TREX CO INC Q1 FY2025 earnings call

• New products launched in the last 36 months contributed ~22% to trailing 12-month sales. - Converted increasing number of dealers to Trex brand, with TrexPro recruitment/qualification ahead of last year. - Launched 'Performance-Engineered for Your Life Outdoors' campaign on May 1, highlighting Trex marine-grade decking and SunComfortable technology. - Inventory strategy helps reduce quarterly volatility, level production, and meet demand. - Positive momentum in orders from March continued through April, supporting mid to high-single-digit growth guidance. - Arkansas manufacturing campus produced first recycled plastic pellets, aiding in offsetting external pellet costs. - R&R spending projected to increase from 2024 low to long-term average by 2027, with Trex expected to outperform the market.

In the first quarter, net sales were $340 million, a decrease of 9% compared to the first quarter of 2024. Gross profit was $138 million with a gross margin of 40.5%. New products launched within the last 36 months accounted for approximately 22% of the trailing 12-month sales, more than twice the level of last year's first quarter.

• Maintaining full-year 2025 guidance: net sales growth 5%-7%, adjusted EBITDA margin >31%, SG&A ~16% of net sales, interest expense <$2M, depreciation $55M-$58M, effective tax rate 25%-26%, CapEx ~$200M. - Q2 sales expected in range of $370 million to $380 million, with Q2 margins in line with Q1. - Anticipate strong second half driven by normalized production, continuous improvement initiatives, and absence of channel inventory reductions from last year.

• Less than 5% of cost of sales impacted by tariffs, with majority related to aluminum and steel for railing/fastening products. Mitigation efforts include pre-tariff inventory, supplier negotiations, and adding new unaffected suppliers. - Macro-economic uncertainties and potential supply chain disruptions related to tariffs.

Q: On the back half margin expectations and levers to drive higher margins?

A: Significant margin improvements expected in Q3 and beyond from continuous improvement programs, with enhanced changeover costs impacting Q1/Q2 going away and better volumes in Q3/Q4.

Q: On tariffs dollar impact and mitigation?

A: Less than 5% of cost of sales impacted, team mitigating through actions, but not providing specific dollar impact yet as there are ongoing opportunities and indirect purchasing impacts.

Q: On Arkansas CapEx quarterly cadence and free cash flow?

A: Majority of $550M CapEx for Arkansas expected to be spent by end of 2025, leading to strong cash flow improvements in 2026 and beyond.

Q: On digital transformation efforts and benefits?

A: Focus on optimizing processes, harnessing data for insights, and enhancing customer journey to improve consumer experience.