TREX CEO on ROI with Composite Decking

We are now joined by the Trex president and CEO Adam Zambanini. Adam, thank you so much for joining me this morning and congrats on a really strong quarter with I mean broad-based growth here. But walk me through some of what's driving the strength and how this reads for say the health of the broader outdoor living market. >> Yeah, well good morning. Yeah, we're 95% repair remodel and what we've been trying to focus on is that opening entry. How do we convert wood? Because 75% of our market is pressure-treated wood and 1% share away from wood is about $80 million in revenue for Trex. So we've really invested heavily this year and shown consumers what it's like to trade up from wood to Trex decking and that's really been the focus and that's really why we had a record quarter. >> Okay, so you did call out particularly strong demand for say the entry-level Trex Enhance product. And so how really important is affordability right now in winning customers today? >> Yeah, I mean if you look at it since COVID, there's been a lot of inflation, right? People the the price of gas has gone way up, price of groceries has gone way up. So we're trying to find different ways to show them what the return on investment is. Now a lot of people are having this vacation. A lot of people are around those 3% interest rates, so they're staying in their house and they're starting to figure out that with Trex, the return on investment is 7 years and in many cases could be less than that. So we're trying to show them, you know, on decking you don't even have to build the most elaborate deck out there. You can build fundamentally something that's smaller, more rectangular in nature, but the return on investment's going to be there. When you go out there and sell your home, you can go out there, put the Trex in the listing and it does add value to your home over time and that is really resonating with consumers. >> Okay, and you're also accelerating some of the production at your Arkansas facility by more than 6 months. And so really what gave you then the confidence to move that timeline forward? >> So the whole goal since I've come on board in the last 3 months is to fill the plants and we just built a state-of-the-art facility in Little Rock, Arkansas, 300 acres. We started our reprocessing last year and then the idea was next year that we were going to open up the decking facility. However, there's been such strong demand in all of our segments, not just from opening entry, but the middle to the upper tier, that we felt that it was time to open Little Rock. Now, Little Rock is really key because it's a transportation hub for Trex. So, what I mean by that is we acquire a lot of raw materials in that area. It also lowers the cost of freight in that area in the Midwest and it's also the fastest growing part of the market. When you start to think about where do we convert wood? It's in the Sunbelt region, right? You've seen a lot of people from New York, New Jersey, Illinois that have moved south. And for us, that is a great opportunity to convert wood. So, we're really excited about the opening of Little Rock. >> Okay, and also you recently upgraded your distribution network. And so, what benefits are you seeing say from some of those major changes? >> Yeah, so we went with a different model moving forward where we have a national distributor across all regions in the United States. I would say North America all the way up through Canada. And then we also have the regional players who are the strongest in their markets. And so, the idea is as we are seeing major consolidation within our industry and we wanted to have the distributors moving forward who are more progressive in nature and see where the market is going, how the market is changing over time and evolving and really align with Trex. So, all of our distributors are exclusive with Trex on Trex decking and railing and they're really more focused on selling the outdoor living lifestyle, which is really what we want moving forward with Trex. >> Okay, and you mentioned some of the expectations going forward. You did reaffirm Trex's overall raised full year outlook targeting roughly 2 billion in annual revenue by 2030. And so, then what do you see as the biggest driver that could really achieve that milestone? And right right now, what are you also assessing as like perhaps your biggest risk to of course achieving that major milestone? >> Sure. So, if you look at that 2 billion in 2030, that's really about an 11% plus compounded annual growth rate. And the way we look at this, if you break down the 5 years, is you're seeing about two-thirds of that is going to be through organic growth in all the products that we sell today, and then one-third is going to come through M&A. So, we want to find the right fit for Trex when it comes for the M&A perspective, and we look at that as three different ways. The first way is ways through M&A that which we can expand margins over time, something that we can vertically integrate. The second is Trex really has the license to the backyard. So, from that threshold all the way out to the fence, we feel like we own the backyard, and those are really good fits for Trex. And then longer term would be the envelope of the house and where we want to go. So, when I start to look at that, a lot of positives for Trex. To me, the negative or the downside as you were as you asked is really around we've got to make sure that we find the right fit for Trex longer term. And so, that's really what the focus is. There's a lot of research going around what those companies would be and the values that they share with Trex, and how they fit and where the Trex brand can kind of upgrade that company and one plus one can make three over time. >> Okay, and you did mention the housing market. Now, obviously the uncertainty in the housing market does have some effect, but I mean has this actually been a benefit to you all as demand has improved? I I think it's been really interesting to see companies that report obviously a consumer that is sort of in this deferral mindset waiting to make these big-ticket purchases until economic conditions improve, which I I can't imagine that we'll see any any time soon, but it seems like this has not of course negatively affected you guys at least in the last six or months to the last year. >> Yeah, and I think that's the one thing that people when they think about housing, especially new construction, they'll start to think about Trex. But actually, we're 95% repair or remodel. So, on the new construction side, we do a lot of it with custom home builders. Uh when I look at our business on repair modeling, it's really consumer confidence. But my mantra from the very beginning here of three months ago to my group was, you know, it's one thing what's going on. Repair modeling hasn't really recovered in the last three years. We're going to focus on our strategy, right? And the number one thing we want to do is we want to focus again on that wood conversion. And then now with our distribution changes, there's a lot of opportunity in tertiary brands that we think that will consolidate over time towards Trex. And we think that's another hundred million dollar opportunity. So, in my mind, we have a great opportunity to grow this company and we're really focused on that. >> Okay, and I mean, a major shift has of course been this traditional wood decking to the the mix of composite materials, which I find so fascinating. But are you seeing that conversion trend only accelerate? And how much opportunity do you still see is left perhaps in the ability to capture share from say just wood alone? >> Yeah, so 75% of the market is wood. We think we can capture another 30-40% easily away from wood to shift that over through towards Trex. >> Okay, and so as far as again, looking back in the second half of this year, I mean, is there any seasonality to I mean, I can imagine there is a seasonality, but obviously you mentioned the Sunbelt, which would have a bit more of resiliency to that. But as you approach the back half of 2026, what else are you watching here for your company as major growth signals ahead? >> Yeah, so we did see a really nice pick up here in the May time frame, got really strong in June, and that trend has continued into Q3. So, the nice thing is we're starting to pick up absorption, right? We're starting to fill up those plants. And so, as we go throughout the year and we start filling up those plants, we're able to once again leverage margins over time. So, we're really excited as we start to think long term. We just think we're in the infancy stage right now on the wood conversion opportunity. We think we found something from a marketing perspective that's resonating with the consumers. And so, therefore, when we start to look at this over the next couple years, we see a great opportunity to convert this wood market. >> Okay, and lastly here, the board did approve an additional hundred fifty million dollar share repurchase authorizations. Then what really message are you sending to investors about again that confidence in your long-term outlook? >> Yeah, so we bought a hundred fifty million shares in the first half of this year, and we're once again looking at the second half of this year buying another hundred fifty million dollars worth of shares. We have extreme confidence in our strategy right now. You know, we have five pillars that we're really going after when I look at the imperatives and how we want to grow Trex. We believe in Trex. We believe in this growth rate. We believe we're going to be a $2 billion company in 2030, and that's why we think it's a good opportunity to go out there and buy our own shares. >> And I will say shares outperforming this year as well. So, it doesn't help hurt to have, you know, a a nice outperformance track record right now on a year-to-date basis. But, thank you so much, Adam Zambanini, president and CEO of Trex.