The AZEK Company Inc. (AZEK) Earnings Call Transcript & Summary

Good morning, everyone. My name is Ketan Mamtora. I'm BMO's Building Product Analyst here. And with us today, we've got The AZEK Company. As many of you know, AZEK is the second largest composite decking producer in North America. I'm very pleased to have with us CEO, Jesse Singh; CFO, Peter Clifford. We also have Amanda and Eric here as well, feel free to chime in. So what I'm going to do today is to just ask Jesse to make some quick comments about the company. I know most of you all are familiar, but it will be good to have just a brief overview from Jesse and then we will kick us off with questions right after that. If anyone has questions, please feel free to send it to me. I will ask it -- ask on your behalf. And with that, Jesse, I'll turn it to you. Thank you again for participating.

Great. Terrific to be here. Just a couple of comments. First, our focus as a business is to revolutionize outdoor living and make it more sustainable. We participate, as Ketan said, in the deck, rail and accessories market, which is 65% of our business. We also have a really nice exteriors business, which is 25% of our business, that's really driven by outdoor trim and other products that go both on top of siding, but are also a key part of building outdoor living. We've had a really strong track record of growth over the last 10 years. Our residential business has grown 18% CAGR. Obviously we've continued that growth 16% pre-pandemic and we grew 35% our residential business last year. And you think about what's driving the growth, it's really the macro, which is a combination of millennials moving more into the housing market, those in my generation continuing to invest in the housing market and invest in repair and remodel in outdoor living. And in our particular case, we benefit in all of our product lines for material conversion. And what I mean by that is, in the decking space, as many of you know, about 80% of the market is still wood. So, the $2 billion that ourselves and our competitors play in for composite decking, the market is actually 5x larger in terms of composite decking opportunity. We've got a similar fit in our exteriors where 40% of the market is wood and really needs -- and typically should be in the teens if you look at siding. In terms of how we differentiate ourselves, we've got multiple technologies. We not only play in the two market segments I mentioned, but we also have differentiated technology within, for example, the decking space where we have two product lines, cap composite and cap polymer. And it gives us an opportunity to really play significantly in the more premium aspects, our differentiation is our products look the most like wood of any products in the marketplace. We've got a really strong position with the Pro. We're really established and we're building on that. Our focus is to always launch new products. And I think the other key aspect for us is when we look at outdoor living, we really see a $20 billion opportunity. $10 billion is in the core that I just talked about, but there is opportunities to expand in other parts of the outside. And given our differentiated technology and capability of new products in our willingness to be inquisitive, we think that there is a tremendous opportunity for us to really consolidate the broader market that's out there. And lastly, we're early in the recycle journey. As we went public, we highlighted that we saw 500 basis point margin expansion opportunity. And that was really driven by a combination of getting leverage on the investments we've made partially, but the majority of that's really going to come on the gross margin line. And that will come from the combination of the continuous improvement that we will always do through our [ aim ], combined with expanding the use of recycled material. And obviously, the benefit of our business is sustainability is literally at our core. Our use of recycle, the expansion of recycle, the use of lower value recycle, the more we do that the lower our cost, the lower carbon footprint and the better our impact on society. And so, we love our business model and that it's one that we can continue to drive growth and margin by doing the right thing. So, with that, I'll turn it over to the team here for questions.

Excellent. That's a great introduction, Jesse. So, let me start off here. So, what I'll do is, I'll ask some questions, which are sort of more kind of near-term in nature. But I also want to address some kind of medium-term opportunities that you see in front of you. So, maybe starting on, some of the near-term issues that you are seeing. Maybe talk a little bit about, since you've reported, what kind of demand trends you guys are seeing on the residential decking side? Obviously the last 18 months have been very dynamic, but you guys have also seen very strong growth. So, maybe starting on, what you're seeing on the demand side?

Yeah. As I mentioned on the call, we continue to see strong demand trends. As mentioned, the market was strong coming into the pandemic. We obviously had some dislocations during the pandemic of a slowdown and then an acceleration. We had a very strong year last year. And I think the advantage that we've had is, with the capacity we brought online combined with really strong operational excellence, we've been able to get to the point now as we look at the market of really getting our channel inventory in a much better position. We now have capacity to more than meet demand as we move forward. But the underlying market continues to see strong demand. There is -- what you're seeing is normal seasonality moving forward. As we talked, we do a contractor survey and all of our contractors continue to be optimistic about next year. They continue to be optimistic about growth. All of our dealers continue to be optimistic about growth. And we also look at digital activity and that activity continues to be robust. So, if you look at our long-term indicators, they continue to point to a strong market. And then, the quantitative/qualitative work that we do points in that direction. And then, we are -- we believe really well positioned to be able to service that demand in a way that we haven't fully been able to service it over the last couple of years.

Got it. And Jesse, you referenced about channel inventories. And I know, for the last few quarters, you've been working hard to get that to kind of the levels where you think you'll be able to service the customers better relative to historical averages for this time of the year because there is a seasonal component to it as well. How do you feel about it in right now? Do you think you are kind of you're getting to a position that you feel more comfortable with it right now?

Yeah. I think we're in a position, for the most part, there is always nuances relative to a specific product or a specific geography, but we're in a position to service the market right now. Our inventory at our dealer base is good. Our inventory at our distributor base is good. And as you mentioned, this is historically a slower part of the season as we move, in particular, the holidays here. But we're in a really good position. And I think that gives us a nice launching pad to aggressively drive growth as we move into next year.

Got it. Regarding to recycling, you are in the mid-50% kind of range right now. Can you talk about sort of as we look out two, three, four years, where do you think you can get that number to? You've laid out the GBP1 billion sort of target as well. I'm just curious kind of how do you see that, not asking for a specific number, but sort of how do you see that evolving as we look out three, five years?

Yeah. As we look at recycle, for us, we're still early in the journey. And so, we see an opportunity really in three different ways, right? One is, to increase use of recycle. Our cap composite board is up effectively 100% recycled plastic in the quarter to 100% recycled wood. Our cap polymer board, our TimberTech AZEK board, is at 50%. We see an opportunity to bring that up into the 60%s or higher. It's extremely difficult to recycle PVC. You won't hear that for many other companies, but we've got the capability to do that. And then, as you look at our other product portfolio, we just haven't had access to material in our exteriors business to meaningfully increase that percentage. So there's an opportunity to really continue to expand that. Add to that, the other focus on recycle for us is not just using recycle but also using lower and lower cost recycle and lower value recycle, the kind of recycled materials they get thrown away, right? So, in our case, we've been able to use certain types of flooring products that are historically landfilled. And we've been able to put that into our deck boards, right? And so that's an example. There's plastic bags packaging, all that that we can also put into our deck boards. And so, as we look at it over the long-term, as you mentioned, we're in the mid-50%s right now at a total corporate level. We expect that to move into the 60%s over a period of time. And I think, more importantly, as we do that, we're going to focus on more landfill types of products that should have a really positive impact on the environment and a positive impact on our bottom line.

Got it. And Jesse, do you really...

And I need to add that the PVC in particular has got two other added benefits. One, look, it's a natural hedge and lever against inflation, which we've seen in our business here, right, over the last 12 months or 14 months. And then, two, it's a hedge on availability, right? As the world was hit with hurricanes and [ hurricane ] availability became scarce, it really does help us and differentiate us that we can actually use recycling material at a very different way than a lot of our competitors. So, there is the obvious cost initiative piece of it, but it does help us in other avenues as well.

Got it. And then, what do you need additional investments to kind of get to that sort of 60 or 60-plus number that you just mentioned, Jesse, in terms of recycling? Or does your existing capabilities get you to that kind of a number?

Yeah. On the recycling front, as we continue to make investments, I mean, part of the consideration of this whole thing is our residential business grew 35%, right. And so, as you -- last year, you've obviously seen what we've guided to this year. So, as we grow the business, we need to grow our recycle capability just to keep up with the business. I think the way to think of it is, it's not quite linear. But as we add capacity, we are also investing in recycle capability to be able to keep up and outstrip that volume growth. We'll continue to make investments there. We called out in the third quarter last year when -- during our earnings call that some of the capital is going specifically to our PVC recycling. We're going to continue to make those kinds of investments. We will always source some recycling, but the ability to do it in-house will require ongoing capital investment. It's much more modest than some of the volume investments that we're making.

Got it. Okay. And then, probably along with the recycling fees, just to tie into your earlier comment around the 500 basis point EBITDA margin target that you guys have laid out, sounds like increasing recycling is obviously a piece but the change in formulation is also kind of on the fees. Maybe just talk a little bit more about those two things. And if there would be one or two other things that would also be a contributor in that margin expansion targets that you've laid out. And so, what is the right way? And again, not asking for a specific timeline, but how would you think about it as you look out you clearly have a target that's out there?

Yeah. So, a year ago, as we became a public company, we laid out 500 basis points. And when we contemplated that 500 basis points, it was a mix of expanding the use of recycle. And it was a -- it included some continuous improvement productivity and it included some modest leverage on our SG&A. Given our growth rates, as we [Technical Difficulty] public company costs and certain additional investments, we would expect to get some leverage on our SG&A, although we will invest to grow the business. So those were the three components. I think, as we sit now, we've made good progress on recycle. And we've had an imbalance relative to margin between price and raw material that's kind of taken us through, in particular the latter half of this year. But as we move forward over the next couple of years, we now actually have another [Technical Difficulty] that sets us up well. So what you're not seeing is, we're actually making good progress on recycle, but there's a lot of moving parts with inflation in price you're not seeing that progress. So, as we move forward, we still have those other components. We've made progress against that 100 basis points. Those other components still exist. And add to that, we believe that there is a structural opportunity that we're experiencing where the combination of price and raw material as raw material comes back just a bit will eventually give us a structural opportunity to be able to achieve that 500 basis points that wasn't necessarily fully embedded in the original 500 basis points that's out there. So the question then is, would we guide to a higher number than 500 basis points? And how do you use that? I think it's really important for us to continue to invest and to continue to have optionality. So we feel really good about that 500 basis points. We've got kind of a built-in opportunity to hedge against any negatives that also gives us the room to continue to invest in the business or a new products or new markets and still be able to achieve that margin expansion.

Got it. And then, just maybe talk a little bit about, you've recently talked about seeing acceleration in market share gains on the composite side. It seem like for a number of years, we were growing at sort of 50 basis points kind of a clip in terms of gaining market share. It does seem like there is no kind of a step-change. What in your view are sort of two or three key drivers? Is it sort of the market becoming more aware of the benefits? Is it sort of what you guys are doing in terms of making people more aware of it, product characteristics? Maybe just talk a little bit on that.

I think, one of the things to consider is, this acceleration was occurring pre-pandemic. So, I think it's important to kind of disconnect the accelerated conversion from the last 12 months. As we look at it, there's really kind of multiple factors. One is, the product attributes. And so, in particular, if you look at some of our premium decking lines, if they are indistinguishable from ipe, mahogany, these exotic hardwoods. And as such, the way we positioned it is, you get low maintenance and you don't have to give on any visual characteristics. And it's actually better for the environment relative to our ability to use recycle and have a lower carbon footprint. We've done lifecycle analysis on that. So, at one level, getting that message out and having the right products such that people don't want to plastic in backyard, right. It's really important that -- I think people in general, if you asked about composites, would maybe understand the low maintenance aspect. There's always more, but I think there's -- it's historically been a low involvement categories. So they haven't put together that you can get that and these kind of beautiful looks that will look better than any wood over a long period of time. So, the product education around that awareness, now you have two public companies talking about it. That's helpful. And I think the last thing is a bit of the network effect, right. And so, my brother-in-law put down a TimberTech deck in his neighborhood in Pennsylvania. And he told me, within 12 months, there was 10 other houses that bought similar product. And I think, if you think about an installed base of 60 million decks, many of them need to be replaced as soon as we get a replacement in a neighborhood, in particular the car stuff because it looks so realistic. You have an ability for the other neighbors to accelerate that. So we're in really good position relative to the [Technical Difficulty] capacity constraint. So, we can continue to aggressively market, which we now have an ability to do with more capacity. We think that there is an opportunity to continue if not accelerate that conversion.

Got it. That's helpful. And then, maybe just talk about what you're doing on the contractor level in terms of training, it seems like that is in composite decking is a little more pro-driven than kind of DIY driven, but talk about kind of what you're doing there to sort of help accelerate the share gain opportunity?

Yeah. I think for us, we believe we've got the largest direct sales force in the industry. Between our -- within our residential business, we have 200 salespeople. Now that's in a number of different areas inside sales, outside sales, but we have over 150 that are directly calling on customers in the field. They spend the vast majority of their time developing dealers and in particular developing contractors, right. So, in any geography and the area, contractors would have a personal contact that works with them, helps them convert. That's at a field level. We've got training centers in Pittsburgh, Scranton, Ohio, Chicago. And with our new facility in Boise, we'll have a training center there. And so, we've been able to use virtual technology over the last 12 months training thousands of people. We'll continue to have a hybrid model either virtual or whatnot. And I think it's a really important point. If you look right now, one of the key constraints that we believe and our customers tell us, it's going to be there is really labor in the market, right. The market will continue to grow. And so, the best thing we can do is to continue to convert those contractors that are using wood and help them understand -- once they do the first deck, then they get comfortable and then most of them won't go back because it's actually a much better product to install than wood, in particular the TimberTech AZEK product. And so, it's a lot of that day-to-day engagement. We've got a contractor base of 35,000 contractors. We have been able to market to them aggressively. We're taking steps in that direction as we look to build momentum for the next few years.

Got it. That's helpful. Maybe turning to Pete, we'll give Jesse a little bit of a breather. But Pete, obviously the last nine months, we've seen a lot of supply chain disruptions. We've also seen sort of quite a bit of inflation. Talk about kind of what you're seeing right now as you look at your supply chain product availability? And then, on the resin side, talk about what you're seeing on the inflation side?

Yeah. So let's start with the resin discussion first. So, let's get grounded a little bit on sort of what's in our guidance. And to be clear there, we're aligning with CDI. And what does that mean really for our two biggest endpoints from a PVC perspective. The assumption in CDI and our view in our guidance is, I'll say, as a general rule, remaining stubbornly high throughout most of '22. So, there isn't really some big assumed deflation and all in PVC and our assumptions on CDI. What we're seeing real-time here now in the marketplace is, I would say, capacity is back to pre-hurricanes. So, there aren't any availability issues. But there isn't really enough slack in supply yet to sort of see any near-term deflation in PVC. So, I think the reality is, we probably see and align what we projected in terms of it being flatter as we move through the year and maybe starting to drop a bit in the back half of the year. On the PE side, a bit more optimistic. What was assumed in CDI and our guidance is that in the back half of the year, we would see some modest deflation. And I would say, what we can see in the marketplace for supply dynamics right now is, there hasn't been a slack and we're optimistic that we'll start to see some deflation maybe even sooner that was -- than what was assumed in both CDI and our guidance. As far as, again, on availability, going back to our conversation on recycling, I think we probably haven't educated people well enough that recycling does provide us a pretty big buffer. That's not to say that hurricane [indiscernible] supply, but I think it is a nuance for us that separates us a bit, but we are so nimble. A lot of people are trying to use recycled content. They don't do it well like we do. So I think that's another opportunity for us as we get to the back half of this year as I think a lot of people flooded into the pool of recycle PVC and a lot of folks has found out over the last six to nine months that they're not good at it, running that kind of mixture and it's showing in their yields and product quality. So, hopefully there is more people leaving that recycle pool, which obviously helps us in the near-term and medium-term. As far as just the supply chain world and where things at, I would say, they're modestly less chaotic than they were for the last nine months, which is a good thing. But there's still a lot of the same complexities and dynamics that have been there over the last nine months. I'd say, what's different is, look, I think our teams actually starting to adjust to the real world or the new world of supply chain dynamics. And I think we battled our way through that better than most of our peers. But, yeah, you said, hey, our railcars in the right places in the United States, our boats at the right docks or right ports around the world, the reality is they're not. So, even though it may look effortlessly in terms of our execution, it's not. There's a lot of hard work behind the scenes. But again, I think our team has done a really nice job adjusting to the new norms of what the world looks like. And again, I would just close with even modest improvement and just stable operations, we think, gives us a huge leg up year-over-year in terms of delivering on just general plant productivity. We've talked about the constraint on capacity or reformulation work or just due to capacity in the past. But the other big piece levered for us is just preventive maintenance. And the reality is [ as a thing ] in '21 that was especially challenging to want to be as proactive and cost-efficient environment when you have no slack. So when we look to '22 and what's come online already as well as what's due to still come on this year, we just think we can run our plants a lot smarter even if the external world doesn't get a whole lot saner year-over-year.

Got it. That's helpful. Just one follow-up there. I mean, what kind of lags do you typically see in your financials with respect to resin? Because it seems like on the PE side, you've already started to see some easing in pricing. So, just remind us for people and the folks here, what's kind of a typical lag?

Yeah. I mean, typically it is about 60 to 90 days because, look, at the end of the day, any given time, we've got two to three months' worth of equivalent kind of material on the balance sheet. So that's kind of our layering if you want to think about it in terms of deflation and inflation as we pay it and as it flows through the P&L, it's about two to three-month lag.

Got it. And what you had embedded within your FY '22 guidance is kind of starting to see easing in the back half of your fiscal year, is that kind of what is embedded within the guidance?

Yeah.

And PVC to remain relatively flat?

Yeah, there is very modest deflation like in the fourth quarter. But on the PE side, it's really third quarter, fourth quarter, we're expecting to see some modest deflation.

Got it. That's very helpful. Maybe, Jesse, talk a little bit about kind of you mentioned growth opportunity in some of the newer products. The capacity that you are getting up, you are in a better position to attack some of these other markets. Now maybe talk about kind of where you see the most opportunity, again, paying to the theme of taking share from board? Which areas are kind of most interesting to you?

Yeah. So, I'll separate it across our two main residential businesses. I'll actually start with exteriors. And so, as we look at exteriors, we continue to see a significant use of cedar and other alternative materials that are not the right value proposition compared to our types of materials. And over the last year, we've been able to gain share more specifically because we have functional products. So, think of it as a corner on the side of the house or if you're trimming a window, the ability to slide the deciding right behind the window without having to seal it off. Those kinds of productivity solutions are really driving a conversion of wood in those geographies where historically there's been a high use of wood. And think of like the Northwest or the West Coast, in particular, the further West you go, the more conversion opportunity we typically have. And that's really a new product-driven opportunity, including our single product, our PaintPro product. And then, if you look at decking, we had to constrain a number of our products, right? And so, yeah, we can screen the launch of our landmark product, which is converting more of the high end, we've had to constrain some of our vintage products, which converts ipe, mahogany and we had to convert some products that also convert cedar and, in some cases, even price are treated. So, if you think about actually fulfilling the entire product portfolio, that's a tremendous opportunity there also. And then, the other key thing is, we've had a number of customers, that number of dealers in particular and even contractors that would like to abuse the product I just talked about, we had to constrain demand. We were servicing our existing customers. And so, we see a lot of opportunity to bring these products in the dealers that haven't historically worked with us. And we've had pretty good progress over the last few weeks on engaging key dealers and giving them an opportunity to buy our products. And it seems kind of odd to position it that way, but think of an industry where there is the capacity constraint within the industry, including ourselves, and now we have enough capacity that we are no longer capacity constrained. And so, it gives us another weapon in the arsenal, in addition to having great products, a great sales force, contractor training, marketing, all the other stuff we use. It gives us another weapon to be able to get very aggressive on share conversion where we've got the right product and now we've got the right capacity. And so, we view that there is a lot of opportunity out there that will manifest itself over the next 12 to 18 months.

Got it. And now, Jesse, sticking on the decking side within your sort of portfolio of products, you've got sort of good, better, best. You've got the PVC portfolio, which is sort of slightly unique in the industry. Talk about kind of -- are you seeing more growth on the good side of your product portfolio or some of the entry-level products that you guys have launched over the last few years? Or is it kind of more evenly spread out across the portfolio?

We've seen remarkable consistency in growth really across the portfolio. We're conscious of -- we want to make sure that we're servicing the breadth of the market. We have good, better, best premium. We've got an entire set of products that sits above anyone else in the market -- anyone else of size in the market and it's a meaningful part of our business. And so, we've been able to drive growth in all those segments. That happens to be our TimberTech AZEK product, sits above the market and has characteristics that are unique and differentiated. So, long-winded way of saying, really pretty consistent growth across the portfolio. And if you think about it, sometimes we as an industry can get caught up in DIY someone choosing to say 100 bucks by buying a lower-cost composite versus wood, all these economic equations. We're dealing with pretty significant household wealth right now and it's driven by a number of different variables, not just stimulus, but where we are in the economic cycle and kind of the wealth that exists out there and people are investing in their homes. And these are not folks that are worried about a couple of hundred dollars here and there. They want the right thing that's going to be the right element. And so, if you think about that us being premium and having a unique position there, it wouldn't surprise you that there's a lot of growth opportunity there that we're just starting to capitalize on, so broad.

Got it. And then, Jesse, also I wanted to -- we talked about our recycling and the benefits that you will-- the opportunity that we'll have in front of you in terms of margin improvement but also talk a little bit about your sort of ESG strategy that you and kind of how do you see that evolving over the next few years?

Yeah, I think it's a great question. We've got such a powerful sustainability story with using recycle to produce products. But we're really proud of the breadth of what we're doing and it's always a journey. So, we think of it is as really people, products and planet, right, recycle gets into product and we've disclosed in our ESG report last year, we disclosed our carbon footprint and we went beyond just what we do. We actually disclose the carbon used in the raw material of our product. And as we go down the path of recycle, roughly a recycle pound has 20% of the carbon footprint of a virgin pound. So, give or take, it's in that range. And so that is a powerful way to manage our carbon footprint. So, we're very focused on the environmental aspect of it. We'll continue -- as we progress through the year, we'll announce some science-based targets, but we're clearly in a great position there. But then, as you look at the other aspects, right, on the social side, if you take a look at our Board of Directors as an example, we've got three women on the Board, multiple people of color. It's really important for us, and for us diversity starts at the top, right. And we've got a diverse management team, arguably the most diverse management team in the industry, a very diverse Board and we continue to really engage in a conversation of just doing what's right in terms of how we manage diversity, how we manage inclusion on the people side, we're focused on safety, all of those components. And then, the other part relative to governance. We continue to take steps to move ourselves into being a great company. As I mentioned, we've got a terrific Board. As a private company going public, we continue to take steps to make sure that our disclosures are out there. And we'll continue to take additional steps to make sure that we move in a really positive direction on governance. And so, for us, it's the full circle. If we weren't talking about recycle and this weren't ESG conversation, we'd be talking about all of these other things, because I really do think we are leading the industry in terms of a genuine focus on making a positive impact from a society standpoint.

Got it. That's very helpful. And then, I want to talk a little bit about the capacity increases that you guys have announced. We talked about our demand being really strong. But kind of talk a little bit about -- as you look ahead, you obviously have the greenfield that's coming online later next year, I think, in the summer of 2022. So just talk about kind of the cadence of what you have that's coming online. And then, we've also seen a number of announcements within the industry, obviously from larger public guys, but also a number of kind of smaller players that are out there as well. So, not asking to comment specifically on kind of your competitors, but as you look at sort of all of the capacity that's coming online, are you concerned at all in terms of what kind of an impact or does it change the competitive dynamics within the industry?

Yeah. So, relative to competitive dynamics, a lot of the capacity adds of the major players -- major two players in the industry, in particular, have occurred recently. And so, the way to think of that is, we've had excess capacity. I mentioned we've grown 18% over 10 years. We've had excess capacity, as has our competitor over a extended period of time. And so, we built the market typically having slack capacity. And so, the addition of -- the potential that we're going to have slack capacity in the future is not really concerning. And if you step back and you look at the economics of how we look at things, right, 70% of our cost of raw materials, 90% of our costs on an EBITDA basis are variable. And so, basically what you're dealing with is modular manufacturing, right. The benefits of trying to run capacity for utilization is not really there compared to the benefit of getting the right price and the right value for what you're making, right. The equation supports a more rational activity base. The other thing I'll just highlight is, this industry goes through cycles. There has been hundreds of, from what I've been told, many, many, many composite competitors that have come in and out of the market, you'll go to IBS, I guarantee you'll see a few people that are going to revolutionize the market. And I think, the question is, why has it been so difficult competitively over the years for anyone to penetrate? It's certainly not because they haven't tried having a lower price or doing something different or reporting all that. All of that cycle we've gone through and it's really the structure of the market, which is a high-risk product for contractors. If they get a call back, we're, give or take, a relatively small part of the cost of the project, saving 10% or 20% on that and having a call back is risky and just the position we've established over 20 years with our customer base, right. So it's extremely difficult for people to come in. We're always paranoid. That's why we develop new products every year. We want to make ourselves obsolete, but the capacity alone doesn't create any kind of competitive concern or dynamics for the reasons I've said. Now having said that, we believe, for the next two years, we're going to have a competitive advantage because against the other larger players in the industry because we not only have differentiated products but we also have capacity to uniquely fulfil the market. So it's not using capacity to lower the cost, it's using capacity to have a better fulfilment model and leverage the deployment of our new products. And so, we're ahead of the game. We believe we're a couple of years ahead of the folks that are out there. And we believe that will be a nice opportunity for us.

Got it.

And just very briefly, you mentioned the cadence -- very quickly. We brought in 40% capacity. We've got another 15% coming online within the next few months. We've got another 30% coming online, as you mentioned, over the summer and then -- or prior to the summer. And then we've got another 15% coming online. All that adds up by the end of the fiscal year using 2019 as a benchmark will be up 100% on a pounds basis.

Got it. And Jesse, what is the typical ramp-up for a greenfield that you have at Boise?

Yeah. We announced it in the beginning of -- we announced it a little less than a year ago and it will be operational. I'd probably put full operational in the neighborhood of 14 months -- 16 months. Now it's a brownfield sites. We didn't have to build a building, but we had to upgrade the infrastructure. So, let's call it, like stand out 14 to 18 months. The machines themselves, once you have the structure, you're dealing with, give or take, nine months to be able to get the equipment in. So, as we mentioned on the call, we have only have the building used with all the capacity that we've announced. There is a nine-month lead time if and when -- or not if -- when we decide to pull the trigger to expand even more. And we feel like we're in pretty good shape through 2023 with what we've announced, but we're going to stay ahead of the game.

Got it. And Jesse, I want to also briefly talk a little bit around capital allocation. Seems like having room to grow internal capacity is obviously one important aspect that you've highlighted, but talk about M&A opportunity as well.

Yeah. As you mentioned, investing in ourselves is the best return. We typically have return on tangible assets in the high-30%s and into the 40%s with the capacity that we add. As I mentioned earlier, we view the outdoor living space that's not just the $4 billion that's defined as decking. In our core, we're not core [ return ] if you include exteriors. There's another $10 billion of opportunity that's near adjacency. So that combination of $20 billion of opportunity gives us a really nice opportunity. We've got a robust pipeline. We feel good about the ability to potentially, over the long-term, partner with people that can provide the same kind of value, the same kind of sustainability, the same kind of longevity and need of the back of the front yard and we'll continue to work the pipeline. We bought three companies in the last four years. We bought a recycler. We bought a aluminum rail product that is now a core part of business and we bought the number two Trim player besides ourselves in the PVC market. Obviously the market is much broader than that. And so, those types of acquisitions, adjacencies, recycle tuck-ins, all exist as part of our pipeline.

Got it. Awesome. Look, we've run out of time. So, I want to really thank Jesse and Pete and the entire AZEK team for participating. Thank you, all.

Thank you.

Thank you. Appreciate it.

Thank you.