Good afternoon, and welcome to the Trex Company second quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Viktoriia Nakhla. Please go ahead. Thank you, Melanie, and thank you all for joining us today. With us on the call are Bryan Fairbanks, President and Chief Executive Officer, and Dennis Schemm, Senior Vice President and Chief Financial Officer. Joining Bryan and Dennis is Amy M. Fernandez, Vice President, General Counsel, as well as other members of Trex management. The company issued a press release today after market close containing financial results for the second quarter 2022. This release is available on the company's website. The conference call is also being webcast and will be available on the investor relations page of the company's website for 30 days. I would now like to turn the call over to Amy M. Fernandez. Amy? Thank you, Viktoriia. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities law. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-K and Form 10-Qs, as well as our 1933 and other 1934 Act filings with the SEC. Additionally, non-GAAP financial measures will be referenced in this call. 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. With that introduction, I will turn the call over to Bryan Fairbanks. Thank you, Amy, and good evening, everyone. Thank you for joining us today to review our financial and operating performance in the second quarter 2022 and discuss our business outlook. By all measures, Trex performed exceedingly well in the second quarter. Solid execution by the entire Trex team, coupled with continued demand for outdoor living products, drove 24% top line growth even against a difficult comparison with last year's robust performance. Our sales growth reflected an increase in Trex residential net sales, driven by pricing actions taken in 2021 and 2022. Volume growth that continues to reflect strong secular trends in the outdoor living category, continued execution of our wood to composite market strategy share conversion, and channel inventory build to support historically high growth rates. The channel inventory build was due in part to expected consumer demand along the lines of what was seen in 2020 and 2021, but also was a consequence of improved product availability following more than two years of capacity constraints and product allocations. EBITDA margin performance demonstrated our operational excellence as well as the positive leverage inherent in our business model. Pricing actions, coupled with the launch of Transcend Lineage decking, cost saving opportunities, production efficiencies, and spending controls resulted in margin expansion even as we accelerated our brand investment spend. As a result, we generated an EBITDA margin of 33.4% and a 49% increase in diluted earnings per share to $0.79. Towards the end of June, we experienced a sudden reduction in our demand from our distribution partners, spurred by concerns over a potential easing in consumer demand due to rising interest rates, declining consumer sentiment, and expectations of a general slowing in the economy. We expect our channel partners to meet demand partially through inventory drawdown rather than reordering product and maintaining current inventories. We believe the current drawdown will likely impact the next two quarters and will be meaningful in nature. In response to this changed environment, we immediately took measures to manage a production slowdown, including selective labor force reductions, production optimization, as well as other cost actions to ensure that Trex remains the lowest cost producer in the industry. During this period of lower utilization rates, we are able to refocus efforts on the high return production improvement programs that Trex has a long history of executing successfully and that have contributed to long-term margin expansion. These initiatives not only allow us to navigate effectively through an economic slowdown, but also lay the groundwork for enhanced profitability when growth resumes. By retaining our most experienced manufacturing talent, we will be able to ramp up production quickly as sales rebound. In 2019, our product portfolio expanded with the introduction of Trex Enhance Naturals and Basics, adding industry-leading value price decking products that expanded our addressable market with an eye towards wood conversion. That strategy has paid off with an estimated 300 basis points of wood conversion occurring during the prior year. During the second quarter, our focus was on expansion at the high end of the market with the launch of Trex Transcend Lineage decking with the attributes of refined aesthetics, trend-forward colors, heat-mitigating technology, and like all Trex decking, is made from 95% recycled and reclaimed content. This product introduction was welcomed by our channel partners, and we plan further expansion of our product portfolio with high impact product launches in the coming year. At the same time, Trex Transcend and Trex Select decking have retained their broad appeal to homeowners looking for advanced performance materials with market-leading aesthetics. Our full suite of products, from wood conversion to premium level for both decking and railing, as well as our capacity capabilities, have allowed our sales team to aggressively regain accounts that could not be served over the past few years and convert new accounts from competitors. I'm proud of our industry-leading financial performance, the enduring strength of the Trex brand, and our engineering and R&D teams, whose depth of expertise will enable Trex to further drive product innovations for years to come. We enter this period of economic uncertainty in a position of strength, supported by a strong balance sheet, industry-leading brand recognition, and unsurpassed distribution in retail channels. We recognize that the dedication and collaboration of the Trex organization and our extended family of retailers, dealers, contractors, and distributors remains the driving force of our long-term secular growth opportunity. With our brand strength and market leading position, additional capacity, and expanded product lines, we view the current market as an ideal opportunity to accelerate and expand our market share in the composite category, convert more wood decks to Trex decks, and strengthen our distribution and retail partnerships. We also remain committed to our ESG goals. I encourage you to review our latest ESG report published at the end of June. I'm proud to report that in 2021, Trex upcycled more than 1 billion pounds combined of recycled waste polyethylene film and reclaimed wood for use in our products. In addition, Trex reduced scope one and two greenhouse gas emissions intensity by 33% compared to the previous year. In 2021, Trex formalized oversight of ESG matters at the board level with the nominating and corporate governance committee now including ESG matters in its charter. We also formalized ESG oversight at the executive level, naming Leslie Adkins, our Vice President of Marketing and ESG Development. These steps further our commitment to sustainability and advance ESG initiatives as a strategic focus for our leadership. In summary, even as we enter a more challenging economic environment, we are confident in our ability to navigate the future given our financial strength and our demonstrated ability to effectively align our cost structure as appropriate with market conditions. Trex's market leadership, brand strength, and low-cost manufacturing processes positions us to well capitalize on the secular growth trends in outdoor living and the positive expectations for the repair and remodel segment. Now I'll pass the call to Dennis for a financial review. Dennis? Thank you, Brian, and good evening to everyone. I'm pleased to report on Trex's second quarter results and year-to-date performance and provide our financial outlook and guidance for the second half of 2022. Second quarter net sales increased 24% to $386 million, driven by 25% growth in net sales at Trex Residential to $374 million. The increase in Trex Residential net sales was primarily due to a 20% increase in average price per unit, a mid-single digit growth in volume, as well as channel inventory fill. Trex Commercial contributed $12 million to sales during the quarter. Consolidated gross margin of 40.7% expanded 270 basis points year-over-year, driven primarily by price realization at Trex Residential, increased capacity utilization, and our continuing focus on cost reduction measures, offset by continued inflationary pressures on raw materials, labor, and transportation. Gross margin for Trex Residential and Trex Commercial was 41.7% and 12.6%, respectively, compared to 38.7% and 21.6%, respectively, in the second quarter of 2021. Even as we strategically increased our branding and marketing spend, SG&A expenses of $40 million decreased 160 basis points to 10.2% as a percentage of net sales, compared to 11.8% in the 2021 quarter as a result of a reduction in accrued incentives and improved operating leverage driven by our double-digit revenue growth. Net income for the 2022 second quarter was $89 million or $0.79 per diluted share, representing increases of 45% and 49%, respectively, from net income of $61 million or $0.53 per diluted share in the year ago quarter. EBITDA increased 41% to $129 million, with EBITDA margins strengthening to 33.4% compared to 29.4% in the second quarter of 2021. Our EBITDA margins demonstrate the leverage in our operating model even as we continue to invest in future growth. Consolidated net sales year-to-date increased 30% to $725 million compared to $557 million in the prior year period. Higher net sales were primarily driven by a 32% increase in Trex Residential sales to $701 million compared to $532 million in the same period last year. Net income was $160 million, or $1.40 per diluted share, compared to $110 million or $0.95 per diluted share year-to-date in 2021. EBITDA grew 44% to $235 million compared to $163 million, and EBITDA margin expanded 310 basis points to 32.3%. Year to date, we generated cash from operations of $190 million. We invested $60 million in CapEx, primarily related to cost reduction initiatives, the new Arkansas manufacturing facility, investments in our core business, our new corporate headquarters, and safety, environmental, and general support. Supported by our strong cash flow during the second quarter, we repurchased 2.8 million shares of our outstanding common stock, which we believe will provide long-term benefits to our shareholders. As of the end of the quarter, 4.3 million shares remain available for repurchase under the existing program. We will continue to be a buyer of Trex shares, given our strong cash flow generation, our confidence in our long-term growth prospects, and our view that Trex shares represent a compelling value. Our balance sheet remains solid with ample liquidity supported by healthy annual operating cash flow to execute our strategy and move forward with planned capital investments. We remain positive on our long-term growth opportunities while maintaining our cost discipline in the current environment. As we work through this challenging economic period, we believe Trex will emerge stronger, more efficient, and more resilient. Now turning to our financial outlook. We are experiencing a sudden decline in demand as our distribution and pro-channel partners plan to draw down their inventory levels to address both seasonality and expectations of a slowing economy. Since Q3 of last year, we believe the channel has added approximately $200 million in additional inventory from the low levels that they carried in mid-2021. As our channel reduces their on-hand inventory in anticipation of an easing in consumer demand, our added capacity enables us to more quickly supply our channel when sales rebound. We believe the current inventory drawdown will be substantially completed by year-end, when the channel will again be operating at very low inventory levels. To provide better visibility into the potential impact of this inventory drawdown on our future results, we have provided financial guidance for both the third and fourth quarters of this year. We anticipate third quarter consolidated net sales will be in the range of $185 million-$195 million, and fourth quarter consolidated net sales will be $180 million-$190 million. Total second half revenue is projected to range from $365 million-$385 million. As a result of lower utilization, we are taking decisive actions to right size our cost base, including labor and production optimization, supply chain improvements, and lean cost outs. These initiatives support our full-year EBITDA margin expectations of 27%-29%. In Q3, we expect EBITDA margins in the range from 16%-18%, and in Q4, we expect EBITDA margins in the range of 22%-25%. EBITDA margins improve sequentially from Q3 to Q4 as we receive the full benefit from our cost reduction initiatives. Furthermore, full year SG&A is expected to be in the range of 12%-13% of net sales. Our tax rate is anticipated at approximately 25%. Depreciation will range from $40 million-$45 million. Additionally, we are revising our CapEx spend to be in the range of $170 million-$180 million, which primarily includes the initial phase of construction for our new facility in Arkansas, the new corporate headquarters and investments in our core business. With that, now I will turn the call back to Bryan. Thank you, Dennis. As the industry leader, Trex continues to capitalize on our key competitive advantages, namely unparalleled brand recognition, strongest distribution network, and lowest cost structure. Since Trex's inception, we've developed and nurtured long-standing relationships with top specialty material distributors, pro channel dealers, and DIY retailers, making Trex the most widely available and purchased brand throughout North America and around the world. These relationships are one of the fundamental elements of our success. In the face of economic uncertainty, I'm confident of Trex's ability to navigate this business environment while also investing to capture the long-term opportunity in front of us. Operator, please open the call to questions. Thank you. 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're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then two. A reminder to please limit yourself to one question with one follow-up. Your first question comes from John Lovallo with UBS. Please go ahead. Hey guys, thank you for taking my questions tonight. The first one is, you know, can you just help walk us from the 32% adjusted EBITDA margins in the first half to the 16%-18% that you're talking about in the third quarter? I mean, how much of this is loss of fixed cost absorption, you know, material costs, ad spend? I mean, it seems like it's implying about 47% decrementals, which seems a little bit heady. Just any help there would be helpful. Yeah. The main reason for the decrease is the lost absorption from the volume takedown. You know, that's being offset though by some very decisive actions that we've taken at our plant on the furloughs that we've done. Plus, we're doing a lot of cost optimization work in our supply chain, as well as a bunch of CapEx deployments to help with improving our cost position. The issue is that came at us very, very late in the quarter, at the very, very end of the second quarter, and so we've been realizing those activities now. We won't be able to see the full benefits of those cost outs until Q4, and that's why you're seeing that significant step up that we're calling from 16%-18% to 22%-25% from Q3 to Q4. Okay, that's helpful. Then, you know, in terms of CapEx, what projects are being delayed, and how should we sort of think about the bleed into next year, from this year's kind of savings? As we look at our CapEx guidance, at the time when we provided that, there was more expectation of the economy continuing at a stronger rate that we would deliver the double-digit top line. Some of the smaller capacity investments that we were making, for example, in railing, those will still occur, but the urgency isn't quite the same with them. As it relates to Little Rock, Little Rock is still strategically important for us. We are going to continue with that modular investment as we go forward. Some of the timing on some of those assets, just because of supply chain constraints, I have pushed out some of those cash flows to next year. Okay. Thank you, guys. Thanks. Thank you. Your next question comes from Ryan Merkel with William Blair. Please go ahead. Hey, guys. My first question is on the revenue outlook for the second half. Can you just help us understand the revenue assumptions that went into that guide? Yeah, absolutely. We fully recognize this is quite a significant adjustment. The way the channel had been expecting the year to go, and really right up until mid-June, had been building along the lines of growth similar to the past couple of years. They began to see that was probably not going to be the case and started communicating to us, and we have regular meetings with all of our distributors as well as dealers, that they were seeing higher level of economic uncertainty, and they were looking to take their inventories down. When we look at the variance between where we had expected to be and where we're telling you today, it's about $300 million. That's split, approximately $200 million of that is inventory coming out of the channel. Remember, we built about $100 million in the second half of last year. Then as we moved through the first half of this year, and especially in the first quarter, we continued to build, not just at distribution, but also at the dealer level. Our dealers had been short of inventory for two years. These are our largest and most loyal pro-channel dealers in the marketplace. They built pretty heavy inventories, and they're looking to right size their inventory as well. There's that $200 million, and then the other $100 million is related to general market softness. Got it. Okay. That explains the magnitude, Bryan. My follow-up, is there risk that the retail channel needs to see a similar size destock? How do you think about that risk? Retail inventories are more closely managed by us. We put product into their distribution centers on a consignment basis. When it moves to the store, it generates revenue. There's a limited amount of material that can be pushed into the stores. Of course, DIY decides how much that's going to be, but we've got good visibility there with that, and we don't see the same risk in that channel. Got it. Thanks. Thanks, Ryan. Thank you. Your next question comes from Keith Hughes with Truist. Please go ahead. Thank you. I guess the question on sell, you know, sell out for distribution or even for the dealer market. Do you have a feel on that? What are they seeing in sell out versus the first half of the year versus prior year in the second coming up? Yeah, first half of the year, it's been relatively flat with the prior year. Can I just give the prior year number? Prior year number for the Sell-through in the first half. No, I don't have that. Sell-through in the first half of last year was similar to our growth numbers. As they were taking the inventory we were shipping them, that was moving through the channel. Very different dynamic between the two years. What kind of sell out have they been seeing in the last, you know, month or two versus normal run rate? What kind of percentage decline? If you went through June, they were seeing flat through June. Remember, as I mentioned in my prior comment, they built assuming they would see 15%-20% type growth this year. If they assume the rest of the year is flat, that the consumer remains still buying at that elevated level like they did last year, they need to reduce that inventory back down to a more normalized level to be able to support the revised market size. One final question on this. It seems like based on the guidance, particularly the units, you're assuming there's gonna be some further reduction in terms of consumer demand. Am I reading that correctly? Are you just kind of building in some conservatism given it's pretty uncertain out there right now? This is the best knowledge of what we have from the marketplace of the inventory that we see in the channel. I think it's fair to say there's some concern about the consumer as well. It's been flat year-to-date, as I mentioned, from a sell-through perspective. With all of the various news that's out there, not to expect that there wouldn't be any flow-through to our business would probably be a little too aggressive right now. Okay, thank you. Thanks, Keith. Thank you. Your next question comes from Timothy Wojs with Baird. Please go ahead. Hey, guys. Good afternoon. Maybe just on pricing and, you know, at the distributor level or the consumer level, I mean, you mentioned that you've regained some underserved accounts. I'm just kind of curious what's kind of entailed in those conversations. I guess, have you seen any pushback from distributors, dealers or consumers about pricing? As we look to regain some of the accounts that we've not been able to service over the past couple of years, our sales team has been very active in working with those accounts to be able to show them that we have the capacity, we've got the right product lineup to be able to serve them over the long term. Any concerns that they've had from the past of that occurring in the future, we'll have the capacity to be able to serve that. We took pricing at the beginning of the year and then took a very small pricing on just two of our product lines, Aluminum and our Select decking line in beginning of April. We haven't had any pricing since that timeframe. I think the market is adjusting to the pricing. At this point, we've got products that go anywhere from $2 to $2.25 per linear foot, all the way up to $6 and $6.50 a linear foot, depending upon which channel you're purchasing the products through. I think it's fair to say they're still adjusting to the new price realities because of how quickly the market has moved, similar to other remodeling products. Just on the cost actions and the cost savings, how would I guess what's the annualized number? Is it something in, like, the $30-$40 million range? As things would potentially come back, you know, in 2023, I mean, how do you kind of make sure that you don't lose a lot of that production staff that can be difficult to hire when the volumes come back? I'll let Dennis pick up the number side of it here. We are trying to maintain the highest technical skills within our organization. Some of that skilled labor will come with a little bit higher cost, recognizing that this is a corrective period. It happened so quickly as we moved into the end of June that the team has been reacting very, very quickly, putting plans together to reduce the cost. Unfortunately, you can't turn the ship over the course of 30 days. It'll take us a little bit of time to be able to get there. Dennis? Yeah, I think, Tim, you're in the ballpark. I mean, when I start looking at these run rates now and seeing how, you know, the Q3 moves to Q4, you know, we could be in that range of somewhere around $40 million-$45 million in annual savings kind of pushing through here. Okay. The vast majority of those savings are gonna come from the COGS side. We're gonna be looking, you know, heavily at the SG&A lines as well. I guess as volumes would potentially return, I mean, will those costs also come back, or are those kind of permanently kind of out of the cost structure? Some costs will come back. You know, as we start to improve on utilization and we bring up more lines, then we're gonna be adding people back into those scenarios. There'll be some that will come back with growth, and I believe some we're just gonna be much more efficient. Okay. Makes sense. Appreciate the information, guys. Thanks. Thanks. Thank you. Your next question comes from Trey Grooms with Stephens Inc. Please go ahead. Hey, good afternoon. Evening, Trey. Hey, hey, Bryan. Just a little bit of clarity on the inventory rebalance. Again, you know, you mentioned $200 million, I think was the portion of the guidance reduction here that was due to the rebalancing of inventory. Just for clarity, was that all this year? You know, how much of any of the inventory that was out there, you know, or that rebalancing that needs to take place could spill over into 1Q? Yeah, we're expecting that this inventory rebalancing, given the magnitude of what we're talking about, dollar-wise, and we've already had meetings with our distributors, that we expect inventory to get back to, I would say, is going to be very low levels, be lower than where we were, going into the inventory build from last year as our distributors want to be conservative. We do have the capacity to be able to serve them going forward, as the market comes back to growth again. Right. Got it. Understood. With that, you know, you're expecting an improvement, you know, as you mentioned, from Q3 to Q4 as far as the margins go. That Q4 timeframe when, you know, it sounds like you'll be realizing a lot of the cost outs by then and that sort of thing. In the environment that we see, you know, a lower volume in one Q of next year, is that kind of the rough range of decremental we should be kind of baking in as we think about that if that actually comes to fruition in one Q? No, I actually feel like, as you look at Q4, that should be, you know, a baseline for us, and I would think that we're just going to continue to, you know, get better, if that volume would be flattish, right? If that volume's flattish, I would think that we're going to see some improvement on that COGS line still as we just get more accustomed to running this way. Right. You're talking about sequentially there, right, Dennis? That's correct. Yeah. Okay. One of the challenges that we have is as this came so quickly, we still have a supply chain built to deliver at that higher level. When I say supply chain, the sourcing that we have in the marketplace. Some of this are things that we can push out, but there's many other things that we're already committed to, we'll have to take that. We'll have some storage inefficiency and some, well, I shouldn't say penalties, but additional costs, over the next couple of months here as we begin to rightsize our inventory from a raw material perspective with the production requirements. Got it. Okay. Thanks for all the color, guys. I appreciate it. Take care. Sure. Sure. Thank you. Your next question comes from Jeffrey Stevenson with Loop Capital. Please go ahead. Hey, thanks for taking my questions today. You talked about the opportunities the demand slowdown will give you to win back accounts that you weren't able to service last year, but you also mentioned share gain opportunities. I was just wondering if you could kind of further elaborate on some of the opportunities for future share gains moving forward, along with areas you've talked about you'd like to grow into, such as international and cladding, where you didn't have the capacity to aggressively grow in these markets. Does that kind of speed up the timeline in those areas as well? Trex has 50% plus market share. We've got the right products. We are the main manufacturer that's going after wood conversion with our Trex Enhance Basics at 2x the price of wood. We've got a compelling message for our channel, that you'll receive the majority of customers walking in the door, if you're carrying a Trex product. That gives us opportunity in accounts that may not be 100% with Trex today or may not be carrying Trex at all. Strong message that our sales team is working through and, showing the channels of how our product line up, how it works together, and how we can sell up from Basics to Naturals, and then for the more premium customers, Transcend up to Transcend Lineage. Okay, got it. My follow-up is just on the commercial bidding environment. Any changes that you've seen there, and what are your expectations into the back half of the year into 2023? Yeah, commercial bidding activity is, I'd say, consistent with where it was in the first half of this year, up significantly over where we were last year. The ABI is still showing over 50, and that's always positive for the commercial business. As I've talked about in prior calls, this is a transition year as we rebuild that backlog and get back to a growth pattern going into 2023, 2024. Great. Thanks, Bryan. Thanks. Thank you. Your next question comes from Phil Ng with Jefferies. Please go ahead. Hey, guys. From an inventory standpoint, Bryan, if I heard you correctly, you expect the channel to have that all flushed out by the end of the year. What about on your end? Do you expect, you know, your inventory balance sheet to be flushed out? When we kind of look at the 2023, assuming that's all kind of sorted out, you know, your comments right now kind of assume more flat growth. I know a lot of uncertainty, but kind of help us think through how you kind of think growth may kind of transpire next year. We've had low finished goods inventories over the past couple of years, so I would still expect to see growth in our finished goods so that we can support the marketplace. We recognize with this level of adjustment in a quarter, we have to be careful not to overreact, and bring production down so far that we can't meet what even a flat year would look like next year. Our inventories will grow, and then we'll have to work to rightsize our raw material inventories as well. I don't expect us to be all the way there with raw materials by the end of the year, but I expect as we get out through the end of the first quarter, we will see that start to normalize with the demand at that point. Gotcha. In between you and your largest competitor in decking, you know, both of you guys are flushing a lot of inventory out of the channel. In that backdrop and potentially declining environment as we look at the next year, you know, how do you think pricing will hold up for your business? You mentioned that you're looking to kinda regain some market share. How should we think about promotions and discounting in this backdrop? Yeah, this isn't an industry that has effectively gone to pricing to capture market share. Our products carry a certain value for the consumer, and our channels understand and know how to sell on that value. I'd be surprised if we were to see that be used as a leverage point. Now we all have early buy promotions as we go into the season. I think those will normalize more to what we saw prior to, let's say 2020, prior to the pandemic, where you didn't have to incent quite as much because the demand was so strong through the course of the season. We need to ensure that the channel builds back to normal inventories going into the end of the first quarter, so that they can support the strength of the normal seasonality of the marketplace in Q2 and Q3. Okay, super. Thanks a lot. Thank you. Your next question comes from Adam Baumgarten with Zelman. Please go ahead. Hey, good evening, everyone. Just curious on your lead times. I mean, how much have you seen those improve versus maybe the worst levels, and how do those compare to history? We had an allocation program in place for about 2 years, where we would receive orders 30 days before and go ahead and ship them out, but the amount of orders was limited. We have come off that allocation program, and our more standard lead time now is 30 days, but we are shipping at well under that right now. Okay, got it. Just, could you give us a sense for the carryover pricing that we could see next year, assuming, you know, pricing stays at the current levels? Yeah, I would definitely expect to see about an 8% increase overall, I think in pricing. Well, we took that price increase, though, on Select and our Signature Railing. Pricing should be relatively flat other than that increase. Yeah. That'll just be. It's relatively flat, but a very small increase that we took in April. Yeah. Okay, great. Thank you. Thank you. Your next question comes from Michael Rehaut with J.P. Morgan. Please go ahead. Thanks. Good afternoon, everyone. I just wanted to make sure, you know, properly understanding the impact of the inventory rebalance and, you know, how that kind of relates to, if you kind of back out some of the numbers, relates to end market demand. You know, if you take $100 million out of back half of 2021 sales, you get to sales about $540 million. If you add $200 million to your guidance for the back half of this year, you're coming up with a little bit of growth, maybe 5%-10% end market growth, maybe at, you know, going out the door at the dealers and, you know, at the end consumer. Just wanna make sure this is the right way to think about it. Also, if I heard you correctly about sell-through in the first half of the year, you know, comments around that as well. Yeah. I'm looking at it a little differently. When I'm looking at the full year growth, you know, I'm seeing us down about 8%, roughly speaking. You know, I'm thinking that about 18% of that is going to be volume, and then it's gonna be offset by about 10% price. From a full year perspective, I got us down. What I'm doing is actually adjusting for the inventory sell-in in the back half of 2021. Okay. add back the reductions in inventory in the back half of this year. You will see from a channel perspective that, I didn't follow exactly the numbers, but they are going to look very different. Assuming that the consumer remains buying at the kind of levels that they have for the first half of the year, their growth will be significantly better. Their sell-through growth will be significantly better than what Trex is. Whereas last year, our growth was higher, especially in the second half of the year, than our channel because they were building inventory, we were selling it. Now the reverse is happening. Right. Okay. Maybe we'll follow up offline then. I understand what you're saying. I guess, you know, secondly, just wanted to also understand, you know, if you think about the first half of this past year, you know, if you feel that there was any continued channel rebuild, similar to the $100 million that you've identified for the back half of 2021. Well, I mentioned in the first half that the inventory continued to build. The channel was expecting to grow at similar rates to what we've seen the past couple of years. That required a higher level of inventory. As they moved through June and didn't see the marketplace turning that way, that's when some of the significant changes in order patterns and really starting to understand what the second half would look like from their perspective. Okay. One last one, if I could. Just on the, you know, fourth quarter EBITDA margins that you quoted. You know, I believe you said that, and maybe you can just clarify, to the extent that, you know, 4Q sales, that quarterly run rate in 4Q continues into the first quarter, should we be expecting a similar type of EBITDA margin or any improvement just based on ongoing, you know, productivity or cost actions? Are you assuming that the sales in Q4 is what we would be seeing in Q1 of 2023? Was that your question? Correct. Yep. I would— If that were the case, and again, we're so early for any type of projection like that, then I would be expecting to see more EBITDA margin improvement at that level. Because, again, we're gonna continue to see these cost initiatives roll through the P&L. We're getting more in Q4 than Q3, and then I think it would start to, you know, reach its full potential there in Q1. Again, that's if that demand stays at the same level as Q4. Thank you. Thanks, Mike. Your next question come from Dan Oppenheim with Credit Suisse. Please go ahead. Thanks very much. I was just wondering, given the comment in terms of taking some share and serving customers, but also talks about the capacity additions and sort of modular with Little Rock, how are you thinking about the timing of that fully coming on? I guess, how are you thinking about that in terms of the goal of taking share versus sort of maintaining sort of rational pricing and such? We can show our channel that we have the capacity to be able to support growth. We talked about seeing Little Rock come on in 2024, and we are still going to continue with the build-out of the plant. I'd say the only change at this point is the urgency isn't quite what it was before. We will have the capacity within our existing two sites to be able to drive whatever growth that the channel will provide and our team will be able to drive. We do see Little Rock as a very important for our long-term strategy of being able to service the market appropriately. Great. Thank you. Thanks. Thank you. Your next question comes from Reuben Garner with Benchmark. Please go ahead. Thank you. Good evening, everyone. Maybe if you could help me with you mentioned, Brian, that Trex, I think, at the low end is 2x treated lumber. If we do see the continued pressure on industry demand, I'm assuming it's gonna continue to put downward pressure on treated lumber and maybe take it back to at or below levels we saw pre-COVID. In that scenario, you know, I recognize pricing isn't a strategy for the overall company to gain volume, but would you maybe look at the lower end of the entry-level board differently and try to keep that 2x ratio? The pricing today for treated lumber is going to be about $0.90-$1 a linear foot. Pre-COVID, it was consistently $0.80-$0.90. The projections are that treated lumber will be in probably that $1-$1.10 range. Of course, the cost of chemicals that go into it, the transportation, the labor, all of those things are a higher cost, and it does take time for that to flow through the channel appropriately. We've always said that the Enhance Basics is a conversion board, and it needs to be approximately 2x the price of wood. If wood were to drop to $0.75 for a period of time, we're not going to jump in and react. Just as when it went up to $1.60 a linear foot, we didn't react and make it 2x the price at that time. I don't expect to see a significant downward pressure on that price from where it is today. From what we're hearing from many of our customers is they do expect it to tick back up again as that industry is rightsizing its capacity as well. Okay, perfect. My follow-up. Can you tell us what your mix of business is in pro versus retail or direct-to-consumer, however you talk about it? Just trying to gauge the dollar amounts that you're talking about the inventory adjustments. Yeah. We're still heavily geared towards the pro channel. Our DIY business is 30%-35%. Within that number, that includes a special order that comes out of distribution. That'll be another part of what drives that inventory down. Okay, great. Thanks, guys. Thanks. Thank you. Your next question comes from Rafe Jadrosich with Bank of America. Please go ahead. Hi, good afternoon, and thanks for taking my questions. Hi, Rick. I just wanted to clarify just the earlier comments on sell-out in the first half. Was that a volume comment or revenue? That was on a volume basis. Okay. They have seen significant growth because of pricing along the way, but it was on a volume basis. The volume is flattish in the first half. Thank you. Yeah. You commented you expect the destocking to largely be completed by year-end. What is your expectation or what's the assumption for sell-out trends in the second half of the year that gets you to that balanced inventory by year-end? If I look at your historical seasonality in pre-pandemic, 4Q was always kind of below 3Q, and your guidance has it basically flat quarter-over-quarter. Does that mean you'd expect kind of peak destocking in the third quarter and that to improve into the fourth quarter? Yeah. Given the aggressiveness of this destocking in the channel, we do have more even quarters as we look at it. There is some concern that our channel will over destock along the way, that they've got more concern about the economy than what we see at this point. We've made that known to our channel at this point. That's where we see fourth quarter, while seasonality has it the lowest volume quarter from a sell-through perspective, that it will be more heavily done during the third quarter and then to a lesser extent in the fourth. You're assuming similar sell-out trends in the second half? Yes. Okay. Very helpful. Thank you. Consistent with seasonality. Thank you. Your next question comes from Kurt Yinger with D.A. Davidson. Please go ahead. Great. Thanks, and good afternoon, everyone. Hi, Kurt. Hey. Bryan, you've been with Trex and in the industry for a long time, and I'm curious if there are any historical parallels that you see when you think about kind of this current channel inventory dynamic. Then as you think about the broader implications that you might be monitoring, whether it's share shifts or pricing, how do you kind of ensure that you're best positioned to potentially benefit from any shifts that occur there? Yeah. We all look back to the 2007, 2008 time frame as the last example of a significant pullback. Trex Company was a very different organization. It was in the midst of a turnaround. The industry was losing share to wood at the time. Trex was selling a first-generation composites, which didn't have the same property that we have of fade, stain, and scratch resistance that we have today. As we look forward, we've got a high-performance product lineup. We have products that will serve every level of the marketplace, and we have the strongest distribution and best DIY customers that are out there. We feel very good how we stack up, and we've got a sales team that knows how to go out and sell with the capacity that we have today. Got it. Okay, thanks. Just my last one in terms of Transcend Lineage, any early observations in terms of sell-through and I guess cannibalization there versus drawing in kind of an incremental buyer at that higher price point? Too early to say. The market research that we did with Lineage showed us that the market was looking for trend forward colors. The heat mitigation technology was important. We always said that we wouldn't bring new products to the market until the channel was fully stocked. Right now it has been loaded into the channel. It's there, it's available for consumers, and it's a building products industry. New products tend to take a little bit of time to get situated and for the end customer to be able to see that product's there. We are seeing our Trex pros starting to post pictures of Lineage installations, and it is starting to get out to the marketplace. We're about, I guess now, a month and a half in from the first product shipping out the door, so it's really just hitting the channel. Makes sense. All right. Appreciate all the color. Thanks. Thanks. Thank you. Your next question comes from Steven Ramsey with Thompson Research Group. Please go ahead. Good evening. Maybe to share more on your second half views, are you more optimistic on the second half consumer demand than your dealers are just given website or any other indicators that you look at? If this is the case, what is the magnitude maybe of that difference? I wouldn't say I'm more optimistic. I think we share some level of the concern that they should be reducing some of their inventories, knowing that we're not going to see the kind of volume growth that we've seen over the past couple of years. But we also have to be sure, given the size of the share that the Trex Company has today and the expectations that our customers have, at least from a DIY perspective, to be able to walk in the door and get a truckload of product very quickly, and then from a pro channel, within a couple days, if not a week, be able to get our product that the entire channel is supporting that. Okay, helpful. On the dealer reduction that started in late second quarter, has the pace of that been pretty consistent to date? Has this reduction been similar in all geographies at a similar magnitude? Yeah. We've continued to see those inventories reduce as we've expected. Okay. Thank you. Thank you. Your next question comes from Ketan Mamtora with BMO Capital. Please go ahead. Thank you and good afternoon. Brian, I'm just curious if this market environment, you know, sort of creates an opportunity for a bigger push into the international market. Well, yes, is the answer. The only challenge with that is, while everybody's debating whether the U.S. is in a recession, with the energy prices that are over in Europe today, that consumer has truly pulled back at this point. I do expect that market's going to be pretty weak in the back half of the year where we've seen really nice growth over the first half of the year. I expect that to change significantly in the back half of this year. The only exception would be Australia. The Australian economy still continues to be relatively strong at this point. Gotcha. That's helpful. Then, you know, Dennis, I'm curious from a capital allocation standpoint, you know, you talked about continuing with the share repurchases. You know, can you talk about, you know, sort of how you think about keeping some, you know, additional balance sheet flexibility if the markets were to remain weaker for a prolonged period of time versus, you know, kind of taking advantage of, you know, what you described as kind of compelling, opportunity in terms of share repurchases? Well, I think we're in a fantastic position right now. We have, you know, as of the end of the second quarter, we have absolutely 0 debt on the books. Gives us tremendous flexibility to do share repurchases, as well as just continue with some of the things that are really important to Trex in its long-term strategy, and that is investing in the brand, investing in R&D, for example, you know, just 2 other very important cogs in the strategic wheel. Yeah. Dennis, would you be, you know, willing to take that leverage, you know, higher in the short term, you know, if there were to be an opportunity? We have talked about that as an executive team. At this point in time, when we're teetering potentially on a recession, I don't think that would be something that we would be looking to right now. Over the longer term, I mean, we've talked about being willing to do 2.5 times, but not much more than that. Got it. That's helpful. I'll turn it over. Thanks. Thank you. Your next question comes from Matthew Bouley with Barclays. Please go ahead. Good evening, everyone. Thanks for taking the question. The comment you made about the trade potentially over destocking, you know, versus the other comment you made that distribution maybe doesn't need to carry as much inventory today because capacity, you know, and kinda service levels are so much better. How do you kinda balance those two? Do you suspect as we get into next year that the trade just, you know, maybe won't need to restock to the degree it normally would into the spring and that kinda sell-in may match sell-through for the foreseeable future? How do you kinda balance what you think the trade will do there? Thank you. It's fair to say it's a challenge. We've gone through two years of pandemic with very low stock. We come out of the end of last year, people build their stocks back again. Everybody expects to grow at similar rates in 2022. That wasn't happening, and everybody pulls back again. The best way I can tell you how we're managing it is with communication. We have regular meetings with our distributors, our DIY customers, contractors, to understand what's happening in the marketplace. Is it perfect? No. But we've got a pretty good visibility to what's happening out there. If we see what we believe the inventory is going too low to be able to service our customers, that's clearly something that we'll address from a customer relationship perspective. Got it. Thank you for that. Then secondly, just to follow up on the pricing side. You know, just given this inventory rebalancing is happening into the fall and winter here, how does the typical early buy, you know, play out in this scenario? Would you still see, you know, volume discounts or things like that? Or just does the winter buy not really happen in this step of the year? Thank you. Historically, the menu for early buy, and when I say the menu, this could be one or all of the above. It's going to be dating, some discounts, it could be pricing. There's a whole variety of different things related to the loyalty of that customer, the volume that they purchase, and those are the type of things we look at pulling that entire menu together based off of the market conditions, and we revise it from year to year based off of what will be most impactful for the marketplace. All right. Thanks, Bryan. Thanks. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Bryan Fairbanks for any closing remarks. Thank you for your questions and your attendance at today's call. We look forward to speaking with many of you during the quarter at conferences and other events. Have a great evening. Thanks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.