Welcome to the Trex Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded today, February 24th, 2014. I would now like to turn the conference over to Ms. Harriet Fried of LHA. Please go ahead, ma'am.

Thank you, everyone, for joining us today. With us on the call are Ron Kaplan, Chairman, President and Chief Executive Officer; and Jim Cline, Senior Vice President and Chief Financial Officer. Joining Ron and Jim are Brad McDonald, Controller; Brian Bertaux, Director of Financial Planning and Analysis; and Bill Gupp, Chief Administrative Officer, General Counsel, and Secretary. The company issued a press release this morning containing financial results for the fourth quarter of 2013. This release is available on the company's website as well as on various financial websites. The call is also being webcast on the Investor Relations’ page of the company's website, where it will be available for 30 days. I'd now like to turn the call over to Bill Gupp. Bill?

Thank you, Harriet. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and condition constitute forward-looking statements within the meaning of federal securities law. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-K and Form 10-Qs as well as our '33 and other '34 Act filings on file with the SEC. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. To supplement the company's consolidated financial statements, the company is using certain non-GAAP financial measures in today's conference call. A reconciliation of these financial measures to GAAP is provided in the tables at the end of this morning's press release. With that introduction, I'll turn the call over to Ron Kaplan.

Good morning. We had a very strong year for Trex posting in one of the best fourth quarters in our history. Sales were 38% versus 2012 quarter. Our strong sales performance resulted in solid earnings. Underlying income was $3.9 million, or $0.23 per diluted share. We continued to focus on advancing our market. Our complete best-in-class product platform was instrumental in capturing market share. As you know, we revolutionized the industry in 2010 when we introduced Transcend, our first high-performance cap deck board. In 2012, we launched additional high-performance decking and railing products, so we can bring the benefits of our cap technology to a wider range of customers. Now we only offer high-performance decking and railing products. We lead the market with innovation. Every decking product we make did not exist four years ago. The expansion of our distribution footprint was critical to our success. Our best-in-class products and distinctive sales programs were influential in adding distribution in all channels. We said in our third quarter earnings call that we expected sales growth from our expanded distribution footprint to benefit us by $40 million to $60 million on an annual basis. We started seeing the gains in Q4. Orders were up in all regions versus last December even though the terms of the program were the same. We have also been successful with adding new dealers who are either leaving our competitors or reducing their commitment to them. Dealer shelves are stocked with more Trex than last season. The new pricing strategy we implemented in 2014 is also facilitating our market share strategy. Trex Select, for example, has received a favorable reception both within the industry and among consumers for its superior durability, great looks and affordable price. We are now addressing all consumer segments with our wide variety…

Thank you, Ron. Good morning. As you know the press release with Trex's fourth quarter and fiscal year 2013 financial results was issued this morning. First, I'd like to review our fourth quarter financial results. Sales for the fourth quarter were $64 million, a 38% increase compared to 2012. Demand for dealer direct shipments was the primary driver. Our 2014 sales programs were unchanged from the prior year. However, the combination of our new distribution footprint, revised pricing model, and superior product line-up provided earlier tractions than we had anticipated across all North American regions. The company recorded net income of $15 million or $0.90 per share in the fourth quarter of 2013 compared to a net loss of $3.6 million or $0.22 per share in 2012. The company's results for the 2013 quarter included a $10.9 million non-cash tax benefit. The company's results for the fourth quarter of 2012 included a $1.5 million provision for cost related to the mold class action. Before giving effect to these charges, our fourth quarter 2013 net income was $3.9 million or $0.23 per share, and the fourth quarter of 2012 net loss was $2.1 million or $0.13 per share. Gross margin was 30.8% in the fourth quarter of 2013, which was a 170 basis point increase compared to the prior year. Excluding a favorable $3.1 million LIFO inventory liquidation recognized in the fourth quarter of 2012, gross margin increased 840 basis points. The increase in gross margin reflects lower sales related costs, increased capacity utilization and continued gains from manufacturing efficiency. SG&A for the fourth quarter was $15.4 million, compared to $16.6 million in 2012. Included in the 2012 SG&A was a $1.5 million charge related to the mold class action. Our full-year 2013 financial performance showed considerable improvement compared to 2012.…

(Operator Instructions) Our first question will come from the line of Trey Grooms with Stephens. Please go ahead with your question.

Hi. Good morning. Great quarter.

Thanks Trey.

Ron, on the commentary about the -- getting into your expansion of your reprocessing poly, so does it sound like it's tied to housing. Could you give us a little bit more color on what the end-markets are? That would be primarily going into. And then now that you have this first line or the house that already pre-sold there, can you give us any indication of kind of how to think about a revenue opportunity with this new expansion that you're going into here?

Well, Trey, we anticipate your question. Let me preface by saying that we're going to be very, very careful about the information we put into the stream of commerce because we were so obsessing the competitive nature of the market. But I can tell you it has nothing to do with construction, building materials or housing. It is a commercial product. This will be business-to-business. It will displace other technologies that currently serve the market, that this is a complete departure from the markets that we traditionally have served. Now, we will ramp up over a period of 36 months to 48 months, somewhere in that window. There will be revenues recorded in Q2, and the revenues that you should expect in Q2 would be minimal ramp up over a period of three years, three to four years. At the end of that three to four year period we expect it to be very significant. I think it's about the extent of the color of commentary I can give without screwing up our competitive position. We want to make sure we get into the market successfully before we -- our competitors are figured out what we've done.

Okay. But it's fair to say though kind of looking into next year granted the revenues would be minimal in Q2, but looking into '15 we would expect something more significant, and then it would continue to grow over a three to four year period.

Now, that's a good reflection.

Okay. And then my second question would be on the $40 million to $60 million of incremental revenues that you guys are expecting from the new distribution, now there seem to be some confusion maybe or skepticism out there by some that this is how you're going to breach that. And you touched on it, and it sounds like you already starting to see that some of that benefit in the 4Q. Can you -- so I guess, you're reiterating that $40 million to $60 million, I guess it’s the way to take it. And secondly, can you give us a little color on these early stages? Does that give you more confidence in that range, less, about the same, any commentary on that at all?

Well, we reaffirmed our outlook that it's $40 million to $60 million of incremental business versus -- if we had made these distribution changes I can tell you that our existing dealers bought are 30% more during beginning season of early buy than they did last year in terms of dealer direct truck loads and we did shift to 91 new dealers, so that should give you a sense.

Great. Thanks a lot, Ron. And good luck.

Thank you.

Your next question will come from the line of Jack Kasprzak with BB&T. Please go ahead with your question. John F. Kasprzak - BB &T Capital Markets: Thanks. Good morning, everyone. Jim, do you still expect 2014 results will reflect a full tax rate?

Yes, I do. John F. Kasprzak - BB &T Capital Markets: And with regard to sort of future uses of cash flow, obviously you've mentioned share buyback and have executed one already, so you have very good sort of credence there I guess with your actions on the share buyback. What would be, Ron, your attitude towards instituting a common dividend potentially at some point?

Well, we have regular discussion about that. And I can tell you that at this point we have nothing further to announce, but clearly that represents a viable alternative. It will be discussed with some regularity. That's amount of details I can get into that. John F. Kasprzak - BB &T Capital Markets: Okay. Thank you.

Your next question will come from the line of Keith Hughes with SunTrust. Please go ahead. Keith, your line may be on mute.

Yeah. Sorry about that. Ron, on the new product line, are you producing a finished product for customer, or is this kind of raw material component cycle of thing?

It's a raw material component.

Okay. And then on the first quarter you've given us the revenue guidance, in terms of production rates where you're going to be looking to run in the first quarter, particularly in line with all the weather discussion over the last month or so.

Well, there's been a lot of discussion about the weather component. It probably had some effect. But our weather forecast for the heavy part of the buying season is still favorable, and it's about what I can say about that.

You think your production rates are going to be up or down versus last year.

Versus last year they will be up.

Thank you.

Your next question will come from the line of Robert Kelly with Sidoti. Please go ahead.

Hi Ron, hi Jim. Good morning.

Good morning.

Question on the contribution margin for 4Q. You have talked about the 2014 incremental gross margin being around 45%. We were south of that for 4Q, why the disconnect for 4Q? And can we still count on 45% flow through for next year -- for this year?

Yeah. In the fourth quarter we did see some drag related to some marketing programs to support the new distribution that we've got. And that did have a negative draw on the contribution margin. With regard to 2014, as we mentioned in the last call, we do see that that contribution margin is declining. And we told you in the last call, we had expected 45%. We have not updated those numbers at this point. So I think at this juncture you should continue to use 45%.

Okay. Fair enough. And then just as far as the new product or capacity expansion, what's the cost there, and the timing and the spend?

Well, we've now revealed the amount of the spend, but it will come in some irregular fashion over the next 36 months to 48 months. So it won't be ratable. There will be some spend where we have -- I'll provide more color on that in the next quarterly call.

Thanks.

We do expect our 2015 CapEx spend to be approximately $15 million for 2014.

Got it. Thanks

Your next question will come from the line of John Baugh with Stifel. Please go ahead.

Hi. Good morning. Congratulations on a good year.

Thanks.

I was wondering first on as it again relates to not just the expansion of this commercial product, but also the strength you see in your core business. The availability of the raw material was -- as years gone by was an issue in the cost of that raw material?

We don't see a problem with that for the foreseeable future. There plenty of availability and we're -- we should be in pretty good shape in that regard. So at this point, it is not a worry card. It is something we're quite confident in and the place has been very stable.

And Ron, just to be clear, the new product you're talking about is that will or will not run any of your exiting extrusion capacity?

It will not utilize any of the existing extrusion capacity.

Okya. And I apologies, I'm on the road and just kind of looking at some things here, but what was the contribution margin? Is that the gross margin in the fourth quarter adjusting for abnormalities like LIFO, etcetera?

Brian, have you got that?

One sec.

Use one second here.

And then I was curious, did the pricing changes that were implemented go through for all, some, none of the fourth quarter shipments.

They went through all. They all went through.

Okay. And just so I think about the $40 million to $60 million you talked about, we probably should be thinking that you picked up $10 million or so of that, maybe more, I don't know, in the fourth quarter of '13. So we shouldn't be adding another $50 million for calendar '14 given what you did in Q4 '13. Would that be correct?

Yeah. John, the $40 million to $60 million would be on top of the 2013 sales. So, yes, we did pick up an earlier amount in the fourth quarter and we anticipated, but we think that $40 million to $60 million will be on top of the sales for 2013.

Great. Thank you for the color.

Thank you.

(Operator Instructions) Your next question will come from the line of Morris Ajzenman with Griffin Securities. Please go ahead.

Morning, guys.

Morning, Morris.

Questions, pretty well picked over but on this pricing, new pricing strategy. Can you articulate it to give us some sort of sense of what pricing overall or by different categories are going to be up year-over-year. And when was pricing up for 2013?

We're not going to get into pricing by product line, but we did lower the pricing on some of our products and raise it on some other products. But we're still actively involved with distribution for the first quarter and I don't want to talk about pricing.

Pricing last year, Morris, was pretty much flat.

And how does that compare to your cost for last year?

Pretty much flat. As you know, Morris, with three cycle polyethylene, which is primary driver of our cost structure, it does not move with petroleum products, it really moves with general economic conditions. But we've been relatively successful in finding new sources of material which helps contain cost increases in the polyethylene. So that's really the primary driver we look to, and we've been, as I said, very successful in containing that.

Actually, on a net-net basis the price of our polyethylene is actually fractionally gone down with very slight amount.

One last question. I've always asked this in the past, but what do you think that came out in your market share at the end of this year versus last year. And what do you think the market share can be exiting next year?

We think it went up and we think go up further still.

That's up 30% share range, is that fair at this point or not?

It's higher than that.

Okay. Thank you.

Thank you, Morris.

(Operator Instructions) Your next question will come from the line of Kenneth Smith with Lenox Equity Research. Please go ahead.

Thank you. Jim, what's your expectation for SG&A expense for 2014? And will it be affected at all by this new segment of business that Ron was talking about?

The answer to the second question is it will have a minimal impact on the SG&A. And from an overall standpoint, we would expect the SG&A expenses for 2014 to be about the same or slightly less than 2013.

And that will be against adjusted 2013 or actual? I'm not sure there's actually -- actual difference but…

It would be adjusted.

Okay. Thank you.

You bet.

Your next question will come from the line of Trey Grooms with Stephens. Please go ahead.

Hi guys, just one more. On the last call, the Q3 call when you really introduced this new distribution and impact there. You said that it would take two or three years for this to fully rollout. Can you talk about how we should be thinking about that year two or year three? And could that -- how to think about how much that could 40 to 60 base in 2014 could grow over that time period? Any color on that you could give us?

I think the majority of the increase will be experienced in 2014. We're not going to go -- we're not going to give out any numbers beyond 2014. And frankly, to be clear about it, Jack, I'm sorry

Trey.

I’m sorry, Trey. Jack is the next guy. When we gave out, that was an exceptional or normal policy, one quarter sales guidance. But when this year is over, we're going to stop giving out annual guidance. But it will take two to three years of fully commercialized majority of which will be in year one.

Okay. And then I guess one follow-up for Jim. On the taxes, you said 2014 full-year taxpayer, but in the 1Q does that -- if I missed it I'm sorry, but do you start paying full taxes this quarter?

Yeah, from a GAAP standpoint, we’ll be paying full taxes every quarter in 2014. From a cash perspective, you could assume that we'd be averaging about 25% for 2014.

Okay. And then one last one, on this new opportunity, new product, so you guys are I think one of the largest purchasers now of recycled poly. And then you resell a lot of that into the secondary market. Is it -- are you guys just going kind of to utilize the material you're already purchasing anyway and just repurpose it into this new category? Is that the way to think about that?

In part, that's true, but we will have expanded purchases of polyethylene. We’re one of the largest buyers of recycled polyethylene as you're well aware. We sell off a significant portion of that polyethylene. Some of that will be diverted and we will also be expanding our purchases.

To be clear, this is a departure from our normal customer base and it is a new product that will go to new customers utilizing the expertise that we already have in-house, the supply chain that we have in-house, and the equipment that we've got and that we'll acquire.

Okay. And it is still all polyethylene-based, recycled polyethylene polyethylene-based?

Yes.

Great. Thanks for the color, guys. Good luck.

Thank you.

Our final question will come from the line of Jack Kasprzak with BB&T. Please go ahead. John F. Kasprzak - BB &T Capital Markets: Thanks. And thanks for the heads-up Ron that I was next. We might have to introduce that as a policy. I think John referenced it earlier, but the press release does reference an improving economy. There's been a lot of talk about your execution which is stellar and your market share gains, but what are you seeing or hearing or feeling out there from the customers? Do you feel like the macro wind is shifting to your back in terms of consumer organic spending trends if you will?

I just got back from the International Builders’ Show in Las Vegas. And the activity in our booth, the discussion with contractors, dealers and distributors is all fairly robust as compared to the six prior years that I've been here now. 2008, contractors are quoting longer lead-times and generally felt pretty good about things. You've got more quantitative numbers available to you than I probably have to me, but the feel of the market seems to be better than it has been certainly since 2008. John F. Kasprzak - BB &T Capital Markets: Okay, great. And one last question, on the new product, what sort of incremental margin opportunity is there? I know you won't give a number, but will it be similar the existing or traditional Trex business, any way to think about that?

Jack, we're just not going to go there just yet. John F. Kasprzak - BB &T Capital Markets: Okay. Thank you very much.

Thank you.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

As always the pace of business at Trex is moving rapidly. We had an outstanding finish of the year and we want to make 2014 just as rewarding for our customers, shareholders and employees. We expect to benefit from the economic recovery that's been picking up steam. We're putting in initiatives in motion to keep our momentum going for the next several years. As always, we're looking at enhancements to our product line and we will continue to expand our commercial products building on our process and manufacturing expertise. We've got the talent, technology, financial resources, and the will to get it done. Thank you for joining us today. Goodbye.