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

All right. Good morning, everyone. Welcome to AZEK's first-ever Investor Day. My name is Eric Robinson. I help lead our Investor Relations efforts here. We're really excited to walk you through our business or the opportunity and our strategy here and really, frankly, give you an opportunity to meet some other members of our team here. Before we get started, I would like to remind everyone that during this presentation, we may make certain statements that constitute forward-looking statements within the meaning of federal securities laws, including remarks about future expectations, beliefs, estimates, forecasts, plans and prospects. Such statements are subject to a variety of risks and uncertainties, as described herein and in our periodic reports filed with the Securities and Exchange Commission, that could cause actual results to differ materially. We do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's presentation, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. These non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of such non-GAAP measures can be found in the appendix and on our website. With that, I'd like to turn the presentation over here to Jesse Singh, CEO and President of The AZEK Company.

Good morning. Thanks, and it's great to be here. We had a chance on Monday to celebrate our IPO, our 2-year anniversary of our IPO. So we had rang the bell virtually, and we actually had a chance to ring the bell. And it's been a terrific 2 years. We chatted with some of you prior to that. We've chatted with a lot of you over the last 2 years. And I think what we're trying to do today is give you a double-click on the business. As we take a look at the agenda, what you're going to see is, I'll be up here for just a few minutes. You will see a number of different speakers. You will see the breadth of our team. And you will have a chance to get into detail in a number of different parts of the business. And I love starting with this slide. One of the core strengths and differentiations of this company is the team that we have assembled. We have a unique blend of legacy team members that have been around 10-plus years and newer team members that are really -- have been brought on board to help us scale. The bios are here. You'll be able to see it online. These are the speakers today, but we also have a number of individuals that will not be speaking for the most part that are here today. So we have a core value of the best team wins. The folks that are here and the people on this page are just a representation of that. When you go into the other breakout rooms, which you'll have an opportunity to do after our Q&A session, you will meet even more members of the team. And once again, that's by design. They're prepared for your questions, just don't ask about anything forward-looking. But they're ready for your questions, and we're really excited for you to engage. So with that, let me start with where I start often, which is our purpose: to revolutionize outdoor living to create a more sustainable future. We are focused on using recycled materials to convert building products on the outside of houses. We are a values-driven company. I don't spend enough time probably with you all talking about that, so I'll take a moment now. We have a core set of values that the company operates from. We share this with our employees. We share this with our community. We share this with our customers. It is our promise to the world on how we expect to behave, and it's always a journey. So first and foremost, we start with always do the right thing. Do the right thing for our employees. Do the right thing for our communities. Do the right thing for our customers. Do the right thing for the planet. And do the right thing for our investors. It starts and ends with the customer. We are very, very customer-focused. What that means is we design our organization to understand the customer and to deliver the right value proposition. It does not mean the customer is always right. It just means that we see the world through the eyes of our customers. Value every individual, this is really important to us. We understand that every individual has a different path. Every one of our employees has different needs. They've got a different view of the world, and they have a different background. We need to create the right environment where everyone can thrive. And you'll see that in what Amanda talks about in terms of our general commitments and our very specific commitments to diversity and inclusion. Lead through renovation. In every sector that we play in, in every product line that we have, we will be the innovative player. We measure ourselves against leading on the innovation side. We will continue to push the envelope. The best team wins. I touched upon that earlier. I think the key here is not just the individual, it is the team. We have the benefit of being a relatively small, focused company. It is terrific in terms of having a macro team measurement. The team understands what the strategy is, and the team is executing against that. Hopefully, that's something you'll see, and then better today than yesterday. We always believe that there's an opportunity for continuous improvement. History of the company. We started as a manufacturer of sheet products. We created the branded trim category through AZEK in 1999, and we -- that brought us into the residential repair and remodel business. In parallel, TimberTech started their composite decking line in 1997, about a year after another company. And so over the last 20 years, those 2 businesses have been building out a fantastic set of franchises. Now we combined in 2012, I think the other key to really create what we think is the outdoor living company. I think the key here is, along the way, we continue to innovate, we continue to add new products, and we continue to add acquisitions. One of the fundamental aspects of our growth is always adding tuck-in acquisitions. And I think the benefit you see of that, this is a representation of how, as we add new products and as we add new acquisitions, we are constantly expanding our TAM. It is really important for us not only to drive growth and drive penetration in the core, but to always be looking for opportunities to expand our opportunity, using recycled materials to replace wood on the outside of houses. And as we have evolved, we started from sheet. Now we've got a really broad outdoor living portfolio, and it's safe to say that we have ambitions. We're in a market right now of $24 billion. It's safe to say that we have ambitions to continue to grow with the market, but also expand our position and our TAM. Now our core legacy business was our commercial business. It is a great business in the markets that they play in. They are #1 or #2 in general sheet products, bathroom partitions and lockers. It is a smaller and smaller part of our business, but it's a really important business for its customers, and it does a terrific job. Now given its size, we will not be getting into any detail on that business today. We will focus on the other aspects, but it's a great core business that exists within our 4 walls. So as you think about our evolution over the last 20 years, what we've ended up with is a unique and synergistic portfolio. We have deck rail and accessories under the TimberTech brand. And we've got exteriors under primarily the AZEK brand. But we also have the Versatex brand, the #2 player in the market. And what that's allowed us to do is to create the complete package. So if you take a look at this picture, it really highlights how there is such significant synergy on many jobs, right? You can see the decking. You can see the rail. You see shingle products on this, happens to be our single products. You see column wraps. You see white fascia. You see trim around the windows and doors. It is very synergistic. And Jon will get into that in greater detail on what the advantages of having both these platforms. It not only gives us greater market opportunity, we believe it gives us greater strength. Now over the last 20 years, in addition to building a terrific portfolio, we've built out a terrific network. We've built out a terrific business. We've got a primarily U.S.-based or almost exclusively U.S.-based manufacturing organization. We have built out 200 direct salespeople in our Residential business. We believe that's the strongest in the industry. A great distributor network, a great pro presence and a great retail presence and a really strong set of contractors. And so if you look at our 10-year CAGR in the Residential business, it's 18%. And as we look at the market, we believe that this business has the capability to grow 6 percentage points over market. We have a proven value-creation model that we operate with. Number one, we play in markets where we have a powerful tailwind. And I'll get into that in a moment. We play where we have attractive margins. And in our case, our margins are built on a foundation of core strengths. Number one, we're a branded player. Brand matters. It allows us to get a premium. It allows us to be known in the market. And everything we do, we do as a branded player. Number two, integrated manufacturing. By operating -- by making what we sell and continuing to integrate downstream, we control more of the product quality, more of the innovation, but we also control more of the margin. And that's a real key aspect as we look at continuing to have good margins and drive it. Material science. We want and have differentiated capability. We have stuff that other people can't do. That allows us to have a stronger position in the marketplace, a defensible position in the marketplace, but also allows us to drive differentiated margins. And then last, customer connection. I made reference to it, something we built out over the last 20 years. We've got a structure and a position in a market with our customers, highly fragmented customers, tens of thousands of contractors. That customer connection is a huge competitive advantage. And then we operate with a focused strategy that is a portfolio of actions around both growth and margin expansion. So just a couple of points on the macro and why we're so excited about the market. Many of you who are in the industry, you've seen this. There is growing demand for housing. There's multiple generations competing. Millennials are having their second kid. That's the triggering event, we believe, for wanting to move from Manhattan, where we are now, to perhaps the suburbs, where you need a little bit more space. There are multiple generations right now competing for housing. Against that backdrop, there is a shortage of housing. And against that backdrop, the housing that exists is aging. That sets up for a terrific resilient repair and remodel market, which is primarily where we play. Add to that, in the markets that we play in, we have powerful tailwinds. We play in outdoor living. Outdoor living has typically a higher growth rate and a higher focus on repair and remodel. Add to that, in the markets that we play in, we benefit from material conversion. Material conversion for us is an additive element to the underlying growth in the markets that we play in. And we'll show you a little bit more detail on that. Against that backdrop, you're going to see today that we continue to invest in those strengths. I highlighted the benefits of those strengths and how it gives us differentiated margins and a strong market position. You'll see examples of how we're investing in brand, material science and new products, how we continue to integrate and expand our manufacturing. And you'll see what we're doing with our customer connections. Now as I mentioned earlier, we've got a clear strategy and a portfolio of actions to drive both growth and margin expansion. Number one, market conversion. It happens. We want to benefit from it. We will continue to launch products and do activities that facilitate that. Number two, product innovation. Product innovation benefits our core. It helps us expand within our growing markets. It also helps us to access new markets. It helps us expand our TAM. Multichannel expansion. We've got a great position now. There's always room to improve. We have opportunity to continue to expand our position and our breadth into more channels. The consumer journey. Later on, Sam, our CMO, will highlight. This is a difficult decision process in many of the markets that we play. We will continue to invest in our brand and improving the consumer journey to continue to differentiate ourselves and drive growth. And then M&A. As I highlighted earlier, M&A allows us to continue to drive growth in the core, but also allows us to access an expanding TAM. There's an example, for those of you that are in the room, of one of our most recent acquisition, StruXure, physically in the room. And when you see it, it's really obvious how it's a natural adjacency that expands our opportunity, both in the core, but helps us expand in our adjacency. And then as we look at margin, as we've talked about, we see significant margin expansion opportunity driven from continuous improvement and recycle. We will give you more detail as the day progresses. So that strategy that I've laid out, we've been operating under for a handful of years now. You can see that strategy has driven really nice 5-year growth. And that strategy has driven really nice EBITDA growth. We fully expect that to continue, and we are well positioned. So just a modest double-click on how we view our growth equation. We have communicated that we view growth in our Residential business as roughly double digits. We're giving you a little bit more detail and clarity, and you'll get more detail as the day progresses on how we see that, right? Number one, we typically stack on top of an R&R market. For illustrative purposes, we're assuming 4%. Historically, in our recent history, it's been a little higher. And then as you look at where we see wood conversion, we see wood conversion as an opportunity at 3% to 4%, stacking on top of our markets. Now the opportunity is much larger. This is just what we're assuming. And then number three, our growth initiatives. Everything I just talked about, we assume, can deliver 2 to 3 points of growth, at least, right? And you'll see examples of that, examples of new products, example of commercial initiatives, right? You'll see examples of our marketing. You'll see examples of our sales, right? You will see examples of leveraging the acquisitions that we have already made. Those all contribute to that stack of growth initiatives. And then as you look at our annual sales target over the long run, give or take, about 11% for our Residential business. Add to that the potential for additional bolt-on M&A that would be additive. Now once again, these are our long-term targets that we're guiding to. Second, we will talk about, as we go through the day, a reaffirmation of our 500 basis points of margin expansion off our 2019 baseline. You should think of that as 27.5% or, if you round up, 27.6% EBITDA margins. We will lay out how we view that as being, on average, 100 basis points of opportunity every year. That is our target. So you'll see more detail as we progress through the day. So if you roll all that up, where that puts us is, in 5 years, our 5-year financial targets: $2.3 billion in revenue, $625 million of EBITDA, 500 basis points of margin expansion and $1.6 billion of operating cash flow. And Pete will give you more detail on that. So in summary, our model is to take recycle and trash, the lower end of recycle, which is defined as trash, and turn it into beautiful outdoor living products on the outside of houses. We drive a value proposition of beauty, sustainability and low maintenance in that process. We think that's a terrific long-term equation. And we think it really sets us up as a unique long-term growth and margin expansion story, growing markets, innovation, a portfolio approach to growth and margin and having sustainability at our core. So with that, let me ask Jon to come up. Many of you know Jon. Jon is in the process of becoming the President of our Residential segment. Jon has been around the industry a lot of years. He's been working in our strategy area, in our M&A area, in our growth area for a number of years now, and is really well set up to take the business to the next level. So with that, Jon, come on up and share your perspectives on Residential. Thank you.

Super. Good morning, everybody. It's great to see a lot of familiar faces. And for those of you I don't know, Jon Skelly. I've been at this company a little over 4 years, and as Jesse mentioned, transitioning from my role of leading our sales and customer services teams into the President of Residential. So if I leave you with nothing today, I want you to walk away with a few key takeaways. We've got a great business and a great market with the best team, and we're executing well. So if you remember four things today about the Residential business, please remember those. So starting off, kind of a double-click on Jesse's slide around our performance. The performance that you've seen as a whole for the company for AZEK, you've seen the exact same performance within our Residential segment. So roughly, a 20% CAGR over the last 5 years, while we've been increasing our EBITDA growth as well. So what drives that? What drives that is execution. We're going to spend a lot of time today talking about execution, and a lot of that execution comes on top of that great market opportunity. Jesse's framework in terms of the growth stack is what I'll be following today. I'll sort of walk you through R&R. I'll walk you through our market and wood conversion opportunity, outdoor living. And then I'll talk to you about how we win, our initiatives, our execution to get that extra 2% to 3% on top of what's already a powerful market force. This is a little geography. I think most of you have probably seen this slide before. But as a reminder, deck rail and accessories is 70% of the business, followed by exteriors at roughly 25%, and then Jesse mentioned our new StruXure business in smart pergolas. The underpinning here is an 85% repair and remodel-driven and 15% new construction. And then we have one of, if not the leading brands and presences within the Pro channel and a growing retail channel. You've seen this slide before, but from a sort of sales and marketing perspective, I want to explain to you why this is important. We have what we believe to be the broadest offer in the space. There is virtually nothing that we cannot address outside the home or in an outdoor living project with the breadth of our portfolio. It's really powerful because we get to leverage our exact same sales and distribution channels to bring this to market. So if we double-click on this a little bit more and we talk about why this is such a terrific strategic advantage, you can kind of look across the page here and see the decking that goes on the ground. You can see the pergola goes over the top. You can see the trim material that surrounds everything. Basically, we have more opportunity on each and every job. We have more potential customers that we're able to address, and we use the exact same channel to reach all of these customers. Think about that if you're a contractor. If you're a contractor and you go to a homeowner for a quote and you're just selling decking, you've got one thing to sell. Our contractors get to approach each and every consumer with a much fuller wheelbarrow of products that they get to cross-sell and upsell to that consumer. We consistently get feedback from our contractors that this is a tremendous advantage for them. Now let's flip over to the market opportunity. Again, within this section, what I want you to take away is we have very large markets, all are high growth, and we have leadership positions in each and every one of the segments where we play. Within the core markets, $14 billion, consisting of decking, railing and exteriors, predominantly, and also our new pergolas segment. And then in the adjacent markets, and what's interesting about the adjacent markets, these aren't ideas. We are active, we're producing revenue, and we're winning in these $10 billion adjacent markets. So a $24 billion market opportunity. This is different from when I stood up in front of most of you 3 years ago about our market opportunity, it was closer to $20 billion. So just in a couple of years, on our 2-year anniversary, we've added an additional $4 billion of total addressable market, and we've also strengthened our position in each of those markets. What's really great about all of these, you can see across the top, high-growth outdoor living repair and remodel-focused, material conversion, channel leverage and recyclability sustainability. That is a constant across all of our businesses, and it gives us those market forces that propel the business, that beautiful tailwind that Jesse was talking about. And all are experiencing sustained growth. The key here is the word sustained, right? So if you look at '17 to '21 across our core decking, railing and exteriors, you see really powerful growth. What's most compelling from my point of view is that, in every case, our materials are growing at 2 to 3x the rate of wood, right? So that's material conversion at work. This is the data that we're going to keep double clicking on as we progress here to show you that our opportunity is substantially greater than what you just see within the wood market, and it's being driven by conversion in outdoor living. And this is what I mentioned at my intro. We have leading share positions, right? So if you look at how we stack up in decking, we're 1 of the top 2 players in the marketplace. Combined, the top 2 have more than 70% market share within decking. If you kind of look down into the composite decking piece, the $2 billion of the $5 billion, what's most compelling about this is when you couple it with market conversion, right? So today, composites have about 25% share of the market. We're going to share a little bit more data to show you that we think, in the next 10 to 15 years, we're going to get to 50%. When we get to 50% conversion, that $2 billion turns into $4 million. So it doubles, right? And so that's something that you don't see when you just look at the static numbers today is that the share of the composite pie is growing faster, and we have the opportunity to double our addressable market within decking as conversion accelerates. And it's the same story for us in exteriors, market leader, brand leader, #1 position in PVC trim, and it's a relatively consolidated marketplace for the leading manufacturers. This really matters. Contractors and consumers choose us because of that brand and that loyalty. I'm going to talk a little bit more about what brand means. It's not just a logo, it's not just a name. We have a much different definition of what brand means, but the brand really matters. We are -- just a side story. Jesse and I were just checking in, the security guard downstairs in New York Stock Exchange, "Hey, AZEK, I love you. I use you on my house," right? I mean, it's just everywhere we walk, that brand really means something. He could have come in here and made the pitch for us in terms of the quality. He said it lasts. It's just a great product. So it's really fun when we get to hear those stories walking around a place like New York City. And just a little bit more opportunity around our adjacencies, right? So this is the $10 billion that makes up -- the $10 billion of the $24 billion. Again, if you look across the page here, none of these are ideas. We're actually delivering against these opportunities, and they're all very synergistic with our business. We're leveraging the same material technology. We're leveraging the same channels and allows us to access the entire outdoor living space. So it's just a really, really nice window into opportunities, where there's a lot of leverage points, we can capture synergies and we can accelerate growth. A perfect example of that, Jesse, you mentioned the Cabana X that we have here from StruXure. This is a really exciting acquisition. So if you kind of break it apart for a second, their material technology is aluminum. Aluminum is what we've been growing aggressively within our aluminum railing business. It's a sustainable material, up to 50% recycled, power-coated aluminum, lasts a lifetime. It's not going to scratch. It's not going to fade. It's not going to rust. We leverage it directly through our sales channel. Our contractors are chomping at the bit to get access to this product because it's a very simple solution for them. "I just built you a beautiful deck. I wrapped it in beautiful trim. How would you like to turn this into an outdoor room?" And that's what that is. It's an outdoor room. I push a button, the top close, it's watertight. I now have a beautiful outdoor space, not just a deck or a patio. That's a really, really unique advantage for us in that we get to attack the customer and attack the consumer from multiple angles. And the contractors, they love it. Something like that, that Cabana X, they can put up in 2 hours. And they make a few extra thousand dollars in profit on the job when they sell that. So now let's move in and double-click a little bit more on the secular tailwinds. So this is my favorite slide of the day because I get to talk about my house. That horrid, absolutely terrible-looking, pressure-treated wood deck on the left was my house. So I mean, it is absolutely awful, moldy, disgusting. It was 6 years old when I ripped it out. Halfway through, this guy decided to try to salvage it. And so went to a local hardware store, bought some deck paint, pressure-washed it, gave it a little bit of sanding and painted it. Three years later, it looks like that. I mean, come on, that's discussing, right? Fast forward, look on the right. Made a good choice of hiring a good contractor and built a beautiful TimberTech AZEK deck, wide with mahogany AZEK column wraps, a nice little pergola on top. And our marketing team threw in some nice chairs for the photo shoot. So this is material conversion in a picture right? And this is really important. This really matters, right? I mean, I had something that like, we can all agree, just looks like a freaking disaster, okay? And look at how beautiful it is. And I'm done, right? And so I've got 3 boys. They were here helping us ring the bell on Monday. And I have no qualms about handing them a brush with a little bit of deck cleaner and let them go after it, and then I get to give them $10 to go down to 7-Eleven, right? That's it. That's my maintenance, right? And it's beautiful, and it's consistent. And what's really neat is, too, is we're going to talk a lot about material conversion, every one of my friends who's come to the house and seen this, all the people who are walking by when our contractors were working, we redid the front porch as well, they just said, what is that? I've never seen anything that looks that beautiful, that looks that much like real wood. I got to tell my story and punchline. I've sold 5 decks since this deck went in. It's the easiest sale ever. So as a sales guy, I really appreciate that. And what's really neat is the remaining opportunity around material conversion is substantial, whether it's the deck, it's the rail, it's the columns, it's the pergolas, most of it's still made out of wood, most of it's rotting, most of it's failing, but not our products. So if you look across the board here, anywhere from a 40% to 75% opportunity to continue to convert inferior materials such as wood. And it's not just wood. It's other products that are "composite", engineered woods, other things like that. Our products simply outperform them. So our remaining opportunity is absolutely substantial. And again, my personal story here is, I'm watching this acceleration happen. My contractor, he did my job. The home next to us had a composite deck. That was it. There were 2 decks, 2 composite decks in the neighborhood. Just for my contractor alone, now we're up to 7, right? And that's going to accelerate. And here's the data, right? So when you talk about an anecdote, when you talk about a personal story about acceleration, that's one thing. The data is another thing, right? Very compelling. It took 20 years to get us to 20%. And if you look from '18 to '21, we've added 5% over that period of time in terms of material conversion, right? So that's really important. There's a bona fide acceleration. It's not 1 data point. It's not 2 data point. We now have 5 years of data points in terms of this acceleration of conversion. And we believe in the next 10 to 15 years that we're going to get to that 50%. So again, think back to earlier, $2 billion going to $4 billion just from conversion. And why does that matter? Why that matters is, if you go back to Jesse's growth stack, all we need is 1% to deliver that 3% to 4% annual growth, right? Each 1% share shift is $80 million to $110 million of market growth, right? So that's, think about if you want to get from 25% to 50%, you multiply it by the midpoint there, that's how you get that additional $2 billion. You all are very good at math in this room. I know that. But it's 4% annual growth, right? And what we've seen is actually a rate that's going a little bit faster than this. So we're not trying to forecast that, that rate maintains itself, rather, we believe it will over the next 10 to 15 years. But we only need 1% to deliver a 4% industry growth on an annual basis. So what's driving conversion? Again, I think my picture was worth a thousand words and what drove it for me. But if you think about what's the data, what's the education, what's the awareness that we're providing to consumers to ensure that we, as a company, and we, within our industry, help continue to accelerate that conversion. It's the economics. The economics are pretty simple here. Again, most of you have seen this data before, but the cost of the substructure and the labor is constant. It's a very slight upgrade to go from pressure-treated lumber that's going to look like c***, like my house did in 6 years, or something really beautiful, my current deck, for a few extra thousand dollars. It's not a huge investment. And then Jesse had shared some really great macro data in terms of what's housing with -- what's happening with housing stock and investment. What's really neat about outdoor living -- and I'm about to give you a bunch of data in terms of how that looks. But for $25 to $50 a square foot, you can add outdoor space. You can add an outdoor room. You can put a pergola on top of it. Compare and contrast that in terms of if you wanted to add a room to your house or if you wanted to remodel a kitchen or a bathroom, you're going to be spending hundreds and hundreds of dollars on that remodel job. So what you have here is a really efficient way to add usable square footage to home for much cheaper cost. And then you're also adding resale value to your home when you improve your outdoor space. So it's really important to remember, only 20% to 30% of the job is on materials, the labor and the substructure are the vast majority. Again, so we're not asking consumers to pay that much more. We're just asking them to increase their investment a little bit further to get a low-maintenance, beautiful sustainable deck. So then in terms of outdoor living that Jesse talked about, I think the key takeaway here is, this is long-term sustainable, right? So if you look at the data on the bottom, it's not that outdoor living is just a new fad, something that's going to go away. That's 7 years of data, where the largest share of outdoor living -- the largest share of repair and remodel investment is going to outdoor living, right? So this long-term sustainable trend, decking happens to be the most popular within that outdoor living investment. And you've seen the linear fee increase by a 7% CAGR since 2014. I mean, simply put, we all desire to spend more time outside of our home. And what the data is showing you is that it's reflected in the investment being spent more on the outside than the inside. And here's the data around repair and remodel. Again, as I shared earlier, 85% R&R focus for the business. It's incredibly stable, right? So if you look at repair and remodel across all the cycles, there's just a lot of stability there. There's also -- and we've shared this data before, it's been recently updated, but approximately 60 million decks in the United States, according to NADRA, and half of them are past their useful life, right? So there's this very large installed base. There's just a lot of nondiscretionary spend in terms of I've got a safety issue. This deck could fail on me. It takes it from I want to have to I have to upgrade, right? I have to improve the stack, or else, I'm going to have some long-term safety issues. And the resiliency, Jesse mentioned a little bit of this earlier, whether it's a 10-year, whether it's a 20-year, I mean, the growth rate around repair and remodel has been incredibly stable, 5% over 20 years, 7% over 10 years, right? So that underpins our business model. Then we get the outdoor living on top of that, which is the most popular fastest-growing piece, and then we get material conversion on top of that. And then some additional data, again, if you look at the age of the housing stock and you look at home equity levels, our forecast is you're going to continue to see that consistent repair and remodel investment around the home. So with that, I'll sort of close off the market section, and now I want to get focused on execution. This is how we win, right? This is how we take powerful tailwinds and then we generate that additional accretive growth on top of that and executing in the marketplace. So I'm going to spend a little bit of time on this one because it's such an important piece of information. Again, I think a lot of you have seen this before, but it's really important. We start with that really favorable market. And then over 20-plus years, we've helped create a structure that's really unique within our marketplace. You've got consolidation at the top in terms of the manufacturing change. Then underneath that, there are just a handful of the best distributors. There's a number of them, 150 distributor locations. But if you look at the actual number of distributors who really provide great service and really win in the marketplace, it's also consolidated. You step down below that, then you get massive, massive fragmentation, right? Millions and millions of consumers, tens of thousands of contractors and 4,000-plus deal and professional dealer locations and 4,000-plus retail locations. Massive fragmentation, right? And so Jesse mentioned our sales force. It's such a key to how we win. I mean, you need those feet on the street. You need to touch those customers on a regular basis. The way we do it is very unique. We're going to the job site, to the contractor. Sam is going to get up here and talk to you how we impact the consumer digitally and through our marketing means to get them primed for when that contractor, who we spend so much time, shows up and says, "Here's why you have to use TimberTech AZEK for your job." I mean, it's just a massive investment, but it is incredibly important to creating those sticky customer relationships. We've been doing this for 20-plus years. It's a great ground game. You need it to win. And we are one of the few manufacturers who is executing across all the layers of this pyramid here, right? It's really important. Some people do certain layers well, others don't. We're able to execute against all of them. It's one of the powers of our business model. And again, I mentioned this earlier, this is how we define brand, right? So when we say brand, we're not just talking about our name. We're just not talking about our logo. We're talking about the fact that these professional dealers and these contractors have built their business around us because of the service and support that we provide them. Very difficult to do, very difficult to replicate. This is our moat, right? This is our moat, and this is the moat that we're going to continue to deepen. In terms of our distribution and dealer network, we work with the best, right? So if you want to have our product, a contractor, I'm going to spend a lot more time about this. A contractor's greatest asset is their time. If the material doesn't show up, and they're standing around and they don't get to do that installation, you've taken money out of their pocket, right? So you need very broad coverage and you need really quick service, right? So we have built up these distribution relationships, who take our manufactured product and spread it very broadly across the United States. And then we've built these really sticky dealer relationships, where our product's on the shelf so the contractor can get them delivered to the job site very quickly. Again, 15-plus year relationship with our top distribution partners, 4,200 local dealers serviced by distributors, and we can get that product turn around within a couple of days on average. It's also really important to retail, specifically to special order sales, and the ability to get the product on the shelf at retail very quickly. This is another piece of information I want to spend a fair amount of time on, our contractors, right? This is the lifeblood of our business, right? We need to attract and retain the best contractors who support our brand. And what's really important is they truly build their business around us. So they wear our colors. They wave our flag. They install our products. We have an amazing training program. It's really important, too, that as you try to grow your brand, you try to grow your presence, that you enable your contractors to properly install your product and grow your brand. And we've done a terrific job of doing that. We stand behind our contractors. Again, their biggest risk is their time. If they do an installation and the product fails, it's a disaster for them. We try to take that risk away by standing behind our product, giving them tools, the training, the education. We send them digital leads, very warm leads, where we connect them directly to a consumer. So when they go in and give that consumer a quote, they already know that, "Hey, this consumer has received a sample. They've clicked a button that says, I'm ready to buy, and they want to talk to a contractor." That's a tremendous advantage. This is what really leads to those sticky, sticky relationships. And so I don't want you to take my word for it, I'd rather you hear from some of our customers. So I'm going to share a really brief video with you about some of our customer testimonials here. [Presentation]

"Aesthetics, quality, and we love you." That's pretty good. So I'll take that. So next, I'll give you a quick -- I've got a few minutes left. I'll give you a quick double-click on initiatives. This is really important. This is execution. This is what we wake up every day and go deliver against our business. So we'll talk about product innovation. We'll talk about downstream demand. We'll talk about market penetration, and we'll talk about M&A. So I'm not going to spend a ton of time on innovation because Patrick and Nam will be up, but I just need to leave you with, this is core to who we are. We will always be the innovation leader, full stop. Nobody is going to beat us there. We regularly innovate, and we'll continue to innovate. A great example of that is Vintage. I mean this is the product, really, that I would say created the Better Tech, Better Deck. Sam will talk to you a lot more about it. But we produce a product that looks just like real wood, with 50-year warranties, and it's going to look that way year after year after year. This is the product that really changed the game within composite decking. Because, again, if you looked back in the past, you had to make a compromise. You got low maintenance, but you didn't get the aesthetics that you're looking for. Now you don't have to make compromises any longer. You get the most beautiful-looking product with the low maintenance, and it's all based off of the innovation from our team. A second example is within exteriors. If any of you have been to a Starbucks or watch HGTV, you've seen cladding, you've seen board and batten. What's really neat about this is we took really high-performing products, and we put them into a new application, right? So cladding is an existing product, beautiful, long-lasting. Instead of putting on the ground, we put it up on the wall. And it's been a terrific success for us. And then board and batten, we're taking sheets and strips, and we're just creating a new look on the exterior of a home. Again, very low capital, high return, taking an innovation of something, a product that already existed, bringing it to a new application. Nam will be up in a minute to tell you a little bit more about this. And then this is kind of a last slide where I want to spend a little bit more time on because it's really important to me. One of the things that really differentiates us, and we've spent a lot of time around in the business, is creating the full circle, right? And so if you're a customer, whether you're a distributor, you're a consumer, you're a contractor, anywhere we touch you, you're going to have a seamless customer experience, right? So we're going to start with our brand and our marketing engine and world-class digital that's going to attract eyeballs, that's going to get our brand presence out in the marketplace, that's going to generate leads. And then we have that army of salespeople that's going to go out and call on those contractors and service those dealers. We then supplement that with an inside sales team, who's expanding our coverage. They're calling and meeting new dealers and creating new opportunities for us. And then we have a product applications team that goes out. And when we convert those contractors, we convert those dealers, they provide the training and education that they need to grow their business. And then we have great customer service. These people are there on the phone. They're knowledgeable. They're solving customer problems every day. We believe this is a distinct advantage, and we believe we're delivering this kind of full circle and this total high-service approach better than anybody in the industry. And then we got the best team. I started with that, and I'll end with that. We've pursued a segmented approach in terms of our sales team, so we had separate groupings. That enables us to find whatever your application is. If you're an exterior specialist, then you can help somebody who's installing our siding for the first time. If you're a decking specialist, then you're able to help that contractors who's installing decking. Or if you're a pro channel seller within retail, we have a dedicated team that caters to those needs and what they deal with on a daily basis, right, supplemented all by that digital marketing and support and then product installation applications. Again, we get a very broad approach to the marketplace with segmented specialization and expertise across our various types of customers. And we've got a lot of opportunity. So when you think about channel expansion and penetration, that's been a core driver of our growth. And this is something you're going to continue to see us execute against, right? There's a lot of underpenetrated regions within the U.S. I'm going to show you that in a second. We're going to continue to convert dealers that's taking new shelf space while also expanding our share of shelf within those dealers, the national builders and then international as well, right? Those were a couple of areas where we were a little bit constrained when we needed additional capacity. Now that we have additional capacity, we can be much more aggressive in going after these sectors. And then retail, continuing to invest against retail. That was a sort of single-digit percentage of sales for our business. It's now double-digit percentage of sales in our business. We've invested in a dedicated sales team. We've invested in dedicated marketing, and we've seen nice growth in that business. This is a slide on opportunity. Whatever geography you're looking at, wherever you're at in the country, the remaining opportunity for us to convert is substantial, right? So when we talk about channel expansion, we are going into each of these regions. We have tailored strategies. Depending whether you're up in the mountains or you're by the beach, we have a different approach to solve those customer problems. So anywhere you look in the United States, the key takeaway here is there is roughly 70% to 80% opportunity for continued material conversion, with very attractive opportunities across all these marketplaces. And this is a nice little example, right? I'm going to give you a quick case study. This is what we would call when we refer to a shelf gain, right? So there was a competitor in this account. We brought in to bear that kind of full circle, right, the training, the education, the local marketing, our brand, just better overall execution. And so we displaced a competitor. We put ourselves in place. And if we win all the business, we've got a $20 million-plus annual opportunity with just this 1 customer, right? So when we talk about shelf gain, this is what we're talking about, where we weren't on the shelf at this dealer, now we are, and we're creating a substantial opportunity for the business. And not only are we getting shelf gains, we're expanding our slice of the pie on the shelf. So what this data is, is this is the number of dealers who buy $100,000 or more from us. And so what's compelling about this is you can see, over the last 3 years, double digits, right? So once we get our kind of claws into that dealer and we maintain a presence and we get on the shelf, we keep expanding our presence on the shelf year after year after year at a double-digit rate, right? So we're getting new customers, and we're getting a higher share of wallet with our existing customers. And then finally, M&A, right? So in addition to all those great organic initiatives and execution, we've got a proven M&A tool, right? So you've seen -- Pete is going to give you a lot more data on this. But for those of you who know us, we completed a structure acquisition recently, Ultralox, Versatex, you name it. Pete is going to show you some of the growth. We've executed and won in each and every one of those acquisitions. We've got a proven M&A playbook. And again, what you're seeing from us is very close obvious adjacencies, right? So we're same material science that we can leverage, same channel that we can leverage. We're sticking to our knitting and basically taking our capabilities, coupling them with a new capability and accelerating growth. It's a very simple formula. We're very disciplined, and we know how to do it. So in closing, I'll say the same thing when I started: great team, great business, great marketplace, but we're just getting started. Again, when you look at that conversion opportunity, the runway is really long. And that's what gets us just so excited about our opportunity here, and it's just a great place for me and my team to execute. Because we wake up every morning and we just know the opportunity is there, we just got to go get it. And so that's what we're going to do. So with that, thanks again for your time. I'm going to turn it over to Sam Toole, our Chief Marketing Officer, and she's going to talk to you all about the great things we're doing in marketing and the consumer journey.

Great. Thanks, Jon. Hi, everybody. My name is Sam Toole, and I'm the new Chief Marketing Officer at AZEK. I've been here about 9 months. And I'm also going to start with a story. I'm going to share with you a personal story about my deck, and I think it illustrates the opportunity that we have in front of us. I live in Northern California, just North of San Francisco, and a very nice area where everybody spends a lot of time outside, and everybody loves their deck and everybody is outdoors. And I just spent a whole bunch of money to refinish my wood deck before I learned about this AZEK job. I never even considered composite. I didn't even know composite was a thing. I never thought -- I didn't understand how easy it would be to take care of or that there's a long warranty or that it lasts a long time, and let alone that it's made of recycled material. I was just completely unaware. I thought that composite would look fake. I thought it would look like plastic. I don't want a fake deck on my nice house, and I just didn't even -- it didn't even enter my mind. And I think there are a lot of people like me who care about their homes, who care about design, who are just not educated about what this product could be. We appreciate design and aesthetics. We want to make smart choices for our families and our homes. We want to invest in things that last. I just think there's a massive opportunity to educate people. I think also, now, especially since the pandemic, it sounds trite, but it's really true, people are now really spending a lot of time outdoors, and they're very wed to their outdoor spaces. Doing your deck is not like refinishing your driveway. It's not the gutters. It's not a chore. This is your outdoor living room. This is a space where you're going to spend time with your family. It's an opportunity for us to build, not just the building products brand, but a lifestyle brand. So I've spent 25 years in brand marketing. I just came from adjacent home furnishings companies like Serena & Lily and California Closets. I know this customer. I know how to build brands. And I'm here to tell you, I am really excited about this opportunity. It's a big one. So let's get into the data. We've done a lot of research on what we call wood conversion. So if you look at the whole market today, 25% of the decks are composite, 75% are wood, but let's look at the homeowner sentiment. Our research shows that there's 5 main cohorts, the top 3 are really ripe for conversion. This is our focus. This is over double what we think of the size of composite decks today, but this shows us where we need to sort of put our energy. And I think focusing on these is the big unlock. So let me talk to you more about that. So when we look at the -- these 3 groups, the first one is 22% of these people are what we call composite positive. They live in nice houses. They have big decks. They already know about composite. They think it's great. The next group is open to composite. They also live in premium outdoor spaces, and they're open to new materials. And they want low maintenance, but it's got to fit their design criteria. And that group, combined with this third, what we call wood-leaning group, these are the people that are just assuming they're doing a wood deck because they don't know enough about composite to even consider it a viable option. That's the big unlock. For making composite decks more mainstream are these groups, particularly these last 2. And when we dug deeper into their motivations, here's the #1 criteria, particularly to convert from wood. Number one is appearance. It's got to look like wood. Nobody wants a fake deck. I don't care how easy it is to take care of. Nobody wants a plastic deck. And if it doesn't look right, if it doesn't look nice and like real wood, they're not interested. If you look at the group that's wood-leaning, 6 to 10 of them are open to something else. They just don't know about it. 4 or 5 of them know nothing about composites, little to nothing, kind of like I was. And they don't differentiate between brands, if they do know. So there's just this massive opportunity to educate people and to convert, and it's all based on the fact that it looks like real wood. That's our advantage, TimberTech's #1 competitive advantage. You heard Jon talking about it, is that we look like real wood, particularly our capped polymer decking. I mean, it mimics the look of exotic hardwoods. It really looks and feels beautiful like real wood. That is our competitive advantage, and that is what we're focused on. Let's talk about our customers. We did some research on our current customers and found that they're segmented into 6 different personas. So the first 2 here are really our core. That's -- they're very affluent. They're educated. They are -- they live in nice homes, and they really care about their outdoor space. Todd and Lisa, a little bit more on the practical side, that's what their -- that's kind of their primary motivation gales, a little more design-focused. But both of them really care about low maintenance. They have disposable income. They trust their contractor for installation and design, but they are very involved in the purchase decision. They are not ceding that to the contractor. This is their outdoor living room, and they're going to decide what they want to put in their outdoor space. They are what I call been there, done that with the wood deck. They're not doing that again. They know what that looks like. "No way am I doing that again. Are you kidding? I've done that for so many years. It's a pain. I'm not doing that anymore." They are really loyal to the brand. They're a little over half of our customers today. Doug represents our DIY segment. And DIY for us is not just by training. It's a lot of business people, engineers, medical professionals, people who, it's really more of an ethic. It's an ethic of doing things yourself, of hand-made, of feeling like you're really kind of creating something. It's very powerful. It's not so much motivated by price as it is by that design ethic of being DIY. And they're shopping at both retail and the pro channel. And then this bottom row is our millennial homeowner segment, and they're growing really fast. And they're driven by personalization, customization. They all have slightly different -- some, it's really about adding square footage. It's about increasing your home value, making smart choices at your first home. You don't want to be -- you want to be smart about what you're installing, what you're investing in. They're driven by practical considerations, not only like color, like matching the inside of your house to the outside of your house. But also, they want to create safe spaces for their kids. No splinters. No slipping. It's not hot. They want to make sure they can clean it. It's not going to stain. It's not going to fade. They want multi-purpose family spaces that they can live on for years to come. Okay. So recognizing the interplay between the homeowner and the contractor is really where our strategy that's critical. So we want to create that homeowner awareness and the pull to pull the sales through the channel and, at the same time, support the channel with push, so they're ready to deliver on all that demand. And it's really around these two decisions that are going to unlock our market potential. One is the decision to choose composite over wood, and the other is TimberTech over the leading brands. So how are we going to do that? There's 3 main ways: one is our brand, two is education and three is customer journey. So let me walk through this. I walked in the door and thought, "Wow, you guys have a great brand name." I mean, Timber and Tech, could you say it any better? The beauty of wood, engineered for performance. We have a new tagline, that TimberTech is Everything Wood Should Be. It's simple. It's clear. We're throwing all our weight behind it. This is what people need to know. It's the beauty of wood, engineered for life. This is how we're going to win in the market, both against wood and against the competition. Our education is around leveraging customer testimonials. Even Jon's story, I was thinking, as I heard it again, it's so powerful when you see it and you hear somebody else's experience. But there's a few of you who are thinking, you're going to go home and look at your deck after hearing Jon's story. We're leveraging real customers as well as celebrities to tell their story. And then we're cascading these stories across all of our channels: print, radio, TV, social, e-mail, website, everything. And we're better targeting with our performance marketing and digital tactics to get more people to the site and to convert them. Our site conversion now, it's hovered a little below 1%. Now It's up over 5%. We really know how to get people in with pricing tools, design tools, free samples to convert them once they're there. And then I want to talk about the sample experience because that is really important for us. Our products look so good that we just need to get them in front of people. When people see our product, we win. Our free sample experience is very seamless. You can order as many samples as you want. And once you see it at home and you can touch and feel it, then you see how great our product is. This is an example of a customer testimony. I just want to say, those of you who might recognize him, this is Bobby Berk. He's the design person on Queer Eye. He has a property that we did all the decks that's in Palm Desert, California. And it's actually a big Airbnb property that's being rented out now. But this is a little bit from Bobby on why he loves TimberTech. [Presentation]

Okay. So here's my third pillar of this strategy, the customer journey. Our research shows, and you might even relate to this, that buying a deck is a long process, and it's really kind of hard. People spend between 12 and 18 months. There's a lot you don't know. There's a lot to learn. You got to figure things out. It's just much more difficult than it needs to be. So my experience at California Closets is really relevant here. It's a similar, high-priced, high-complexity item that you're investing in. It's a long decision cycle. There's a lot of things to figure out. You need design guidance and inspiration along the way. And the key to this, to making this as frictionless as possible, is to target -- to know your customer, to target the right person with the right message at the right time at multiple points in the journey. This is how you move people along with digital tactics to get them in the door, CRM to nurture them along, and then everything they need to make that final purchase decision. But it's really important that we keep everybody moving all along. And also, that lifelong advocacy is really still part of the journey. That is what creates the word of mouth, and that's a key to the strategy for validation and awareness as well. I'm going to walk you through a hypothetical example of a customer journey. So this is based on a customer that's in one of our recent testimonials. And so we are using this for illustration purposes. But meet Peter and Emma. They live in Southern California, and they're in the market for a deck. And Emma wants it to be easy. She's very practical. That's what she cares about. Peter wants it to look like a hotel they just visited. They just were at this nice place, and he thought, "Wow, let's do that." And they had Ipe on their deck, so he starts thinking that's what he wants. He does a little research. He looks on Pinterest, on Instagram, on Google. He learns that Ipe is actually really bad for the environment, and it's a real pain to take care of. And he discovers TimberTech. He goes to our website. He clicks around. He learns all about us, what we offer, how good we look. He decides to order a bunch of free samples. They come to his house. We connect him with a local contractor. The contractor comes to his house and helps them decide what the design of the deck needs to look like and helps them price it out. They look at all their samples. He directs them to a local lumber yard, where our product is in stock. He sees it on the shelf. He says, "Wow, this is really beautiful." They pick from our Vintage line that Jon talked about. They picked Mahogany, which looks just like Ipe, and they work with their contractor. Bada bing, bada boom, it gets installed. And Peter and Emma have a beautiful new deck that their family is really happy with. This is a compilation reel of a bunch of these customer testimonials that I referenced earlier that we've done, with all different types of customers. That is the foundation for our marketing for the next year. [Presentation]

Okay. So we're building all that homeowner pull, and then here's how we're going to deliver on the channel side of that. We want to make sure that the channel is prepared to support all of that, right, because it's a -- they have to work together. We have hyper-local marketing plans we're developing with all our local customers to really think 360 about how to get people in the door. We have improved sampling and displays, which educate our brand on the -- help educate people from the shelf about our brand. And support to grow our contractor and architect wood-conversion initiatives and just their businesses with loyalty programs that help support and reward them with sample kits and training and other things like that. Okay. I'm going to switch to AZEK Exteriors now. As Jon referenced with the guy downstairs, AZEK -- who knew our brand right off the bat. AZEK Exteriors is the #1 brand for PVC trim. We really invented the category. Kind of like Kleenex or Coca-Cola, AZEK means trim. Our name is synonymous with that category. We're consistently ranked #1 for quality and familiarity as well as usability. And we have a really -- a lot of that brand awareness and loyalty is what's really going to be key to fuel the growth of AZEK Exteriors into other areas. The brand rests on four attributes, not dissimilar from our -- the other brands in our portfolio, anchoring on performance and aesthetics and sustainability. But just to tell you a little bit more about these. The technological advantage of PVC, it's impervious to moisture. It won't rot. It won't stain or fade, particularly on the outside of the house. That's really, really key. We're known for our best-in-class aesthetics here, too, and design potential. So that you can create -- our pro contractors who use AZEK Exteriors can create curb appeal using our products that really last. Whether your style is traditional or farm house, we really are very versatile and can make sure that, that -- they can really create that curb appeal, which is so important to the value of your house. We're also known for our install efficiency. Our products are easy to install. They're not as complex. They don't require as much training. There's a lot of ingenuity about how our products are designed to think about the contractor, the installer. They love us because we save -- our products save them time and money. We're really known for that. And then the fourth pillar is sustainability. Not only that our products are made of sustainable materials, but they're also recyclable at the end of life. So you'll learn more about this later. But our -- we have these big recycling bins that are on all the job sites that are a great way that the brand gets recognition for that, but we're known also for our recycled components -- recyclability. The four key customer segments for AZEK Exteriors are the architects, the builders, contractors and remodelers as well as homeowners. We're really focused -- the sweet spot for us as contractors and remodelers, and we're really focused on the pro channel for this brand. I think over time, we'll definitely have some pull with homeowners, particularly as we start to sell all the brands in our portfolio to those people. But today, this product category really requires a lot more of a contractor's expertise to choose, and homeowners are really letting their contractors help them decide on that. So really winning with the pro channel first is what's going to be important for this business. So in addition to focusing on the pros, there's two other things strategically that we're doing. You're going to hear more about it, but I just want to tee up how the marketing is going to support this. So we have the pro support, then we have geographic expansion. We're really well-known in the Northeast, not as much in the rest of the country. So that's a big push to move geographically, to expand, so that we're as well-known everywhere as we are in the Northeast. And the second opportunity is to expand our product portfolio, to be more than trim and move into siding and trim and some other things that you've heard us talk about. Here are the key programs that are going to accelerate that growth. Number one, education. So critical that all of our partners are really educated about our products. We're launching a new digital learning center that will support that. The sample experience for AZEK Exteriors is really strong, just similar to our other brands, but it's very premium and right out of the box. We really deliver on that. We have a visualizer tool that helps contractors imagine what our -- or visually see the options for our different products on the outside of the house. And that really helps with the customer journey and to sell their homeowner on every -- make decisions about what to use and how it's going to look. We have a loyalty program that we're launching for this, similar to TimberTech, and media targeting to grow, particularly the geographic expansion. And then our on-site recycling program, which I mentioned. These bins are at thousands of job sites all over the U.S. It's essentially a billboard for our brand that lives for months at a time. I have a couple of testimonials just to illustrate some key things. This first one is about our performance and the longevity of our products. He says a hurricane would blow the roof off before this trim would move, which I love. So it's pretty extreme how our products last through all kinds of inclement weather. The second one really talks about how this house had a fiber cement cladding and wood trim. And in a beach environment, it just did not hold up at all. So our products really were a superior choice in that situation. And this last one is about aesthetics. So this contractor did a side-by-side or head-to-head shingle comparison. And when you looked at ours compared with the competition, this homeowner chose AZEK shingle for the looks because it has a real refined shading pattern that she really thought looked great. So I'll wrap up by saying we have this portfolio of products. We're really offering a multifaceted approach. If you think of TimberTech as the floor, AZEK Exteriors as the walls and StruXure as the ceilings of your outdoor space, we have the opportunity to sell multiple products to the same homeowner, to the same contractor, to the same architect and builder, et cetera. So it's a really exciting opportunity. For me, as a marketer, I just think this is like a huge opportunity. And I think we're also selling product that's making people's lives better. I mean, it really is saving them time. It's giving them back time with their families, saving them money. It feels really good to be marketing something that is sincerely of value to people over decades. Let alone the fact that, collectively, the impact we're making on the planet with using all of this recycled material, it's just kind of mind-boggling when you think about what we're able to do together. So as a marketer, I'm super passionate about this. I'm very proud to be here, and I'm really excited about this opportunity. So with that, I'm going to pass off to Patrick Barnds, who is our Senior Vice President of Product Management, and he's going to talk about our design authority and product innovation.

Great. Thanks, Sam. As Sam said, my name is Patrick Barnds. I have overall product management responsibilities for our deck, rail and accessories business. And joining me up here today will be Nam Ong, who has those same responsibilities for our exteriors business. He and I are going to talk about translating a lot of the things that Sam just talked about into new products. So, so much of what we do really is borne from the research and the understanding we have of customers that Sam just talked about. So we'll talk about the new product development process, and we're going to talk about some examples that hopefully bring that process to life. Now I'm going to be spending most of my time talking about decking. But all of the themes, all of the processes that I'm going to talk about apply just as well to our deck, rail and accessories products as well as to everything that Nam talks about in exteriors. So this is a quick overview of our product management and innovation process. It's a structured process that we use pretty religiously within the organization. And it begins with taking a variety of inputs from external sources, whether that's research that Sam talked about or a variety of other sources. We translate that into a 3- to 5-year longer-term product road map, and then that ultimately drives our annual new product development and launch cycle. So rather than going into a lot of depth on the chart there, what I'd like to do is show some examples that kind of bring this to life. And I'll start with decking. So if you look back at the history of the composite decking industry, there's really a clear evolution from the early generation products to where we are today. The early generation products were uncapped wood composite products that really were only marginally better than wood in terms of durability and longevity. The Gen-2 products that came along in the early 2000s and really up until about 2013 were a step forward in terms of low maintenance and durability, but they really lack long-term performance from a fade and stain perspective and really were not great-looking products particularly. TimberTech and AZEK, in about the 2014 time frame, introduced a whole generation of new capping technologies, so our Gen-3 capped technologies is what we call it internally. And what that did was push another whole step forward in terms of the durability of the products, but also improved fade and stain. The other thing it did was give us an incredible platform to drive some of these aesthetics. So we essentially achieved lifetime durability with those Gen-3 capped stocks. But if the product doesn't look good, I don't know if a 50-year lifetime on an unattractive product is a blessing or a curse. So we started working toward really driving the aesthetics, and that's much of what I'm going to talk about now. So talk about the inputs, what are the inputs for the design inspiration? We look at a variety of global design media. We attend a lot of different trade shows that have related products. And then we look to analogous industries. So I spent 14 years in the hardwood flooring business before I joined the company. And a lot of what you see in those industries really translates directly into what we're seeing in decking. So what are some of those themes? So as you look throughout all of those sources, what you see are some common themes starting to emerge. There's a wide plank trend with mixed colors, both on the floors and on the walls. You see a multi-width application here on flooring. You also see those same rustic reclaimed design themes appearing in both furniture and other wall coverings, interior design themes. Mid-century modern has been kind of the buzz for a while now. But what you'll really see is this much more modern Scandinavian take on those themes. And it's not just the overall style, but the tones and colors that you see being very light, but very complex hues that you see emerging in some of these color technologies, with wood visuals being front and center in almost all of those themes. From a color perspective, gray still is very, very popular. But what we've seen is a shift from the dark blue, cool gray colors to much more of a light pallet. So everything from a rustic white that starts in the gray tones, all the way through to a much more grayish tones, where you're mixing tans and grays in really complex and natural ways. And again, you see it in exterior and interior surfaces as well as in furniture. The thing that I found most interesting was people taking so many of these interior design themes and translating into the outside. So here, you see an example from an interior bathroom space with a Chevron pattern, and designers taking those exact same themes and applying them to the exteriors of homes. Next example, geometric patterns. Again, a lot of flooring examples here. And maybe that's just because of where I spent so much in my career, but you do see a lot of creativity and use of these kind of geometric designs and patterns in interior flooring. And again, you see designers taking them outside and executing the same. So with those general themes that we saw, we kind of distilled them down to three big buckets that underlie, again, much of what Sam talked about in terms of aesthetics. So color and finish is the first one, and there's a range of very natural warm tones that you see in these color pallets, but also a real shift toward matte and low-gloss finishes. Nothing is more of a dead giveaway for an artificial product than a shiny, glossy, plastic-looking surface. So that matte low-gloss theme was very clear in everything we looked at. From a width and pattern perspective, wide width, mixed width, as well as those patterns we talked about, Chevrons and herringbones. And then finally, surface texture. So whether it's a very natural grain in the modern tones to the more wire-brushed, distressed, hand-scraped, reclaimed visuals, those are the big buckets that we really identified as key design themes to bring this to life. So with those design themes, I have two basic platforms of materials. So we're a little bit unique in this, and that we have both a classic-capped composite technology and a PVC-capped polymer technology. So starting with capped composite, there's some great things about that material. It's a proven material. It's got good durability, but there are some things about it that I just can't achieve some of the design vision that we had. If I switch to capped polymer, it's lighter, it's naturally low gloss. And it lends itself to some of our color technologies and being able to bring some of these things to life in ways that I just can't achieve with capped composite. But whether it's capped composite or it's cellular PVC, TimberTech, AZEK brings some unique things to both of those technologies, whether it's our capping technology; our color technology, which, if you've ever been in a plant tour, you'll see firsthand; our surface texturing; and then really flexible modular manufacturing that allows us to do all of these different things about adding a lot of complexity to the manufacturing operations. So really trying to take these basic technologies, apply those competitive advantages to bring our design vision to life. Let me give you some examples of that. The first one is our reserve product. That's in our capped composite technology. And the design theme that we're going for here was more of a rustic reclaimed visual. So what we started with was actual barn wood. We took barn wood that was couple hundred years old, we put it into a 3D scanner, and we turned that into a file that became the basis of the embossed technology. So I'll show you some examples of this at the break, but it really brought to life that rustic reclaimed barn wood visual. Two more that I'll go into a little bit more detail on are the Vintage collection that Jon talked about earlier and the Landmark collection. So talking about Vintage. So I got -- I joined the company in early 2017, and the product that I found most exciting was Vintage. It wasn't much at the time, the sales have been growing pretty steadily for the last few years. But what I saw was a product that had really complex technology, a beautiful low-gloss finish and a wire-brushed surface that really looked like a lot of the themes we saw emerging from Europe at the time. But it was missing a couple of key color spaces, and it really wasn't playing to its full potential. So in 2018, we introduced some new colors that were right on trend with some of the things I talked about earlier. And then in 2019, we introduced a multi-width, mixed-width capability as well as executed those same visuals in our porch products. And you can see the results from the sales. When we started introducing those new colors in 2018, we essentially doubled the product sales in the first year. And it really hasn't stopped since then with the introduction of some of these other things. But as satisfying as the results in sales has been, what I find most exciting as a product person is watching our contractors take these tools and really bring them to life. So this first example is just a simple rectangular deck that could otherwise be very boring. But what the team did on this one was just apply that simple mixed-width technology to sort of bring to life, again, what could otherwise be a boring application and, really, just in a subtle and understated way, make it really unique. Another example really throws the book at it in terms of design themes, it's got mixed widths, herring bine patterns, mixed colors. You see herringbones being used more and more as both insets and as other features on the deck, and then straight wide-width products on the end down there. Just really exciting for me to see our contractors take these products and bring their design vision to life. And we see it not just on decks, we also see it on porches. So here's a herringbone example on someone's front porch, wide-width, mixed-width, again, those same design themes. People really are craving them, and they're using them in more and more creative ways. And then the one thing I like about our PVC more than any other is that it allows designers to use heat-bending technology. And it's not very complicated and it's not very hard stuff you can do with our product that you just can't do with wood. So enabling a wider access to a variety of different contractors to execute these kind of circular and bent visuals. So let me talk about Landmark after talking about Vintage here. So this is the newest addition to our product portfolio. And again, this came from the flooring industry, where these rustic, crosscut bands on visuals, and you see them all over interior surfaces today in both residential and in commercial spaces. So we adopted that exact visual, translated it into our product, and we've got a really complex underlying cathedral wood grain with that crosscut visual. We introduced that product on a regional basis as a test in 2021. And it did so well that we went national this year and added a third color, that French White Oak, which really seems to be taking the market by storm right now. And the thing that I -- that indicate success more than any for me is those 3 colors this year will outsell the 8 colors of the collection that it replaced in our line. So we've simplified the product line but driven much more in terms of the sales potential for that collection. So as I look back over this journey that we've had, so that 5-year product road map that we laid out back in 2017, there really has been a pretty significant transformation of our product portfolio. So we filled in at the low end the good and the better right? We've got competitive, great-looking products there. And then we continue to innovate in that best-in-premium space, which is really where we've made our mark and underlie so much of our brand promise. So if I look at our forecast for this year, what we're forecasting is that about 60% of our total decking sales will be from products that we've introduced since 2018. So just a really solid product vitality metric. And with that, I'm going to turn it over to Nam to make some comments on the Exteriors business.

Thanks, Patrick. My name is Nam Ong. I'm the General Manager for Exteriors business. Before we dive into our portfolio, I thought it'd be helpful to give an overview of the Exterior's category in general. As you can see here, today's home is no longer just designed with a single-style siding and boards as trim. What you see is a lot more intricate detail, interesting moldings, column wraps, brackets. And you also see a different mix of sidings. So you see some shingle siding. You see some board and batten. As this evolution of home design has taken place, that's really allowed us to really expand our portfolio and address the broader market and not just look at the trim market of $3.4 billion, but the exteriors market of $8 billion. We start in our portfolio with really a solid core in PVC technology, cellular PVC technology, right? You've heard it, it's impervious to moisture. It looks and feels just like painted wood, has the same density as wood, use the same tools as wood. So you start from a great place. You add on to that foundation the ability to shape it into interesting moldings that you see in this intricate crown molding on a column wrap. And you can also do a deeper look in the porch application on the left here. We've also developed a whole category, a whole family of value-added products. These products potentially eliminate need for materials, simplify the installation process and also result in a more finished look. So if you look at the quick corner and the inside channel, this completely eliminates the need to apply caulk, and it reduces what looks like just a really bad job after a few years of exterior application. On the bottom, you have on the bottom left here, you have my kind of sleeker product of the portfolio. On the surface, it looks like a regular trim board. But if you look closely, it eliminates the need for flashing, and it also acts a starter strip. In a category that's typically just white, we've been able to add color and natural visuals. So in our Canvas Series, you see this beautiful wood grain look on the top in a porch application. And with our PaintPro Technology, we've made it very easy to paint PVC in pretty much any color you'd like. Most recently, we've entered into the specialty siding space. And as you meant -- you've heard before, we started with using products that we've already had in the channel, right? So we had a beautiful decking or porch boards using the cladding application on the left, and we recently launched our first siding-specific SKU in our shingle product, and it's been really well received. As you can see, our portfolio isn't just boards and sheets, right? This is a lot more interesting things. And you'll probably notice it, as you look at your own homes or other homes in your neighborhood, that there's just more to the exteriors than meets the eye. And we're able to do that really because of the fundamental differences in PVC versus other materials in the industry. PVC can easily be produced in unique shapes that add aesthetic detail and functionality. We already talked about the moisture resistance. It's flame-spread resistant. So it's really important in certain regions, in the country like the West Coast. It's light and not brittle. So this is kind of something we don't talk about. But you can really add a lot to carrying around the job site, and you do not have to worry about breaking and yield losses on the job site. Again, we can make it bright white so you eliminate the need to paint. We can also make it with a PaintPro Technology, which makes it easy to paint. And most importantly, it can be recycled, and it also uses recycled. So as much as I'm excited about the exteriors category, I'm even more excited about the opportunity across our entire portfolio within AZEK. As you can see in this example, AZEK makes almost everything in this picture, right? And it really has us uniquely positioned to own the look, not just be a great decking company and not just be a great exteriors company, but to own the entire look of this porch. We can do things like make sure that white on the trim exactly matches the white and matte finish on the railing and the column wraps. We can make sure that the wood grain on the porch floor perfectly complements the porch ceiling. And it really is a situation where 1 plus 1 is 3. So that concludes the exteriors section. I don't know, Patrick, do you have any final thoughts?

Yes, maybe just a couple of closing comments. Nam and I were getting ready for this meeting yesterday. And it's interesting to look back over the last 6 years because we really have come a long way. There's so much that we've done to transform the product portfolio. But as I look at Sam's material, and then we'll hear from Dan and Chris a little bit later from an R&D and process technology perspective, and as we look at our product road map for the next 5 to 7 years, I am every bit as excited. And I know I speak for Nam on this, too. I'm every bit as excited about the next 5 to 7 years as I am about what we've accomplished so far. So great things to come, and I got a great -- I'm blessed with a great team to work with to bring all this stuff to life. And for all of the stuff that we talked about today, during the lunch hour, we've got a whole product showcase and showroom that we'll be able to show you, hands on, a lot of the things we're talking about here and being able to compare and contrast some of the before and afters we've mentioned. So I think, with that, we're going to go to a Q&A for what we've presented so far. We'd bring Jesse back up, and then we'll go to break after that.

Sounds great. Thanks. I tell you, sitting in the back, for me, at least, and watching that is pretty exciting, knowing that, that's my team. And so if you just go through, right, Jon highlighted the opportunity in the market, what we're doing on the ground. Sam highlighted the opportunity to improve the customer journey, gave you a little bit of a double-click there. And then, obviously, as Patrick just summarized, both he and Nam talked about our portfolio, its differentiation and how we've been able to really reinvent the entirety of things like our decking category and our exteriors category over the last few years. And we think it really sets us up for the future. And just in summary, right, for that section, we've been public 2 years. There's a company on Friday that rang the bell that was 100 years old. And so I think, from our perspective, a lot of what we are doing is to really build for now, but to make sure that we continue to build the fundamentals for a really strong long-term future. And so with that, we'll take questions on this section. Please go ahead.

John Lovallo from UBS. Maybe the first question for Jon Skelly. Curious how far along you are in sort of the penetration of that $10 billion adjacent market. Where are the biggest opportunities in the current portfolio? And where could the expansion be into additional adjacent products?

Sure. So in terms of the total opportunity, again, we're active in all of them. Some are in their infancy. So we've -- for example, we just launched alternative substructures. Others with the Siding business, for example, we've been able to innovate with board and batten to directly attack that market and then launch shingle to directly attack that market. So I would say we're still relatively new there, but we have -- we already have some critical pieces of portfolio to allow us to be aggressive there. Within the Pergola segment, we acquired the market leader in terms of smart pergolas, and there's just a lot of innovation that's happening there. So you'll see continued innovation in that area. And again, we -- as I mentioned during my prepared remarks, we haven't taken the gloves off our team yet. So we are in a position to meaningfully expand that business once we open it up to our contractor base, which we're just in the process of starting. So again, I would say we have good, stable positions in a number of them. Some of them are emerging but there's a lot of great opportunity there for us in the future.

Okay. Maybe just one for Sam. What percentage of consumers want the brand versus the channel push that you talked about? And then along the same lines, why is AZEK exteriors much less known on the western portion of the U.S. versus the Eastern?

So John, just was your question around -- I'm going to step out over here just so we're on camera here. Was your question around is it a contractor push or a consumer pull? Yes.

For exteriors?

No, for decking. Yes.

I'm sorry, I don't understand the question.

So let me take a shot at the answer and then...

Yes, sorry.

We could spend a lot of time clarifying the question. The research that Sam has and the team has done, the decision-making process is really a combination. And it's a combination of the consumer making a choice on the look and the contractor recommending a product. And so I think as you look at us, ultimately, even in a contractor-driven sale, the contractor will say the consumer picks the color and the pattern. And in other cases, the consumer journey will start with the consumer choosing and dictating to the brand. I don't know that any of our research has that balance clearly defined. You could throw out 50-50, which is what I heard when I started. But in general, it's a mix and a collaboration.

Patrick mentioned that about 60% of your sales come from products that you've introduced within the last 4 years or 3 or 4 years or so. Is there any target that you can talk to in terms of where that can get to over time and how that will come through?

Any perspectives, Patrick, on that? I would just say when Patrick started, I didn't give him a new product -- NPVI metric. I said we need at least $200 million from new product sales, figure it out.

Yes.

So that was kind of the -- just so you know, the direction that management gets, but go ahead.

And I would add in an unreasonable amount of time.

Yes, which now seems pretty reasonable. Yes.

I think when you look at the shift from pure durability to aesthetics, this becomes probably a 7- to 10-year life cycle for a lot of the new products we're launching. So if you do the math, we're going to continue to innovate throughout the product line, both at the low end and the high end. I think the kind of 50%, 60% number is great for right now. Maybe it slows down a little bit. But as we enter new adjacencies in new categories, I'm just talking about decking when I talk about that vitality index. When you look at all the opportunities we've gotten in adjacencies, I think you're going to see much more of our sales over the long term coming from those products as well as from the new stuff we're launching within existing categories.

Great. Thanks, Susan.

Mike Rehaut, JPMorgan. I just wanted to drill down a little bit, if possible, on the 2% to 3% from growth initiatives that you hit on earlier. And if you're able to provide any greater granularity in terms of how you get that -- how you get there. Obviously, there's a lot of different components that you cited. The ones that I'm kind of perhaps a little bit more interested in is channel expansion and penetration. I think since your IPO, a lot of the opportunity of doubling that percent of sales from the retail channel. But I'm just curious if you could provide any kind of building blocks in terms of that 2% to 3% and where it might come.

I'm going to answer it quantitatively, only what you'll see is some of the more financial-oriented stuff Pete and I'll kind of step in on. But in general, when we looked at it, it's really 1 to 2 percentage points from each one. So think of it as 1 to 2 percentage points from adjacency, 1 to 2 percentage points from channel and 1 to 2 percentage points from new product. Now you don't get that every year at the same time. And so the way to think of it is effectively 1/3, 1/3, 1/3 as we stack it. But when we went through the data, some years, it's higher on 1. So for example, this year, I would say the adjacencies that Nam talked about relative to expanding into some new areas, that's probably going to add 1 point of growth, right? Just the start of that, right? And you can do the math, that's $15 million or whatever it is, right? So that's just illustrative, but that's how we think of it as when we talk about a portfolio. Jon, I don't -- yes.

Yes, that's right. I mean, again, I think the other key thing I'd highlight is that's kind of it, right? We're really focused on those 3 or 4 levers that Jesse mentioned, just keep it really simple and execute hard against them.

Great. Thanks.

Matt Bouley, Barclays. The slide you had up on the regional penetration of composite decking was interesting. It looked like, particularly along the South, Southeast, Southwest, that seemed to be more under-penetrated. Could you speak a little to, I guess, a, why that is? Does it mean that those regions perhaps cannot get to a 50% conversion? And then sort of what are you guys doing to push harder into those under penetrated areas?

You want to take it?

Yes, sure. So good question, Matt. I mean, I think it's really, just for us, it's time and that's time to educate and build awareness, right? So in the Northeast kind of closer to where our original plants were located, that's where we kind of started the bulk of our marketing. And then you get into some of the coastal areas of where we currently sit, the value proposition works really well. So now you fast forward, you look at places like the Southeast, predominantly a wood market, Southwest predominantly a wood market, our opportunity there is substantial where we can continue to drive that awareness, that education, 1 contractor at a time, 1 consumer at a time. So our hypothesis is, as we continue, as we broaden our coverage and we broaden our sales team, as we broaden our marketing, as we broaden our distribution, that gives us the foundation and the opportunity to move those numbers to more penetration that you see in the Northeast.

John, I think that also answered your question on the brand, right? And just to add 15 seconds on what Jon said. Our downstream sales folks matter, and they've been more focused in the Northeast for a longer period of time than we have in the other geographies. We just need to execute downstream more. There'll always be some geographic nuances, but that's kind of the macro.

Phil Ng from Jefferies. You highlighted how you have a much broader portfolio than your competitors on the outdoor living. Can you kind of tie it to us in terms of the go-to-market strategy? How your sales force kind of intertwines everything? Just give us some KPIs to get [ confident ] that you are having some synergies, having such a broader portfolio.

Before I throw it over to Jon, let me give you a simple one, like just one that we've been looking at since I started. Of our dealer base, the pro dealer base, which, as we talked about, is over 4,000 pro dealers, are they buying both product lines for us -- from us, right? And so think about it. Every one of those dealers, for the most part, carries both product lines. So I think sometimes there isn't a different channel. This isn't like -- sometimes you talk about fencing. Fencing is a totally different channel with a totally different dealer base. In our product categories that we sell, the professional dealer base in the vast majority of times is the same dealer base. So a KPI we look at is are they buying both? What's the opportunity? Why haven't we had an opportunity there? So in the dealer that Jon highlighted, we picked up one of the categories. The other category is still an opportunity, right? And so that's the way we look at it. Now in terms of other synergy and go-to market, Jon, I don't know if you want to...

Yes. So downstream, the predominance of our feet on the street, our sales force, are full line, right? So they're in there with the contractor selling the entire portfolio. And then when we -- the segment and teams that I reviewed, think of the core sellers the quarterback, and he's going to call in the wide receiver, the running back, the specialty player to say, "Hey, this is your first installation of a column wrap. I'm going to bring in one of my experts to walk you through that installation." So then we build that relationship for life. The contractor says, "Oh, wait, that was easy." And then now I know how easy it was. I understand the profit that I made on that addition to the job. I'm going to keep selling that on the future jobs, right? So it's a real synergistic approach where, again, we have broad coverage of what we'll call the generalist, somebody who sells the entire portfolio, and then we bring in these experts around new applications or first-time conversions.

Great.

Dan Oppenheim, Credit Suisse. I wonder if you can just talk a little bit about how you think in terms of a changing environment to how you'd pivot in terms of what you think about for new products, adjacencies, channel? And just as you look out over the next 12, 24 months, how you think about any shifts that you think about there?

I think as we look at our playbook and what the team laid out, we feel like it's the right playbook independent of environment. And it's part of what gives us that you think about that 6 points of growth, stacking on underlying R&R., as Jon mentioned, if we execute that or higher, like we've done in the past, that sets us up to feel really good about our ability to compete independent of the environment. right? Now within that, we have a broad portfolio of actions depending on the environment we're in and the geography we're in, some will win more than others. But I think the playbook stays the same. Appreciate it. Thanks. I'm going to try to be really short on the answers just given we have 5 minutes left.

We have 5 minutes left.

Yes.

Adam Baumgarten, Zelman. Just a question, you talked a lot about aesthetics and durability. Can you maybe touch on the innovation when it comes to heat mitigation?

Did you hear that question on heat?

Yes.

Let me just make one statement because others have made statements. With our PVC technology, we have been 20 to 30 degrees cooler for a long period of time. And there are inherent benefits with that technology that allow it to be cooler than any capped composite technology. And I think that fundamentally -- I'm answering it now instead of you. So Patrick will give you a double-click in the breakout. I think fundamentally, since I've been here, it's been a focus. We probably don't talk about it enough. But if you ask any contractor that sells our product, in particular, the TimberTech AZEK line, they'll give it to you. And it's the combination of the material science and pigments we use on the surface. If we wanted to get a little cooler, perhaps we could. We think we're at the right point. We're within 10 degrees of traditional wood, which is kind of what we think is the sweet spot, right? And we believe, independent of what anyone says in the marketplace, we are still the coolest product on the market. You can extend that definition of cool, if you want to, but anyway.

Keith Hughes, Truist. Slide 62 and 63, where you talked about the different type of customers, I've never seen data quite like that. I was interested in the wood-leaning customer. Do you think getting them to buy your product, is it just a function of getting them more comfortable with it? Do you need to have something that's even more wood-looking? What gets them over the hurdle into the composite category?

Sam?

Yes, I think it's education. I really think they don't -- 6 out of 10 don't even know about us. They don't know anything about composites. So once they learn about it and once they see it, then they're really swayed because they really don't believe, based on what composite historically has been, what the stereotype of composite is, is that it's going to look kind of plasticky. So they're not even -- it's not even in their purview. Once they learn about it, and they see that it looks like wood, they see it, they touch it, they feel it and then they learn about the benefits, then they're sold. It's not a price thing. It's really about they want the look of real wood. And if you can give me the look of real wood, and I never have to take care of it and it lasts for 20 to 50 years, then why would you buy wood? That's kind of become our thing. Once somebody -- once you see it click and they say, why would I ever buy wood? We know we've got them.

So the question that's being asked is where did the data come from? Go ahead, Sam.

It's come from a research agency that we worked with that we surveyed. I don't even know how -- it happened right before I came.

Thousands.

Thousands and thousands of people, both contractors and consumers, to understand the opportunity for wood conversion.

So short answer is primary research that we initiated a little over a year ago.

Yes, what he said.

We've got 2 minutes or 2 questions. Please. Yes, go ahead.

This is Ryan Frank from RBC. So can you talk about the strategy to maintain 2 separate brands between TimberTech and AZEK? And have you ever thought about combining those at some point?

Yes. I think the short answer is they represent different categories, but they're synergistic with each other. So AZEK is an extremely well-known brand in the exterior space. It has the freedom to play on the vertical surfaces of houses. That's kind of its -- that's its space, like every brand has a space. And then the TimberTech brand is, as Sam pointed out, synonymous with timber and tech, right, real wood look and great technology, and is already built as a really strong brand for deck rail and accessories. So the logic is we're playing to the strengths. Brands in general need to have the permission to play. And they both have the permission to play where we're taking them. There was one other question.

Actually online.

Okay. One other online.

One online question, yes. So we got a question from online. The commentary around high switching costs is interesting and contrary to what is expected. Composite products across the space all have lengthy warranties. How common is switching of products to focus on the cheapest products? Historically, are the relative pricing premiums across brands and product lines relatively constant? And if so, does this prevent switching dynamic from happening?

All right. So let me answer the latter one, which is as we look at good, better, best premium, typically, those bands are pretty consistent with the major players in the market that's specific to decking. And they've been consistent for the last, since I've been here, 6 years, relatively consistent. So we play in advance. Once again, we're the only one currently at scale that plays in that premium segment. So we're really setting a price above everyone else. And then relative to switching costs, I'm not sure I fully understand the question. We actually chatted offline. So if there's a clarification, whoever asked that online, please come in. The way to think of -- Jon gave an example of both what happens with contractors and what happens with dealers. In general, they are choosing a supplier based on a number of variables. Ultimately, you choose a supplier because your consumer wants it if you're a contractor. Ultimately, you choose a supplier if you're a dealer because your contractor wants it, right? So there's this kind of synergistic way of doing it. That, in our experience, that far outweighs whether or not something is 3 or 4 points cheaper, right? We don't have a dynamic easily. I'm not saying it never happens, but in general, dealers and contractors want to sell what the consumer wants, and they don't want liability and they want it to work, right? And so that's why in this morning's session, we focus so much on the aesthetics, what we do to drive downstream demand because that really does drive choice in our experience, including with the consumer, as Sam pointed out, more than a lot of other variables. All right. I think with that, we have a...

We have a 7-minute break, and we'll start back at 10:30.

Great. Thanks. [ Break ]

All right. If folks could take their seats, we apologize for the short break. And if you're online, we're going to start in just about 1.5 minutes. So thank you.

All right. We'll go ahead and get started on the next section. Our previous Head of Manufacturing had been with us 5 years and recently retired. And so we were fortunate enough to have Chris Latkovic join us today. And with that, let me introduce Chris and he'll start by walking through our operations. With that, Chris, come on up.

Thank you, Jesse. Great to be here with you this morning. As Jesse said, I'm relatively new to the organization. I joined about 10 weeks ago. So just really starting to dig into things, understand the business and seeing where a lot of our opportunities are. I only have 10 weeks with the company, but I do have 30-plus years' experience in operations and supply chain for 3 companies prior to coming to AZEK. So I'm going to show a video in a little bit that basically brings our operations to life, but before I do that, I wanted to start with one of the reasons why it was important for me and why I -- not the only reason, but one of the reasons why I decided to join AZEK. If you look at our manufacturing process, end-to-end, it's really vertically integrated. And for somebody like me who's been in operations a long time, vertical integration is really important to see a process like this where we're taking recyclable material or what some people consider to be trashed, unfortunately, and we're transforming that within our 4 walls into a beautiful finished product that then goes to our customers. And the sustainability story that's interwoven in here is really fantastic, and I'm really excited and proud to be part of that, doing something that's so good for the planet. And to be vertically integrated, you really have to have expertise. You've got to be core confident in many things, and we here at AZEK are. So we have core competencies in the areas of processing, esthetics, material technology and of course, recycling, and this really enables us to excel and really is supportive of that vertical integration. So next, let me share with you the video that I mentioned, so we can see operations come to life. [Presentation]

So being an operations person at [indiscernible] video really gets me excited to be part of this team, and I just really can't wait to bring that back to our plans and show that to our employees on the shop floor and throughout the office. They'll be ecstatic to see this video. All right. Now stepping back a little bit and taking a look at the network. We talked about that a little bit in the video, but we have an integrated manufacturing network. It is well established. It's high quality. It's state-of-the-art, and it's been growing. There's been significant investments made via acquisition, but also with expanding our capacity. We've gone over the last 3 years from 5 to 9 locations from manufacturing locations from 1 to 3 recycling facilities, and our square footage, as mentioned, is now up to 2.8 million. So we think about what comes next with all this investment and the future growth that we expect, we are really well positioned. We've deployed a lot of capital, but kind of going forward, we're well positioned because now we can expand capacity in most cases within the 4 walls of the network that we have, and we can do that by deploying more labor where we can deploy more equipment and labor to boost our capacity within the existing footprint, which is really great going forward as we look at the growth we expect. We also view this network is being flexible and modular, and we'll talk a little bit more about that on the next slide. So this is our latest strategic expansion of our footprint in Boise, Idaho. We have a new manufacturing plant. This, as I mentioned, really helps enable the next leg of long-term growth, helps us penetrate the Western market and also helps with our wood conversion that we've been talking about this morning. It's primarily capped wood composite and PVC decking facility. And as I mentioned, we have the ability to add labor and/or equipment to drive further capacity expansion within the 4 walls. We don't need to expand this building. We don't need to add more buildings. We can do it right here. And I'm proud to say, this has the latest technology and energy efficiency, which is, of course, great from a sustainability perspective. We saw the AZEK Integrated Management System in the video, or AIMS, as we call it. This is really the structure how we go to battle when it comes to continuous improvement. The areas, the 5 pillars that make up the AIMS structure, policy deployment, Lean Six Sigma, digital, stage gate and sales and operations planning, all 5 critical to our business. One area in particular that I'm really passionate about is lean manufacturing and what that can bring in terms of productivity improvements, cost savings and driving out waste. So personally, I'm really keenly interested in diving down deep into the Lean Six Sigma area and supporting the team to take us to the next level. Always do the right thing as one of our values, and we think about continuous improvement in that value, we immediately think about safety and quality. It's always important to us that our people are safe, our employees are safe. And it's really exciting to see over the last few years that the team has delivered a 50% reduction in OSHA total recordable injury rate. Phenomenal performance. On the quality side, always doing the right thing is making sure our customers have quality products. And you can see from this, we've reduced quality claim 17% year-over-year. So fantastic job from the operations team. Of course, prior to my time, but I'm enthusiastic about taking this even further and improving even further. More continuous improvement in the area of cost improvement. We've had numerous key objectives and projects to help our margins. Just to mention a few here. Our capped wood composite deck process has been redesigned, increased throughput by 15%. Our deck -- PVC deck extrusion has been optimized, increased throughput 20%. Polyethylene recycled content optimization. So we've gone from 100% high-density polyethylene to a 50-50 blend of high density, low density. This is important because high density is more expensive than low. So the more we can push that, the more money we save. PVC deck trim -- deck and trim recycled content. So boosting that, of course, helps us from a cost savings standpoint. We are now up to around 50% recycle in deck and about 30% in trim. And then lastly, statistical process control. We've leveraged that in our PVC deck area and that's enabled us to reduce our capped material usage by 36%. So just some examples over the last 2, 3 years in a really challenging environment, the operations team has still been able to deliver great results and help our margin expansion. Last slide for me, productivity and margin improvement projects. We have a roadmap going forward. So we're not just looking in the rearview mirror, but we're looking forward and saying, what are we going to work on next to improve margins even more. In the area of conversion cost, we've got projects going on for scrap rate improvements, automation projects and additional throughput increases. Recycling expansion, huge key area for us. We want to continue to increase our PVC recycle rates in deck and trim, convert to lower cost, low density polyethylene formulas, as I've mentioned previously, and increase our recycle rates in our composite railing. In formulation and product design, we want to optimize material formulation and product materials and design. And then sourcing and in vertical integration, we're looking to in-source some raw materials and finished goods and to drive savings in direct and indirect procurement areas. So we've got a great roadmap plan. If you roll it up, exceeds 500 basis points of opportunity, and we have our resources laser focused on delivering that opportunity. That's it for me. I will now hand it over to Dan Boss to talk to you a little bit more about research, development and innovation.

Thanks, Chris. My name is Daniel Boss. And just as a brief introduction before getting into the presentation, I've got a Masters in Kemi, Masters in -- Ph.D. in Material Science and Engineering, and working in R&D for over 30 years. About 20 of that in building materials. The last 11 were GIF. So I'm very familiar with competing with long warranty, high-performance products with high esthetic requirements and also helping to lead the company into adjacencies and being very successful as we roll into those areas. So I look forward to helping AZEK meet that vision. But I would like to start with this message from Lewis Carroll. So if you don't -- if you studied innovation, but this is an example that I've always found very important to remember. If you don't know where you're going, any road will get you there, and to me, this is the difference between activity and progress. And you probably talked to companies that got lost on the activity. They are chasing shiny objects, doing very interesting things, but they didn't really seem to get anywhere, and they weren't building towards something. So this is something you can get lost in. There's so many cool things to technologists. You want to make sure you keep this message in mind, and so this is how we keep it in mind. So we want to have a destination in mind when we're looking at what we should be doing and what we should be prioritizing. So that's the business strategy that Jessie and John laid out. That's the product strategy that Patrick and Nam laid out. So that's where we're going. And the technology strategy that my team and our partners within the company work on is the road to get there. So we're working to build the road that gets us to the vision. This is meeting the financial performance and differentiation targets that enable the financial success of the company. An example of how we've been able to do this since I've joined the company is when I -- when the first request that I was given was, we want to really accelerate the use of recycled content. And so we organized the effort, the partners we have, the knowledge we have, and we've changed the priorities, and we got driven and enabled very -- game-changing enabling set in the LD content. So you heard Chris use our current example of it. Got samples of some of the products that we're currently working on the production equipment with that. And similarly for PVC, you saw the targets there. We've made a step change for that as well. Look forward to showing you of these samples and talking to you about them at the display area. But this is not -- if we can do it, it's how and when. And so there's still investment. There's still a lot of engineering to do, but it's definitely enabled, and we look forward to implementing it with the rest of the company. You also heard the broad technology areas that we have and how important they are to the different categories we have and the different businesses we have. We have 3 great product foundations to be using as we expand our business and go into adjacencies. This materials a lot of commonality and how they work and the benefits, and they're widely used and have great potential for many adjacencies. What's also come to mind is that we have a lot of business innovation tools within the company. All the acquisitions we made, the different categories we play in, so combining the materials foundation and the business innovation tools and perspectives we have within the company, it makes me very comfortable that we'll be able to move into adjacencies and just add on a component to our base and not have to reinvent the base to compete very effectively in the adjacencies. Now we've also heard about how we have all this differentiated materials technology, how do you get it. It's a journey. It's something you have to earn. And so we do all these testing to develop and qualify the materials show they work, meet all the performance requirements. Every failed test, every successful test teaches you something. So our competitive difference is actually different than our competitors, even though we're playing in the same space because we learned that we went on a different journey. And so that's why it's hard to replicate, and that's why we can take advantage of it in a different way than some of our competitors approach the market. This is a quick example of representation of that difference. We've taken a much more active role in patenting and protecting the information. So you can see here the number of U.S. patents that AZEK currently have, active patents that we have versus our top 2 competitors. And then just to close out, this is our technology building blocks. The material science you've heard about, which is the raw materials, the formulation, the process of manufacturing technology, but how you turn those formulations into products with the right cost or the right performance and how those materials work in systems. It's not just to meet building code, it's also to provide a competitive advantage and installation benefit to our contractors, make their life easier, help them make more money. It's to reinforce the message as Sam is bringing to the customers about the benefit, the life cycle value for the people at home to use and live with the products we protect each of those building blocks with our intellectual property approach, and that's how we build a sustained competitive advantage. So I look forward to talking to you all more at the display area and showing you some of the products and answering any questions you can at that point in time. But right now, I'd like to introduce Jim Harrington and Dave Foell to talk about our work on recycling.

Thanks, Dan. As Dan mentioned, my name is Jim Harrington. I'm the Vice President of Strategy here at AZEK. The past year, I've really focused on how we can accelerate our recycling journey. Joining me is David Foell. He's the President of Return Polymers, our PVC recycling division. So first, I just wanted to give you a little bit of background about myself. I spent the last 2 years here at AZEK. Prior to that, I led the outbound supply chain at True Value. And previous to that, I spent quite a few years at the Boston Consulting Group. I wanted to start with a brief overview of recycling here at AZEK. We're a vertically integrated polyethylene and PVC recycler. As you've heard before in the video, in fact, we're the #1 vertically integrated PVC recycler here in the U.S.. We have a goal to use 1 billion pounds of recycled materials every year, and we're well on our way there. Just last year, we used 0.5 billion pounds. We have a clear roadmap to get to that 1 billion pounds. We're building out our post-consumer and construction and demolition, PVC recycling supply chain. We're increasing the PVC recycled content in our PVC decking and PVC trim, and we're transitioning our capped wood composite formula to use increasing amounts of lower-cost, low-density polyethylene. As we think about recycling, it aligns with our ESG mission, but it also translates into significant margin improvement potential. For example, substituting 1 pound of recycled PVC for 1 pound of virgin compound, you can save up to 50% of the cost when you bring that into our products. So let's talk a little bit about how we use recycled materials across our portfolio. First, in our capped wood composite products, we use 100% recycled wood flower and 100% recycled polyethylene in the core of our boards. For our PVC deck boards, we use approximately 50% recycled PVC, and in our PVC trim, we use approximately 30% recycled PVC. Here's a few examples of the types of materials we use. So this is polyethylene film that we use in the core of our capped wood composite deck boards. On the right-hand side, you can see a relatively clean post-industrial stream that we bring into our process, and on the left-hand side, you can see a more contaminated post-consumer stream. We use both of these types of these materials. And one of the things that differentiates us is, we can use those more contaminated streams that other recyclers either can't or don't want to use in their process. Here are a few examples of our PVC material. On the right-hand side, again, some post-industrial PVC scrap. This material will end up eventually in our trim boards. On the left-hand side, this is one of our FULL-CIRCLE bins that's actually out of the job site, collecting construction and demolition waste that traditionally would have ended up in a landfill or bringing back bringing to return polymers, which is recycling it and will end up in the core of our deck boards. As you think about all of our key recycled source streams, they're large and to date, relatively untapped. This is important because it provides us a long runway to increase the amount of recycled content in all of our products. Now I'll give it over to Dave to talk a little bit more about our process.

Thanks. Good. Good morning, everybody. So my name is David Foell. I'm the President of Return Polymers. I'm a Chemical Engineer. So I'm the geek in the room. Been in PVC -- dedicated PVC for over 33 years, primarily I got my training through PolyOne and Geon, and then my own extrusion concrete forming business out of recycled plastics. I have the pleasure of leading my team in spear heading the PVC recycling activities and cost margin improvement activities. Return Polymers has been in continuous operation for 30 years. In the last 15 years, we converted into the powerhouse that you know today, leading the industry in PVC recycling and innovation. So if you look at our processes, we've got 3 different recycling operations. All of them have different raw material inputs, but all of them use basically the same tenants and the same kind of processes. The collection, either through a traditional industrial application, partnerships, alliances and alike. John called them sticky customers, I call them sticky sources because once we get them, we never lose them. So we treat them so well. It's all about how you keep your sources happy. Sorting and separating is really coming down to how you take the contaminants and trash out because there will be trash. There is no way you can tell a source to say, please give me that good stuff. I only want the good stuff. That never happens. You're going to have to take us on other way. Processing comes down to taking all the different forms that you're going to get, big, small and ugly, and making them into something you can reprocess the next step. Probably, the most critical step though is the blending operation. That's where you take the complexity that is recycling and make it into something uniform and also add in other additives that you do to make it more consistent. Now I'm an engineer, I like pictures. And so at that point, I'm going to give you a glimpse as to what the recycling operations look like. The PVL polyethylene recycling facility is in Wilmington, Ohio and the PVC operations in [indiscernible], Michigan and Ashton, Ohio. [Presentation]

Hard not to get chills when you look at that. It's just my guys are going to love it. They haven't seen this one. We also have a video that we're going to not show here today, but it's our 30th anniversary video. It's called testimonials. We kind of pulled rabbits out of the hat and that person had to go on stage is great. Anyways, in the PVC world, you saw out there, there's mechanical recycling. It looks really simple. Drop stuff on belt, stuff goes up belt, magically comes back, looking pretty. It's not that way. It's very complicated, very complex. Imagine that in my life, I get to tell and get told things are coming in, I'll never know why it comes in. I don't know anything about it. I don't know what's wrong with it. It could be start-up material. It could be end-of-life material. It could be an R&D experiment that went wrong. It could be any of those things. And today can now be C&D, Construction and Demolition, products that we've never seen before coming in. Only I can guarantee about that product is going to be consistently inconsistent. That's literally what I can guarantee. The same thing, all the forms are going to be different. You have to deal with a small piece, a big piece, a piece that you don't expect. Our team has developed technologies to be able to adapt existing technologies quickly or create its own proprietary technologies to handle these new materials coming in. You got to be able to be nimble in this business or you won't be successful. Our team doesn't rely on a single source. Jim said it right, a lot of companies cherry pick, a specific source and that's all they can deal with. Ours, we take it all. I haven't found a PVC plastic I don't like. It comes in. We actually use 30 years of our technology and know-how about formulating and business development to create a consistent blend. I'm a foodie. I love cake, okay? Making plastic recipes is like making a cake. Every raw material has to be characterized, define what it's available to do and what it can do in the market and the application and you have to be able to adapt to it when it comes in the next day that it's different to make a consistent cake every single time. So if you think of what our competitive advantage here is, ultimately, it's taking the complexity that is in the market and make it consistent cake perfectly every time so that all the complexity stays in my plan, it never goes to Chris'. It never goes to Chris'. And that's the critical thing here. Keep on innovating, right? You've heard about the FULL-CIRCLE program. This is creating a new market for us. It's a best-in-class, first to the industry, goes at the construction demolition market, goes away from traditional collection techniques and post-industrial and goes right to the job site right to dealers, right to distributors and now to the C&D market. We've never done it before. We're starting to see materials coming in. You saw blue and black bins up there today. We've now adapted them. There's 12 and 14, 15 feet long now to allow us to take siding to make it easier for a job site to say, throw in the bucket and just keep on throwing it in the bucket, and we'll keep on doing it all day long. It's interesting. It is going to allow us to extend that market size for us significantly. It's untapped. Nobody touches it today. We're the first to touch it. It's also given us some serious recognition. It was one of Fast World's world-changing ideas as well as green innovations invention of the year. So it is getting us the recognition we want to, and it's getting us the brand we want. You got to keep on doing other things to adapt. Ultimately, we were looking for a product that could use wider streams and materials, but also had to solve a customer's esthetic requirement. They want to be able to paint it, okay? It was a double win. We got to be able to use more readily available, lower cost materials, but still give the customer as esthetic, it was PaintPro. Launched in 2019, extraordinarily successful. The competitive advantage that AZEK has and is going to maintain for recycling is real. We're ahead of the game. You look at the 3 things to do. If we succeed in these 3 things, which we're going to succeed, ultimately comes down to reducing the cost of the core and the wood composite to the 90% level by taking out HD and putting in LD. Same thing happens in PVC. As we increase -- you've heard the numbers from a lot of my colleagues, as we increase every percentage point to that 70% range, we continue to win. The same thing on trim. Taking it from the existing 30% to a target of 60% over that small time frame is a significant margin improvement for us. These are things that are near line of sight. These are not wishes, they're going to happen. So if you don't get that I'm having a blast doing this, it's fun. If you think an entrepreneur can't win in a publicly traded company, look again because it is a fun place to work. It's a fun place to go, and it's just gets you really excited. On that, I'm going to hand it over to Amanda, and she'll keep on talking about the ESG journey.

Thanks, Dave, and thanks for helping us turn trash into treasure. Good morning, everybody. I'm Amanda Cimaglia. I'm the Vice President of ESG, and I lead our FULL-CIRCLE ESG initiatives here at AZEK. I'm so excited to be part of this company. I've spent the last decade or so in ESG and IR and Corporate Communications, and I wanted to be a part of the AZEK company because it is what I like to describe as a company of the future, a company that is acting with purpose and ambition today, and it is a company whose business and sustainability goals are very much inextricably linked. When we say that our purpose and our commitment is to revolutionize outdoor living to create a more sustainable future, I hope that one of the takeaways that you have from the call -- from our call and our presentation today is that we are authentically committed to that. It is something that centers and guides all of us here in this room and across our more than 2,000 colleagues from across the AZEK company. And it's precisely why in conjunction with the IPO, we formalized our ESG strategy, and we now call it our FULL-CIRCLE ESG strategy because it is a truly stakeholder-driven approach. We think about how we can engage and inspire everyone whom we encounter across our supply chain, our value chain, our employees, our customers, our investors, other members of the investment community, and we hope that you're inspired to join us in this journey because we constantly ask ourselves how can we positively impact our products, our people and the planet. I like to describe ESG as a journey. It's not a destination, and this slide just highlights some of the progress we've made since our 2020 IPO. And it's -- what I love, again, so much about this company is the positive impact that we can have on the world really comes through in our use of recycled material, which we've talked a lot about today and our commitment to good environmental stewardship. And to reiterate what my colleagues have said, we think about this as a truly circular journey. We are diverting hundreds of millions of pounds of waste and scrap out of landfills every year. We're using that to design and manufacture our beautiful products that replace wood on the outside of the home and are -- can last 20, 30, 50 years or more and are recyclable at the end of their useful lives. So it truly is a circular journey. When it comes to social responsibility, it really starts with our people. We are a team of bright minds and innovative thinkers, and it's truly the diversity of our team that sets us apart. We think we have one of the most diverse boards and management teams in the industry, and we think that, that's a key point of our differentiation. It leads to more innovation, more creativity and better and best outcomes. When it comes to corporate governance, as a newly public company, of course, having strong governance practices and policies is paramount, and we are committed to having good corporate governance practices in alignment with investment community best practices. And we're now rated. We have good ESG ratings from the likes of ISS and Sustainalytics and MSCI. A strong and impactful ESG program has to have good solid governance and that starts at the highest level of our organization. We have formal Board oversight of our ESG initiatives and strategies and communications that permeates through our executive and senior leadership team. And we also have a cross-functional steering committee comprised of leaders from across the organization who are responsible for setting, implementing and cascading our ESG -- our FULL-CIRCLE ESG strategy across the organization. In 2020, we became a voluntary signatory to the United Nations Global Compact with a promise to advance one or more of the United Nations Sustainable Development goals. So the ones that we have listed here on the screen, these are the most relevant goals to us and where we can have the biggest impact on creating a more sustainable and inclusive future. These are global and complex challenges that require innovation and action and all of our FULL-CIRCLE ESG initiatives tie back to one or more of these sustainable development goals. But we won't stop there. We always aspire to be better today than yesterday in alignment with our core value of better today than yesterday. So as part of that, we have established these 3 overarching ESG goals: one, to reduce the carbon footprint, upstream and downstream across our organization and across our value chain; two, which links to the first one, we aspire to use 1 billion pounds of recycled material annually by the end of 2026; and three, we are wholeheartedly committed to positively impacting our employees, our customers and our communities through purposeful and inclusive engagement. As a manufacturing organization, I wanted to spend a couple of minutes on our carbon footprint because this is the most material ESG topic for us as a company. It's also where we can have the biggest impact on reducing our carbon footprint and positively impacting the world. So you can see the bar chart on the right, this has 3 years of our carbon footprint data embedded into it. And you can see that our carbon intensity has been decreasing over that time, and that's in part because -- or mostly because I should say, 70% of our carbon footprint comes from our raw material purchases. So we are focused on accelerating our use of recycled material, not only because it can drive up to 50% cost savings, but it materially improves our carbon footprint. And so that's where -- when I said earlier that our business and our sustainability goals are very much inextricably linked, this is where the rubber meets the road, and we have the data to back this up. Our next part of our journey will be setting aggressive and ambitious carbon emissions reduction targets across the entirety of our value chain so you can look for us to report about more of that in the future. Now switching gears from our organizational carbon footprint to our product carbon footprint. To build a more sustainable future, we need to understand the environmental impacts of our products across their life cycle from raw material sourcing to manufacturing, distribution, installation, use and maintenance, and end-of-life recovery and disposal. So that's precisely why -- and about 18 months ago, we conducted a science-based and peer-reviewed life cycle assessment study on some of our core decking products so that we could understand the environmental impact and specifically, the carbon footprint of our products, but also how they compare to traditional decking products like pressure-treated wood or an exotic hardwood like Ipe that a lot of consumers will choose for their backyard and their outdoor living spaces. So these are the results of our life cycle assessment studies. They're compelling and hugely informative. You can see that both of our collections of decking are more sustainable over their lives than pressure-treated pine and even much more sustainable than Ipe. And this is something that links back to Sam's messaging earlier about driving consumer awareness and education. A lot of homeowners think that wood decking is the most sustainable product. It's a natural -- it's naturally occurring, it must be the most sustainable option out there. It's actually not when you think about the whole product life cycle. So again, we are committed to having this scientific data to back up our claims when we say that our products are more sustainable than wood alternatives. The last thing I'll note here is that this life cycle assessment study was based on our formulations from 2019. The study was conducted in 2020 based on 2019 formulations, and it's -- it was based on 40% recycled content used in our PVC decking collection. Today, as you've heard from others, we have -- we're at about 50% recycled content for PVC, and as we continue to increase the amount of recycled content in our PVC products, that, of course, will drastically reduce the carbon footprint of that product itself. So increasingly, people want to buy from, work for and invest in good corporate citizens. And so we are so proud to be able to have this data and all of our ESG data to communicate that to our stakeholders. Many players, one winning team. I love this slide. People truly are the cornerstone of our winning culture. Our success is fueled by the ideas and dedication from people. You've heard from many of them today and across our entire company. We are also committed to creating a diverse and inclusive workplace where diversity of all kinds is sought out, valued and appreciated. As part of that, last year, we formalized our DE&I strategy that we launched as part of our bringing forward the best of AZEK initiative. And it has 4 main pillars: improving workforce diversity, cultivating workplace inclusion, driving positive impact in the community and increasing the amount of spend with diverse suppliers. We have purposefully created the most diverse leadership teams in the industry, and again, we view this as a unique point of our differentiation. It drives our creativity, it drives our innovation, and it leads to better results. And we continuously strive to create a culture where our employees feel like not only that they're part of a great team, but a great company. And I hope that you felt the passion that I have and all of my colleagues that have spoken here today have -- we have a choice. We can work anywhere, but we choose to be at AZEK because we believe in the purpose of the company, and we believe in the future of the company and the future opportunity of the company. And so we are so excited to be part of this team. In closing, as leaders, I'd like to say, we aspire to be both visionary and pragmatic, to be ambitious, but realistic and to both engage and inspire because we are committed to building a better tomorrow and a more sustainable future today. With that, I'll turn it over to Peter Clifford to review our financials.

Thanks. Good afternoon. It's good to be here. Looking forward to walking you guys through the 5-year financial plan. So as Jesse established earlier in our base case of 10% growth, we see a path clearly to $2.3 billion in revenue. As we execute against our margin expansion road map that we're going to talk about here this morning, we feel comfortable about achieving 27.5% [ EBITDA ] and $625 million of EBITDA within the period. And as we grow, as we expand margins, as CapEx normalizes, we see a path to $1.6 billion in cash from operations. As you can see, we've established a strong financial track record. Execution is part of our DNA. Our growth enables consistent leveraging of [ EBITDA ], cash from operations as well as EPS. Also of note, during the period of the 5 years here, we have expanded our quality of earnings on [ EBITDA ] by about 230 basis points within the period. Next, let's take a look at our growth stack. So from a historical perspective, we are differentiated from our building product peers by consistently delivering double-digit growth over the last decade. Next from our recent performance, ex price, our recent performance has accelerated. That acceleration is due primarily to stronger R&R and accelerated material conversion. Lastly, from a targeted growth perspective, we view our long-term targets conservatively as we assume R&R in our mid-single digits stacked with about 1 point of wood conversion plus our growth initiatives. Note, one of the secondary differentiating points we feel about our business is that we feel like we can grow mid-single digits in almost any given year even if the market is 0. The keys to growth. As Jesse mentioned, we participate in attractive growth rates of outdoor living and R&R, our ability to drive wood conversion story coupled with our ability to execute against our focused growth initiatives and finally, continue to complete bolt-on M&A. Now let's double click on our post-IPO margin performance to date. Some of the keys to the performance here from a price commodity inflation perspective, that has generated about 130 basis points of headwind to the business. It's been offset by strong PVC recycling of 150 basis points, and the cumulative impact of SG&A leverage coupled with net plant operations is another 160 basis points of margin expansion, driving the core business up 180 basis points, offset by M&A and Boise start-up costs of about 130 basis points, both of which we will get back over time. Next, let's double-click on our margin expansion road map. There's a lot here. So I think what you'll see is we have a portfolio of actions not dependent upon volume that drives us to the committed additional 450 basis points of EBITDA expansion. For this presentation, we've kind of segmented the buckets into 2 discrete buckets of onetime opportunities versus annual kind of continuous improvement. So again, let's double-click on the discrete opportunities. On the left-hand side here, recycling is our largest lever we have. In the next phase, this gets us about 350 basis points margin expansion. It is important to note what we're showing here is not entitlement. What we are monetizing is only what's our next milestone within the time frame of the financials here, which is 5 years, meaning our end goal for PVC decking, as an example, is not to get to 70% we would aspire to get to a much higher content than 70% from a recycling perspective. But again, what's within this 5-year window is going from 55% to 70% as an example. Second bucket is product configuration. We have opportunities to optimize the configuration of our products to take material cost out. A simple example of this is our ability to optimize the back of our cap on our decking boards. This basket of opportunities is worth about 200 basis points. And then the third bucket I'm calling recent inefficiencies. We've seen significant conversion cost inflation, coupled with significant supply chain disruptions over the last 2 or 3 years, which we think bring significant opportunities to improve our operations. We think, conservatively, again, this opportunity is worth about 50 basis points on a onetime improvement, which brings our total go get on onetime discrete items to about $84 million and about 600 basis points of margin improvement off of our 2022 sales. As well, on an annual basis, we think, through continuous improvement, sourcing initiatives and operating leverage, we can consistently generate about 50 basis points of margin expansion each year, and that is separate from the onetime opportunities. So how we think you should think about the cadence of our margin expansion annually as we expect to deliver approximately 100 basis points of margin expansion each year? And then the final note here on the bottom right is what's presented here does not include commodity deflation. Those are the reasons that we could obviously exceed in the short term if there was some deflation. So it brings us to our forward look. So again, if we can execute against our growth stack and as we execute against the margin expansion story, we see sales of $2.3 billion, EBITDA of 27.5%, $625 million of EBITDA, and incremental margins over the period of roughly mid-30s and working capital as a percentage of sales of about 18%. Next, let's talk cash. So again, as we grow, as we expand margins, as CapEx normalizes post Boise, we expect to generate $1.6 billion of cash from operations. Next slide, let's talk a little bit about capital allocation and priorities here. So between cash generation of $1.6 billion, which you saw in the previous slide, we also will pick up incremental leverage on the EBITDA's expansion of the business, which would allow us to, in essence, have another $1.2 billion of capacity. So we have about $2.8 billion of capital to deploy over the period potentially. And our capital allocation priorities remain consistent. Our first priority is investing in the organic growth of the business followed by CapEx to expand capacity and margins, followed by bolt-on M&A., and then lastly, share repurchases in that order. Next, I thought I would share some of what we're seeing in the near term. We are seeing 3Q track as expected, not only on the top but also on the bottom line. We are reaffirming our 3Q guidance for both the top and bottom line perspective. We are seeing the balance of the year is our channel being more conservative with inventory days on hand. Our lead times have returned to normal, and we expect our channel partners to continue to factor in the macro as we hit the end of the year. Therefore, on a full year '22 guide, we see ourselves closer to the bottom of the guidance range on both the top and bottom lines. As a reminder, we are lapping $60 million of inventory build in the back half of 2022. I also thought I would share a few observations on 2023 that we can see from now. To be clear, we're confident in the long-term business model because of the attractive end markets that we serve, the compelling material conversion cost story that we have, coupled with a clear margin expansion road map, but the tailwinds that we can see right now in 2023 are our ability to grow the business via wood conversion and growth initiatives regardless of the market. We carry over price commodity, carry over about $30 million-plus into '23. We see signs of commodity inflation moderating. We have a clear path on the recycling opportunities, which are not volume-dependent. We carry over a full quarter of structure with lots of momentum within that business. We see a more normalized supply chain than what we've experienced in the last 18 months, and we also see a step down in CapEx spending in 2023. Now let's spend a few minutes talking about the resiliency of our business model. First, from a historical perspective, the last recession, which was the Great Recession, we saw the business drop about 15% on the top line from peak to trough, while the quality of earnings dropped about 500 basis points, but recovered 1 year later 760 basis points. Note, our business portfolio is completely different today than it was in 2009. Today, we participate in an accelerating wood conversion story. Recycling margin opportunity is in play. We have an improved portfolio mix, better products, better aesthetics, a stronger brand and experienced leadership team. What else gives us confidence in our resiliency. Our cost structure is highly variable. 90% of our cost of goods sold is variable, and SG&A is only 15% of sales. Other characteristics that we think are unique, R&R has a long history of remaining resilient in down cycles. Conversion still occurs even in disruptive cycles and commodities tended to flight with slowdowns. And lastly, from a cash and liquidity perspective, we have the ability to match our CapEx to the operating environment that we see. We can pull back to maintenance-only CapEx within a quarter or 2. And we expect to exit the year with approximately $100 million of cash on hand, an untapped ABL and a net debt profile of approximately 1.7. Let's talk quickly about M&A. So first and foremost, we are confident in our process, our criteria and our pipeline to be able to deploy capital consistently with stronger returns. What is it that we look for from our acquisitions? It's pretty straightforward. First and foremost, we love our core. Anything that's in the backyard, the front yard or on the outside of the house is something that we would have interest in. We love businesses that benefit from the wood conversion story, businesses that add recycling, sustainability or important vertical manufacturing capability. We have a strong preference for bolt-on versus transformational acquisitions, businesses that are core or entrepreneurial, innovative and committed to doing the right thing and businesses that can grow at or above our core residential growth rates. From a margin perspective, we're not interested in fixer uppers. We like good businesses with a clear path to mid-20s EBITDA over a reasonable period of time. And from a pricing perspective, businesses with obvious synergies at fair prices. Next, let's talk a little bit our history of M&A. So we have an established track record. M&A has been an important part of the past. We have a track record of creating value. Examples of successful tuck-ins., We've had Versatex, Ultralox and now StruXure. With each of those transactions, we picked up great people, great products and great brands. As you can see from the chart, we know how to grow what we buy. And then examples from our recycling perspective, both Return Polymers and Fryman earlier this year are instrumental in us building out a recycling capability and infrastructure. Although it's not in our guide, M&A is an important part of our strategy as we look forward. I'll bring this all home here to hand off to Jesse, but growth as a growth company, we will deliver double-digit growth to achieve the $2.3 billion over the time period. From margin expansion with our portfolio of actions, we are confident in our plans to be able to achieve the 27.5% EBITDA and $625 million of EBITDA dollars. From a cash and capital deployment, we will deliver strong cash flows. We will maintain a leverage below 2.5x. And from a capital allocation priority perspective, they remain the same. Again, support growth, support CapEx that drives capacity expansion and margin expansion followed by bolt-on M&A and then lastly, repurchases. I'll hand it over to Jesse.

Great. Thanks a lot, Pete. Appreciate it. Let me grab the clicker from you. Just in summary, core business model, taking low-value recycle and turning it into sustainable building products. We've got what we believe is a unique story, growing markets, the innovative leader, a portfolio of actions and sustainability at our core. Pete reaffirmed what we view as our 5-year targets, $2.3 billion, $625 million of EBITDA, 500 basis points of margin expansion and $1.6 billion of operating cash flow. But if you step back and you're in our shoes, there's a bigger opportunity here. We talked about our ability through M&A to access more markets, our ability to continue to drive new products and our ability to continue to aspire to something bigger. So as we look moving forward, you've seen what our target is, but we aspire to be something bigger. And it comes from that foundation of being focused on the outside of homes with wood replacement using recycled materials. And if we do that and combined with very selective acquisitions, we should be able to achieve a much larger target. And the round number for us is about $3 billion and commensurate SG&A -- or I'm sorry, commensurate EBITDA based on that. So with that, thank you very much. We will move to a Q&A session. For this part. We have a few minutes here. We'll take questions both online and in the room, and we'll rotate through. We'll try to get to some folks that may not have asked questions before, but we'll try to get to everybody. Go ahead.

Phil Ng from Jefferies. Sorry to be a little shortsighted here. You talked about destocking, which is why you're reducing your full year guide to the lower end from a sales and EBITDA standpoint. So first on that, is that a 1 quarter flush-out? Or do you think it's going to take a few quarters? And then longer term -- well, I guess, more medium term, certainly, everyone is nervous about an air pocket in demand. Talk us through how you think about that. I mean you gave some great color, Pete, in terms of the carryover effect from a price cost standpoint. So that's a good guy. Favorable cost, I think, was like 90%. So help us unpack some of those components when we think about a decremental backdrop, if growth is flat to down, perhaps. Certainly, you guys should outgrow the market.

Yes. So thanks for ending the question on that point. Look, our assumption is we can outgrow the market. In terms of what the commentary Pete just gave, we are seeing more conservatism in our channel. We had some of that when we gave the guide for the year and we gave the guide for the quarter. We assumed that, that could be a possibility. And we're seeing some indications of that. And that's why Pete said, right now, we're tracking to the lower end of our guidance. In terms of how that manifests itself in subsequent quarters, we're not going to speculate right now on '23. I will ask maybe Jon to give a perspective on demand and what he's seeing with customers, and then I think Pete can get into specifics on the decremental kind of -- you didn't -- I think you asked -- used the word decremental moving forward. So go ahead, Jon.

Yes. So Phil, I mean, we talked about demand on the quarter. And again, we're still seeing really solid demand in the marketplace. So we talk about backlogs, and we talked about dealer activity, and we're still seeing it, right? So you're seeing those lengthy backlogs. No contractors are calling us looking for work. They're all booked out through the season, and the traffic flow through the dealer community is also very, very solid. What I think we're seeing is a sort of more historical growth pattern that you typically see in the season, right? And that's where right now, inventory levels are relatively high, and you start to burn those off into -- throughout the summer months and into the fall. And then you sort of see that reload during the Early Buy process. So very consistent with what we're seeing, and we're seeing growth rates that are consistent with our historical levels.

Yes. And on the last question from a degradation perspective, the way we've kind of thought about it is just based upon the information that we shared. If volumes were flat with the carryover pricing, with the carryover of StruXure on a reported basis, -- and some of those initiatives that are sort of self-help that are not dependent upon volume, whether it's scrap reduction or our recycling efforts, we think we could probably still get modest leverage on the bottom line if volume were flat. Obviously, each step down on volume, if you use 5% increments, you start getting probably closer to neutral leverage. And obviously, at a 10% down, it would be difficult not to have some dilution. But at least in the near term, volume is flat. I think based upon what we see, we could probably still drive leverage next year on the bottom.

Yes. And once -- the caveat is -- I would say that the backdrop here is as we're giving you data relative to what we can provide for the future for '23. But we're not in the point -- at the point where we are forecasting anything. And I would just reaffirm we feel really good about our opportunity to perform in any market. And it really comes out of the root of what you actually asked in your question, the ability to grow above market and then the tailwinds that we have relative to margin that have been building up. So next question. I want to go here. Go ahead.

Anthony Pettinari from Citi. You gave the 5-year targets for sales, EBITDA and cash. I'm just wondering, is there kind of a returns profile that you think the company should be able to achieve, whether it's ROIC or whatever returns metric you would use and sort of where are you right now?

I would just say at a macro level, and Pete can maybe provide another 15 seconds on this, but on a macro level, our -- we tend to focus on long-term return on tangible assets. And our target in our compensation is in the high 30s.

Yes. And I think that's the right long-term profile. Obviously, with Boise coming online this year, in the very short-term is going to be a bit diluted, but we would expect that as you get to year 2, year 3, we should start getting back closer to that kind of mid- to upper 30s kind of route.

Jesse, can you talk about how the company performed in 2009 and maybe the different products, how they performed? And then how is the business different today versus 2009, just to level set us?

Yes, the -- Pete gave an overview of how we performed in 2009 relative to the volume declines and where margin was, so I don't know that I can give much more. What I can say is the Commercial business was much larger at that point. Number two, if you look at the macro housing market, we were actually chatting earlier, right? We believe there was a note that came out last week, tail end of last week, it said R&R was down more than 20. We performed 5 points better than R&R. And then as you look at the structure of the business, we are, I would say, broader. We're in more channels. We've got a breadth of portfolio that we didn't have, and we believe that gives us more opportunity to drive diversity of growth, right? Portfolio means, in general, you're less concentrated in any specific areas. We feel really good about the ability and the growth opportunity that we have more broadly. I think if you went back to 2009, our growth opportunities would have been much more narrow, and we didn't have the portfolio of actions that you saw Jon lay out. And I think the most fundamental difference is really on the self-help that we've described on the margin side, right? We were not coming in to that kind of a scenario with the actions that need to show results at that time period, right? We were running almost all virgin. We didn't have a continuous improvement program. We scaled the operations without all of the stuff you just saw. So I think that for us, that's a huge difference that gives us a big self-help component, in particular, on the margin side.

Thanks for all the information. Mike Rehaut, JPMorgan. Just wanted a little bit of clarification, if possible, on the margin targets, kind of ask it in 2 part way. One is on a basic level. I think earlier in the presentation, you said 500 basis points, but towards the end, it was 450. I know it's a small difference, but I just wanted to understand the difference there. And secondly, in the slide around the onetime opportunities of 600 basis points, and then you have the 50 basis point annual improvement, that takes you to 850 over a 5-year period. So I presume that's just kind of the ultimate upside that you're targeting that you're not necessarily putting into the 5-year. And I just want to make sure I'm thinking about that correctly. And also if that does not include the positive price carryover in '23, that could represent another 200 basis points?

So let me -- the 550 versus -- or 500 versus 450, it's the same number. 500 was the target off of 2019. We've realized about 50 of it. So there's 450 left. That's kind of the simple way to think of the differing numbers. The end target, which is 27.6% EBITDA by 2020 summit is what the target is. So let's just kind of leave it at that, right? Relative to the other questions, do you want to take that on?

Yes. On the 600 basis points, I want to make sure I've got your question understood if you could throw it back out to me again.

Sure. So you laid out on one of those slides, you had the 600 basis points of what I believe characterize onetime opportunity. You also added 50 bps annually over a 5-year period. That's another 250. And then you also have the positive price carryover for next year. So you're talking about it, if I understand it right, over a 1,000 basis point opportunity. And I just want to make sure I'm thinking it correctly that, that's kind of, I guess, how would you view the overall opportunity set and you're kind of guiding to 500 at a more safe level?

Yes. I think the easiest way to think of it is you always -- I'm going to use the word portfolio a lot. You have a portfolio of actions. And what we're -- roughly, your math is not too disconnected from, I think, what Pete laid out. The point being that we need a portfolio of opportunities because you don't have flawless execution and stuff happens. I mean it's that simple. I think it's not -- we look at that -- when we say we are confident in that 500 basis points, it's really an outcome that we have a meaningfully larger pipeline and target project list of opportunity that's well above it. That's how you should think of it. It doesn't mean we're done. It doesn't mean that we're going to get all of the higher number that you referenced. It just means that it's a logical part of the equation. You didn't ask the question on cadence. I think what we're trying to do, we've gotten a lot of questions on how should we think about that flowing through. We're telling you, you should think about 100 basis points flowing through. Now there might be differences year-to-year. If you do the math, we're going to need to get more sooner at some point to track on track against our target, right? So that's not to say that there won't be time periods where we get a little more or a little less.

Ketan Mamtora, BMO. Jesse, can you talk about what kind of investments will you need to get to that 90% LDP from 50, 50? And can you give us sort of a rough sense of when do you expect to get there? And second part to the question, Pete, the 350 basis points margin improvement that you have on the recycled side, is that incremental from current levels? Or is that 350 on 2019?

It's all incremental from here. So we're about 55% PVC deck order recycling content. So it would be making that next step up to 70% as an example.

To answer your other question on what's it take to get to 90-plus percent, at a break, you can chat with Jim and the team. But just for the sake of time, we are on track, as we've talked about, to get to 75% low density. That's our next milestone. In effect, what we've talked about on -- in other venues is that we need to -- we tune the machines. We need to order some additional -- I'll actually be more specific. There's some additional screws and tools that we need to have that are on order and tools being that the -- in the Play-Doh of how something comes out of a machine, it's that forming thing, and then the other stuff down the line. From a cost standpoint, they're very modest. They're almost within the domain of, call it, what you would normally upgrade or repair on almost an annual basis. It's in -- so it's not a lot of money. It's just that you need to tune the machines and get the products on order. That's to get to 75%. We've guided by the way, that, that would occur sometime during 2023. To get beyond that, we would expect some additional formulation work, and we haven't guided to a specific time frame on that. And then similarly on the PVC recycle, we've shown the milestone of 70%. We've said that we would expect to exit this year on PVC decking, near 60% as we exit that year -- this year, and you should think about that's what we're going to carry through into '23. And we don't believe we need much incremental investment to get to 67. Please? I'm sorry, we're -- go ahead. No, go ahead. You've got the mic. So we'll come back.

Matt Bouley, Barclays. So on the $2.3 billion revenue target, you have Boise coming online, and it sounded like you said there's an ability to add additional labor and equipment within the existing footprint. Do you have the capacity with that to reach or to deliver the $2.3 billion? Or should we think over these next few years, there's another type of big greenfield on the horizon?

The short answer is within the planning horizon, we would not expect to do something at the scale of Boise, right? I think what Chris pointed out is we've got 300,000-plus square feet in our Boise facility. It is partially full that equipment and what we have on order, we feel really good about how that sets us up for the next couple of years. As we look to major growth, we would expect to be able to fit a lot more equipment within our existing footprint. And the way to think about it from a capital standpoint and Pete's guided this in the past is we're at elevated levels this year. We'll take a step down next year, a modest step down next year as we complete Boise. And then we would take a more meaningful step down to our normalized capital expenditure rate of 5% to 7%. Right now as we -- now it's difficult, right? You don't know the exact mix of what you're going to get, how it's going to work, et cetera. But we feel really good about that capital being lined up to our ability to expand. Now something big happens and one of our adjacent products starts really taking off, we'll have that conversation. Susan?

Yes. You've more recently talked about shareholder returns. You have the repurchase authorization now. You announced ASR. Can you talk a little bit more about how you think of that as a use of cash going forward? And especially maybe if the macro does change, how you can sort of flex within there?

Pete, do you want to touch upon that?

Yes. Look, again, I'd reiterate, I think our priorities haven't changed. We're a growth company, so supporting organic growth is going to be the first priority, followed by, again, CapEx that we get great returns on, either because it's capacity that helps us grow or drives margin expansion on the recycling efforts and continuous improvement. We're going to continue to do the right bolt-on acquisitions. And I think as I said in my remarks, if the world changed, I think the one thing that we do, have the ability to do is we can rightsize our CapEx spend fairly quickly to get down to a bare minimum maintenance required CapEx, which is we've historically said our normalized CapEx is kind of 5% to 7%, but about half of that is maintenance. So we do feel like we could cycle down if the environment pushed us in that direction.

Yes. I think the key here is we're investing for growth. There's a lead time on investments, and we're -- we feel like we can pace this at the right pace to continue to drive growth and deploy cash as appropriate. Great. Go ahead.

It's Rafe Jadrosich at Bank of America. So I just wanted to ask on pricing. It seems like in your targets, you're not embedding much additional pricing going forward. Obviously, we're in an unprecedented inflationary environment right now. But how do you think pricing will play out as sort of raw materials normalize? I think Peter mentioned that in a deflationary environment, you would see -- you would expect some margin relief. How do you just think about pricing when raw material is kind of...

Yes. So a couple of points on modeling. When we set our original targets when we went public, we did not include price or raw material inflation or M&A. And for modeling purposes moving forward, we haven't. I think as you look at pricing in general, you can look back on history, right, on -- in the deck, rail and accessories category, historically, and actually, on the exterior side, both historically, we have not gone down on price from an aggregate standpoint. So I'm not saying the past is a perfect indicator of the future. But in general, as we've worked our way through these industries over a number of different cycles, we will typically go up in price, make sure we have an appropriate value, and then hold that price. A couple more questions.

This is Noah Merkousko with Stephens. When we're thinking about the back half of this year, did guidance -- and now that you've got all this capacity ramped up and you're able to serve customers much more effectively, did any of that guidance ever bake in that opportunity to go after new channels, new customers, new geographies? And could that be perhaps a good guide as we look at the balance of the year?

First, I think it's a great question. I think for us, if you think about our capacity -- I mean we're -- the context of this meeting is over a 5-year period, right? And I think it's important to understand that as we make investments, we report quarterly, but we really look out on a multiyear basis in terms of the opportunity. The capacity that we brought online in addition to the new products that we have, we feel really good about the opportunities it allows us to go after, right? We've gone through multiple years of being constrained and having the optionality, which we're ahead of the rest of the industry with increased capacity. Having that optionality moving forward gives us a lot of opportunity to continue to drive these kinds of conversations that Jon highlighted. I would also say that those conversations are typically not transactional. That's not the kind of business we run, right? So there's a lot of discussions that take place, and there have been a lot of discussions that take place, and those conversations take months and years to unfold. At the contractor level, it's helpful, and there might be some on the margins. But in general, we're kind of operating with that capacity to really expand our position for the long term. I think we have time for 1 more. One more question.

Okay. On the buildup of the 600 basis points margin gain, there's a lot of material stuff, a lot of stuff in your control. But given the view on volume gain in this industry, particularly as you fill up Boise, it seems like there would be some leverage on top of that. Is that something I'm missing? Is there something offsetting it?

Yes. I think in the near term, right, I think we're, from a volume perspective, probably trying to match our commissioning in Boise with what we see in the market in the very near term. It's not leverage. But I think as we get to the back half of '23 and early '24, we should be able to start to realize some efficiencies of bringing on the Boise facility and getting kind of more full capacity and volume through that plant.

Good I think we can squeeze one more in. If you promise to be quick, going into the next room.

John Lovallo from Bank of America. Maybe just one quick point of clarification. Going back to the growth algorithm, it looks like you're embedding 1 point of conversion. Industry has been running closer to 2. I mean is that just pure conservatism? Or are you seeing any reason why we're going to revert back?

John, I mean, our -- if you go through the algorithm that Jon and Sam laid out, we are -- we feel really good about our ability to continue to drive conversion in the market. As we increase our activity, as other players in the market increase their activity, it's going to do nothing but support that thesis. So we feel really good about that. I think from a modeling perspective, that's just a number we happen to have chosen, just to stack it up to get to 10 to 11. Great. With that, I know there's -- especially online, I know that there's probably some additional questions. Hopefully, everyone, both in the room and with the folks online, know how to reach us. We'll do our best to answer questions. Our intent today was to be transparent and let you know what we're seeing. That's kind of the core of how we operate both internally. As you can see my dialogue with Patrick on his performance evaluation when he got here of $200 million of new products, right? So we tend to be transparent in -- as appropriate. So please reach out with questions. We're now going to move into another session for those that are physically present. There will be lunch, but I think the more interesting part of this is you'll have a chance to meet with our team. There'll be our decking and railing team will be available, our exteriors team. We'll give you a little bit more detail, if you have questions on either our new product development or recycling. And in general, the entire management team will be out there that you saw present, but also the extended management team available for questions. So with that, those online, thank you so much for joining us, and we look forward to engaging more in the future. Thanks a lot. Appreciate it.