question is one of your competitors had talked about inventories in the channel being about 15% below historical norms. I think you characterized it as kind of being appropriate I mean is that suggesting that you believe that the channel. It's just going to carry less inventory as we move forward.

Jon: Well I guess, what I would suggest here that we have appropriate inventory in the marketplaces, we serve going into the busy part of the season, we see that it's appropriate to serve the type of growth that is expected in the marketplace and then if we see higher levels of growth tracks has the ability to service that out of our inventory so.

Jon: And that is exactly familiar but there may be a little bit of difference in strategy of how inventory is being managed between balance sheet and the channel.

Speaker Change: Okay. That's helpful. And then how are you guys thinking about price cost as we move through the year, where you you know how much deflation or are you thinking is likely and is there an opportunity for pricing if if input costs here for a bit.

Speaker Change: We are seeing some price pressures as you would expect we've had labor go up this year there have been another a couple of other items that we've gone up of course capital equipment is more expensive all of those sort of things energy costs out west are more expensive than they were prior year. That's why we have such a highly developed continuous improvement process.

Speaker Change: We know that every year there are going to be those known increases that come out and hit us we have to have the ability to be able to offset those increases now there may be situations, where the cost increases are so large that you do have to take some pricing in the marketplace. So we're not necessarily afraid to take pricing in the market when it's the <unk>.

Jon: Right time to do that and if we see cost are well out expanding our ability to be able to offset through our own continuous improvement.

Speaker Change: Thank you guys.

Speaker Change: Thanks.

Speaker Change: Your next question comes from Jeffery Stevenson Keybanc capital.

Jeffrey Patrick Stevenson: Hi, Thanks for taking my questions today.

Jeffrey Patrick Stevenson: I was wondering what feedback have you heard from channel partners regretted must shift in early buy that the January start beat and whether you view it as a success playing on replicating this strategy in 2025.

Jeffrey Patrick Stevenson: We're not sure what the plan is for 2025 as of yet but for 2024. It was absolutely a success. We gave the channel plenty of advance notice of how we were going to run the program given that they've come off of some volatile years pandemic dragging out inventory are wanting to get it.

Jeffrey Patrick Stevenson: Low as possible. So we wanted to work with our channel as much as possible. While we also laid out the expectations of what we need to deliver jointly to make sure that our consumers are always able to get their hands on the trucks products that they need and that's what drove the inventory targets that we have at the end.

Jeffrey Patrick Stevenson: The first quarter and I think the channel did an excellent job across the board getting prepared for the season and extremely encouraged about the demand that I am seeing the comments from our trucks pro contractors and from our dealers as well as from the home center channels.

Speaker Change: That's great to hear Brian and then how receptive have your distribution and dealer partners when they're working with trucks to increase the attachment rate of trucks railing products as we continue to grow you're railing product performing really well just kind of given how fragmented the railing industry is right now.

Brian: So if I take you all the way back 15 years ago, there were probably 20 decking manufacturers in the marketplace. There were still a couple three larger ones in the marketplace. But then there were a lot of smaller ones in the market, whereas today in decking you have.

Speaker Change: Three manufacturers out there that make up the majority of the industry.

Speaker Change: <unk> is a little bit like decking was 15 years ago treks leaves with a share of this was on a dollar basis was about 6% of the overall marketplace and we see a significant opportunity of using the leverage of the trucks brands, who in that consumers putting on <unk>, they're getting a trek trailing along with it we don't have all the <unk>.

Speaker Change: Options today that a consumer is looking for so we've got a significant opportunity product development wise to provide those options. It gives our channel also the opportunity to have more of their sales through a single supplier rather than multiple suppliers and you heard me say lets say Theres 2030, 40 different railing suppliers, that's a lot of additional <unk>.

Speaker Change: <unk> to be able to manage all of those additional skus training your staff on how to install how to sell how youre going to stock them versus buying from one supplier. We can put it all in one truck together bring it out of the same location and have the same sales team there to help them build their business.

Speaker Change: Great color. Thank you.

Speaker Change: Great. Thank you.

Speaker Change: Your next.

Speaker Change: Comes from Trey Grooms with Stephens.

Sidra Mesh: Hey, good afternoon. This is sidra mesh on for Trey. Thanks for taking my question. So on SG&A leverage was pretty strong in the quarter.

Sidra Mesh: Color as to how we should be thinking about leverage going forward I think 20 to 30 bps of leverage with what you guys mentioned for the year, that's still a good number.

Speaker Change: Yeah, that's correct and that is a good number so yes, we again continue to see.

Speaker Change: Our return on the investments that we're making in that in the marketing and branding space that we will continue to invest in that throughout the quarter throughout the remainder of the year, but even with those increased spending we expect to see that that leverage at 20 to 30 basis points that we had highlighted.

Speaker Change: Got it helpful and then Brian how did the pro channel kind of performed compared to the wholesale in the quarter anything meaningful to call out there.

Brian: So the pro channel has a more consistent season on an overall basis, so theyre going to be building through the fourth quarter and first quarter. They are probably more impacted by by weather, if you've got heavy snow or heavy rain, they can't be outbuilding, but otherwise there are quoting in their app building all year long, whereas the home center channel as much.

Speaker Change: More seasonal that DIY consumer is coming in to a much larger degree during the second quarter and third quarter and of course, the home center channels focused on that pro as well so over time, it probably won't be quite as seasonal as they continue to execute the strategy to gain more event proshare.

Speaker Change: Helpful. Thank you guys.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Keith Hughes of apparel.

Keith Brian Hughes: Thank you that's a good question on SG&A.

Keith Brian Hughes: On the 2030 basis points of leverage.

Keith Brian Hughes: That would imply that would be deleverage the remaining quarters of the year is that what you're signaling or is this more just a function of.

Keith Brian Hughes: Some of the conservatism we've talked about so much on this call.

Keith Brian Hughes: It's the birthday Randy.

Speaker Change: Turning to south ideas in Q1, we had a very high revenue in Q2 will continue to have high revenue you start to see that decline a little bit in Q3 and Q4, so as the percentage that might look like deleverage, but for the full year, you will still see that nice 20 to 30 basis points as Atlanta.

Speaker Change: Page.

Speaker Change: Okay. So the dollar spend in SG&A year over year, I guess, it'll be exactly paccar reduce rates. What we saw for example last year, but directionally what we're doing.

Atlanta: Sorry to say that to say that one more time.

Atlanta: So the.

Atlanta: You were gonna see year over year spend.

Atlanta: Yes.

Atlanta: But.

Atlanta: In past years, when you were at the point I'm trying to get to where it's been.

Atlanta: And our reinvestment in SG&A that you talked about and then we will.

Atlanta: Reaching the top on that at this point.

Atlanta: Maybe that would extend that question into 2025.

Atlanta: The largest dollar value of those investments occurs during the second quarter and third quarter of the year.

Atlanta: You will see higher numbers than that obviously, we've got we've guided to revenue in the second quarter. Historically revenue does start to come down in the third quarter, yet it's extremely important that we continue to market and bring those consumers through so you will see some lumpiness in that.

Atlanta: SG&A percentage, but on a full year basis, that's where we expect to see the leverage.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks Keith.

Speaker Change: Your next question comes from Craig <unk> with D. A.

Craig: Great. Thanks, just one quick one for me.

Craig: Brian maybe you could just give us a refresher around kind of the timeline for some of the different operations and startup down in Arkansas, and I guess just at a high level.

Speaker Change: With the startup of new facilities and new assets.

Speaker Change: <unk> added fixed costs any I guess directional color around how we should think about kind of incremental margins going forward just in light of that investment.

Brian: Yes, so from a timeline perspective, we're looking at mid 2025 from starting up our plastic processing operations and then into the first part of 2026 as we startup decking. So everything is moving on as we've expected from a schedule perspective.

Brian: As a sizable operation that we'll be bringing up so there will be material costs flowing through as we've mentioned in the past, we'll be very transparent as to what those startup costs are we will start to see some of that a little bit in the fourth quarter of this year, then will become much more material in 2025, and then through 2026.

Brian: Timeframe, but we'll be sure to show everybody what the underlying gross margin looks like I think the Great example is you see the leverage inherent within the <unk> business model is we're running at our existing capacity at these higher <unk>.

Brian: Utilization rates and what that does with gross margin. So yes of course, when you bring some new capacity on we're not going to be fully utilized and that on day. One we've got to train people, they're not going to run at a 100% on day, one there will be some inefficiency will provide some additional detail we're not prepared to do that at this point, but we will be sure to high.

Brian: Delight that each quarter as we start getting into those expenses.

Speaker Change: Great. That's very helpful. Thanks, Brian I'll turn it over.

Speaker Change: Thanks.

Brian: Our next question comes from Kate <unk> with BMO capital.

Kate: Thank you and congrats on a strong quarter.

Kate: I can start with can you talk a little bit about <unk>.

Kate: Now the.

Kate: Entry level in the mid level outside of the market is doing any sort of intra quarter trends or just overall.

Kate: You know performance of that side of the business.

Brian: So I'm careful to make any broad predictions off of what we see in the first quarter because those products are more highly tailored towards the home center channels in those home center channels kickoff more heavily in Q2 and Q3, but as I mentioned in my comments, we are seeing that high end consumer extremely.

Brian: Engaged and we talk to our contractors contractors that are building larger decks, they're using more of the premium products out there. So it's a trend that we're seeing right now we'll see as we get into the summertime how.

Brian: How the entry level consumer jumps in.

Brian: What kind of business they drive and I think part of that is the upside that we see to the mid single digit growth.

Speaker Change: Got it that's very helpful. Thank you.

Brian: Thanks.

Brian: Your next question comes from Michael Rehaut with J P. Morgan.

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

Michael Jason Rehaut: First I'd like to circle in on the sell through and you know maybe try and break that down a little bit.

Michael Jason Rehaut: Your competitor the other day kind of pointed to a double digit sell through for the quarter and so I was curious.

Michael Jason Rehaut: What your thoughts were perhaps around that in terms of.

Michael Jason Rehaut: To the extent that you might have slightly different.

Michael Jason Rehaut: Weightings towards different channels in the market.

Michael Jason Rehaut: Or any other drivers that you kind of see in your business that might kind of explain.

Michael Jason Rehaut: Explain that difference in particular, I'm again pretty curious about home center versus other channels and.

Michael Jason Rehaut: And such.

Michael Jason Rehaut: So our definition of sell through is point of sales both at the home center as well as within the pro channel. It does not include any seasonal positioning for the.

Michael Jason Rehaut: The building season I E building inventory along the way so I can't speak to how others may be doing it but that's how our treks is doing it and we try to keep a pure definition as to what that sell through is.

Michael Jason Rehaut: Okay.

Michael Jason Rehaut:

Speaker Change: Thanks for that.

Speaker Change: I guess, secondly, I'd love to kind of zero.

Speaker Change: Pull back a little bit bigger picture.

Speaker Change:

Speaker Change: With the capacity that you've added with the capacity that you're still planning to add.

Speaker Change: There's obviously still a lot of opportunity for growth over the next several years.

Speaker Change: I would love your thoughts on.

Speaker Change: So the opportunities that maybe you weren't able to fully.

Speaker Change: Go after you know when you were sold out and click or I'm thinking the builder channel.

Speaker Change: You know, perhaps even on the international side.

Speaker Change: How do you think about kind of what's happening in those channels over time.

Speaker Change: Feel that it could be more kind of relatively gradual.

Speaker Change: And kind of just playing into the growth algorithm that you laid out.

Speaker Change: In your Investor day, or could there be more sizable step ups as you you kind of attack those different opportunities.

Speaker Change: Well, it's fair to say, we're attacking all of those opportunities as we moved into 2023, there was inventory in the channel again, it was more I wouldn't quite call. It a normalized year, but it was there was plenty of capacity available to serve whatever the consumers needed at that point that allowed us to set our sales team.

Speaker Change: <unk> and really go out and start hitting first of all the accounts that may have brought in some other products. During the pandemic itself. Some of those builder opportunities that are out there, which we are seeing nice traction with them of course are international opportunities architects, there's a whole list of pipeline opportunities that our sales team is going.

Speaker Change: After we track them closely and our performance against that and that's included with the the overall expectations that we have as an organization and the way. We normally operate here is we're going to have more things.

Speaker Change: In our bag of growth opportunities then.

Speaker Change: Then what's going to deliver what we've committed to that 12% along the way and we also recognize not everything is going to work perfectly along the way. So we need those additional opportunities to make sure that we're delivering on our expectations and your expectations of us.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Anthony Pettinari with Citi.

Anthony James Pettinari: Good evening.

Anthony James Pettinari: I was wondering if you could talk a little bit more about the offering in fasteners and I think at the analyst day, you talked about $2 5 billion opportunity from Adjacencies and extensions and.

Anthony James Pettinari: How does fastener sort of rank within that that universe.

Anthony James Pettinari: And if you were taking orders today is just kind of more of a pact on 25 or just any additional color you can give there on that opportunity.

Speaker Change: I'm pleased it's included within that Adjacencies, we didn't split that out specifically and we will look at that for the next call.

Anthony James Pettinari: To split out what that overall opportunity is it's something that we've had competitors in the marketplace being able to sell products on two tracks decking Theres No reason why <unk> shouldn't take our share of that revenue, but when we did that we were also recognized we couldnt just have a me too product. We couldnt just go buy something thats out there.

Anthony James Pettinari: And say, here's a trek fastener.

Anthony James Pettinari: We engineered the system from the ground up.

Anthony James Pettinari: We've got a lot of people who have great experience within the fastener industry abstracts, but also coordinated with our contractors and the channel to understand what would be most meaningful for them. So we started selling that into the channel is actually late last year into the home Center channel and now on a much larger basis.

Anthony James Pettinari: And we've seen great interest is really just starting to flow into the pro side of the channel now. So this year will really be kind of the infill period of things and then as more people decide to make a switch and take somebody else off of their shelf to bring tracks in we will see larger opportunities.

Anthony James Pettinari: <unk> product industry, those things don't tend to happen overnight. It takes somebody else off put somebody else on but because of the opportunity with the <unk> brand name that we have our ability to service on the same trucks, our ability to have sales support in each one of these locations, we feel great about the opportunity to convert a sizeable.

Anthony James Pettinari: Portion of that business and make sure that if a <unk> is being built a trek fasteners going on it.

Anthony James Pettinari: Got it got it and then some of the other adjacencies that you talked about cladding fencing furniture or are there some that you feel or maybe.

Anthony James Pettinari: Youre, a little bit closer on or you feel.

Anthony James Pettinari: It could be we could be hearing more from us soon.

Anthony James Pettinari: Fencing, the sizable marketplace a variety of different materials in the market. We do have a small fencing program today that we manufacture out of our Nevada facility. That's a sizeable part of what that adjacency our opportunity is and.

Anthony James Pettinari: There are other things that we're looking at that fall into that revenue growth opportunity.

Speaker Change: Okay. That's very helpful I'll turn it over.

Speaker Change: Thanks.

Anthony James Pettinari: Your next question comes from Matthew Bouley with Barclays.

Matthew Adrien Bouley: Good afternoon, everyone. Thanks for taking the questions.

Matthew Adrien Bouley: Back on the topic of the implied revenue decline in the second half.

Matthew Adrien Bouley: You mentioned the channel behaviors sort of normalize that I think he said earlier that you put more inventory into the channel earlier in the year than you've done in the past couple of years. So my question is is that just the early buy shifts or.

Anthony James Pettinari: Is the shape of 2024 really a new norm is it material enough that they're actually would be kind of a real headwind to year over year sales in the second half of the year. Thank you.

Anthony James Pettinari: We operate the organization the right way to service our customers first and foremost as we talk and we get the appropriate amount of inventory in the channel depending upon what's happening in the marketplace and I look at this year of getting back to much more normal environment. When we look at that $135 million of revenue growth about 75.

Anthony James Pettinari: None of that is relating to timing and that's going to have three months early buy versus the historical four month early buy that we've had an additional $40 million of that is back to normalizing channel inventories to the correct level. If you go all the way back to a year ago. When we were having this call I, specifically mentioned I would've.

Anthony James Pettinari: <unk> seen an additional $40 million to $50 million in the channel to support our consumers correctly as we went through the season itself. So approximately $40 million of that growth is related to normalizing the channel inventory to the right level and then the last $20 million accounting for about 8% is what we.

Anthony James Pettinari: Look at his growth in sell through if we looked at just purely normal year over year. If everything that normalized then we probably would have delivered 8% for the quarter and then you would have continued to see growth in the second and third quarter fourth quarter, but there is normalizing of the seasonality that absolutely is entering into our quarterly performance.

Anthony James Pettinari: <unk> right now.

Speaker Change: Perfect. Okay. That's that's helpful. Bryan. Thank you for that and then that of course, then leads back to the gross margin question. You know we were talking about reducing utilization as you go through the year. So I mean, it sounds like.

Speaker Change: That's largely related to simply the cadence of revenues through the year is there any kind of incremental need to sort of work down inventories from from current levels or it's really just kind of matching that cadence.

Speaker Change: Revenues.

Speaker Change: It's matching the cadence of revenues and no there's no need to be working down either the inventory that we have on our ground, which that will work itself down as we move through second and third quarter. The channel inventory will work itself down through second and third quarter. It's just normally the way the channel works.

Speaker Change: The overall marketplace normalizes back to pre pandemic type behaviors.

Speaker Change: Great. Thanks, Brian and good luck guys.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session I'd like to turn conference back over to Bryan Jordan for any closing remarks.

Bryan Horix Fairbanks: Thank you for participating in today's call. We look forward to seeing many of you at the upcoming conferences.

Bryan Horix Fairbanks: Okay.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].