Good morning. Thanks for joining us. This is the second session of day one of our 18-company Homebuilding and Building Products Conference. Our 16th annual. My name is Michael Rehaut. I'm a Senior Analyst following the home builders and building products companies for J.P. Morgan. We're excited to have with us The AZEK Company. CEO Jesse Singh and CFO Peter Clifford are joining us. This will be a fireside chat. I have several questions prepared for the company. If you would like to ask, feel free to click on the Ask a Question button on the virtual dashboard. I'll be able to relay those questions to the company. First off, Jesse and Peter, welcome. Thanks for joining us. We're excited to have you here today. Great. Thanks for having us. I'm going kick it off with just, you know, some questions around demand, mix. You know, these questions, by the way, for those that haven't seen, are already published in a report from yesterday morning. Feel free, again, for those listening, to submit questions on your own, and we'll be happy to forward those along as well. Just kicking it off, you know, thinking about market demand in 2023 and 2024, during your recent earnings call. Mm-hmm. you indicated that residential demand was trending a little better than expected, driving your market outlook for volume sell-through to be down maybe mid to high single for the year instead of down 10% previously. The question is, you know, what do you think is, number one, driving the overall weakness in demand this year, and number two, the recently better than expected results? Yeah. Let me kind of start by putting a context here. As we move through 2022, the summer of 2022, we had been, you know, running at, call it, double-digit unit volume growth for a couple of years. We corrected in 2022. I think what we said as we entered into the fall of 2022 that led to our inventory correction in the channel that we just went through was that we were running at kind of low single-digit revenue and negative volume in the back half of 2022. That was basically the set point coming into the year. When we came into the year, we set a planning assumption, I highlight that, which is it wasn't a prediction of demand, it was a kind of a baseline, if we were down 10% in the market, on a unit volume basis. Here's what our performance would be. We thought it was really important to pick what, you know, potentially would be the low point, right? Down 10% on units. What we've seen year to date is effectively a continuation of what we saw at the tail end of last summer, give or take a little bit, right? If you were to look at our dollar, our dollar sell-out revenue, this is excluding inventory correction, in our channel. Year to date through the end of March, on a revenue dollar basis, our sell-out is roughly flat to positive, right? You know, very low single-digit positive to roughly flat. In that range, right? I'm not going to give you an exact, but it's greater than zero. Sure. Right. As you move, so that has been modestly better than our planning assumption. Remember, we've got price in there. I think one of the, one of the, you know, articulation points is we were giving you volume, not dollars. Dollars is higher. We mix up at times. We've got great new products. There's a number of different elements. We also included dealer inventory corrections. Think of it now as on a dollar basis, flat to positive so far and down on units. Makes sense, right? As we are looking moving forward, what we're doing is we're giving a conservative assumption for the next six months. Against that, you know, assumption, which, you know, as we said, was give or take down seven, but there's positive price, and there's inventory correction in the down seven. You know, we believe we would have, you know, incrementally, give or take, enough to offset commercial, which you should think of as give or take, I think, if you do the math, about 40 million of revenue decline and 15 million of EBITDA against our planning assumption. That's kind of the macro. What we're seeing in demand, you know, we'll tell you when we conclude. You know, it's safe to say that the leading indicators that we highlighted on the call continue to be, you know, constructive relative to a decline. The way to think about it is we've gone through, you know, a bit of elevated demand, as we ended 2022 on a unit volume basis compared to 2019, we're up, you know, almost 30% on a unit volume basis. You know, we view the back end of 2022, the inventory correction and all that to basically bring us to the normalized curve over a three-year period. Now, as we sit, we think it's appropriate to have a conservative assumption of both demand and also a conservative assumption of where we're gonna end in terms of channel inventory, right? It's not a projection of the future. We're just giving you what we think are appropriate assumptions given an uncertain environment. Right. No, I think that those are important clarifications, Jesse, thanks for that. Sure. By the way, when you talk about sell-through year to date through March being flat, you're referring to the prior six months. You're referring to your fiscal year, correct? Correct. Correct. Correct. Um- There's, you know, there's minor differences month-over-month, but in essence, you know, I wouldn't say there's a huge variation between the calendar year and the fiscal year. Right. I guess, you know, and I know you're not at the point yet to talk about 2024, you know, more, you know, kind of from a theoretical framework maybe even, you know, the follow-up on the demand question is, any reason not to... I mean, obviously there's a lot of macro uncertainty. Let's say that the... we're kind of working through this period of adjustment, digestion of a significant amount of growth. You know, the channel has obviously gone through a huge adjustment. To the extent that the macro kind of stays where it is there any reason not to assume a return to growth in 2024, you know, given all the various, you know, kind of secular tailwinds that we're familiar with in terms of outdoor and composite, et cetera? You know, Pete and I have a little bit of gray hair. We've lived through multiple ups and downs in various industries. What you typically see in any kind of a slowdown is, you see, you know, let's say end demand is down 4% or 5%, but you see larger impacts when you deal with channel, right? I think the great thing about 2023 for us is that we've seen that modest slowdown, and we've gone through a significant channel correction. The way to think of 2023 is we got, we will have had a lot of, call it, the correction behind us. As we move into 2024, you're dealing with, lapping a modest decline in demand if it materializes against our conservative assumption, and you're lapping the inventory drawdown, which is typically part of any down cycle, and you have meaningful carryover of some of the initiatives and raw material that we talked about that you may ask about later. We're lapping the P&L impact of a volume correction. Yeah, I think the way to think of it is in a relatively stable environment, think of it down a little bit, up a little bit. We've already corrected. In effect then you're left with real demand, lapping some downturns, and the benefit of our initiatives. We feel really good about what's been happening in the market, our position in the market, the launch of new products. I think we've said above the underlying R&R market, you know, between conversion and our own internal initiatives, we've got the ability to grow 5% to 6% above market. If we have a flattish market, we should be able to perform well in that market. Right. No, that kind of brings me to my next question, Jesse, and I appreciate that, which is around, you know, share gains. You know, you mentioned in the last call or two some shelf space wins. You know, I was hoping maybe to kind of take a step back and then dive in a little deeper on this area. You know, number one, could you just kind of revisit your approximate share of the composite decking market and how that's trended over the last five years, and what initiatives you're taking to gain share going forward? I mean, specifically. We, you know, one of the keys is to make sure that there's a clear definition of the market, right? Technically, the composite market excludes PVC, right? What we've said is about half of our... You know, one of the strong advantages of our company is we have two product platforms in decking. One product platform is a composite deck, which is a wood-plastic blend, and the other one is made out of an Advanced PVC. When we define the decking market, we look at, for lack of a better term, a view of the synthetic market. We're not excluding half our product portfolio. In that context, you know, you should think of, you know, our share, give or take around 30%. Right. Once again, give or take, I'm giving you rough numbers. Part of the problem is when you look at the data over the last three years, it includes inventory. It'll start to include inventory correction, et cetera. I think if you look at our guide, the last quarter, what we're guiding this quarter, if you just look at dollars, you're gonna see us, you know, really over the last two years, you're going to see from a dollar basis, that, you know, the only explanation is that we're picking up share in the market, right? If you go over a two-year period. Roughly, you should think of it as, you know, give or take, you know, 30% and give or take, you know, against that definition, you know, the other player might be 40%-ish or maybe a little higher in that range. That's kind of the. I'm giving you rough math. Right. The question is, what's the difference in share position? Five years ago, the macro market is, give or take, about 2/3 pro and about 1/3 retail. Retail, you know, being the big box players. That's the market. Our share, historically, when I got here, was give or take, or, you know, even five years ago, four years ago, was about 5% of our sales were in the retail channel. You think of that delta, right? A third of the market's in retail, only about 5% of our sales are in retail. If you look where we stand right now and what we've talked about really over the last few quarters and at the tail end of last year, we currently sit at about 11% of our business, give or take, you know, roughly double digits, focused on retail and then the pro. If you look at the main share differences on a direct comparison, we, you know, we are under indexed in retail. What we've also said is every year that goes by, retail has been accretive to our growth. You can look at our growth stack, and that kind of explains going from 5% to, you know, 11%. We would expect that, you know, we see opportunities to continue to have our retail growth be accretive to the overall growth. You know, we feel really good about our position. We feel good about our competitiveness. Certainly, having more capacity gives us an opportunity to continue to service the market. I think the key step back here is I'm giving you the kind of the small universe of what's not wood. I think the reality is the biggest opportunity is, you know, how do we convert that 75% that's wood faster? Even though I may talk about share vis-à-vis competitors, the reality is what matters in the future is how fast can we convert the opportunity that is not composite. Growth really, and share, long-term share will come from the ability of us to combined as multiple companies in the space to convert that 75% and, you know, our individual ability to convert that 75%. Right. No, no, I appreciate that perspective. You know, so in terms of mix, in terms of product mix, you know, we talked about this a little bit when we were on the road earlier in the year. How would you describe your product portfolio in terms of average price point or whatnot, you know, versus your largest competitor? You know, how would that mix change over the next two or three years to the extent that, you know, you continue to gain more share in the retail channel? Yeah, I mean, I can just speak to our business. I, you know, what I would say is if you think about the market as good, better, best, premium, our Advanced PVC line, the TimberTech Advanced PVC product, basically sits for the most part in, you know, best and premium. We've got some better in there, but think of it as that product line, given its attributes, it is inherently cooler, it's inherently lighter. It's, you know, long-term environmental impact, as we cross 60% recycle is actually better in many cases than other alternatives. And it just has the most premium look in the market. That particular portfolio makes up about half of, as I've mentioned, our decking product line. As you look at the remainder part of our capped composite portfolio, we have also tended to skew more premium. Without being specific, I would say, you know, historically, and it also, you know, relates a little bit to being in the pro channel, targeting, you know, wealthier demographics, greater SKU complexity. The model is really built to service, you know, the middle of the market and up in the most differentiated way. As I mentioned, you know, in the last three or four years, we've rolled out product lines that give us access to the good and better part of the market. You know, we've continued to see really nice growth in those areas, in particular the last two years, last three years. I think moving forward, you should expect that, you know, we'll continue to grow and convert wood in the more premium demographics. You know, linked a little bit to what I talked about earlier, we'll continue to have accretive growth in retail and accretive growth in some of those other areas. The way to think of it is, you know, the core will grow and continue to grow, and we've seen that even, you know, even this year, and that we might continue to use incremental capacity to continue to expand in all parts of the market. Okay. Appreciate that. I guess when you're thinking about, you know, either your own share in the industry or, you know, as composite/PVC continues to take share from wood, how should we think about, you know, because and we've heard this a little bit from Trex as well or in their life cycle as well. You know, the initial, I don't know, call it 10, 15 years, did largely focus on kind of a higher end price point. You know, if you think back to perhaps 2018, 2019, there was a, you know, I believe, and correct me if I'm wrong, I'm a little newer to the industry, initiating a couple of years ago, but my perception is, you know, both yourself and your large competitor kind of broadened out your product portfolio, with price points that were maybe, you know, 50% below your higher end, price points. This really helped continue to keep the industry on a path of share gains as you're reaching out to a broader consumer market. You know, correct me if I'm wrong on that, you know, just from a bigger picture, you know, moving the streamlining ahead, type of direction. If that's the case in terms of how this industry moves forward, that you're appealing to that, not just maybe a higher end, target segment, but the meat of the market, so to speak, how should we think about product mix and ASPs over the next three to five years from the industry? Yeah, I think one of the distinctions in dialogue that you're going to hear across the market is what drives wood conversion. You know, part of it is where you sit in the market. You know, if you're on the shelf and you've got a wood board right next to a composite board, then your perspective might be that the best way to grow the market is to have that composite board be more competitive against that wood board on the shelf, right? I think for us, you know, really we have grown the market by having differentiated aesthetics and driven conversion based on that. Our own research says, if you look at the market of wood, that's 75%, about half of that market, you know, more than half of that market, you know, call it two-thirds of that wood market is really, you know, they're choosing wood because they don't want something that feels unnatural or plasticky. That's kind of the general theme, right? For us, the unlock on wood conversion and, you know, we've got a number of people that are listening to this, you all are our consumers, right? If you think about, you know, what matters to you, of course, you want something that kind of fits your price point, but you want something that looks right. Fundamentally, our growth, in particular as we go from 2019 to 2021, 2022, we've continued to drive wood conversion in kind of the middle of the portfolio up, right? I think that there's a difference of dialogue. We don't assume that wood conversion, all of wood conversion requires an opening price point and convincing someone that they shouldn't. The convincing that 25% of the market that's looking for the cheapest thing. Yeah, I mean, look, when we're converting 75%, then I, you know, and there's only 25% of wood left, then I think we can have that dialogue about that incremental might be price sensitive. I think it's really important for us that when we view the market, we view the ability to drive wood conversion, that, you know, sustains a nice mid to premium portfolio. You know, I think sometimes we draw conclusions that if someone's going to, you know, put down a, you know, The price of our product relative to a decking job is give or take 20%, you know, maybe in an extreme case, 30%. Think of it as you're doing all this stuff on substructure, you're doing all this stuff around the house, and on a relative basis, you know, you might be dealing with, you know, $3, $4 a square foot difference to get something you want that's low maintenance. You know, those kind of numbers, you know, are not an extreme difference in purchase for all demographics. Once again, I think the key is communication, accessibility, giving people good products at good price points. You know, so our good product, you know, that might be, you know, one-third of the price of our most premium product looks really good, and is not an opening price point product. It's that kind of a view that we have, of the market. I don't view. You know, there's been a low price point product on the shelf at a retailer for many years, right? That wasn't something new. We didn't go under what had already been on the shelf for five years. I just really want to draw the distinction that we see the opportunity of growth is giving people what they want, and we can continue to drive meaningful conversion based on that. Right. Right. I guess 20, 30 years ago, maybe more people never thought they'd spend $5 on a cup of coffee either. you know, quality and preferences can change. Yeah. Well, I'm gonna. You know, many people here have redone their windows and, you know, or something like that. When you're doing that, you pick the window, and you pick something that's roughly the right price point. You're not comparing that window to the absolute cheapest option in the market. I think that's a really. Somehow or other, we've kind of lost track of people are remodeling their house. They're choosing materials. They're choosing a contractor. They're doing it themselves. A percentage of the market is just gonna reach for the cheapest thing out there. Mm-hmm. A more meaningful percentage of the market just wants it to look right, and they want it to hit their budget. Right. There is a lot of opportunity to give people the right thing. You know, it's not a, you know, it's not a $5 cup of coffee. It's probably more like, you know, a 7 -Eleven or Dunkin' offering, you know, a good cup of coffee, you know, that's not 0.50, but it's also not $5. I think that's the distinction here, that people just want good stuff. Right. We can handle that in a meaningful way to drive wood conversion. Right. Right. Yeah, I mean, yeah, certainly I was trying my point there about, you know, just people's views change on what they're willing to pay. Yeah ... for things if it's, if it hits your quality threshold, so to speak. Kind of shifting a little bit still on price, but from another angle. I think this has been very, very topical over the last 6 or 9 months, which is, number one, the concerns around pricing pressure to the extent that there has been, A, the inventory correction, and B, you know, the market kind of digesting, you know, some of the more recent, let's say, modest weakness and as well as price capacity additions. Number one, you know, maybe you can kind of just remind us in terms of how pricing has trended over the last couple of quarters, how you think about pricing for not just yourself, but the industry over the next two or three quarters. Then I'll... I have a follow-up as well. Sure. I'll kind of stay high level, and I'll just use Deck, Rail, and Accessories, right? Over coming in, we went public in June of 2020. You know, part of what we said is if there is inflation, we have the capability and capacity to use pricing as a vehicle to sustain our margins. We have exposure to the broader economy. In general, as you look out over the last couple of years, we've had, give or take, 220 million+ of raw material inflation that we have offset with price. Now that's across the whole company. It's not just Deck, Rail, and Accessories, but I'll kind of stick with Deck, Rail, and Accessories as, you know, two-thirds of the residential business. I think what's key in there is we had already seen opportunity to go up in price prior to those. We had done a lot of research on consumer price and opportunity in the various segments. I think what this recent run-up has done is it's really accelerated the price opportunity that we saw in the marketplace. Over the last two years, you know, you can do the math, but it's, you know, meaningful, you know, north of 20% increases on pricing. Moving forward, you know, we believe that, you know, once again, on decking good, better, best premium, that post price increases, you know, each of those segments is in an appropriate place and both from a competitive standpoint, et cetera. I think the other thing we highlighted is, you know, as we were adding capacity, is that capacity in decking would not alter the market structure relative to pricing. You know, when you're looking at meaningful volume declines, as you highlighted over the last couple of quarters, we haven't seen any change to that thesis. I think it's important that if you're looking for evidence, we've just gone through a pretty meaningful stress test relative, and we're the ones with the most capacity that has come online. Our third facility is already up and running and the new facility. If you look at that thesis, it's held, and we would expect it to continue to hold. In general, you know, I think the way to think of how we would price things is we believe that the market, in a market like ours, which is consumer, which is choice, where we're constantly investing in technical differentiation, we should have the ability, at a minimum, to realize price in the future. I'm not saying this year, next year, but in general, at the level of inflation at a minimum. I think that's, you know, as we move, you know, through kind of the noise of, you know, this year into next year, you know, you should think of that we will continue to, you know, look at the market as being able to absorb, you know, a few points of price every year. Right. No, That was the other part of my question. I appreciate that. You know, we have a few minutes left. I always try and work in questions from the audience. Question is around, you know, current rate environment and, you know, I'll just read it off here. Since your product is a higher ticket purchase, would you think that demand might be sensitive to interest rates? In other words, you know, can you dive into any info available around how decks are typically financed, who the ideal customer is? You know, if there has been, you know, kind of an element of financing, if that's been impacted at all in the last year with the higher rate backdrop. You know, coming into the most recent rate cycle, I think we ended... We obviously, you know, we've been making public statements for three years. I think coming into the most recent rate cycle, we said that we didn't view rates as having a meaningful influence on repair and remodel from where we sit. The data would indicate, you know, give or take 10% to 15% of, now this is self-reported, but 10% to 15% of the market would experience a, you know, would use a HELOC or some form of equity financing. We didn't have a meaningful concern on the impact of that. We continue to stress test it, saying, "Is that a barrier? Do we need to support people with financing or anything like that?" The general feedback from the market was, it is not a barrier. I think for us, the general, you know, and I'll repeat what we've said in the past year, that as long as people feel comfortable with their wealth, and, you know, that's, you know, the value of their house relative to, you know, perceived value relative to, you know, its holding value, those kind of things, combined with general kind of asset net worth, you know, how your 401(k) is doing, etc. Even though we've had market corrections on a long horizon, you know, people feel generally comfortable, you know, with their ability to continue to invest in their homes. You know, the demographic, first, we immediately sub-segment kind of homeowners. That's the first cut. Within that, we're less oriented to DIY. We'll continue to expand by getting on the shelf where that is. In general, our exposure is much less to DIY and much more to individuals that are moving forward with projects. You know, we track backlogs. We do about 1,000 contractor survey every couple of months. In general, backlogs are higher than they were pre-pandemic on a self-reported basis at eight weeks. From the peak, you know, in 2021, it's modestly come down. In the last few quarters, it's been relatively stable. The backlog is also another indicator of, you know, this interest rate volatility has not necessarily influenced our pro contractor. When you say 10%-15% of the market, are you referring to the, you know, outside of the decking category or just decking? When, and I just forgot the source, but it's a government, survey that basically surveys, you know, for various projects, what percentage of the projects are using home equity lines. Okay. It sounds like- I can cite. I can get that back to you. I. It sounds like it's a broader repair or model statement, it sounds like to me. No, I think in this case it was decks. Oh, it was? Okay, fine. Yeah. All right. Perfect. Well, that actually does it. We're, I think, a minute over. So, we'll cut it off here. I want to thank you, Jesse and Pete, for your participation. It's great to see you and appreciate you joining us today. We will continue at quarter of with Masonite, followed by our pre two mid-morning sessions, Beacon Roofing and D.R. Horton, before our afternoon slate. I'll let you guys go. Great to see you. Thanks again for joining us today. Thanks again for your time. I really appreciate it. Thanks.