Q2 2024 Trex Company Inc Earnings Call

Operator: 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.

Creation of these measures to the comparable GAAP financial measure can be found in our earnings press release at <unk> Dot Com. The company expressly disclaims any obligation to update or revise publicly any forward looking statements whether as a result of new information future events or otherwise with that introduction I will turn the call over to <unk>.

Bryan Fairbanks: With that introduction, I will turn the call over to Bryan Fairbanks. Thank you, Amy, and thank you all for participating in today's call to discuss our second quarter results and our business outlook. Our second quarter sales performance reflects a strong demand from the high-end consumer, partially offset by softness in sales of entry-level products. This aligns with recent data on consumer buying trends. Salted through over premium products grew to double digit rate, demonstrating the enduring appeal and value of our Trex branded outdoor living products with homeowners seeking beautiful, high performance decking and railing for their outdoor spaces.

Ian Fairbanks: Ian Fairbanks.

Ian Fairbanks: Thank you Amy and thank you all for participating in today's call to discuss our second quarter results and our business outlook are.

Bryan Fairbanks: Thank you, Amy, and thank you all for participating in today's call to discuss our second quarter results and our business outlook. Our second quarter sales performance reflected strong demand from the high-end consumer, partially offset by softness in sales of entry-level products. This aligns with recent data on consumer buying trends. Sell-through of our premium products grew at a double-digit rate, demonstrating the enduring appeal and value of our Trex-branded outdoor living products to homeowners seeking beautiful, high-performance decking and railing for their outdoor spaces.

Bryan Fairbanks: In particular, the success of our recently launched Trex Transcend lineage decking and Trex Signature lines, along with our higher-end railing products, appeals to higher income, economically resilient customers who seek the best in aesthetics and performance. In the second quarter, our financial results demonstrated the substantial operating leverage inherent in the Trex business model, as well as the strength of our continuous improvement program. During the quarter, we were able to generate 6% sales growth, resulting in a 13% net income improvement and 11% growth in EBITDA, resulting in a 180 basis point improvement in EBITDA margin.

Bryan Fairbanks: The improvement was driven from efficiencies within our existing production capacity and leveraging our SG&A expense. These results were achieved while we increased investments in branding and product development. Our cost-out initiatives are ongoing and will continue to contribute benefits for the remainder of this year and beyond.

Ian Fairbanks: Our second quarter sales performance reflected strong demand from the high end consumer partially offset by softness in sales of entry level products. This aligns with recent data on consumer buying trends.

Sell through of our premium products grew at a double digit rate.

Demonstrating the enduring appeal and value of our <unk> branded outdoor living products with homeowners seeking beautiful high performance decking and railing for their outdoor spaces.

Bryan Fairbanks: In particular, the successor recently launched Trex Transcend lineage decking and Trex Signature lines along with our higher end railing products appeal to higher income, economically resilient customers who seek the best in aesthetics and performance. In the second quarter, our financial results demonstrated the substantial operating leverage inherent in the Trex business model as well as the strength of our continuous improvement programs. During the quarter, we were able to generate 6% sales growth, resulting in 13% net income improvement and 11% growth in EBITDA, resulting in a 180 basis point improvement in EBITDA margin. The improvement was driven from efficiencies within our existing production capacity and leveraging our SGDA expense.

Ian Fairbanks: In particular, the success of our recently launched treks transcend lineage decking and trek signature lines, along with our higher end railing products appeal to higher income economically resilient customers, who seek the best in aesthetics and performance.

Ian Fairbanks: In the second quarter, our financial results demonstrated the substantial operating leverage inherent in the <unk> business model as well as the strength of our continuous improvement programs.

Bryan Fairbanks: These results were achieved while we increased investments in branding and product development. Our cost-out initiatives are ongoing and will continue to contribute benefits for the remainder of this year and beyond.

Bryan Fairbanks: New product introductions are a strategic priority for Trex to drive future growth. Conlock their full potential, we design our new products to offer better options than what is currently available, and we differentiate them through customized engineering with long-lasting quality synonymous with the Trex brand. For example, we launched the Trex Select T-Rail in mid-2023 to narrow the price gap between high-performance composite railing and lower price PVC vinyl railing, thus appealing to a broader consumer audience. In its first year, the Select T-Rail product has been embraced by the market, demonstrated by many dealer and contractor conversions. We see significant opportunity ahead of us in further market conversion success with the introduction of our all-in-one post-kid for the Trex Select and enhanced railing that will further improve Trex's value proposition versus vinyl railing.

Bryan Fairbanks: New product introductions are a strategic priority for Trex to drive future growth. To unlock their full potential, we design our new products to offer better options than what is currently available, and we differentiate them through customized engineering with long-lasting quality, synonymous with the Trex brand. For example, we launched the Trex Select T-Rail in mid-2023 to narrow the price gap between high-performance composite railing and lower-priced PVC vinyl railing, thus appealing to a broader consumer audience.

Bryan Fairbanks: In its first year, the Select T-Rail product has been embraced by the market, demonstrated by many dealer and contractor conversions. We see significant opportunity ahead of us for further market conversion success with the introduction of our all-in-one post kit for the Trex Select and Enhanced Railing, which will further improve Trex's value proposition versus vinyl railing. Two weeks ago, Trex announced the introduction of Trex Signature X-Series Cable Rail and X-Series Frameless Glass Rail. These new premium offerings not only simplify specification and installation for cable railing but also provide the flexibility to accommodate frameless glass, giving consumers more style choices to achieve their desired outdoor aesthetic.

Bryan Fairbanks: Two weeks ago, we announced the introduction of Trex Signature X-Series cable rail and X-Series frameless glass rail. These new premium offerings not only simplify specification and installation for cable railing, but also provide the flexibility to accommodate frameless glass, giving consumers more style choices to achieve their desired outdoor aesthetic. These launches aligned with our strategy to build out a comprehensive railing product portfolio that appeals to a broad consumer base. Our ongoing objective is to significantly increase our penetration of the $3.3 billion railing market, and we are pleased with our success to date, as these new railing products will strengthen our portfolio for years to come.

Bryan Fairbanks: These launches align with our strategy to build out a comprehensive railing product portfolio that appeals to a broad consumer base. Our ongoing objective is to significantly increase our penetration of the $3.3 billion dollar railing market, and we are pleased with our success to date, as these new railing products will strengthen our portfolio for years to come. We're also pleased with the market response to our recent launch of Trex-branded vests. The debt fastener category represents a market opportunity of approximately $250 million per year.

Bryan Fairbanks: We're also pleased with the market response to our recent launch of Trex branded fasteners. The Deck Fastener category represents a market opportunity of approximately $250 million per year. We are seeing positive sell-through from our home center and pro-channel partners as they leverage a total Trex solution for decking, railing, and fastening, and we expect to capture meaningful share gains for these products into the future.

Bryan Fairbanks: We are seeing positive sell-through from our home center and pro-channel partners as they leverage a total Trex solution for decking, railing, and fastening, and we expect to capture meaningful share gains for these products into the future. Looking ahead to the second half of 2024, there are two main factors impacting our outlook for the back half of the year. First, we see accelerated weakness in the entry-level product category. And secondly, we anticipate the current economic uncertainty will result in a reduction in pro-channel inventories.

Bryan Fairbanks: Looking ahead to the second half of 2024, there are two main factors impacting our outlook for the back half of the year. First, we see accelerated weakness in the entry-level product category, and secondly, we anticipate the current economic uncertainty will result in a reduction of pro-channel inventories. With respect to our revised sales guidance, a meaningful portion of our projected sales decline is related to incremental channel inventory built in the first half of the year. We have better real-time visibility to our channel partners, allowing for quicker, more tactical inventory adjustments to evolving market conditions. To put numbers on this, approximately 60% of the decline relates to the channel inventory reduction, while the remainder is due to low-end product softness.

Bryan Fairbanks: With respect to our revised sales guidance, a meaningful portion of our projected sales decline is related to incremental channel inventory built in the first half of the year. We have better real-time visibility to our channel partners, allowing for quicker, more tactical inventory adjustments to evolving market conditions. To put numbers on this, approximately 60% of the decline relates to the channel inventory reduction, while the remainder is due to low-end product software. Keep in mind that we did anticipate that the $40 million in incremental channel inventory that we described in the first quarter would be worked on by the end of the year. We now believe that the work done will be somewhat higher.

Bryan Fairbanks: Keep in mind that we did anticipate that the $40 million in incremental channel inventory that we described in the first quarter would be worked down by the end of the year. We now believe that work down will be somewhat higher. Despite weakness in consumer spending and the repair and remodel market in general, Trek's remains well positioned for long-term success. With market leading brand awareness, highest availability of products in the market, and expanded market opportunities. Trek's also has a category-leading presence at home centers. More recently, related to a home center line review, we will increase in-store stocking locations for our enhanced railing products and add two new decking colors.

Brenda Lovcik: Despite weakness in consumer spending and the repair and remodel market in general, Trex remains well-positioned for long-term success, with market-leading brand awareness, the highest availability of products in the market, and expanded market opportunities. Trex also has a category-leading presence at the Holmes Center. More recently, related to a Home Center line review, we will increase in-store stocking locations for our enhanced railing products and add two new decking colors. In spite of expectations for short-term weakness, our long-term outlook remains very positive.

Ian Fairbanks: Related to a home Center line review, we will increase in store stocking locations for our enhanced railing products and add two new deck and colors.

Bryan Fairbanks: In spite of expectations for short-term weakness, our long-term outlook remains very positive. Trek's is the primary beneficiary of several important secular growth drivers, including the large number of decks in the US that are at or beyond replacement age. And the record growth in US homes that are candidates for remodel projects. The outdoor living category remains more resilient than the general repair and remodel category. And Trek's decking and railing products provide homeowners with a broad range of options to add more living space while increasing the value of their homes. And of course, we continue to see opportunity to convert more wood decks to Trek's decking and railing.

Ian Fairbanks: In spite of expectations for short term weakness our long term outlook remains very positive.

Brenda Lovcik: Trex is a primary beneficiary of several important secular growth drivers, including the large number of decks in the U.S. that are at or beyond replacement age and the record growth in U.S. homes that are candidates for remodel projects. The outdoor living category remains more resilient than the general repair and remodel category, and Trex decking and railing products provide homeowners with a broad range of options to add more living space while increasing the value of their homes. And, of course, we continue to see opportunities to convert more wood decks to Trex decking and railing.

Speaker Change: <unk> is a primary beneficiary of several important secular growth drivers, including the large number of deaths in the U S that are at or beyond replacement age.

Ian Fairbanks: And the record growth in U S homes that are candidates for remodel projects.

Ian Fairbanks: The outdoor living category remained more resilient than the general repair and remodel category and tracks decking and railing products provide homeowners with a broad range of options to add more living space, while increasing the value of their homes and of course, we continue to see opportunity to convert more wood decks.

Ian Fairbanks: <unk> decking and railing.

Bryan Fairbanks: Our new Arkansas campus will enable Trek's to efficiently meet our future demand. The project is moving forward, and we will provide further guidance on the amounts and projected timing of startup costs when we release our third quarter results.

Brendan Love: Our new Arkansas campus will enable <unk> to efficiently meet our future demand. The project is moving forward and we will provide further guidance on the amounts and projected timing of startup costs. When we released our third quarter results at this point I'd like to turn the call over to our Chief Financial Officer, Brendan Love for our.

Brenda Lovcik: Our new Arkansas campus will enable Trex to efficiently meet future demand. The project is moving forward, and we will provide further guidance on the amounts and projected timing of startup costs when we release our third-quarter results. At this point, I'd like to turn the call over to our Chief Financial Officer, Brenda Lovcik, for a financial review.

Brenda Lovcik: At this point, I'd like to turn the call over to our Chief Financial Officer, Brenda Lovechick, for a financial review. Thank you, Bryan, and good evening, everyone. I am pleased to review our second quarter, 2024, and year-to-date results. In the second quarter, net sales were $376 million, an increase of 6% compared to the $357 million reported in the second quarter of 2023. As Bryan noted, while we continue to see double-digit sell-through in our premium products, sales of our entry-level products were a little below our expectations, but consistent with recent data on consumer buying trends. Gross margin was 44.7%, and 80 basis point expansion from 43.9% in the second quarter of 2023.

Brendan Love: I'll review.

Brenda Lovcik: Thank you, Bryan, and good evening, everyone. I am pleased to review our second quarter 2024 and year-to-date results. In the second quarter, net sales were $376 million, an increase of 6% compared to the $357 million reported in the second quarter of 2023. As Bryan noted, while we continue to see double-digit sell-through in our premium products, sales of our entry-level products were a little below our expectations but consistent with recent data on consumer buying trends. Gross margin was 44.7%, an 80 basis point expansion from 43.9% in the second quarter of 2023. We were pleased to have, once again, delivered strong margin performance.

Brendan Love: Thank you, Brian and good evening, everyone I am pleased to review, our second quarter 2024 and year to date results.

Brendan Love: In the second quarter net sales were $376 million, an increase of 6% compared to the $357 million reported in the second quarter of 2023 as Brian noted, while we continued to see double digit sell through at our premium products sales of our entry level products were a little below our expectation.

Brenda Lovcik: We were pleased to have, once again, delivered strong margin performance. The improvement is primarily the result of our continued focus on identifying and delivering on our continuous improvement program, as well as benefits from greater absorbent corruption of our fixed costs due to higher production levels. Selling, general, and administrative expenses were 51 million, or 13.6% of net sales in the second quarter. Flat and absolute dollars, but a 90 basis point improvement as a percentage of net sales. This performance reflected lower personnel-related expenses, which offset higher branding and new product development costs, as we continue to invest in high return areas that will drive the future growth of the business.

Brenda Lovcik: The improvement is primarily the result of our continued focus on identifying and delivering on our continuous improvement programs, as well as benefits from greater absorption of our fixed costs due to higher production levels. Selling, general, and administrative expenses were $51 million, or 13.6% of net sales in the second quarter, flat in absolute dollars, but a 90 basis point improvement as a percentage of net sales. This performance reflected lower personnel-related expenses, which offset higher branding and new product development costs as we continue to invest in high-return areas that will drive the future growth of the business. Net income was $87 million in the second quarter, or $0.80 per diluted share, an increase of 13% from $77 million, or $0.71 per diluted share, reported last year.

Brenda Lovcik: Net income was 87 million in the second quarter, or 80 cents per diluted share, an increase of 13% from 77 million, or 71 cents per diluted share, reported last year. We delivered EBITDA of 130 million, or 34.6% of net sales, up 11% compared to the 117 million, or 32.8% of net sales in the year-ago quarter. From a year-to-date perspective, net sales for the first half of 2024 totaled 750 million, a 26% increase compared to the 595 million in the first six months of 2023. This is largely the result of higher sales volumes from a compressed early buy, as we shifted approximately 75 million from December 2023 into Q1 of 2024.

Brenda Lovcik: We delivered EBITDA of $130 million, or 34.6% of net sales, up 11% compared to the $117 million, or 32.8% of net sales in the year-ago quarter. From a year-to-date perspective, net sales for the first half of 2024 totaled $750 million, a 26% increase compared to the $595 million in the first six months of 2023. This is largely the result of higher sales volumes from a compressed early buy as we shifted approximately $75 million from December 2023 into Q1 of 2024.

Brenda Lovcik: Sales volumes also benefited in Q1 from the restocking of channel inventories in preparation for the beginning of the decking and railing season. We estimate sell-through at high single digits and low single digits for Q1 and Q2, respectively. Please note that our definition of sell-through only considers point of sale transactions at both home centers and within the pro channel. Net income was 176 million, or $1.62 per diluted share, compared to 118 million, or $1.90 per diluted share in the first half of 2023. The 26% year-to-date sales growth highlighted earlier converted to the first half EBITDA growth of 42%, an EBITDA margin expansion of 390 basis points to 35.1%.

Brenda Lovcik: Sales volumes also benefited in Q1 from the restocking of channel inventories in preparation for the beginning of the decking and railing season. We estimate sell-through at high single digits and low single digits for Q1 and Q2, respectively. Please note that our definition of sell-through only considers point-of-sale transactions at both home centers and within the Pro Channel.

Brenda Lovcik: Net income was $176 million, or $1.62 per diluted share, compared to $118 million, or $1.09 per diluted share, in the first half of 2023. The 26% year-to-date sales growth highlighted earlier converted to first-half EBITDA growth of 42%, an EBITDA margin expansion of 390 basis points to 35.1% from 31.2% a year ago. Year-to-date operating cash flow was $20 million, compared to $108 million in 2023. The decrease was primarily due to an increase in accounts receivable and higher inventory levels.

Brenda Lovcik: From 31.2% a year ago. You're today operating cashflow with 20 million, compared to 108 million in 2023. The decrease was primarily due to an increase in accounts receivable and higher inventory levels. The increase in accounts receivable resulted from the 26% increase in net sales. While the increase in inventories is the result of increased production, primarily related to the new product introductions in both decking and railing as we prepared. We invested 73 million in capital expenditures, primarily related to the modular buildout of the Arkansas manufacturing facility. The buildout of the new facility is on track, and we are currently scheduled to start up production of our plastic operation in the first half of 2025.

Brenda Lovcik: The increase in accounts receivable resulted from the 26% increase in net sales, while the increase in inventories was the result of increased production primarily related to the new product introductions in both decking and railing as we prepared for the product launches that Bryan noted earlier. We invested $73 million in capital expenditures, primarily related to the modular build-out of the Arkansas manufacturing facility.

Brenda Lovcik: The build out of the new facility is on track, and we are currently scheduled to start up production of our plastics operation in the first half of 2025. During the Q3 earnings call, I will provide more detail around the startup costs and margin impact related to this new facility. Now, I will discuss updates to our guidance.

Brenda Lovcik: During the Q3 earnings call, I will provide more detail around the startup costs and margin impact related to this new facility.

Brenda Lovcik: I will now discuss updates to our guidance. Based upon our first half results, together with our current visibility into the second half of the year, we have reduced our full year sales guidance by approximately 85 million at the midpoint. As Brian noted, approximately 60% of that adjustment relates to anticipated channel inventory reductions, while the balance is attributable to softness in the market, primarily related to entry-level products. At year end, we expect inventory levels at distributors and dealers to be at the appropriate levels to service the market. We now expect 2024 net sales to range from 1.13 billion to 1.15 billion, but we are maintaining our full year EBITDA margin guidance at 30% to 30.5%.

Brenda Lovcik: Based upon our first half results, together with our current visibility into the second half of the year, we have reduced our full-year sales guidance by approximately $85 million at the midpoint. As Bryan noted, approximately 60% of that adjustment relates to anticipated channel inventory reductions, while the balance is attributable to softness in the market, primarily related to entry-level products. At year-end, we expect inventory levels at distributors and dealers to be at the appropriate levels to serve the market.

Brenda Lovcik: We now expect 2024 net sales to range from $1.13 billion to $1.15 billion, but we are maintaining our full-year EBITDA margin guidance at 30% to 30%.5%, which demonstrates how effectively our teams are executing on our cost-out programs. Full-year SG&A expense as a percentage of net sales is expected to be in line with last year as we continue to invest in branding and new product development. In addition, we anticipate our full-year effective tax rate to be approximately 25% to 26%.

Brenda Lovcik: Which demonstrates how effectively our teams are executing on our cost out programs. Full year SG&A expense as a percentage of net sales is expected to be in line with last year as we continue to invest in branding and new product development. In addition, we anticipate our full year effective tax rate to be approximately 25% to 26%. We expect Q3 sales in the range of 220 to 230 million. Consistent with prior years, we expect slight growth margin deterioration from this year's Q2 levels. We also expect the Q3 FY24 growth margin percentage to be slightly below third quarter 2023 levels as we continue to take down production to align with demand.

Brenda Lovcik: We expect Q3 sales in the range of $220 to $230 million. Consistent with prior years, we expect slight growth margin deterioration from this year's Q2 levels. We also expect the Q3 FY24 growth margin percentage to be slightly below third quarter 2023 levels as we continue to take down production to align with demand. SG&A in absolute dollars is expected to be approximately flat with Q3 2023. With that, I'll now turn the call back to Bryan for his closing remarks.

Brenda Lovcik: SG&A in absolute dollars is expected to be approximately flat with Q3 2023.

Bryan Fairbanks: With that, I'll now turn the call back to Brian for his closing remarks. Thanks, Brenda. In the second quarter, we published our 2023 Sustainability Report, named Seeing More Value in Sustainability. The report charts our progress across a broad spectrum of company activities and expands on several key points, including Trex's commitment to circularity, our safety record, training and educational opportunities, manufacturing efficiency, and community engagement. We're proud of the actions we've taken to continually operate Trex in a sustainable manner, and we're pleased we can share these details in our 2023 report. Our year-to-date business operating and financial results reflect excellent teamwork across Trex organization and with our channel partners.

Bryan Fairbanks: Thanks, Brenda. In the second quarter, we published our 2023 Sustainability Report, named Seeing More Value in Sustainability. The report charts our progress across a broad spectrum of company activities and expands on several key points, including Trex's commitment to circularity, our safety record, training and educational opportunities, manufacturing efficiency, and community engagement. We're proud of the actions we've taken to continually operate Trex in a sustainable manner, and we're pleased we can share these details in our 2023 report.

Speaker Change: Thank you for your time. Thank you. Thank you.

Speaker Change: The report charts our progress across a broad spectrum of company activities and expands on several key points.

Speaker Change: including Trex's commitment to circularity.

Speaker Change: Our safety record, training, and educational opportunities, manufacturing efficiency, and community engagement. We're proud of the actions we've taken to continually operate Trex in a sustainable manner, and we're pleased we can share these details in our 2023 report.

Bryan Fairbanks: Our year-to-date business operating and financial results reflect excellent teamwork across the Trex organization and with our channel partners. Trex is the most widely available and recognized brand in the industry. We remain focused on making it easy for consumers to dream, design, plan, buy, and build their outdoor space with Trex products available at more than 6,700 retail locations worldwide. Operator, I'd now like to open the call to questions. We will now begin the question and answer session.

Speaker Change: Our year-to-date business, operating, and financial results reflect excellent teamwork across the Trex organization and with our channel partners.

Bryan Fairbanks: Trex is the most widely available and recognized brand in the industry. We remain focused on making it easy for consumers to dream, design, plan, buy, and build their outdoor space with Trex products available at more than 6,700 retail locations worldwide.

Speaker Change: Trex is the most widely available and recognized brand in the industry.

Speaker Change: We remain focused on making it easy for consumers to dream, design, plan, buy, and build their outdoor space with Trex products available at more than 6,700 retail locations worldwide. Operator, I'd now like to open the call to questions.

Operator: Operator, I'd now like to open the call to questions. 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 were using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to ask a question, please press star, then two.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to restore your question, please press star then 2. Please limit yourself to one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Susan Maklari of Goldman Sachs. Please go ahead.

Speaker Change: If at any time your question has been addressed and you would like to restore your question, please press star then 2. Please limit yourself to one question and one follow-up question.

Operator: Please go into a similar roster.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Susan Maklari: Our first question comes from Susan McClarry with Goldman Sachs. Please go ahead. Thank you. Good afternoon, and thanks for taking the questions.

Speaker Change: Our first question comes from Susan Maklari with Goldman Sachs. Please go ahead.

Susan Maklari: Thank you, good afternoon, and thanks for taking the question. Hey Bryan, can we start with some additional color on how you're thinking about the sell-through in the second half given the channel destocking that sounds like it's now going to be coming through?

Susan Mcclary: Thank you, good afternoon, and thanks for taking the questions.

Bryan Fairbanks: Hey Brian, can we start with some additional color on how you're thinking about the cell through in the second half, given the channel de-stocking that sounds like it's now going to be coming through? Yeah, so if we think about the course of the year, what we've been seeing, first quarter, as we looked back on it and developed all of the data we had, we found that overall sales were high single digits. We originally talked in earnings about a big mid-single digits. But remember, I've also talked in the past that first quarter's cell throughput isn't all that high.

Susan Mcclary: Can we start with, hey Bryan, can we start with some additional color on how you're thinking about the sell-through in the second half given the channel de-stocking that sounds like it's now going to be coming through?

Bryan Fairbanks: Yeah, so if we think about the course of the year, what we've been seeing First quarter, as we looked back on it and developed all of the data we had, we found that overall sales were high single digits, while we originally talked in earnings about it being mid-single digits. But remember, I've also talked in the past that first quarter sell-through isn't all that high. It's generally Q2 and Q3 that are really what make the year.

Speaker Change: Yeah, so if we think about the course of the year, what we've been seeing...

Speaker Change: First quarter, as we looked back on it and developed all of the data we had,

Speaker Change: We found that overall sales were high single digits. We originally talked in earnings about it being mid-single digits.

Susan Mcclary: But remember, I've also talked in the past that first quarter sell-through isn't all that high. It's generally Q2 and Q3 are really what makes the year. We look at the second quarter, it declined to a low single digit in totality.

Bryan Fairbanks: It's generally Q2 and Q3 are really what makes the year. We let, look at the second quarter; it declined to a low single digit in totality. So it did accelerate from a downside perspective, especially as we moved into the month of June, and then we saw that same behavior during the month of July. We felt it prudent to project Q3, a low single-digit decline during the third quarter and then a high single-digit decline during the fourth quarter. Again, the fourth quarter volume isn't going to be that extreme moving through the marketplace. Much larger effect will be felt during the third quarter, and that's where you see the largest impact from the reduction in our guidance for the rest of the year.

Bryan Fairbanks: When we look at the second quarter, it declined to a low single digit in totality. So it did accelerate from a downside perspective, especially as we moved into the month of June, and then we saw that same behavior during the month of July. We felt it prudent to project Q3, a low single-digit decline during the third quarter and then a high single-digit decline during the fourth quarter. However, again, the fourth quarter volume isn't going to be that extreme when moving through the marketplace. A much larger effect will be felt during the third quarter, and that's where you will see the largest impact from the reduction in our guidance for the rest of the year.

Speaker Change: So it did accelerate from a downside perspective, especially as we moved into the month of June , and then we saw that same behavior during the month of July .

Speaker Change: We felt it prudent to project Q3 a low single-digit decline during the third quarter and then a high single-digit decline during the fourth quarter. Again, the fourth quarter volume isn't going to be that extreme moving through the marketplace. A much larger effect will be felt during the third quarter. And that's where you see the largest impact from the reduction in our guidance for the rest of the year.

Bryan Fairbanks: Okay, that's helpful. And then... And of course, just one other thing real quick there: most, a lot of that will be serviced with inventory reduction in the channel. So while we expect it to be down low single digits, the sales number from Trex isn't necessarily reflective of what's selling out the door.

Bryan Fairbanks: Okay, that's helpful. And of course, just one other thing, real quick there. Most, a lot of that will be serviced with inventory reduction in the channel. So, while we expect it to be down low single digits, the sales number from tracks isn't necessarily reflective of what's selling out the door. That will be addressed with inventory that's in the channel. Okay, all right. Thank you for that.

Speaker Change: And of course, just one other thing real quick there, a lot of that will be serviced with inventory reduction in the channel.

Speaker Change: while we expect it to be down low single digits.

Speaker Change: The sales number from Trex isn't necessarily reflective of what's selling out the door. That will be addressed with inventory that's in the channel.

Bryan Fairbanks: That will be addressed with inventory that's in the channel. Okay. All right. Thank you for that. And then, you know, you've been pushing some of these new products despite the tougher operating environment. As you look out, and you think about some of the dynamics that are coming through, what is your willingness to continue to ramp up these investments and anything else that's coming through on the horizon in the near term that we should be aware of in terms of new introductions?

Bryan Fairbanks: And then, you know, you've been pushing some of these new products despite the tougher operating environment. As you look out and you think about some of the dynamics that are coming through, what is your willingness to continue to ramp these investments and anything else that's coming through on the horizon in the near term that we should be aware of in terms of new introduction. I think there's no better time to go after either new markets for us or other areas where tertiary players are engaged in decking and railing and try to take more of that share.

Speaker Change: Okay. All right. Thank you for that. And then, you know, you've been pushing some of these new products despite the tougher operating environment. As you look out and you think about some of the dynamics that are coming through, what is your willingness to continue to ramp these investments and anything else that's coming through on the horizon in the near term that we should be aware of in terms of new introductions?

Bryan Fairbanks: I think there's no better time to go after either new markets for us or other areas where tertiary players are engaged in decking and railing and try to take more of that share. So that won't change our strategy one bit.

Speaker Change: I think there's no better time to go after either new markets for us or other areas where tertiary players are engaged in decking and railing and try to take more of that share. So that won't change our strategy one bit.

Bryan Fairbanks: So that won't change our strategy one bit.

Susan Maklari: Okay. Thank you for the color. Good luck with everything.

Bryan Fairbanks: Okay.

Bryan Fairbanks: Thank you for the color. Good luck with everything.

Speaker Change: Okay. Thank you for the color. Good luck with everything. Thanks.

Bryan Fairbanks: Thanks.

Keith Hughes: Our next question comes from Keith Hughes with Truist. Please go ahead. Thank you. I guess your commentary on the third quarter, I think you said gross margin. I was going to be I guess down modestly over year years when we sure heard that right. It seems like there'd be a lot more pressure than in the revenue production major. Other things going on that are helping out the numbers. Okay, you heard us correctly. It's a little just be a slight deterioration from from last year. You're right. There are additional pressures. But, as we highlighted, the work that we've been doing on our continuous improvement programs will continue to see the benefit of that, offsetting some of that other weakness.

Keith Hughes: Our next question comes from Keith Hughes with Truist. Please go ahead.

Speaker Change: Our next question comes from Keith Hughes with Truist. Please go ahead.

Keith Hughes: Thank you. I guess your commentary on the third quarter, I think you said gross margin was going to be, I guess, down modestly year over year. I just want to make sure I heard that right. It seems like there will be a lot more pressure given the revenue projection. Are there other things going on that are helping out?

Keith Hughes: Thank you. I guess your commentary on the third quarter, I think you said gross margin was going to be, I guess, down modestly over year over year. I just want to make sure I heard that right. It seems like there will be a lot more pressure given the revenue projection. Is there other things going on that are helping out the numbers?

Speaker Change: You heard us correctly. It will just be a slight deterioration from last year. You're right, there are additional pressures, but as we highlighted, the work that we've

Speaker Change: been doing on our Continuous Improvement Program.

Speaker Change: We'll continue to see the benefit of that offsetting some of that other weakness. We also have a significant temp staff that, again, we're able to do more flexing, especially in the first half. So, yeah, we're expecting just slightly below a year ago.

Bryan Fairbanks: We also have a significant temp staff that, again, we're able to do more flexing, especially in the first half. So, yeah, we were expecting just slightly below a year ago.

Bryan Fairbanks: Okay, second question. Usually, when we see these inventory, you know, takedowns, they tend to come more in the winter months.

Keith Hughes: Okay, second question.

Keith Hughes: Usually when we see the inventory, you know, takedowns, they tend to come more in the winter months.

Bryan: Okay, second question, usually when we see the inventory takedowns, they tend to come more in the winter months. Was it just the severity at which stealth roof fell off in June and July that necessitated this move in the third quarter, Bryan?

Bryan Fairbanks: What's it just a severity at which fell through fell off in June and July that's necessitating this move in the third quarter, right? Well, we normally see inventory sell downs in the second half of the year. That's normally the way it works. We move inventory into the channel during the first quarter, continue to build usually in the May, and then we start to see it decline in the channel through the end of the year. So it isn't all that different from what we've seen in the past. Unfortunately, what's happening is the end market demand isn't strong as we originally thought it was going to be in our channel built for a longer way.

Speaker Change: Well, we normally see inventory sell downs in the second half of the year. That's normally the way it works. We move inventory into the channel during the first quarter.

Speaker Change: continues to build usually into May and then we start to see it decline in the channel through the end of the year. So it isn't all that different from what we've seen in the past.

Speaker Change: Unfortunately, what's happening is the end market demand isn't strong as we originally thought it was going to be, and our channel built for along the way, so there's a little bit of excess inventory that's coming out to reconcile where channel inventory is against the demand.

Bryan Fairbanks: So there's a little bit of excessive inventory that's coming out to reconcile where channel inventory is against the demand. Thank you.

Ryan Merkel: Next question comes from Ryan Merkel with Boolean Blair. Please go ahead. Hey, thanks for the questions.

Speaker Change: Thank you. Thanks.

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

Bryan Fairbanks: I wanted to start with the retail slowdown. Can you just walk us through how the quarter progressed there? It sounds like June. There might have been a more sudden slowdown, and then a second part of that question. Are you assuming the second half for retail is worse than what you saw in the second quarter? Yeah, what we see is June and July are really key months for retail. You start getting everybody to out of school. You've got more vacations. You have more promotions occurring within retail, and those do tend to be your highest volume months of the year.

Ryan Merkel: Hey, thanks for the questions. I wanted to start with the retail slowdown.

Ryan Merkel: Can you just walk us through how the quarter progressed there? It sounds like June there might have been a more sudden slowdown. And then in the second part to that question, are you assuming the second half for retail is worse than what you saw in the second quarter?

Bryan Fairbanks: You know, what we see is June and July are really key months for retail. You start getting everybody out of school, you've got more vacations, you have more promotions occurring within retail, and those do tend to be your highest volume months of the year. We did see performance as we moved through the month of June, but we did see a decline as the month went on, and then in the month of July as well, we saw weak performance. So, those two data points where a material amount of revenue comes through those channels, we felt as though there was enough data there that we needed to change the full-year numbers.

Speaker Change: You know, what we see is June and July are really key months for retail. You start getting everybody out of school, you've got more vacations, you have more promotions occurring within retail, and those do tend to be your highest volume months.

Bryan Fairbanks: We did see the performances. We moved through the month of June. We did see a decline as the month went on, and then the month of July as well. We saw a weak performance. So those two data points where a material amount of revenue comes through those channels. We felt as though there was enough data there that we needed to change the full year numbers.

Speaker Change: We did see the performance as we moved through the month of June . We did see a decline as the month went on. And then the month of July as well, we saw a weak performance. So, those two data points where a material amount of revenue comes through those channels,

Ryan Merkel: We felt as though there was enough data there that we needed to change the full year numbers.

Bryan Fairbanks: Yeah, okay, that makes sense.

Keith Hughes: Yeah, okay. That makes sense. And then I wanted to move to the pros. You mentioned some encouraging signs, and I'm just curious, are you assuming the pros are also slower in the second half, or has that outlook not changed too much?

Bryan Fairbanks: And then I wanted to move to the pro.

Speaker Change: Yeah, okay, that makes sense. And then I wanted to move to the pro. You mentioned some encouraging signs, and I'm just curious, are you assuming the pro is also slower in the second half, or is that outlook not changed too much?

Bryan Fairbanks: You mentioned some encouraging signs, and I'm just curious, are you assuming the pro is also slower in the second half, or is that outlook not changed too much? Yeah, we do have a read-through to the pro as well. Now the encouraging signs that we're seeing are sample sales are up, web results of our dealer searches, to the contractor searches are up. And when you talk to the contractors, we're seeing that they're generally out six to eight weeks. Now all that being said, contractors will tell you they are working harder to close that sale at this point.

Speaker Change: Yeah, we do have a read-through to the pro as well. Now, the encouraging signs that we're seeing...

Speaker Change: Our sample sales are up, web results, our dealer searches, excuse me, contractor searches.

Speaker Change: are up, and when you talk to the contractors...

Speaker Change: We're seeing that they're generally out six to eight weeks.

Speaker Change: Now, all that being said, our contractors will tell you they are working harder to close that sale at this point, so we did have some read-through into some of the higher-level parts of the business, and recognize the entry-level products, both basics, enhanced,

Bryan Fairbanks: So we did have some read through into some of the higher level parts of the business and recognize the entry level products, both basics and hands sell through the pro channel as well too. So there is impact there, but of course the impact is much larger at retail.

Speaker Change: sell through the Pro Channel as well too, so there is impact there, but of course the impact is much larger at retail.

Bryan Fairbanks: All right, thank you.

Trey Grooms: Thanks. Our next question comes from Brief Judge or Six. The thing of America, please go ahead. Hi, good afternoon. Thanks for taking my questions. I just wanted to follow up on the stock just to see if you could help us understand or help us quantify the magnitude. I think in your original guidance, you were contemplating that that 40 million. That you initially talked about. And if I look at the guidance cut, about like 85 million at the midpoint, 60% of that coming from destock. Are you sort of assuming that the full year, the destox around 90 million is that around the right number.

Speaker Change: All right. Thank you. Thanks.

Speaker Change: Our next question comes from Rafe Jadrosich with Bank of America. Please go ahead.

Rafe Jadrosich: Hi, good afternoon, thanks for taking my questions. I wanted to follow up on the D-stock just to...

Bryan Fairbanks: Thank you. Let's see if you can help us understand or help us quantify the magnitude. I think in your original guidance, you were contemplating that $40 million that you initially talked about. If I look at the guidance cut, that's like $85 million at the midpoint, 60% of that coming from D-stock. Are you sort of assuming that for the full year, D-stock's around $90 million? Is that around the right number? Looking into this year, I thought the channel inventory was normal, even lower than normal. Where is the inventory now, and where do you expect it to finish by the end of the year compared to normal or maybe pre-COVID levels?

Rafe Jadrosich: See if you can help us understand or help us quantify the magnitude. I think in your original guidance, you were contemplating that $40 million that you initially talked about. And if I look at the guidance cut, that's like $85 million at the midpoint.

Speaker Change: 60% of that coming from D-Stock. Are you sort of assuming that the full year, the D-Stock's around 90 million?

Trey Grooms: And then I coming into this year, I thought the channel inventory was normal, even lower than normal. Like where is inventory now?

Speaker Change: Is that around the right number? And then, coming into this year, I thought...

Speaker Change: The channel inventory was normal, even lower than normal. Where is inventory now and where do you expect it to finish by the end of the year compared to normal or maybe pre-COVID levels?

Bryan Fairbanks: And what, like, where do you expect it to finish by the end of the year compared to normal or maybe pre-coded levels? Yeah, so I think the piece that's being missed there is the channel built the inventory higher to support a year that was going to be mid-single-digit growth. At this point, when we look at the full year, we're expecting it to be roughly flat from a sell-through perspective. So there is some excess inventory that needs to sell out of the channel. When we look at that, we thought about into the year potentially going into a growing year next year.

Speaker Change: Yeah, so I think the piece that's being missed there is the channel built the inventory higher to support a year that was going to be mid-single-digit growth. At this point, when we look at the full year, we're expecting it to be roughly flat from a sell-through perspective. So there is some excess inventory that needs to sell out of the channel.

Rafe Jadrosich: When we look at that, we thought about end of the year, potentially going into a growing year next year. Now, we haven't put any numbers together for next year as of yet, but we expect year-end inventory. It's not a significant decline, probably in the $20-30 million type range on a year-over-year basis.

Bryan Fairbanks: Now we haven't put any numbers together for next year as of yet. But we expect year and inventory. It's not a significant decline, probably in the 20 to 30 million type range on a year-over-year basis.

Bryan Fairbanks: Okay, that's helpful. And then just how much of your business would you sort of define at that low end entry level of likely segment. And then, but you know, or in our trends have been soft for a while. Like that isn't a new trend that it's recently slowed. What would you attribute to kind of the more recent slowdown on the DIY side of the business, or anything specific you can point it? We haven't broken out product line revenue from a retail perspective. Roughly 35 to 40% of our overall revenue comes through the home centers. That's a combination of on-the-shelf sales as well as special order.

Speaker Change: Okay, that's helpful. And then, just, how much of your business would you sort of define as that low-end entry level?

Speaker Change: Blakely segment and then but you know R&R trends have been soft for a while like that isn't a new trend that it's recently slowed what would you attribute to kind of the more recent slowdown on the DIY side of the business is there anything specific you can point to?

Speaker Change: We haven't broken out product line revenue from a

Speaker Change: Retail perspective, roughly 35 to 40 percent of our overall revenue comes through the home centers. That's a combination of on-the-shelf sales as well as special order. Now mixed within there are going to be premium products. Special order leans heavily towards those premium products.

Bryan Fairbanks: Based within, there are going to be premium products. Special order leans heavily towards those premium products. Thanks. Your second question? Sorry, Mrs. Lovcik. Just the slowdown on the low-end entry level, but yes, that's right. So the slowdown from an entry-level perspective, I kind of break our customers into three different levels. It's more of the lower income that's not heavily engaged with tracks and buying composite decking. And then you have the next two thirds. You've got that. Middle-range customer and that higher end customer. And up until the June timeframe, that middle-range and the upper customers were doing pretty well.

Speaker Change: Your second question? Sorry, I missed that.

Speaker Change: Just the slowdown on the low-end, entry-level. Yes, that's right. So the slowdown from an entry-level perspective, I kind of break our customers into

Bryan Fairbanks: Three different levels. It's more of the lower income that's not heavily engaged with Trex and buying composite decking. And then you have the next two thirds; you've got that middle range customer and that higher end customer.

Speaker Change: Three different levels. It's more of the lower-income that's not heavily engaged with Trex and buying composite decking, and then you have the next two-thirds. You've got that middle-range customer and that higher-end customer.

Speaker Change: And up until the June timeframe, that middle range and the upper customers were doing pretty well. As we got into June and July , we started to see those mid-level customers, and consistent with what other data we're seeing out there, started to struggle and started to see that pullback as well, too.

Bryan Fairbanks: We got into June and July; we started to see those mid-level customers, consistent with what other data we're seeing out there.

Bryan Fairbanks: Started to struggle and started to see that pullback as well, too. Thank you.

Bryan Fairbanks: I appreciate it.

John Lovallo: Thanks. Our next question comes from John Lovallo with UBS. Please go ahead. Hi guys, thanks for taking my questions as well. The first one is Brian. Given the uncertain macro and some softness here at the entry level, what are you seeing on the pricing front? Is there any pressure either at the low end particularly, but even in the middle end? That would be a product portfolio.

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

Speaker Change: Our next question comes from John Lovallo with UBS. Please go ahead.

John Lovallo: Hi guys, thanks for taking my questions as well. The first one is, you know, Bryan, given the uncertain macro and, you know, some softness here at the entry level,

John Lovallo: What are you seeing on the pricing front? Is there any pressure either at the low end, particularly, but even at the middle end of your product portfolio?

Bryan Fairbanks: Let's start with the low-end. From a low-end perspective, we sell it about $2 a linear foot. That's about 2x the price of lumber. You can buy low-quality pressure-traded lumber. It's going to be in that 80 to 90 cents a linear foot range. Medium-quality pressure-traded lumber is about $1.10 a linear foot. We're still right in the range where market research tells us that the consumer is willing to spend an extra couple hundred dollars so they can move up and have a composite deck. We really haven't seen much occurring from a pricing perspective.

Bryan Fairbanks: Let's start with the low end. From a low end perspective, we sell for about $2 a linear foot. That's about 2x the price of lumber. You can buy low quality pressure treated lumber; it's going to be in that 80 to 90 cents a linear foot range. Medium quality pressure treated lumber is about $1.10.

Bryan: Well, let's start with the low end. From a low end perspective, we sell at about $2 a linear foot.

Speaker Change: That's about 2x the price of lumber. You can buy low-quality pressure-treated lumber. It's going to be in that $0.80 to $0.90 a linear foot range. Medium-quality pressure-treated lumber is about $1.10.

Bryan Fairbanks: So we're still right in the range where market research tells us that consumers are willing to spend an extra couple hundred dollars so that they can move up and have a composite deck. We really haven't seen much change from a pricing perspective. I'll just jump in. From a deflationary perspective, we really haven't seen deflationary factors coming through our business. And from an inflationary perspective, we haven't seen that. So from an overall cost of purchasing perspective, we haven't seen any significant changes. We haven't made any decisions on pricing for next year at this time. But I'd expect, overall, there to be a relatively muted environment.

Speaker Change: a linear foot. So we're still right in the range where market research tells us that consumer is willing to spend an extra couple hundred dollars so that they can move up and have a composite deck.

Speaker Change: We really haven't seen much occurring from a pricing perspective. I'll just jump in from a deflationary perspective. We really haven't seen deflationary factors coming through our business. And from an inflation perspective, we haven't seen that.

Bryan Fairbanks: Just jump in from a deflationary perspective. We really haven't seen deflationary factors coming through our business, and from an inflation perspective, we haven't seen that. From an overall cost of purchasing perspective, we haven't seen significant changes. We haven't made any decision on pricing for next year at this time, but I'd expect overall there to be a relatively muted environment.

Speaker Change: We haven't made any decisions on pricing for next year at this time, but I'd expect overall there to be a relatively muted environment.

Bryan Fairbanks: Okay, understood. And then, you know, given some of the recent pullback in the stock, along with many stocks, but potentially a little bit more pressure here tomorrow, how are you guys thinking about the opportunity for share repurchases?

Bryan Fairbanks: Okay, understood.

Bryan Fairbanks: And then, you know, given some of the recent pullback in the stock along with many stocks, but potentially a little bit more pressure here tomorrow, how are you guys thinking about the opportunity for share repurchases? We have a program available to us that can purchase up to 10% of the float of the company. As you've seen in the past, when there have been opportunistic times to be in the market, we've been able to be very active in the marketplace.

Speaker Change: Okay, understood. And then, you know, given some of the recent pullback in the stock, along with many stocks, but potentially a little bit more pressure here tomorrow, how are you guys thinking about the opportunity for share repurchases?

Bryan Fairbanks: We have a program available to us that can purchase up to 10% of the float of the company. As you've seen in the past, when there have been opportunistic times to be in the market, we've been able to be very active in the marketplace. Thank you, Bryan.

Speaker Change: We have a program available to us that can purchase up to 10% of the float of the company. As you've seen in the past when there have been opportunistic times to be in the market, we've been able to be a very active in the marketplace.

Bryan Fairbanks: Thank you, Bryan. With regard to the line review and increased in-store stocking, what quarters could be most impacted by this?

Bryan Fairbanks: Thank you, Brian.

Alex Fry: Our next question comes from Alex Fry. Deal with the Riley SBR, please go ahead. Thank you, Brian. With regards to the line review and increased in-store stocking, what quarters did we mostly impact by this? And how shall we think about the order of magnitude of it? Yeah, we'll see though that change over starting during the third quarter of this year. The two new colors will replace two other colors in probably half of the stores. And then from a railing perspective, that's going to be third quarter as well.

Speaker Change: Thank you, bye.

Speaker Change: Our next question comes from Alex Rygiel with B. Riley FBR. Please go ahead.

Alex Rygiel: Thank you. Bryan, with regards to the line review and increased in-store stocking, what quarters could be mostly impacted by this and how should we think about the order of magnitude of it?

Bryan Fairbanks: Yeah, we'll see that changeover starting during the third quarter of this year. The two new colors will replace two other colors in probably half of the stores. And then from a railing perspective, that's going to be the third quarter as well. Thank you, that's helpful.

Bryan Fairbanks: That's helpful.

Bryan Fairbanks: And then, I know it's a little bit early to think about 2025, but we'd be curious to hear your thoughts on how you think about EBITDA in March 2025, given how you sort of layer in new products and, A little bit earlier to be talking about 2025 EBITDA margins, we need to understand volume, and what our production capacity is going to be. But I think we can go back to our overall philosophy of how we operate the business.

Bryan Fairbanks: And then, I know you're a little bit early to think about 2025, but we'd be curious to hear your thoughts on how you think about EBITDAM margins 2025, given how you sort of layer in new products and makeshift. A little bit early to be talking about 2025 EBITDAM margins; we need to understand volume, what our production capacity is going to be. But I think we can go back to our overall philosophy on how we operate the business, and we have a continued focus on improvement programs across the organization. I've got a great pipeline that we're implementing in 2024.

Alex Rygiel: That's helpful. And then, I know it's a little bit early to think about 2025, but we'd be curious to hear your thoughts on how you think about EBITDA March 2025, given how you sort of layer in new products and next shift.

Speaker Change: A little bit early to be talking about 2025 EBITDA margins, we need to understand volume, what our production capacity is going to be.

Speaker Change: But I think we can go back to our overall philosophy on how we operate the business.

Bryan Fairbanks: And we have a continued focus on improvement programs across the organization. We've got a great pipeline that we're implementing in 2024. We'll see the benefits of that in 2025. Of course, there's another pipeline for 2025 projects that will see benefits along the way. This is an organization that is focused on gross margin and EBITDA improvement along the way. And we'll continue to do that regardless of market volume.

Speaker Change: And we have a continued focus on improvement programs across the organization. We've got a great pipeline that we're implementing in 2024. We'll see the benefits of that in 2025. Of course, there's another pipeline for 2025 projects that we'll see benefits along the way. This is an organization that is focused on gross margin and EBITDA improvement along the way. And we'll continue to do that regardless of the...

Bryan Fairbanks: We'll see the benefits of that in 2025. Of course, there's another pipeline for 2025 projects that we'll see benefits along the way. This is an organization that is focused on gross margin and EBITDAM improvement along the way, and we'll continue to do that regardless of the market volumes.

Bryan Fairbanks: Thanks.

Alex Rygiel: market volumes.

Michael Rehaut: Our next question comes from Michael Rehot with JP Morgan. Please go ahead. Thanks. Good afternoon, everyone. Thanks for taking my questions.

Michael Rehaut: Our next question comes from Michael Rehaut with J.P. Morgan. Please go ahead.

Speaker Change: Very helpful, thank you.

Speaker Change: Thanks.

Speaker Change: Our next question comes from Michael Rehaut with JP Morgan. Please go ahead.

Michael Rehaut: Thanks. Good afternoon, everyone. Thanks for taking my questions.

Michael Rehaut: Um, first, you know, I'd love to get a little more sense of, you were kind enough to talk about, you know, premium products sell through double digits. Obviously, the challenges on the lower end, um

Michael Rehaut: First, I'd love to get a little more sense of you're kind enough to talk about premium products sell through double digits, obviously the challenges on the lower end. If you could also kind of talk about the mid part of the market, how that's doing in the quarter. And also, you know, if you expect these trends, it sounds like you expect the sell-through to worsen a little bit in the fourth quarter, granted off of a lower base. But, you know, as you think about these different parts of the market, what's embedded in the fourth quarter, you know, sales guide.

Michael Rehaut: First, you know, I'd love to get a little more sense of, you know, you were kind enough to talk about, you know, premium products, sell-through, double digits, obviously the challenges on the lower end.

Speaker Change: You know, if you could also kind of talk about the mid part of the market, how that's doing in the quarter.

Speaker Change: and also

Speaker Change: and you know, if you expect these trends. It sounds like you expect the sell-through to worsen a little bit in the fourth quarter, granted off of a lower base, but

Speaker Change: You know, as you think about these different parts of the market, what's embedded in the fourth quarter, you know, sales guide?

Bryan Fairbanks: It's somewhat linear. Your lowest-end products are going to be the weakest. You the mid range are going to be less weak and then we're continuing to see strength in the higher end and that higher end being transcendent transcend lineage. Same thing from a railing line of perspective.

Speaker Change: It's somewhat linear. Your lowest end products are going to be the weakest. The mid-range are going to be less weak, and then we're continuing to see strength in the higher end, and that higher end being Transcend and Transcend Lineage.

Bryan Fairbanks: Same thing from a railing lineup perspective.

Speaker Change: Same thing from a railing lineup perspective.

Bryan Fairbanks: Okay. And, you know, I guess, you know, always also love your thoughts on, and I know it's obviously very hard to kind of get a sense on a quarter-to-quarter basis. But, you know, the broader positive thesis on the sector is not only continued strength from outdoor living trends, but also the conversions from wood to composite. You know, with this year, I think you're talking about sell-through being more flatish on, on an overall basis for the full year, if I heard you right. If you have any concern around the pace of conversion from wood to composite, you know, certainly you did still expect some type of outpacing of the broader repair a model market.

Speaker Change: Okay. And, you know, I guess, you know, I also love your thoughts on, and I know it's obviously very hard to kind of, um,

Operator: At www.thevenusproject.com

Speaker Change: Get a Sense on a quarter-to-quarter basis, but you know, the broader positive thesis on the sector is not only continued strength from outdoor living trends, but also

Speaker Change: The conversion from wood to composite, you know, with this year, I think you're talking about cell through being more flattish.

Speaker Change: on an overall basis for the full year, if I heard you right.

Speaker Change: Do you have any concern around the pace of conversion from wood to composite? You know, certainly you'd still expect some type of outpacing of the broader repair or model market. And I was just curious if, you know...

Bryan Fairbanks: And I was just curious if, you know, if the conversion rate, which has been like 100 to 200 basis points over the last few years per year. If you sense that maybe anything is different this year as a result of some of these, the challenges in parts of the market that you see today. It's too early to call where the year is going to come out from that perspective, but from an overall perspective, as we made it through the first half, we haven't seen it turn back towards wood at all, and we do still see market conversion when we look across the entire portfolio against woods.

Speaker Change: If the conversion rate, which has been like 100 to 200 basis points over the last few years per year, if you sense that maybe anything is different this year as a result of some of the challenges in parts of the market that you see today.

Speaker Change: Too early to call where the year is going to come out from that perspective, but from an overall perspective, as we made it through the first half,

Speaker Change: We haven't seen it turn back towards wood.

Speaker Change: And we do still see market conversion when we look across the entire portfolio against wood. It's a little bit early to make a call in the full year, but I don't have any great concerns that the underlying consumer behavior of wanting high quality materials, low maintenance,

Bryan Fairbanks: It's a little bit early to make a call in the full year, but I don't have any great concerns that the underlying consumer behavior of wanting high quality materials, low maintenance, and affordable to purchase and install will stay with us.

Speaker Change: and affordable to purchase and install will stay with us.

Bryan Fairbanks: Great, thanks so much. Thanks.

Speaker Change: Great, thanks so much.

Tim Wojie's: Our next question comes from Tim Wojie's with Baird. Please go ahead. Hello everybody, good afternoon. Maybe just on the sequencing, you know, kind of this year and on a go for basis, do you kind of expect the channel on a go for basis to kind of act like they're acting this year in the sense that a lot more inventory gets brought in in the first half of the year and then they kind of destock to a greater extent in the back half of the year just giving the lead time to just kind of curious. If you think there's kind of a structural kind of change in the way that the channel thinks about inventory.

Tim Wojs: Our next question comes from Tim Wojis with Baird. Please go ahead.

Speaker Change: Thanks.

Speaker Change: Our next question comes from Tim Wojs with Baird. Please go ahead.

Tim Wojs: Hello, everybody. Good afternoon.

Bryan Fairbanks: Maybe just on the sequencing, you know, kind of this year and on a go forward basis. Do you kind of expect the channel on a go forward basis to act like they did this year in the sense that a lot more inventory gets brought in in the first half of the year, and then they kind of de-stock to a greater extent in the back half of the year, just given the lead times? I'm just kind of curious if you think there's kind of a structural, you know, kind of change in the way that the channel thinks about inventory.

Tim Wojs: Hey everybody, good afternoon.

Tim Wojs: Maybe just on the sequencing, you know, kind of this year and on a go forward basis, do you kind of expect the channel on a go forward basis to kind of

Speaker Change: act like they're acting this year in the sense that a lot more inventory gets brought in in the first half of the year and then they kind of

Speaker Change: De-stocked to a greater extent in the back half of the year, just given the lead times. I'm just kind of curious if you think there's kind of a structural, you know, kind of change in the way that the channel thinks about inventory.

Bryan Fairbanks: Well, the first thing I'd like to call out is I think the channel has done a great job this year in servicing the overall marketplace. And we collectively treks and our channel partners struggled over the past couple of years, making sure that we had all of our skews in stock so that we could get timely delivery. There were a lot of it we could do, but there were certain things that we missed a long way. I think our channel has done a great job in bringing the right amount of inventory and to support the marketplace to grow in mid single digits.

Bryan Fairbanks: Well, the first thing I'd like to call out is that I think the channel has done a great job this year in servicing the overall marketplace. And we, collectively, Trex and our channel partners, have struggled over the past couple of years making sure that we had all of our SKUs in stock so that we could get timely delivery. There was a lot of it that we could do, but there were certain things that we missed along the way.

Speaker Change: Well, the first thing I'd like to call out is I think the channel has done a great job this year in servicing the overall marketplace.

Speaker Change: and we collectively...

Speaker Change: Trex and our channel partners struggled over the past couple of years making sure that we had all of our SKUs in stock.

Speaker Change: So that we could get timely delivery. There were a lot of it we could do, but there were certain things that we missed along the way. I think our channel has done a great job in bringing the right amount of inventory in to support the marketplace to grow at mid-single digits.

Bryan Fairbanks: I think our channel has done a great job of bringing the right amount of inventory in to support the marketplace to grow at mid-single digits. Now we see that the market's not going to grow at that level. There is going to be an adjustment. I think as we look at potentially next year, the first quarter, I'm not sure it's quite as heavy probably as what we saw this year along the way. For example, that $40 million excess that we talked about, may not occur along the way. We'll probably have that on our ground, so we'll be able to support whatever the market does at that point. So I wouldn't say there's anything structurally different in the marketplace.

Bryan Fairbanks: Now we see that the market's not going to grow at that level; there is going to be an adjustment. I think as we look at potentially next year, first quarter, I'm not sure it's quite as heavy probably as what we saw this year along the way. For example, that $40 million excess that we talked about that may not occur next year along the way. We'll probably have that on our grounds, so we'll be able to support whatever the market does at that point. So I wouldn't say there's anything structurally different in the marketplace; distribution and manufacturers and seasonal businesses have always loaded in during the first quarter of the year, and then starting May, June time frame, start bringing that inventory down.

Speaker Change: Now we see that the market's not going to grow at that level. There is going to be an adjustment.

Speaker Change: I think as we look at potentially next year, first quarter,

Speaker Change: I'm not sure it's quite as heavy, probably, as what we saw this year along the way. For example, that $40 million excess that we talked about. That may not occur.

Speaker Change: Next year along the way. We'll probably have that on our ground So we'll be able to support whatever the market does at that point So I wouldn't say there's anything structurally different in the marketplace

Speaker Change: Distribution and manufacturers and seasonal businesses have always loaded in during the first quarter of the year, and then starting May-June time frame, start bringing that inventory down. And when there's a shift in the economy in the midst of that,

Bryan Fairbanks: And when there's a shift in the economy in the midst of that, that does result in an inventory change. Fortunately, we're able to see that inventory is pretty clear, and we can make an adjustment on it before we continue producing too much or moving more into the channel, which exacerbates the issue. Okay, that's helpful.

Speaker Change: That does result in an inventory change. Fortunately, we're able to see those inventories pretty clearly and we can make an adjustment on it before we continue producing too much or moving more into the channel, which exacerbates the issue.

Brenda Lovcik: And then just on kind of marketing and branding, you know, in a slower demand environment, is do you kind of view that as a source of kind of downside protection or leverage, or is this kind of a scenario where things are a little slower and so we're actually going to double down on some of the marketing and like the search, you know, kind of SEO type stuff, you know, to get more self through the door. Yeah, thank you, Tim. This is Brenda. We continue to see nice returns on those investments that we're making on the branding side.

Speaker Change: Okay, okay, that's helpful. And then, just on kind of marketing and branding, you know, in a slower demand environment, is

Speaker Change: Do you kind of view that as a source of kind of downside protection or leverage, or is this kind of a scenario where, hey, things are a little slower, and so we're actually going to double down on some of the marketing and like the search, you know, kind of SEO type stuff, you know, to get more sell-through through the door?

Brenda: Thank you, Tim. This is Brenda. We continue to see nice returns on those investments that we're making on the branding side. So even in a time where we're seeing a little bit of softness, we'll continue to look for ways to invest. So we'll be, again, particular in how we do that, but you will see us continue to invest and continue to invest in the brand.

Brenda Lovcik: So even in a time where we're seeing a little bit of softness, we'll continue to look for ways to invest. So we'll be, again, particular. Now we do that, but you will see us continue to invest and continue to invest in the brand. Okay, okay, make sure it's not real.

Tim Wojs: Okay. Okay. Thanks for your time, guys.

Phil English: Thanks. Our next question comes from Phil English Jeffries. Please go ahead. Hey guys, I guess on 2025, I know it's really early. Brian, if we assume a more normalized channel loaded next year, is the headwind, like 40 million or 70 million? Just want to make sure when we think about reversing it.

Speaker Change: Okay, okay. Thanks for your time, guys.

Phil Ng: Our next question comes from Phil Ng with Jefferies. Please go ahead.

Speaker Change: Thanks.

Speaker Change: Our next question comes from Phil Ng with Jeffreys. Please go ahead.

Phil Ng: Hey guys, I guess on 2025, I know it's really early, Bryan, but if we assume a more normalized channel load next year, is the headwind like 40 million or 70 million? Just want to make sure when we think about wins at the home centers via line reviews. And if I heard you correctly, Bryan.

Phil Ng: Hey guys, um, I guess on 2025, I know it's really early, Bryan, if we assume a more normalized

Phil Ng: channel load in next year. Is the headwind like $40 million or $70 million? Just want to make sure when we think about...

Bryan Fairbanks: Yeah, I'm not going to get into what First quarter is going to be. I was just giving an example potentially of the way to think about how inventory may not be quite as heavy next year, but we'll make sure it's available, whether it's that distribution or whether it's on our ground to be able to support the busy part of the season. Okay, but that 40 million you just called out for this year, perhaps, that's like a 40 million excess buildup to kind of catch everyone up. I just want to make sure I'm understanding the impact this year, I guess, perhaps better.

Speaker Change: I'm not going to get into what the first quarter is going to be. I was just giving an example, potentially, of the way to think about how inventory may not be quite as heavy next year, but we'll make sure it's available, whether it's at distribution or whether it's on our ground, to be able to support the busy part of the season.

Speaker Change: Ok, but that $40 million you just called out for this year perhaps, that's like a $40 million...

Speaker Change: excess build up to kind of catch everyone up. I just want to make sure I'm understanding the impact this year, I guess, for

Bryan Fairbanks: Yeah, we felt that was a bit of the excess catch up to get where they needed to be to support the marketplace with a mid single-digit growth. And then bringing it back to a similar year and inventory as to where things were in 2023.

Speaker Change: We felt that was a bit of the excess catch-up to get where they needed to be to support the marketplace with a mid-single-digit growth.

Speaker Change: And then bringing it back to a similar year-end inventory as to where things were in 2023.

Bryan Fairbanks: Okay, that's helpful. And then you talked about wins at the home centers via line reviews. And if I heard you correctly, Brian, you're seeing that come through this year.

Speaker Change: Okay, that's helpful. And then you talked about...

Bryan: WINS at the home centers via line reviews, and if I heard you correctly, Bryan,

Bryan Fairbanks: You're seeing that come through this year. So is there a loaded impact in 3Q and your sales guidance account for that? Any way to kind of size up this opportunity in terms of the win and what price point or type of mix of customer are you getting share from?

Bryan Fairbanks: So is there a load an impact in three Q and your sales guidance account for that anyway to kind of size up this opportunity in terms of the win and what price point or type. What makes a customer? Are you getting share from? There'll be two products will be moving in. It'll be a basic product and enhance natural product. There'll also be a couple of existing colors that will be moving out of the store. So those will be discounted and sold through from a railing perspective. We'll see that over the course of the third quarter.

Speaker Change: You're seeing that come through this year, so is there a loaded impact in 3Q and your sales guidance account for that? Any way to kind of size up this opportunity in terms of the win and what price point or type of mix of customer are you gaining share from?

Bryan Fairbanks: There will be two products we'll be moving in. It'll be a Basics product and an Enhanced Naturals product. There'll also be a couple of existing colors that we'll be moving out of the store, so those will be discounted and sold through. From a railing perspective, we'll see that during the course of the third quarter. Really, the opportunity from a sell-through perspective there is going to be into next year. We'll get it stocked.

Speaker Change: There will be two products we will be moving in. It will be a Basics product and an Enhanced Naturals.

Speaker Change: Product. There will also be a couple of existing colors that will be moving out of the store, so those will be.

Speaker Change: Those will be discounted and sold through. From a railing perspective, we'll see that over the course of the third quarter. Really, the opportunity from a sell-through perspective there is going to be into next year. We'll get it stocked. Those stores will begin to market that, and we'll see that opportunity next year. Neither one of them, I would say, are particularly material to revenue within the quarter.

Bryan Fairbanks: Really, the opportunity from a sell-through perspective there is going to be into next year. We'll get a stock will that those stores will begin to market that, and we'll see that opportunity next year.

Bryan Fairbanks: Those stores will begin to market that, and we'll see that opportunity next year. Neither one of them, I would say, is particularly material to revenue within the quarter, but for the longer-term opportunity that we have, making sure that we have a market-leading presence in both of the home centers, it's very important that we make these changes, and we gain more shelf space.

Bryan Fairbanks: Neither one of them I would say are particularly material to revenue within the quarter. But for the longer term opportunity that continued making sure that we have a market leading presence in both of the home centers. It's very important that we make these changes, and we're gaining more shelf space.

Speaker Change: But for the longer term opportunity that continued making sure that we have a market leading presence in both of the home centers, it's very important that we make these changes and we're gaining more shelf space.

Bryan Fairbanks: Okay, but the loaded impact is more next year, friend, or you're starting to sell through impact will be more next year. We're loading in at the end of the season. If you recall, normally when there's a change on the shelves that occurs moving into the season, it occurs generally coming out of the first quarter. In this case, our customer has elected to do it during the third quarter at the end of the season when inventory is already starting to sell down, and it reduced the cost of that transition.

Speaker Change: Okay, but the loaded impact is more next year, right?

Speaker Change: The sell-through impact will be more next year. We're loading in at the end of the season. If you recall, normally when there's a change on the shelves, that occurs moving into the season. It occurs generally coming out of the first quarter. In this case, our customer has elected to do it during the third quarter at the end of the season when inventory is already starting to sell down, and it reduced the cost of that transition.

Bryan Fairbanks: Okay, helpful.

Bryan Fairbanks: Thank you.

Ruben Garner: Our next question comes from Ruben Garner with the Benchmark Company. Please go ahead.

Speaker Change: Okay. Helpful. Thank you.

Speaker Change: Our next question comes from Reuben Garner with The Benchmark Company. Please go ahead.

Steven Ramsey: You may be muted. Let's come back to Ruben.

Speaker Change: You may be muted.

Operator: Let's come back to Reuben.

Operator: All right, we will move on to the next questioner.

Trey Grooms: All right, we will move on to the next questioner, Trey Grooms with Stevens Inc. Please go ahead.

Speaker Change: Let's come back to Reuben.

Trey Grooms: Trade rooms with Steven's Inc. Please go ahead. Hey, good afternoon. So run your inventory levels. You touched on them a bit here, but they're elevated. You mentioned new product roll out playing a role.

Speaker Change: Alright, we will move on to the next questioner, Trey Grooms with Stevens Inc. Please go ahead.

Trey Grooms: Hey, good afternoon. So, Bryan, your inventory levels, you touched on them a bit here, but, you know, they're elevated. You mentioned new product rollout playing a role. If you could maybe parse out, you know, how much of the higher inventory is associated with these new products and maybe where you see your inventory as we move through the balance of the year? I guess, you know, what is your kind of ballpark target inventory level by year end, if you could help us with that, given the fact you've got, you know, new products?

Trey Grooms: Hey, good afternoon. So, Bryan, your inventory levels, you touched on them a bit here, but, you know, they're elevated.

Brenda Lovcik: If you could maybe parse out how much of the higher inventory is associated with these new products and maybe where do you see your inventory as we move through the balance of the year? I guess what is kind of ballpark your target inventory level by year, and if you could help us with that, given the fact you've got new products, and then it also sounds like you might be willing to keep a little bit more inventory on your ground than maybe you had in the past. If you could just help us with that, it would be great.

Speaker Change: You mentioned new product rollout playing a role.

Trey Grooms: If you could, maybe parse out how much of the higher inventory is associated with these new products, and maybe where do you see your inventory as we move through the balance of the year? I guess, what is kind of ballpark your target inventory level?

Speaker Change: By year end, if you could help us with that, given the fact you've got new products, and then it also sounds like you might be willing to keep a little bit more inventory on your ground than maybe you had in the past. If you could just help us with that, it would be great.

Trey Grooms: And then it also sounds like you might be, you know, willing to keep a little bit more inventory on your premises than maybe you have in the past. If you could just help us with that, it would be great.

Bryan Fairbanks: Yeah, I've led into that in a couple of prior discussions that, in general, we will be willing to hold more inventory on our balance sheet. And our channel partners have all said that they're willing to carry more inventory as well to make sure that we can properly service the marketplace. So we do have new products coming in. We've talked about some of those already. There'll be additional new products later in this year that we've not talked about as yet. We don't have specific guidance on inventory, but we can look at providing some additional detail on that in the third quarter.

Brenda Lovcik: Yeah, I've led into that in a couple of the prior discussions that, in general, we will be willing to hold more inventory on our balance sheet, and our channel partners have all said that they're willing to carry more inventory as well to make sure that we can properly service the marketplace. So we do have new products coming in. We've talked about some of those. There'll be additional new products later on this year that we've not talked about as of yet.

Speaker Change: Yeah, I've led into that in a couple of the prior discussions that in general we will be willing to hold more inventory

Speaker Change: On our balance sheet and our channel partners have all said that they're willing to carry more inventory as well to make sure that we can properly service the marketplace.

Speaker Change: So we do have new products coming in. We've talked about some of those. There will be additional new products.

Brenda Lovcik: We don't have specific guidance on inventory, but we can look at providing some additional detail on that in the third quarter call. Okay, but I guess is there any kind of color you can give us at all on the inventory level we're looking at today, relative to the sales you're talking about and the sales you're putting up today? How much of that is an inflated number due to new products? Is there any available?

Speaker Change: We don't have specific guidance on inventory, but we can look at providing some additional detail on that in the third quarter call.

Trey Grooms: Okay, but I guess it's fair to ask, "Is there any kind of color you can give us at all?" You know, the inventory level we're looking at today relative to the sales you're talking about and the sales you're putting up today. You know, how much of that is an inflated number due to new products? Hey Trey, this is Brenda.

Speaker Change: Okay, um, but I guess, is it, is it fair to say...

Speaker Change: Is there any kind of color you can give us at all on the inventory level we're looking at today relative to the sales you're talking about and the sales you're putting up today? How much of that is an inflated number due to new products?

Brenda Lovcik: The majority of it's related to new products. We're doing a lot with aluminum railing, as an example, and so we've done a lot of pre-buy on the aluminum, getting it in, and getting it ready for kitting as part of our overall railing strategy. So the majority of that is due to new products. Again, I used aluminum as one example, but that is consistent as we get ready to launch this enhanced product, et cetera, we're producing.

Brenda Lovcik: Yeah, hey, Tray, this is Brenda. The majority of it's really new products. We're doing a lot with aluminum railing as an example, and so we've done a lot of pre-buy on the aluminum, getting it in and getting it ready for kidding, and our railing as part of our overall railing strategy. So the majority of that is you see, and you're probably gonna use aluminum as one example, but that is consistent as we get ready to launch this enhanced product, et cetera. We're producing, but we do, to your point, we do expect in our models, expect inventory to be at higher levels when we finish the year.

Speaker Change: Is there any...

Speaker Change: Hey Trey, this is Brenda. The majority of it's related to new products. We're doing a lot with aluminum railing as an example, and so we've done a lot of pre-buy on the aluminum, getting it in and getting it ready for kitting in our

Trey: As part of our overall ray laying strategy. So the majority of that is due to new products. Again, I use aluminum as one example, but that is consistent as we get ready to launch this enhance.

Brenda Lovcik: But we do, to your point, we do expect, in our models, inventory to be at higher levels when we finish the year. The channel, one of the things I love about this company is the great relationship that we have with the channel. And I'm in constant conversation, Bryan's in constant conversation with the CEO and CFO levels, and we want to make sure, again, as Bryan noted, that we can service the market. So they're a little skittish with what we're seeing in the demand, yet again, we want to remain confident in the longer-term demand in 2025.

Speaker Change: We do expect in our models, expect inventory to be at higher levels when we finish the year. One of the things I love about this company is the great relationship that we have with the channel. I'm in constant conversation, Bryan's in constant conversation with the CEO and CFO levels, and we want to make sure, again, that Bryan...

Brenda Lovcik: The channel, one of the things I love about this company is the great relationship that we have with the channel and I'm in constant conversation, Brian's in constant conversation with the CEO and CFO levels and we wanna make sure again that Brian noted that we can service the market. So, you know, they're a little skittish with what we're seeing in the demand. Yeah, again, we wanna remain confident in the longer term demand in 2025. So we're gonna have that inventory available here. Okay, that's helpful. Thanks a lot.

Trey Grooms: So we're going to have that inventory available here. Okay, that's helpful. Thanks a lot. I'll pass.

Bryan: Noted that we can service the market. So, you know, they're a little skittish with what we're seeing in the demand. Yet, again, we want to remain confident in the longer term demand in 2025. So we're going to have that inventory available here.

Trey Grooms: I'll pass it on. Thanks, Fred.

Speaker Change: Okay, that's helpful. Thanks a lot, I'll pass it on.

Kurt Yinger: Our next question comes from Kurt Yinger with DA Davidson. Please go ahead. Great. Thanks, and good afternoon, everyone. Just one question.

Kurt Yinger: Our next question comes from Kurt Yinger with D.A. Davidson. Please go ahead.

Fred: Thanks Fred.

Trey: Our next question comes from Kurt Yinger with D.A. Davidson. Please go ahead.

Kurt Yinger: Great, thanks and good afternoon everyone. Just one question, you talked about some of the kind of positive indicators that you were still seeing in the business and recognizing

Bryan Fairbanks: You talked about some of the kind of positive indicators that you were still seeing in the business and recognizing, you know, we'll have to see what happens at the end of the year. I guess what indicators are you seeing that I guess would point to that deceleration and sell-through continuing kind of into the fourth quarter? There are some other web metrics that we track as well that we started to see in the mid June timeframe, and the performance we've seen as we moved into late June into July. I have correlated with that.

Bryan Fairbanks: We'll have to see what happens at the end of the year. I guess, what indicators are you seeing that would point to that deceleration and sell-through continuing kind of into the fourth quarter?

Kurt Yinger: you know we'll have to see what happens at the end of the year. I guess what indicators are you seeing that I guess would point to that deceleration and sell-through continuing kind of into the fourth quarter?

Kurt Yinger: There are some other web metrics that we track as well that started to show in the mid-June time frame, and the performance we've seen as we moved into late June and July has correlated with that. I'm not going to get into those specific items, but we have seen some other weakness, which has demonstrated with the market itself that it's prudent to take our numbers down for the full year.

Speaker Change: There are some other web metrics that we track as well.

Speaker Change: That we started to see in the mid-June time frame and the performance we've seen as we moved into late June into July .

Bryan Fairbanks: I'm not going to get into those specific items. But we have seen some other weakness, which then has demonstrated with the market itself that it's prudent to take our numbers down for the full year. Okay. Thank you very much.

Speaker Change: I have correlated with that. I'm not going to get into those specific items, but we have seen some other weakness, which then has demonstrated with the market itself that it's prudent to take our numbers down for the full year.

Steven Ramsey: Okay, thank you very much.

Steven Ramsey: Thanks. Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Speaker Change: Okay, thank you very much.

Steven Ramsey: Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Speaker Change: Thanks.

Speaker Change: Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Bryan Fairbanks: Hi, good evening. Wanted to get a look. See if there's any nuance to the channel be stocking. You said it's economic uncertainty. Are they taking all product down equally? Are they keeping the high-end products stocking a little bit better than the low-end? I think they're keeping the right levels of product based off of what is selling through the market. They're going to look good at things as a B and C skews. They're going to make sure that they are well stocked on their A skews and bringing down their stocks on the B and C skews along the way.

Steven Ramsey: Hi, good evening. Wanted to get a look, see if there's any nuance to the channel destocking. You said it was economic uncertainty. Are they taking all products down equally? Or are they keeping the high end products stocked a little bit better than the low end?

Steven Ramsey: Hi, good evening. Wanted to get a look, see if there's any nuance to the channel destocking. You said it's economic uncertainty. Are they taking all product down equally, or are they keeping the high-end product stocking a little bit better than the low-end?

Bryan Fairbanks: I think they're keeping the right levels of product based on what is selling in the market. They're going to look at things as A, B, and C SKUs. They're going to make sure that they are well stocked on their A SKUs and bringing down their stocks on the B and C SKUs along the way. I would say it'll be more popular, probably even in the marketplace. If they see more weakness at the entry level, then there may be fewer weeks of supply of some of that entry level. That will all get adjusted as we move through the back half of the year.

Speaker Change: I think they're keeping the right levels of product based off of what is selling through in the market. They're going to look at things as A, B, and C SKUs.

Speaker Change: They're going to make sure that they are well stocked on their A SKUs and bringing down their stocks on the B and C SKUs along the way. I would say it'll be more probably even in the marketplace. If they see more weakness at the entry level, then there may be less weeks of supply of some of that entry level. And that will all get adjusted as we move through the back half of the year.

Bryan Fairbanks: I would say it'll be more probably even in the marketplace. If they see more weakness at the entry level, then there may be less weeks of supply of some of that entry level. And then we'll all get adjusted as we move through the back half of the year. Okay.

Steven Ramsey: Okay, helpful. And then on railing and fasteners, I realize it's coming off a low base. Can you talk about the growth and the ramp of those products versus what you had expected? And is that growth curve reflecting some of the June-July blown up? We're seeing great growth.

Bryan Fairbanks: Helpful.

Bryan Fairbanks: And then on railing and fasteners are realized it's coming off a low base. Can you talk to the growth and the ramp of those products versus what you had expected? And is that growth curve reflecting some of the June July bonus? Well, we're seeing great growth. The select T rail system we launched a year ago, and we're seeing numerous dealer conversions moving away from vinyl PVC and contractors as well who were installing vinyl PVC, making the move over to our truck select system. The cable rail system just launched. You saw there was a press release earlier this week on all in one post that's part of the Select system.

Speaker Change: Okay, helpful. And then on railing and fasteners, I realize it's coming off a low base. Can you talk to the growth and the ramp of those products versus what you had expected? And is that growth curve reflecting some of the June-July blowness?

Bryan Fairbanks: Well, we're seeing great growth. The Select T-Rail system we launched a year ago, and we're seeing numerous dealer conversions moving away from vinyl PVC, and contractors, as well, who were installing vinyl PVC, making the move over to our Trex Select system. The cable rail system just launched. You saw there was a press release earlier this week on an all-in-one post that's part of the Select system. Those are just hitting the market right now, so it's too early to talk about that. But we are pleased with what we're seeing from the Select system, and then we have a number of other products that'll be coming behind it as we move out into next year.

Speaker Change: Well, we're seeing great growth. The Select T-Rail system we launched a year ago, and we're seeing numerous dealer conversions moving away from vinyl PVC, and contractors as well who were installing vinyl PVC, making the move over to our Trex Select system.

Speaker Change: The cable rail system just launched. You saw there was a press release earlier this week on an all-in-one post that's part of the Select system. Those are just hitting the market right now, so too early to talk about that. But we are pleased with what we're seeing from a Select system, and then we have a number of other products.

Bryan Fairbanks: Those are just hitting the market right now, so too early to talk about that. But we are pleased with what we're seeing from a select system. And then we have a number of other products that will be coming behind it as we move out into next year.

Speaker Change: That will be coming behind it as we move out into next year.

Bryan Fairbanks: Alrighty. Thank you.

Anthony Pettinari: Our next question comes from Anthony Pettinari with City Groups. Please go ahead.

Speaker Change: Thank you. Thank you.

Anthony Pettinari: Our next question comes from Anthony Pettinari with Citigroup. Please go ahead.

Speaker Change: Alrighty, thank you.

Speaker Change: Our next question comes from Anthony Pettinari with Citigroup. Please go ahead.

Bryan Fairbanks: Good evening on this object, Mr. Mr. Chambers. This is Gregory Alpra Anthony, just a few points of clarification I guess for me. So, you know, you mentioned the middle income Trex consumer who seems to be doing pretty well from just called January to May, kind of slowed down in June and maybe a little more in July. So I'm wondering if there's a finer point you can put on, you know, the nature of the slowdown that you've seen there. Would you see, would you say it was kind of been an abrupt slowdown in pro-inbound leads, would you say it was homeownership to a previously voiced interest in the category, but maybe decided not to pursue for whatever reason, or maybe you have insight into other homeowners or deferring projects and not canceling altogether.

Gregory Allen: Good evening, Ms. Lovcik, Mr. Dramers, this is Gregory Allen on behalf of Anthony. Just a few points of clarification, I guess, for me. So, you know, you mentioned the middle-income Trex consumer who seemed to be doing pretty well from, let's call it, January to May, kind of slowed down in June and maybe a little more in July. So I'm wondering if there's a finer point you can put on the nature of the slowdown that you've seen there.

Speaker Change: Good evening, Ms. Lovcik, Mr. Chambers, this is Gregory, I'm for Anthony.

Gregory: Just a few points of clarification I guess for me. So, you know, you mentioned the middle-income Trex consumer who seemed to be doing pretty well from, let's call it January to May.

Speaker Change: I'm wondering if there's a finer point you can put on the nature of the slowdown that you've seen there. Would you say it was kind of an abrupt slowdown in pro-inbound leads? Would you say it was homeowners who had previously voiced interest in the category but maybe decided not to pursue for whatever reason?

Gregory Allen: Would you say it was kind of an abrupt slowdown in pro-inbound leads? Would you say it was homeowners who had previously voiced interest in the category but maybe decided not to pursue it for whatever reason? Or maybe you have insight into whether homeowners are delaying projects and not canceling altogether. So any finer point there would be appreciated.

Speaker Change: Or maybe you have insight into whether homeowners are deferring projects and not canceling altogether. So any finer point there would be appreciated.

Bryan Fairbanks: So any, any finer point there would be appreciated. I don't think it's been an, it's not been an abrupt slowdown along the way, but we have seen it move from lower income to that middle income where people are being a little bit more choosy with the dollars they're spending at this point. The high end marketplace, continuing to build decks, continuing to buy on some of those higher end products, but at the beginning of the year, we really weren't seeing that except for the true entry level buyers. So I think that's probably the biggest changes we're seeing. Some of that weakness move up market somewhat.

Bryan Fairbanks: I don't think it's been an abrupt slowdown along the way, but we have seen it move from lower income to that middle income, where people are being a little bit more choosy with the dollars they're spending at this point. The high-end marketplace, continuing to build decks, continuing to buy some of those higher-end products, but at the beginning of the year, we really weren't seeing that except for the true entry-level buyers, so I think that's probably the biggest change is that we're seeing some of that weakness move up the market somewhat.

Speaker Change: I don't think it's been... it's not been an abrupt...

Dan Kott: and Dan Kott, and we have seen it move from lower income to that middle income where people are being a little bit more choosy with the dollars they're spending at this point. The high-end marketplace, continuing to build decks, continuing to buy on some of those higher end products, but at the beginning of the year.

Speaker Change: We really weren't seeing that except for the true entry-level buyers. So I think that's probably the biggest change is we're seeing some of that weakness move up market somewhat.

Bryan Fairbanks: Okay, thank you for that. And then just a point of clarification. So, you know, if this is true and fair, it's not an abrupt slowdown, but you know, demand doesn't be slowing at least a little bit. Would you expect all else equal? Would you expect your pro backlogs to kind of trickle down over the balance of the year from that six to eight weeks that they're at currently? Well, I would expect them to trickle down just due to seasonality. You tend to have your longest backlogs in Q2, Q3, out into Q4. You've got certain areas where the weather is good to be building all year long, but once you start getting into the October through December time period, there are going to be areas where there isn't quite as much building going on.

Gregory Allen: Okay, thank you for that. And then, just a point of clarification.

Speaker Change: Okay, thank you for that. And then, just a point of clarification. So, you know, if this is true and fair, it's not an abrupt slowdown, but, you know, demand does seem to be slowing at least a little bit. Would you expect, all else equal, would you expect your pro backlogs to kind of trickle down over the balance of the year from that six to eight weeks that they're at currently?

Bryan Fairbanks: Well, I would expect them to trickle down just due to seasonality. You tend to have your longest backlogs in Q2, Q3. Out into Q4, you've got certain areas where the weather is good for building all year long. But once you start getting into the October through December time period, there are going to be areas where there isn't quite as much building going on, and so usually, your lead times will decline anyways from that timeframe. In general, excluding that, I think there will be some weakness, and we've included that within our numbers, so there will probably be some decline within that timeframe.

Bryan Fairbanks: So you know, if this is true, and fair, it's not an abrupt slowdown, but demand does seem to be slowing at least a little bit. Would you expect, all else equal? Would you expect your pro backlogs to kind of trickle down over the balance of the year from that six to eight weeks that they're at currently? Well, I would expect them to.

Speaker Change: Well, I would expect them to trickle down just due to seasonality. You tend to have your longest backlogs in Q2, Q3. Out into Q4, you've got certain areas where the weather is good to be building.

Speaker Change: All year long, but once you start getting into the October through December time period, there are going to be areas where there isn't quite as much building going on, and so usually your lead times will decline anyways from that time frame.

Bryan Fairbanks: And so usually your lead times will decline anyways from that timeframe. But in general, excluding that, I think there will be some weakness, and we've included that within our numbers. So there probably be some decline within that.

Speaker Change: In general, excluding that, I think there will be some weakness, and we've included that within our numbers, so there will probably be some decline within that.

Bryan Fairbanks: Thank you.

Matthew Bouley: Our next question comes from Matthew Bowley with Barclays. Please go ahead. Good evening. Thank you for taking the questions. So, in terms of the sort of economic uncertainty driving that pro channel inventory reduction, if I kind of think back to 2022, you know, it was kind of similar commentary around baking in market softness and tier assumption for destocking. And I think at that time, you ended up seeing a little more destock in the third quarter and then less than in the fourth quarter. So my question is to kind of what degree is, you know, as you in terms of informing this guide sort of near term ordering patterns versus to what degree are you baking in incremental conservatism on where you think the channel may may end the year.

Matthew Bouley: Our next question comes from Matthew Bouley with Barclays. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Matthew Bouley with Barclays. Please go ahead.

Matthew Bouley: Good evening. Thank you for taking the questions. So in terms of the sort of economic uncertainty driving that pro-channel inventory reduction, if I kind of think back to 2022, you know, it's kind of similar commentary around baking in market softness into your assumption for destocking. And I think at that time, you ended up seeing a little more destocking in the third quarter and then less in the fourth quarter. So my question is to kind of what degree you are informing this guide, sort of near-term ordering patterns versus to what degree are you baking in incremental conservatism on where you think the channel may end the year? Kind of what's your level of visibility to channel inventories, you know, given that 2022 phasing that we saw at that time? Thank you.

Matthew Bouley: Good evening. Thank you for taking the questions.

Matthew Bouley: So, in terms of the sort of economic uncertainty driving that pro-channel inventory reduction, if I kind of think back to 2022, you know, it was kind of similar commentary around baking in market softness into your assumption for destocking, and I think at that time,

Speaker Change: You ended up seeing a little more destock in the third quarter and then less in the fourth quarter. So my question is to kind of what degree is, you know, in terms of informing this guide, sort of near-term ordering patterns?

Speaker Change: versus to what degree are you baking in incremental conservatism on where you think the channel may end the year? What's your level of visibility to channel inventories given that 2022 phasing that we saw at that time? Thank you.

Brenda Lovcik: Kind of what's your level of visibility to channel inventories, you know, kind of given, given, you know, that 2022 facing that we saw at that time. Thank you.

Brenda Lovcik: Thank you, Matthew. And yeah, we learned a lot during that 2022 cycle. And so, you know, as we were highlighting, we have great relationships with the channel. And consistent with 2022, we would see the majority of the de-stocking happening in Q3. I think one thing I want to highlight that's quite different from 2022 is that we've got better visibility at the dealer level. And in 2022, the dealers had a lot of excess inventory as well as the distributors. Right now, at the dealer level, those inventories are again enough to service the market, but they are lower. We're not worried about inflated inventory at the dealer level.

Brenda Lovcik: Thank you, Matthew. And yeah, we learned a lot during that 2022 cycle. And so, you know, we were highlighting have great relationships with the channel and consistent with 2022. We would see the majority of the do stocking happening in Q3. I think one thing I want to highlight that's quite different than 2022 is that we've got better visibility at the dealer level. And in 2022, the dealers had a lot of excess inventory, as well as the distributors right now at the dealer level. Those inventories again enough to service the market, but our lower we're not worried about inflated inventory at the dealer at the dealer level.

Speaker Change: Thank you, Matthew. We learned a lot during that 2022 cycle. As we were highlighting, we have great relationships with the channel.

Matthew Bouley: Okay, that's really helpful. Thank you for that, Brenda.

Speaker Change: And in 2022, the dealers had a lot of excess inventory as well as the distributors.

Speaker Change: Right now, at the dealer level, those inventories, again, enough to service the market, but are lower. We're not worried about inflated inventory at the dealer level.

Brenda Lovcik: Okay, that's really helpful. Thank you for that, Brenda.

Bryan Fairbanks: And then secondly, maybe just very near term in terms of guiding sell through down low single digits in the third quarter, you know, given all the commentary around June and July, I mean, the question is basically quarter to date: are you actually seeing sell through down low single digits here in the first kind of five weeks of the quarter? Or trends a little better or worse than that? Any additional color there?

Brenda Lovcik: Secondly, maybe just very near-term, in terms of guiding self-root down low single digits in the third quarter. Given all the commentary around June and July, I mean, the question is basically, quarter to date, are you actually seeing self-root down low single digits here in the first kind of five weeks of the quarter? Or trends a little better or worse than any additional color there? Thank you. Yeah, that's exactly what we saw, and that's why seeing the July numbers to understand how does that track from what we saw in the month of June? Again, they're both very large of all you months, both from a home center perspective as well as from a pro channel perspective, and that is what we are seeing through the month of July.

Speaker Change: Okay, that's really helpful. Thank you for that, Brenda. And then, secondly, maybe just very near-term, in terms of guiding sell-through down low single digits in the third quarter,

Bryan Fairbanks: Yeah, that's exactly what we saw. And that's why seeing the July numbers to understand how that tracks from what we saw in the month of June, again, they're both very large volume months, both from a home center perspective, as well as from a pro channel perspective. And that is what we are seeing through the month of July. Thanks, Bryan. Good luck, guys.

Speaker Change: Yeah, that's exactly what we saw and that's why seeing the July numbers to understand how does that track from what we saw in the month of June . Again, they're both very large volume months, both from a home center perspective as well as from a pro-channel perspective. And that is what we are seeing through the month of July .

Bryan Fairbanks: All right, thanks, Brian.

Operator: Good luck, guys.

Operator: Thank you.

Speaker Change: Thanks, Bryan. Good luck, guys. Thanks. Thank you.

Operator: This concludes the question and answer session. I would like to turn the comments back over to Brian Fairbanks for any closing remarks. Thank you for everybody's participation and questions today. We look forward to speaking with many of you in the coming weeks and at various conferences during the third quarter. Thank you.

Bryan Fairbanks: This concludes the question and answer session. I would like to turn the comments back over to Bryan Fairbanks for any closing remarks.

Speaker Change: This concludes the question and answer session. I would like to turn the comments back over to Bryan Fairbanks for any closing remarks.

Bryan Fairbanks: Thank you for everybody's participation and questions today. We look forward to speaking with many of you in the coming weeks and at various conferences during the third quarter. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Bryan Fairbanks: Thank you for everybody's participation and questions today. We look forward to speaking with many of you in the coming weeks and at various conferences during the third quarter. Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now just

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.