Bryan Fairbanks: The largest dollar value of those investments occurs during the second quarter and third quarter of the year. So you will see higher numbers in that. Obviously, we guided to revenue in the second quarter. Historically, revenue does start to come down in the third quarter, yet it’s extremely important that we continue to market and bring those consumers through. So you will see some lumpiness in that SG&A percentage, but on a full year basis, that’s where we expect to see the leverage.
Keith Hughes: Okay, thank you.
Bryan Fairbanks: Thanks, Keith.
Operator: Your next question comes from Kurt Yinger with D.A. Davidson.
Kurt Yinger: Great, thanks. Just one quick one for me. Bryan, maybe you could just give us a refresher around kind of the timeline for some of the different operations and start-up down in Arkansas. And I guess just at a high level with the start-up of new facilities and new assets, you have added fixed costs. Any, I guess, directional color around how we should think about kind of incremental margins going forward just in light of that investment.
Bryan Fairbanks: Yes. So from a timeline perspective, we’re looking at mid-2025 from starting up our plastic processing operations and then into the first part of 2026 as we start up decking. So everything is moving on as we’ve expected from a schedule perspective. It is a sizable operation that we’ll be bringing up. So there will be material costs flowing through. As we’ve mentioned in the past we’ll be very transparent as to what those start-up costs are. We’ll start to see some of that a little bit in the fourth quarter of this year, then we’ll become much more material in 2025 and then through 2026 timeframe. But we’ll be sure to show everybody what the underlying gross margin looks like. I think the great example is you see the leverage inherent within the Trex business model as we’re running in our existing capacity at these higher utilization rates and what that does with gross margin.
So yes, of course, when you bring some new capacity on, we’re not going to be fully utilized in that on day one. We’ve got to train people. They are not going to run at 100% on day one. There will be some inefficiency. We’ll provide some additional detail. We’re not prepared to do that at this point, but we’ll be sure to highlight that each quarter as we start getting into those expenses.
Kurt Yinger: Great. That’s very helpful. Thanks, Bryan. I’ll turn it over.
Bryan Fairbanks: Thanks.
Operator: Our next question comes from Ketan Mamtora with BMO Capital.
Ketan Mamtora: Thank you. And congrats on a strong quarter. Bryan, perhaps to start with, can you talk a little bit about sort of how the entry level and the mid level side of the market is doing? Any sort of intra quarter trends or just overall performance of that side of the business?
Bryan Fairbanks: So I am careful to make any broad predictions off of what we see in the first quarter because those products are more highly tailored towards the home center channels, and those home center channels kick off more heavily in Q2 and Q3. But as I mentioned in my comments, we are seeing that high end consumer extremely engaged, and we talk to our contractors. Contractors are building larger decks, they’re using more of the premium products out there. So it’s a trend that we’re seeing right now. We’ll see as we get into the summertime how the entry level consumer jumps in and what kind of business they drive. And I think part of that is the upside that we see to the mid-single digit growth.
Ketan Mamtora: Got it. That’s very helpful. Thank you.
Bryan Fairbanks: Thanks.
Operator: Your next question comes from Michael Rehaut with JPMorgan.
Michael Rehaut: Hi, good afternoon. Thanks for taking my questions. First, I’d like to circle in on the sell through and maybe try and break that down a little bit. Your competitor the other day kind of pointed to a double digit sell through for the quarter, and so I was curious what your thoughts were perhaps around that in terms of – to the extent that you might have slightly different weightings towards different channels in the market or any other drivers that you kind of see in your business, that might kind of explain that difference. And in particular, I’m again, pretty curious about home center, versus other channels, and such.
Bryan Fairbanks: So our definition of sell through is point of sales, both at the home center as well as within the pro channel. It does not include any seasonal positioning for the building season i.e., building inventory along the way. So I can’t speak to how others may be doing it, but that’s how Trex is doing it. And we try to keep a pure definition as to what that sell through is.
Michael Rehaut: Okay, thanks for that. I guess, secondly – I would love to kind of zero – kind of pull back a little bit bigger picture with the capacity that you’ve added, with the capacity that you’re still planning to add, there is obviously still a lot of opportunity for growth over the next several years, and would love your thoughts on the opportunities that maybe you weren’t able to fully go after when you were sold out. And in particular, I’m thinking the builder channel, perhaps even on the international side. How do you think about attacking those channels over time? Do you feel that it could be more kind of relatively gradual and kind of just playing into the growth algorithm that you laid out in your Investor Day, or could there be more sizable step ups as you kind of attack those different opportunities?
Bryan Fairbanks: Well, it’s fair to say we’re attacking all of those opportunities. As we moved into 2023, there was inventory in the channel. Again, it was more, I wouldn’t quite call it a normalized year, but it was – there was plenty of capacity available to serve whatever the consumers needed at that point. That allowed us to set our sales team free and really go out and start hitting first of all, the accounts that may have brought in some other products during the pandemic itself, some of those builder opportunities that are out there, which we are seeing nice traction with them, of course, our international opportunities architects. There is a whole list of pipeline opportunities that our sales team is going after.
We track them closely in our performance against that. And that’s included with the overall expectations that we have as an organization. And the way we normally operate here is we’re going to have more things in our bag of growth opportunities than what’s going to deliver, what we’ve committed to that 12% along the way. And we also recognize not everything is going to work perfectly along the way. So we need those additional opportunities to make sure that we’re delivering on our expectations and your expectations of us.
Michael Rehaut: Great. Thank you.
Bryan Fairbanks: Thank you.
Operator: Your next question comes from Anthony Pettinari with Citi.
Anthony Pettinari: Good evening. I was wondering if you could talk a little bit more about the offering in fasteners. And I think at the Analyst Day you talked about $2.5 billion opportunity from adjacencies and extensions. And how does fasteners sort of rank within that universe? And if you’re taking orders today, is this kind of more of an impact on 2025 or just any additional color you can give there on that opportunity?
Bryan Fairbanks: Yes, I am pleased. It’s included within that adjacencies. We didn’t split that out specifically, and we’ll look at that for the next call to split out what that overall opportunity is. It’s something that we’ve had competitors in the marketplace being able to sell products onto Trex decking. There is no reason why Trex shouldn’t take our share of that revenue. But when we did that, we were also recognized, we couldn’t just have a me-too product. We couldn’t just go buy something that’s out there and say, here is a Trex fastener. We engineered this system from the ground up. We’ve got a lot of people who have great experience within the fastener industry at Trex, but also coordinated with our contractors and the channel to understand what would be most meaningful for them.
So we started selling that into the channel. It was actually late last year into the home center channel, and now on a much larger basis. And we’ve seen great interest. It’s really just starting to flow into the pro side of the channel now. So this year will really be kind of the infill period of things. And then as more people decide to make a switch and take somebody else off of their shelf to bring Trex in, we’ll see larger opportunities. It’s the building product industry. Those things don’t tend to happen overnight, take somebody else off, put somebody else on. But because of the opportunity with the Trex brand name that we have, our ability to service on the same trucks, our ability to have sales support in each one of these locations, we feel great about the opportunity to convert a sizable portion of that business and make sure that if a Trex deck is being built, a Trex fastener is going on it.
Anthony Pettinari: Got it. Got it. And then of some of the other adjacencies that you talked about cladding, fencing, furniture, are there some that you feel are maybe you’re a little bit closer on or you feel we could be hearing more from soon?
Bryan Fairbanks: Fencing is a sizable marketplace, a variety of different materials in the market. We do have a small fencing program today that we manufacture out of our Nevada facility. That’s a sizable part of what that adjacency opportunity is. And there are other things that we’re looking at that fall into that revenue growth opportunity.
Anthony Pettinari: Okay, that’s very helpful. I’ll turn it over.
Bryan Fairbanks: Thanks.
Operator: Your next question comes from Matthew Bouley with Barclays.
Matthew Bouley: Good afternoon, everyone. Thanks for taking the questions. Back on the topic of the implied revenue decline in the second half. You mentioned the channel behaviors sort of normalized. I think you said earlier that you put more inventory into the channel earlier in the year than you’ve done the past couple of years. So my question is, is that just the early buy shift, or is the shape of 2024 really a new norm? Is it material enough that there actually would be kind of a real headwind to year-over-year sales in the second half of the year? Thank you.
