Trex Co Inc Q4 FY2025 Earnings Call

Good day, and welcome to the Trex Company, Inc. Fourth Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Casey Kotary. Please go ahead.

Thank you, everyone, for joining us today. With us on the call are Bryan Fairbanks, President and Chief Executive Officer; Adam Zambanini, Executive Vice President and Chief Operating Officer; and Chris Gandhi, Senior Vice President and Chief Financial Officer. Also joining the call is Amy Fernandez, Senior Vice President, Chief Legal Officer and Secretary, as well as other members of Trex management. The company issued a press release today after market close containing financial results for the fourth quarter and full year 2025. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. I will now turn the call over to Amy Fernandez. Amy?

Thank you, Casey. 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 laws. 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-Q 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 thank you all for participating in today's call to discuss our fourth quarter and full year 2025 results and our outlook for 2026. I know you've also seen the exciting news that Adam Zambanini will be named as Trex's next President and CEO following my retirement in late April. I'll discuss this shortly, and Adam will share a few words. But first, let's review the quarter and the year. Against the backdrop of a third consecutive down year for the repair and remodel sector, I'm pleased to report that Trex finished the year with strong fourth quarter results and year-over-year sales growth of 2% and mid-single-digit sell-through for the full year 2025. Over the past few years, as repair and remodel spending has lagged, our focus has been developing industry-defined product innovation rooted in a deep understanding of our consumer, expanding channel partnerships in both Pro and home centers, and continuing to drive operational excellence, efficiency, and safety. Our team has higher expectations for future growth, and there are several very positive achievements in 2025 that will allow us to maintain and build on our track record of outperforming the broader market in both up and down cycles. I want to begin by highlighting the market response to Trex's new product releases. Products introduced over the last 36 months continue to show robust growth, representing 24% of our 2025 sales, up from 18% last year. This speaks to the strength of our product design and development programs, which combine new performance features with leading aesthetics that align with consumers' evolving preferences. One clear example of this alignment is our Suncomfortable heat-mitigating technology, which we extended to new decking products, bringing this very popular feature to a broader consumer audience at an accessible price point. Perhaps the most exciting highlight of the past year was the success we achieved in the execution of our multiyear railing strategy. Several years ago, we set out to disrupt the railing market as we did with decking over 30 years ago. After engineering a full line of railing products across a broad range of price points and investing in best-in-class distribution and channel partners over the past 2 years, in 2025, we achieved robust double-digit growth in railing. We're very encouraged by the recent stocking wins and displacement of competitive products in both the Pro and home center channels. The momentum built in 2025 has us on track to achieve our longer-term goal of doubling our share of the railing market by the end of 2028. Next, I want to turn our attention to the development of our Arkansas campus, which continues to deliver on its construction and start-up schedule, including on-site production of plastic pellets, reducing our reliance on more expensive external sourcing. When we made the decision to invest in Little Rock, the industry overall was approaching full capacity. Then through the growth years of COVID, it became clear that capacity to meet consumer demand would be key to long-term growth. While the industry growth curve has moderated in recent years, I'm confident that the capacity we add in Little Rock will fuel Trex's growth and result in cost optimization and margin opportunities for years to come. And lastly, we further strengthened our positioning in the Pro and home center distribution channels in 2025 and into early 2026, with expanded pro channel relationships and a meaningful increase in stocking locations at the home centers covering both decking and railing products. These wins reflect the strength of the Trex brand and the advantages of our expanded product portfolio in terms of both performance and aesthetics. Trex remains the only wood alternative supplier with a significant presence in both of the country's largest home centers, both on shelf and special order. These highlights represent the early results from increased investments we have made and will continue to make in R&D, sales and marketing, digital technologies, and utilizing our capacity to drive accelerated growth. Our improved market incentives have resonated well with our Pro dealers and contractors, and we're seeing increasing commitment to Trex as they are making their early buy stocking and selling decisions. Additionally, we've seen early positive results from our new marketing campaigns and digital investments. Notably, sample program volumes and website traffic, which are early indicators of purchase intent, have increased considerably, and our improved digital tools have helped to generate double-digit increases in lead generation for our contractors. We found that increases in our lead generation and website customer engagement over time correlate with revenue growth. We also made significant progress in strengthening our distribution network, which will ensure unparalleled access to our products from leading national and regional distributors in North America. Midyear, we announced the expansion of our relationship with International Wood Products, building on our success with IWP in the Pacific Northwest and California. We expanded our relationship to Salt Lake City and across the Intermountain West. Later in the year, we expanded our relationship with Weekes Forest Products, strengthening our presence in the upper Midwest, including areas in Minnesota, Wisconsin, Iowa, and North Dakota. In November, we announced that we were expanding our relationship with Specialty Building Products in Michigan, which builds on the success of the long-standing Trex SBP collaboration. As we turn our attention to 2026, innovation and strategic investments will continue to fuel Trex's growth. After rigorous testing, we were pleased to announce the launch of Trex Refuge decking in January of this year. Our code-compliant fire solution combines style and advanced fire performance with the durability and low maintenance benefits that are the hallmarks of the Trex brand. This ignition-resistant PVC decking line enables us to effectively compete in regions of the country with heightened fire safety requirements, and we are now shipping to California, Oregon, and Washington State. When we look historically at periods of sustained growth for Trex, those periods saw Trex invest approximately 18% into SG&A. We recognize that branding reductions made during the growth years of the pandemic and subsequent years needed to be revisited to meet the current market conditions and the long-term opportunity. Targeted investments on programs for our customers and investments in consumer branding will provide a financial return in top line growth and market share capture, as they have in the past. Closely working with our Pro channel and home center customers, we've identified the most important points of leverage and tailored programs to incentivize incremental growth, maximize product bundling, especially with railing, and further shift purchasing within our portfolio to our more premium products. For the longer term, you can expect to see our branding and sales investments grow in line with revenue, while other fixed SG&A spending will be leveraged with growth. We also know where and how customers get their information is evolving. We're deploying solutions that make it easier for consumers to learn about Trex decking and railing. This includes messaging to consumers through new campaigns targeted at high-impact media, enhancing the digital experience through upgrades to our 3D visualization tool, and elevating the retail experience through new point-of-sale solutions and product samples. Early marketing metrics are all up double digits, and recent stocking position wins by Trex give us confidence that we have the right plan in place. As you've seen in our releases today, I've made the decision to retire as CEO of Trex after nearly 23 years with the company, including a 6-year tenure as the CEO and 5 years as the CFO. While this is not an easy decision, I am confident it is the right one, and the Board has made an excellent choice in naming Adam Zambanini to take over the role at the end of April. Adam has been a great partner in developing and implementing major strategies over the years, as well as leading a substantial portion of the overall organization in his current COO role. Adam is a strong leader and a brand builder with deep knowledge of Trex's business. His passion for Trex is unmatched. Now I will turn the call to Adam to share his thoughts.

Thank you, Bryan, and good afternoon, everyone. It's been a great experience working alongside a leader of Bryan's caliber. His steady guidance has made a meaningful impact on the team and the organization as a whole. We are grateful for his leadership and collaboration, and we look forward to a smooth and successful transition as we build on a strong foundation he has helped establish. As I take on the role of CEO of Trex, you can expect us to focus on execution while building momentum for the next phase of growth. Shortly after joining the company, I led the development of the launch of a game-changing technology that redefined the standards in the decking category, Trex Transcend decking. The product established a new benchmark for performance, combining scratch, stain, fade, and mold resistance with refined wood-like aesthetics. This innovation marked the industry's first generation of high-performance composite decking and served as a catalyst for sustained market share expansion over the following decade. Moving forward, we will build a disciplined innovation pipeline around Trex decking that creates a durable, defensible moat and raises expectations across the composite and PVC decking category while continuing the longer-term conversion from wood. Also, we will continue to capture additional meaningful market share by executing our railing strategy. Trex is the market leader in alternative railing with the broadest portfolio of products available for every residential application. Performance engineered for your life outdoors is more than a tagline. Our decking is evolving to perform across diverse environments with heat mitigation technology, submersible marine capabilities, and with the recent launch of Trex Refuge, mission-resistant solutions for dry fire-prone conditions. We want to continue to push the limits of where our products can go and be at any price point with those features that consumers expect from their project. Looking ahead, I am committed to developing new standards for innovation at Trex and taking full advantage of the substantial growth opportunities we see on the horizon. Stay tuned for more on this as we move through the year. Our brand is a powerful driver of consumer appeal, and we will continue to leverage that through expanded marketing efforts to highlight the unmatched value of the portfolio of products. And as we plan for the future, we will navigate the dynamic industry landscape to build a clear road map for continued success. As you have seen from our release, and you will hear from Prit in detail in a moment, we are expecting 2026 to be another year of growth. I look forward to participating in upcoming conferences and meetings to keep our investors and analysts updated on our initiatives and to share additional insight into our vision of the future. Now I will turn the call over to Prit for his financial review.

Thank you, Adam, and good afternoon, everyone. I'll now review our fourth quarter and full year 2025 results. Please note that unless otherwise stated, all comparisons discussed today are on a year-over-year basis compared to the fourth quarter and full fiscal year 2024. In the fourth quarter, net sales were $161 million, a decrease of 4% compared to $168 million in the prior year period. Results came in approximately $17 million above the midpoint of our fourth quarter revenue guidance, primarily due to higher-than-anticipated railing sales in the back half of Q4, continuing to demonstrate the strength of our railing product portfolio. Decking shipments for the quarter were also slightly better than we had forecasted. As of the end of the year, we believe channel inventories were at 6 to 8 weeks at the low end of historical levels, but appropriate given our new level loading and inventory management program. Gross profit was $49 million, down from $71 million, and gross margin was 30.2%, down compared to 43% in the prior year. This decrease is primarily the result of two changes in accounting methodology that Trex adopted in Q4 2025. First, we elected to change the company's inventory accounting method from LIFO to FIFO to improve comparability with other companies in our industry to more accurately reflect the value of the inventory on the consolidated balance sheet at each reporting period and to be consistent with how the company manages its business. While this change had no impact on the 2025 income statement or cash flow statement, it resulted in an upward restatement of our Q4 2024 gross margin, resulting in most of the decline in year-over-year gross margin in Q4 2025. Please refer to the reconciliation tables in Footnote 2 of the company's 10-K for further details. In addition, we changed the warranty reserve estimate methodology, which resulted in an expense of $6 million in the fourth quarter. These changes were partially offset by plant efficiencies from higher utilization. Gross profit results included one-time start-up costs related to the Arkansas facility and one-time railing conversion costs totaling $1 million. Excluding these items, adjusted gross profit was $50 million. Selling, general, and administrative expenses were $45 million or 28% of net sales compared to $39 million or 23.4% of net sales in 2024. The majority of the year-over-year increase was related to higher personnel-related costs. In the fourth quarter, one-time expenses related to digital transformation activities and the start-up of the Arkansas facility were approximately $1 million. Excluding these one-time expenses, SG&A was $44 million or 27.4% of net sales. Net income was $2 million or $0.02 per diluted share versus $22 million or $0.20 per diluted share. Excluding the previously mentioned one-time charges incurred in the fourth quarter, adjusted net income was $4 million, and adjusted diluted earnings per share was $0.04. EBITDA was $20 million or 12.7% of net sales compared to $45 million or 26.9% of net sales last year. Adjusted EBITDA was $22 million. Note that the Q4 2025 adjusted EBITDA, adjusted net income, and adjusted EPS do not add back the $6 million warranty reserve estimate expense. Turning to our full year results. Net sales for the full year 2025 totaled $1.17 billion, a 2% increase compared to $1.15 billion, primarily due to pricing across all product categories and expansion in railing placements during the year. Net income was $190 million or $1.78 per diluted share compared to $238 million or $2.20 per diluted share in 2024. Excluding one-time charges incurred during the year, adjusted net income was $201.7 million or $1.88 per diluted share, and adjusted EBITDA was $336 million. For 2025, adjusted EBITDA, adjusted net income, and adjusted EPS do not add back the $6 million warranty reserve estimate expense. I want to comment on inventory levels at year-end. Our inventory level decreased by approximately $18 million year-over-year. As previously mentioned, in 2025, Trex elected to change its inventory accounting method from LIFO to FIFO, which had no impact on the 2025 income statement or cash flow statement. However, because of this change, we restated our 2024 year-end inventory balance from the previously reported $207.3 million to $257 million, which resulted in the reported inventory decline from 2024 to 2025. 2025 operating cash flow was $358 million compared to $144 million in the prior year. The increase was primarily a result of inventory reductions in the current year compared to prior year inventory build and higher collections in 2025. Consistent with our capital allocation strategy and continued confidence in our long-term outlook, we returned $50 million to our shareholders in 2025 through the repurchase of approximately 1.5 million shares of our outstanding common stock at an average price of $32.75. We also invested $233 million in capital expenditures in 2025, primarily related to the build-out of the Arkansas facility. Our Board of Directors has authorized a $150 million share repurchase program to be completed in the first half of 2026, subject to equity market conditions. In addition, we intend to continue opportunistic share repurchases throughout the balance of the year, reflecting current valuation and our conviction in the long-term outlook for Trex and the meaningful reduction in 2026 capital expenditure as the Arkansas facility is now substantially complete. Before moving to our 2026 outlook, I want to spend a minute on our approach to capital allocation. First and foremost, Trex's priority is always to create shareholder value by funding our long-term organic growth through capacity expansion that meets expected consumer demand. With the completion of the Arkansas facility in 2026, we will have the capacity to service growth for years to come and therefore, expect to generate meaningful additional free cash flow in the foreseeable future. Consequently, at this time, share buybacks will be a significant use of capital. That said, Trex is also likely to become more active in executing strategic tuck-in acquisitions to expand our growing portfolio of outdoor living products. We take a very disciplined approach to evaluating acquisitions by comparing their potential risk-adjusted returns to the return from ongoing share repurchases and moving forward only if acquisitions returns outweigh buying back Trex shares. Now turning to our 2026 guidance. For the full year 2026, we expect net sales to be in the range of $1.185 billion to $1.23 billion, representing low single-digit to mid-single-digit percent growth year-over-year in an R&R market that is expected to be slightly down to flat relative to 2025. Adjusted EBITDA is expected to range from $315 million to $340 million and includes approximately $8 million in currently expected adjustments for the full year, mostly related to digital transformation initiatives and railing conversion. These adjustments are evenly split between COGS and SG&A. SG&A expenses are expected to be approximately 18% of net sales for the full year. Interest expense is expected to be $10 million to $12 million. As a reminder, Trex has consistently been paying cash interest on its line of credit balances for the past several years. However, because of the construction of the Arkansas facility, GAAP accounting rules required us to capitalize interest expense on the balance sheet as a construction in progress item that would otherwise have been recognized on the P&L in both 2024 and 2025. With the completion of construction scheduled in 2026, we will once again be recognizing interest expense on Trex's consolidated income statement in 2026. Depreciation and amortization of approximately $85 million with approximately 45% occurring in the first half of the year and approximately 20% of the full year D&A within Q1 2026. As previously communicated, the additional depreciation is related to bringing our new Arkansas decking lines to production-ready status during 2026. In 2027, annual depreciation will be at an annual run rate similar to D&A exiting Q4 of 2026. We are projecting an effective tax rate of approximately 25.5% to 27% for the full year, and capital expenditures are projected to be approximately $100 million to $120 million for the full year. For the first quarter, we expect net sales to be in the range of $335 million to $345 million. With that, I will now turn the call back to Bryan for his closing remarks.

Thank you, Prit. While we've been operating in a challenged repair and remodel space for an extended period, Trex has substantial runway to convert the market from wood and increase wood alternative decking and railing market share to Trex. We are committed to product innovation, and through our marketing investments, we will ensure the continued strength of the Trex brand, making us top of mind with consumers when they're making their outdoor living decisions. These actions, along with strategic capital allocation decisions, including the $150 million share repurchase authorization through the first half of the year and likely additional purchases later this year, will result in a meaningful return of capital to shareholders. We expect share buybacks to remain a key priority, with a significant increase in free cash flow in 2026 and the coming years as we drive revenue and earnings growth and build shareholder value. Operator, please open the call for questions.

The first question today comes from John Lovallo with UBS.

The first one is on the implied growth is 1% to 5% in that ballpark in a flattish to slightly down market. I mean is it fair to think that you guys are assuming decking will be up sort of low single digits with railing being up double digits?

Yes. We do expect railing to be up double digits, continued driving of those share gains that we've seen this year and we expect to see in 2026 and beyond. I think that's the right way to look at it from a decking perspective as well. We do have some shelf space wins. We are seeing benefits from the new programs that we've put in place. And then the way we've ranged the guidance is at that low end, if we continue to see weak negative type repair and remodel at the low end, if we see repair and remodel starts to improve, especially in the back half of the year, a little bit closer to that higher end of the guidance.

Understood. And typically, you guys will provide sort of a next quarter sales outlook and sometimes an adjusted EBITDA margin view. I mean, can you give us an idea of how maybe you're thinking about these metrics or maybe just the shape of the year in general?

Yes, John, thanks for the question. In terms of the shape of the year, we gave you the full year's EBITDA range for $315 million to $340 million on an adjusted basis. For Q1, I mean, the best way to think about it is in terms of EBITDA again, as I said in my prepared remarks, D&A is about 20% of the full year. That will be about $17 million to $18 million. The SG&A in the quarter should be about 100 basis points more than it was last year, and that's the continued investment in marketing that we spoke about in Q3. And then in terms of gross margin, if you look at kind of where consensus was before the call here, we're going to be about 100 basis points below that, and that's largely because of, again, the higher growth of railing, the higher depreciation, and that's partially offset by pricing.

Can you hear me now?

Yes.

Okay. Sorry about that. Well, first off, congrats to both Bryan and Adam on the announcements there. I'm looking forward to working with you more, Adam. My first question is, my first question is talking a bit about the outlook as you think to the spring. Can you talk to what you're hearing from your contractors as they're starting to perhaps build some of their backlogs in some of those markets, especially the ones that maybe aren't quite so impacted by weather. And you noted that you're seeing some pretty strong demand out there for samples and web traffic and just what that could imply for revenues as we look to the season?

Yes. So it's definitely a challenging environment as you see the flat home improvement spending. But as we look at it, we're still seeing our top-tier contractors still booked out probably in some cases, in the rougher parts in terms of weather, 4 to 6 weeks and then better weather, probably 6 to 8 weeks. So from that perspective, we feel good. And we've actually had 2 TrexPro events this year to cover our highest-end of the network, and they all felt that this year was going to be better than the previous year that they had, and we did some polling on that across the contractor group. So that was good. We've also got some placements that we've picked up at retail, and incremental placements when we look at the decking and the railing. And so we feel good from the position that we are as we move forward on that front. So there are a lot of signs, plus the marketing metrics, as you mentioned, have been very solid this year, more than we saw the previous couple of years in terms of when you start to look at searches from contractor searches to dealer searches, some of those metrics have been a lot better here this year.

Okay. That's helpful. And then turning to SG&A. You talked through those investments that you expect to make in terms of brand and sales. Can you talk to how the efforts around data and the digital transformation will play a role in that? And what that could also mean as you think about leveraging some of those costs?

Yes. We've done a lot of work on the digital transformation side of the business over the primarily last 12 months, but the planning for that started 18 months ago. We are starting to see some of the benefits now where we're able to better understand what those market drivers are as we're seeing volume come through our website, engaging with various parts of it that I consider to be sales drivers. That's going to be your purchasing of samples, contractor leads, looking for a contractor or looking for a dealer and things like that. So all of that information together and being able to derive information out of that so we can better target those customers over the long term. I'm extremely excited about the path that we have going forward from a digital transformation perspective. We've got the right people in place from a marketing perspective as well as the IT group and a lot of great things as we move forward.

Bryan, thank you for all the help over the years, and Adam looking forward to working with you more as well. I guess to kind of kick things off, John asked a question about your top line revenue guidance. Midpoint is about 3%. Can you help us unpack how much of that is via load-in because you've had some wins at home centers? And from that standpoint, any color on what price point for decking, how big of a contribution perhaps is railing? And then as well as pricing, I think you got some carryover pricing. Just kind of help us unpack the outlook you've provided.

Remember in the last call, we did talk about higher incentives going into the market. So our net pricing for the year is flat. While there is some pricing going in, that is being offset by incentives in the marketplace. As it relates to the guidance piece of it, from an infill perspective, we will have some benefit early in the year on that. But of course, that product needs to turn. And while there's a meaningful number of shelf spaces out there, the product infills on their own aren't that big of a number. Those products need to turn within those environments. And we have shown historically with the additional shelf space, we will see the turns on that. We've been extremely happy with the additional shelf space that we've gotten both in decking, but also on the railing side. In many cases, we're seeing our new Trex railing systems being installed on non-Trex-related decks. A big part of that is because of the quality of the product that we have going in, but also because it's readily available. It's right there on the shelf, and they have the ability to immediately get everything that they need to be able to build out that rail and complete the project, whether they're a contractor or a DIY consumer.

Yes. We definitely talk about tuck-in. Recently, we got into the fastener category in a much larger way. So that's the first area that every single time you sell, you have to attach it with some sort of fastening system. So we've seen great growth in that area. And then you've seen some of the licensed products that we have, which kind of gives us the opportunity to, I will call it, taste test or see what the preferences are in some of these categories, which lead us into maybe there's something along those lines from a tuck-in perspective. But when I think about the backyard, we want to own the backyard. So we have a fencing product line that I think is probably the best bar none in the industry. I don't think we do enough to market it. I also don't think we do enough in terms of when we look at a broad range of that portfolio, how we can compete in every segment even beyond composites, kind of like what it looks like from a railing perspective. So I think there's a lot of opportunities when I think about outdoor living and where we can go, and that can even expand to the envelope of the house as well.

And Phil, just to add to Adam, the other kind of tuck-in types of things that we could look at are things that improve our cost position, things in manufacturing, vertical integration and those types of things. So there are opportunities like that as well.

I want to extend my congratulations to both of you all as well and look forward to working with you Adam.

Likewise.

Starting with the PVC side, you mentioned that this is the first of several new products. Should we expect more products along these lines that you plan to launch, or could these be different products not specifically related to PVC?

Yes. So I think when you look at PVC, there's really two parts of the components of PVC the most. You see it in New England and you see it on the West Coast when I see it a lot. When you get to the West Coast, a lot of times, that's around fire. And when I think about fire, I don't think we should be locked into some sort of a material set of PVC. So when we think about that in the future of it, yes, we will be in that PVC category, and there could be other products within that umbrella. But it would be when we look at all the different segments and classifications because there's different levels of fire that are out there today, it is how can we compete aggressively to take that market share away from PVC. And that is going to definitely be on my radar screen. And the same thing when you look at New England, it's a little bit different. It's not as focused as much around fire. There's just a segment there of contractors that have been in PVC for the last decade or two. And there's some performance features in terms of some things workability and all that, that I think that from that segment of contractors, we're going to target aggressively, and we're going to go after ways that we can convert those contractors over to WPC.

Understood. That's helpful. And when I think about your full year guidance at midpoint, you talked about the 3%, should we assume sort of sell-through also in the similar range, meaning there are no sort of inventory changes that we should be thinking about?

Yes, that's correct.

It seems like this railing initiative is having substantial success. Is this raising your attachment rate? Is it soon enough to say that it had that effect?

Yes. Attachment rate is notoriously difficult to calculate. That's why we are using a market share metric on it. But we are hearing through our contractors that with products that we didn't have in the past, the steel system, the entry-level aluminum system, our new T-Rail system, that they are making that conversion over from competitive products over to Trex products. So we are pleased from that perspective. We'll continue to work to try to create something that gives a better view of attachment rates, but it varies widely from region to region, and trying to get really good information on that is a challenge. That's why we think market share is a better metric to use from a market perspective.

And is there any holes in your railing portfolio now that you think you need to add either third party or acquisition?

We have an unbeatable railing portfolio. When I look at this right now, this reminds me of the decking category over 20 years ago where there used to be 20-some different manufacturers. That's the same issue when you look at railing. When we look at our number two and number three competitors on railing, we consider them regional competitors. So we think there's a tremendous opportunity to take market share from a significant amount of regional players that are out there, and nobody has the portfolio to contend with Trex from top to bottom. So could we do tuck-ins? We could. Do we have to? No, we don't have to.

Okay. I mean not downside, but the gross margins are lower railing than deckboard. Is that correct?

Yes, that is correct. With the tariffs coming through, that was a significant headwind. Last year, we did take some pricing. Now we're giving that back through other incentives in the marketplace. But over time, we will be working on strategies that will close in that gap and expect over time that we can close it completely. Keith, the thing when you look at this is volume is a great thing for Trex. We manufacture a significant volume in decking. And the more volume we can get in railing, the more opportunity for continuous improvement. So we're going to be able to leverage the scale of railing over time. And therefore, the success you saw in the margin expansion on decking, we're going to take the formula that's worked with Trex over the last 15 years, and we're going to apply that to railing moving forward. So you're going to see more vertical integration on railing just like you did on decking over time.

Maybe just my first question, Bryan, just the tone of your voice is a lot different than maybe it was three months ago. And so I'm just kind of curious if you could kind of maybe walk through what's kind of changed in terms of how you're kind of assessing the environment as we kind of come into '26.

Well, a couple of things. First, it was a considerable reset that we had in the third quarter. And I always understand how difficult those things are going to be. Everybody's model needs to change. I don't take that lightly when we do that. I think on the other part of it is related to where the marketplace is. Going into that, it assumed that there would be a further deterioration in the R&R sector during the fourth quarter. We did not see that. And as we moved our way through the quarter and now here at the end of February, we're also starting to see the benefits of some of those actions I talked about in the third quarter call. So I'd say those are really the two things that the key difference from last call to this call.

Okay. And I guess when you look at SG&A, I think this year, it will be somewhere like, call it, $220 million. It's up $40 million from basically '24 levels. I guess, a, what is the split there between field resources and kind of marketing? And then I guess the second question, just bigger picture. Is there any scenario where you would look at investing more than 18% of sales going forward?

Yes. There's carryover of additional headcount coming in from the sales team from last year. The largest piece of it is going to be on the marketing side. We're not going to get into exact splits on it. I think at this point, I don't know if Adam would add anything, I mean, from my perspective, I'd be surprised if we were to go over that number.

Yes, I don't see us going over that number. We've only done it a couple of times in our history, and if it's an opportunistic point of view in terms of the markets doing really well as we move forward and we had the ability to expand revenue, we would look at that. So I think from that perspective, could it happen? Yes, it could happen, but I don't expect us to go over it.

My first question is on gross margin. I think last quarter, you talked about down 200 basis points in 2026. Is that still the right ballpark?

Thank you for your question, Ryan. In relation to where consensus stood before our announcement, we anticipate being about 100 basis points lower for the upcoming year. Yes, we'll be slightly below the pre-announcement consensus, which was around 37.4% to 37.5%. That's approximately the range we expect for the full year. The main variation comes from our guidance today, which sets full year depreciation and amortization at $85 million, while the market expectations are somewhat lower than that.

Best of luck to both Bryan and Adam going forward here. Just a question on the revenue cadence. Apologies if I misheard it. I think you guided to roughly flattish revenue in Q1 on a year-over-year basis. And maybe that suggests the second to fourth quarter would be up 4% to 5% year-over-year. So just anything to that, just timing of channel inventories, etc., just what would be driving that?

Yes. Shaping, first, from a first-quarter perspective, we've talked a lot about inventories in the past. We do not want to have excess inventories in the channel regardless of how the market turns. We will have the ability to supply our customers. We've also gone through some rough weather in the past 30 days or so. So again, part of the reason not to put anything additional into the channel during the early buy period. When we look at it from a shaping perspective, roughly in line with last year from a first half versus second half, let's call it slightly lower in the first half than the second half, but otherwise, similar.

No, last year, I think we were about 40.5% gross margin. So about 100 basis points below that. Okay. Got it. I thought you're talking about relative to consensus. Okay. That makes a lot more sense. Well, I guess the question ends up similar. What I was trying to get at was, obviously, given the depreciation comments you gave, certainly, the headwind gets fairly larger as you go through the year, and it's a lot bigger in Q4. Is there just any other sort of positive offset to that gross margin, Q2, Q3, Q4, maybe thinking kind of your level loading production, etc., that might offset some of that kind of mounting D&A headwind?

Yes. There's always going to be opportunities. We've got a strong group that's always focused on continuous improvement. We have a significant number of projects that will enter into the system and will start generating benefits from that this year. There's always more opportunity as we go forward. That team has overdelivered the past couple of years. So we'll be looking for them to deliver on that, trying to keep the not assume that all of that's going to come through, but I can tell you the management team is absolutely focused on driving improvement to those numbers.

I wanted to start with more distributors adopting the full portfolio of railing solutions. Were there certain railing SKUs that were bigger drivers in '25, such as price points or any other ways to parse that out? And do you think the same drivers help in '26?

I believe our competitiveness spans the entire market. Trex competes at the entry level against vinyl PVC rail, while also providing an entry-level aluminum rail. We advance to wood plastic composites and then back to high-end aluminum options, including rod rail, cable rail, and glass rail. This diverse portfolio is unique in the industry. We've experienced successes in every segment because the railing market has a significant amount of working capital tied up in the number of SKUs. Carrying multiple brands of railing typically makes it difficult to maintain profitable margins. Consolidating under one brand allows our sales team to focus solely on Trex, leading to higher profitability. Additionally, our service levels are unmatched in this area of the portfolio, further incentivizing partnerships with Trex. With a strong brand, an excellent product lineup, and top-notch service, partnering with Trex is a clear choice. There are some costs as we move through this year. That is embedded within the guidance. We have a mix of contractor agreements in the markets. And I would say they're less formal when especially when you start talking about exclusivity. The contractor is working exclusively with the brand; they're doing it out of choice because they are getting the strongest support from that organization. They're getting the best products. There are incentives that come along with it. There's growth incentives and things along those lines. But a large portion do work with multiple brands. They want to keep some flexibility in the marketplace. We've got a good share of fully exclusive contractors that are in the market as well as contractors that use a variety of different brands, and Trex is their largest driver of their business.

Congrats to both of you, Bryan, best of luck on your next chapter. And Adam, congrats on the new role, well deserved. So I guess, first, and I know we've spent some time on the guidance there. But as you kind of look at the puts and takes on the full-year guide, specifically around the implied EBITDA margins, I think there's about 100 basis points difference there from the high to the low end. I guess really what gets you to the high end versus the low end, specifically around the EBITDA margin range for the year?

I mean that's going to be the strongest driver, whether it's going to be this year, we get that higher volume, that absorption is coming through. I think it's an important point to make for everybody on the call. As Trex adds volume to our existing capacity as well as new capacity, that improvement in gross margin and EBITDA margin starts coming through quickly. I think back to the early years, 2012 through 2019 time frame, I'd encourage you to go back and look at some of the margin improvement. Now some of that came through some of our own cost improvements we were doing, lower-cost polyethylene. But a big driver of that was filling existing capacity that we have here. And that is a significant opportunity for the company to continue driving that more dollars back to our shareholders.

Yes. Great question. When you think about it, we've been working together for a long time, Bryan and I. And so we've been pretty in lockstep on the strategy. So there's no hard changes. But when I think about the leadership team, we're going to be focused on the roles that are going to kind of reshape some of the cultural things. The performance standards, I think I bring an innovation angle. Some of my philosophy is some of the hardest experiences are the best experiences. So in my mind, we need to change the game in terms of our products on decking. So a color or a streak to a deck board, that to me is table stakes these days. We need to somehow make an impactful dent in the market, right? And so that's what I'm going to be after is what is going to build that, I call it the durable defensible moat that we can compete in and nobody else can. And so you will see me really focus on some of those things on the high-performance innovation, and we've talked about performance engineered for your life outdoors. Now you're starting to see some of these applications, right? I believe we're the leader in heat mitigation technology. We're now focused on submersible marine applications. And then now fire is a big thing that we're really chasing going after. So I think you're going to see different forms of innovation from Trex moving forward, and that will be some of the things that will be evidenced as you look after my first year here at Trex.

Just one quick one for me. Just on the gross margin. Prit, can you just give us an actual number just because there's a lot of different consensus numbers out there. I just want to make sure we're thinking about this properly.

Yes, for the full year?

Yes.

Yes. Again, around mid-37% gross margin against our midpoint of our guide on revenue in that ballpark.

Best of luck to both Bryan and Adam going forward here. Just a question on the revenue cadence. Apologies if I misheard it. I think you guided to roughly flattish revenue in Q1 on a year-over-year basis. And maybe that suggests the second to fourth quarter would be up 4% to 5% year-over-year. So just anything to that, just timing of channel inventories, etc., just what would be driving that?

Yes. Shaping, first, from a first-quarter perspective, we've talked a lot about inventories in the past. We do not want to have excess inventories in the channel regardless of how the market turns. We will have the ability to supply our customers. We've also gone through some rough weather in the past 30 days or so. So again, part of the reason not to put anything additional into the channel during the early buy period. When we look at it from a shaping perspective, roughly in line with last year from a first half versus second half, let's call it slightly lower in the first half than the second half, but otherwise, similar. Adam, Prit, and I look forward to seeing you at conferences and other meetings in the coming weeks. Thank you to everybody on the call that have supported me, both as CEO and the Trex Company as a whole. Have a great evening.

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