UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number:

001-14649

Trex Company, Inc.

(Exact name of registrant as specified in its charter)


Delaware		54-1910453
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~160 Exeter Drive~~2500 Trex Way Winchester, Virginia		~~22603-8605~~22601
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(540) 542-6300

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	TREX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule

12b-2

of the Exchange Act): Yes ☐ No ☒

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at October ~~17, 2022~~16, 2023 was ~~109,738,379~~108,595,381 shares.

~~Table of Contents~~

TREX COMPANY, INC.

INDEX


		Page

PART I FINANCIAL INFORMATION			2

Item 1.	Condensed Consolidated Financial Statements		2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022 (unaudited)		2

	Condensed Consolidated Balance Sheets as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (unaudited)		3

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022 (unaudited)		4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022 (unaudited)		5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29

~~Item 4.~~	~~Controls and Procedures~~		29

~~PART II OTHER INFORMATION~~			30

~~Item 1.~~	~~Legal Proceedings~~		30

Item 2. 4.	Controls and Procedures		30

PART II OTHER INFORMATION			31

Item 1.	Legal Proceedings		31

Item 1A.	Risk Factors		31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3031

Item 5.	Other Information		3031

Item 6.	Exhibits		3032

~~Table of Contents~~

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

TREX COMPANY, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
	2022		2021			2022			2021			2023			2022		2023		2022
Net sales	$	188,472	$	335,872		$	913,950		$	892,991		$	303,836		$	188,472	$	899,092	$	913,950
Cost of sales		142,264		207,622			575,452			550,668			172,941			142,264		517,321		575,452

Gross profit		46,208		128,250			338,498			342,323			130,895			46,208		381,771		338,498
Selling, general and administrative expenses		26,857		33,931			106,387			102,880			44,532			26,857		133,694		106,387
Gain on insurance proceeds		—		(3,777	)		—			(5,497	)

Income from operations		19,351		98,096			232,111			244,940			86,363			19,351		248,077		232,111
Interest income, net		—		(10	)		(103	)		—
Interest (income) expense, net													(734	)		—		2,555		(103	)

Income before income taxes		19,351		98,106			232,214			244,940			87,097			19,351		245,522		232,214
Provision for income taxes		4,928		24,311			57,665			61,235			21,831			4,928		62,089		57,665

Net income	$	14,423	$	73,795		$	174,549		$	183,705		$	65,266		$	14,423	$	183,433	$	174,549

Basic earnings per common share	$	0.13	$	0.64		$	1.55		$	1.59		$	0.60		$	0.13	$	1.69	$	1.55

Basic weighted average common shares outstanding		110,140,496		115,344,015			112,609,684			115,455,543			108,583,009			110,140,496		108,707,699		112,609,684

Diluted earnings per common share	$	0.13	$	0.64		$	1.55		$	1.59		$	0.60		$	0.13	$	1.69	$	1.55

Diluted weighted average common shares outstanding		110,300,017		115,625,760			112,787,994			115,767,426			108,702,495			110,300,017		108,829,374		112,787,994

Comprehensive income	$	14,423	$	73,795		$	174,549		$	183,705		$	65,266		$	14,423	$	183,433	$	174,549

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

TREX COMPANY, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

September 30,

2022

December 31,
2021


(Unaudited)

ASSETS

Current assets

Cash and cash equivalents
   $ 5,885 $ 141,053
Accounts receivable, net
   88,753 151,096
Inventories
   132,115 83,753
Prepaid expenses and other assets
   18,647 25,152


Total current assets
   245,400 401,054
Property, plant and equipment, net
   536,359 460,365
Operating lease assets
   34,933 34,571
Goodwill and other intangible assets, net
   18,687 19,001
Other assets
   6,519 5,330


Total assets

$
841,898

$
920,321



LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable
   $ 21,880 $ 24,861
Accrued expenses and other liabilities
   76,495 58,041
Accrued warranty
   6,300 5,800
Line of credit
   76,000 —


Total current liabilities
   180,675 88,702
Deferred income taxes
   43,967 43,967
Operating lease liabilities
   27,909 28,263
Non-current
accrued warranty
   21,249 22,795
Other long-term liabilities
   11,560 11,560


Total liabilities
   285,360 195,287


Commitments and contingencies
   —   —

Stockholders’ equity

Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding
   —   —
Common stock, $0.01 par value, 360,000,000 shares authorized; and 140,820,228 and 140,734,753 shares issued, respectively
   1,408 1,407
Additional
paid-in
capital
   129,784 127,787
Retained earnings
   1,120,598 946,048
Treasury stock, at cost, 30,946,057 and 25,586,601 shares, respectively
   (695,252 ) (350,208 )


Total stockholders’ equity
   556,538 725,034


Total liabilities and stockholders’ equity

$
841,898

$
920,321


	September 30, 2023			December 31, 2022

	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	4,644		$	12,325
Accounts receivable, net		200,909			98,057
Inventories		60,384			141,355
Prepaid expenses and other assets		7,130			35,105

Total current assets		273,067			286,842
Property, plant and equipment, net		671,035			589,892
Operating lease assets		27,286			30,991
Goodwill and other intangible assets, net		18,267			18,582
Other assets		7,157			7,398

Total assets	$	996,812		$	933,705

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	31,795		$	19,935
Accrued expenses and other liabilities		88,919			44,064
Accrued warranty		5,092			4,600
Line of credit		56,500			222,000

Total current liabilities		182,306			290,599
Deferred income taxes		68,224			68,224
Operating lease liabilities		20,197			23,974
Non-current accrued warranty		17,874			20,999
Other long-term liabilities		16,560			11,560

Total liabilities		305,161			415,356

Commitments and contingencies		—			—

Stockholders’ equity
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.01 par value, 360,000,000 shares authorized; 140,958,411 and 140,841,833 shares issued and 108,595,105 and 108,743,423 share outstanding, at September 30, 2023 and December 31, 2022, respectively		1,410			1,408
Additional paid-in capital		137,088			131,539
Retained earnings		1,314,107			1,130,674
Treasury stock, at cost, 32,363,306 shares at September 30, 2023 and 32,098,410 shares at December 31, 2022		(760,954	)		(745,272	)

Total stockholders’ equity		691,651			518,349

Total liabilities and stockholders’ equity	$	996,812		$	933,705

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

TREX COMPANY, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

Common Stock

Additional
Paid-In

Capital

Retained
Earnings

Treasury Stock

Total


Shares

Amount

Shares

Amount

Balance, December 31, 2021


115,148,152

$
1,407


$
127,787

$
946,048



25,586,601


$
(350,208
)

$
725,034

Net income
   —   —      — 71,211    —    — 71,211
Employee stock plans
   9,081 —      523 —       —      —   523
Shares withheld for taxes on awards
   (35,856 ) —       (2,912 ) —      —      —   (2,912 )
Stock-based compensation
   79,926 1    2,225 —      —      —   2,226
Repurchases of common stock
   (833,963 ) —      —   —      833,963    (75,017 ) (75,017 )








Balance, March 31, 2022


114,367,340

$
1,408


$
127,623

$
1,017,259



26,420,564


$
(425,225
)

$
721,065

Net income
   —   —         —   88,916    —      —   88,916
Employee stock plans
   8,834 —       429 —      —      —   429
Stock-based compensation
   2,024 —       1,057 —      —      —   1,057
Repurchases of common stock
   (2,814,817 ) —       —   —      2,814,817    (169,992 ) (169,992 )








Balance, June 30, 2022


111,563,381

$
1,408


$
129,109

$
1,106,175



29,235,381


$
(595,217
)

$
641,475

Net income
   —   —       —   14,423    —      —   14,423
Employee stock plans
   11,003 —       429 —      —      —   429
Shares withheld for taxes on awards
   (57 ) —       (3 ) —      —      —   (3 )
Stock-based compensation
   10,520 —       249 —      —      —   249
Repurchases of common stock
   (1,710,676 ) —       —   —      1,710,676    (100,035 ) (100,035 )








Balance, September 30, 2022


109,874,171

$
1,408


$
129,784

$
1,120,598



30,946,057


$
(695,252
)

$
556,538


	Common Stock					Additional Paid-In Capital			Retained Earnings		Treasury Stock					Total
	Shares			Amount		Additional Paid-In Capital			Retained Earnings		Shares		Amount			Total
Balance, December 31, 2022		108,743,423		$	1,408	$	131,539		$	1,130,674		32,098,410	$	(745,272	)	$	518,349
Net income		—			—		—			41,131		—		—			41,131
Employee stock plans		8,504			—		316			—		—		—			316
Shares withheld for taxes on awards		(28,773	)		—		(1,592	)		—		—		—			(1,592	)
Stock-based compensation		80,362			1		1,972			—		—		—			1,973

Balance, March 31, 2023		108,803,516		$	1,409	$	132,235		$	1,171,805		32,098,410	$	(745,272	)	$	560,177
Net income		—			—		—			77,036		—		—			77,036
Employee stock plans		7,971			—		323			—		—		—			323
Shares withheld for taxes on awards		(15,663	)		—		(855	)		—		—		—			(855	)
Stock-based compensation		36,888			—		2,590			—		—		—			2,590
Repurchases of common stock		(264,896	)		—		—			—		264,896		(15,746	)		(15,746	)

Balance, June 30, 2023		108,567,816		$	1,409	$	134,293		$	1,248,841		32,363,306	$	(761,018	)	$	623,525
Net Income		—			—		—			65,266		—		—			65,266
Employee stock plans		5,448			—		286			—		—		—			286
Shares withheld for taxes on awards		(4,140	)		—		(312	)		—		—		—			(312	)
Stock-based compensation		25,981			1		2,821			—		—		—			2,822
Repurchases of common stock		—			—		—			—		—		64			64

Balance, September 30, 2023		108,595,105		$	1,410	$	137,088		$	1,314,107		32,363,306	$	(760,954	)	$	691,651

Common Stock

Additional
Paid-In

Capital

Retained
Earnings

Treasury Stock

Total


Shares

Amount

Shares

Amount

Balance, December 31, 2020


115,799,503

$
1,406


$
126,087

$
737,311



24,777,502


$
(276,273
)

$
588,531

Net income
   —   —      —   48,545    —      —   48,545
Employee stock plans
   28,286 —      460 —      —      —   460
Shares withheld for taxes on awards
   (38,212 ) —      (4,045 ) —      —      —   (4,045 )
Stock-based compensation
   76,094 —      2,176 —      —      —   2,176
Repurchases of common stock
   (504,275 ) —      —   —      504,275    (45,523 ) (45,523 )








Balance, March 31, 2021


115,361,396

$
1,406


$
124,678

$
785,855



25,281,777


$
(321,796
)

$
590,143

Net income
   —   —      —   61,366    —      —   61,366
Employee stock plans
   20,341 —      400 —      —      —   400
Shares withheld for taxes on awards
   (13,491 ) —      (1,446 ) —      —      —   (1,446 )
Stock-based compensation
   17,210 1    2,132 —      —      —   2,133
Repurchases of common stock
   (40,751 ) —      —   —      40,751    (3,820 ) (3,820 )








Balance, June 30, 2021


115,344,705

$
1,407


$
125,764

$
847,221



25,322,528


$
(325,616
)

$
648,776

Net income
   —   —      —   73,795    —      —   73,795
Employee stock plans
   36,590 —      464 —      —      —   464
Shares withheld for taxes on awards
   (10,946 ) —      (1,159 ) —      —      —   (1,159 )
Stock-based compensation
   10,565 —      1,887 —      —      —   1,887
Repurchases of common stock
   (31,688 ) —      —   —      31,688    (2,954 ) (2,954 )








Balance, September 30, 2021


115,349,226

$
1,407


$
126,956

$
921,016



25,354,216


$
(328,570
)

$
720,809


	Common Stock					Additional Paid-In Capital			Retained Earnings		Treasury Stock					Total
	Shares			Amount		Additional Paid-In Capital			Retained Earnings		Shares		Amount			Total
Balance, December 31, 2021		115,148,152		$	1,407	$	127,787		$	946,048		25,586,601	$	(350,208	)	$	725,034
Net income		—			—		—			71,211		—		—			71,211
Employee stock plans		9,081			—		523			—		—		—			523
Shares withheld for taxes on awards		(35,856	)		—		(2,912	)		—		—		—			(2,912	)
Stock-based compensation		79,926			1		2,225			—		—		—			2,226
Repurchases of common stock		(833,963	)		—		—			—		833,963		(75,017	)		(75,017	)

Balance, March 31, 2022		114,367,340		$	1,408	$	127,623		$	1,017,259		26,420,564	$	(425,225	)	$	721,065
Net income		—			—		—			88,916		—		—			88,916
Employee stock plans		8,834			—		429			—		—		—			429
Stock-based compensation		2,024			—		1,057			—		—		—			1,057
Repurchases of common stock		(2,814,817	)		—		—			—		2,814,817		(169,992	)		(169,992	)

Balance, June 30, 2022		111,563,381		$	1,408	$	129,109		$	1,106,175		29,235,381	$	(595,217	)	$	641,475
Net income		—			—		—			14,423		—		—			14,423
Employee stock plans		11,003			—		429			—		—		—			429
Shares withheld for taxes on awards		(57	)		—		(3	)		—		—		—			(3	)
Stock-based compensation		10,520			—		249			—		—		—			249
Repurchases of common stock		(1,710,676	)		—		—			—		1,710,676		(100,035	)		(100,035	)

Balance, September 30, 2022		109,874,171		$	1,408	$	129,784		$	1,120,598		30,946,057	$	(695,252	)	$	556,538

See Notes to Condensed Consolidated Financial Statements (Unaudited).

TREX COMPANY, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, ~~2022~~2023 and September 30, ~~2021~~

2022

(Unaudited)

1.	BUSINESS AND ORGANIZATION

Trex Company, Inc. ~~(Trex)~~(Trex, Company), a Delaware corporation, was incorporated on September 4, 1998. ~~Together,~~As of December 30, 2022, the Company operates in one reportable segment, Trex ~~and its~~Residential Products (Trex Residential). Through December 30, 2022, Trex had one wholly-owned subsidiary, Trex Commercial Products, Inc.~~, are referred to as the Company. The Company operates~~ (Trex Commercial) and operated in two reportable segments, Trex Residential ~~Products (Trex Residential)~~ and Trex ~~Commercial Products (Trex Commercial).~~ Commercial.

Trex Residential, the Company’s principal business based on net sales, is the world’s largest manufacturer of high-performance,

low-maintenance

wood-alternative decking and residential railing and outdoor living products and accessories, marketed under the brand name Trex

, with more than 30 years of product experience. A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. ~~Also, the Company is a leading national provider of custom-engineered railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues.~~ The principal executive offices are located at ~~160 Exeter Drive,~~2500 Trex Way, Winchester, Virginia ~~22603,~~22601, and the telephone number at that address is

(540) 542-6300.

2.	BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form

10-Q

and Article 10 of Regulation

S-X

and, accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments, except as otherwise described herein) considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. Certain reclassifications have been made to prior period balances to conform to current year presentation. The unaudited condensed consolidated financial statements include the accounts of the Company for all periods presented. Intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated results of operations for the three and nine months ended September 30, ~~2022,~~2023, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2022.~~2023. The Company’s results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, interest rates, the impact of any supply chain disruptions, economic conditions, and/or any adverse effects from ~~the~~

~~COVID-19~~

~~pandemic~~global health pandemics and geopolitical conflicts. Towards the end of June 2022, wethe Company experienced a reduction in demand from ~~our~~its distribution partners, which ~~we believe~~the Company believed was primarily spurred by concerns over a potential easing in consumer demand due to rising interest rates, declining consumer sentiment and expectations of a general slowing in the economy. As a result, beginning in the third quarter ~~our~~of 2022 the Company’s channel partners met demand partially through inventory drawdown rather than reordering products and maintaining current inventories. ~~The drawdown negatively impacted third quarter sales and will likely impact fourth quarter sales.~~This inventory recalibration was completed by year end.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, and for each of the three years in the period ended December 31, ~~2021,~~2022, included in the Annual Report of Trex Company, Inc. on Form

10-K,

as filed with the U.S. Securities and Exchange Commission.

3.	~~RECENTLY ADOPTED ACCOUNTING STANDARDS~~ SALE OF TREX COMMERCIAL PRODUCTS, INC.

~~In November 2021,~~On December 30, 2022, the ~~FASB issued ASU~~

~~No. 2021-10,~~

“

~~Government Assistance (Topic 832):~~

~~Disclosures by Business Entities about Government Assistance~~

”.Company completed the sale of substantially all of the assets of its wholly-owned subsidiary and reportable segment, Trex Commercial. The ~~guidance requires business entities~~divestiture reflected the Company’s decision to ~~make annual disclosures about transactions~~focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of its outdoor living strategy. The divestiture did not represent a strategic shift with a ~~government they account for by analogizing to a grant or contribution accounting model, such as IAS 20, ASC~~

~~958-605.~~

~~The annual disclosure requirements include: the nature of the transactions, the entities related accounting policy used, the line items~~major effect on the ~~balance sheet and income statement that~~Company’s operations. The results of operations of Trex Commercial are affected and the amounts applicable to each financial statement line item, and significant terms and conditions of the transactions. The disclosure requirements could be applied either prospectively to all transactionsconsolidated in the ~~scope~~Company’s results of operations for the ~~amendments that are reflected in the financial statements at the date of initial application~~three months and ~~new transactions that are entered into after the date of initial application, or retrospectively.~~nine months ended September 30, 2022.

Table of Contents

The guidance was effective for fiscal years beginning after December 15, 2021, with early application permitted. Adoption of the guidance did not have a material effect on the Company’s consolidated financial statements.

4.	~~NEW~~RECENTLY ADOPTED ACCOUNTING STANDARDS ~~NOT YET ADOPTED~~

In December 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

No. 2022-06

“Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The amendments in this update defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. In March 2020, the FASB issued ASU

No. 2020-04

“

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Reporting~~

Reporting.”~~. The~~ These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASU

No. 2020-04

provides ~~temporary~~ optional expedients and exceptions ~~related~~for applying generally accepted accounting principles to contract modifications and ~~hedge accounting~~hedging relationships, subject to ~~ease entities’ financial reporting burdens as the market transitions from~~meeting certain criteria, that reference the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The new guidance allows entities to elect not to apply certain modification accounting requirements, if certain criteria are met, to contracts affected by what the guidance calls(LIBOR) or another reference rate ~~reform. An entity that makes this election~~expected to be discontinued. The FASB included a sunset provision within Topic 848 based on the expectations of when the LIBOR would ~~consider changes in reference rates and other contract modifications related~~cease being published intended to help stakeholders during the global market-wide reference rate reform to be events that do not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition.period. The guidance is effective ~~upon issuance and generally could be applied~~for all entities as of March 12, 2020 through December 31, ~~2022.~~2024 and can be adopted as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The ~~Company does~~amendments did not ~~expect adoption of the guidance to~~ have a material effect on ~~its~~the Company’s consolidated financial statements.

5.	INVENTORIES

Inventories valued at LIFO

(last-in,

first-out),

consist of the following (in thousands):


	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
Finished goods	$	89,551		$	58,401		$	43,180		$	107,114
Raw materials		71,092			56,441			52,255			69,292

Total FIFO (first-in, first-out) inventories		160,643			114,842			95,435			176,406
Reserve to adjust inventories to LIFO value		(36,467	)		(36,467	)		(35,051	)		(35,051	)

Total LIFO inventories	$	124,176		$	78,375		$	60,384		$	141,355

The Company utilizes the LIFO method of accounting related to its Trex Residential wood-alternative decking and residential railing products, which generally provides for the matching of current costs with current revenues. However, under the LIFO method, reductions in annual inventory balances cause a portion of the Company’s cost of sales to be based on historical costs rather than current year costs (LIFO liquidation). Reductions in interim inventory balances expected to be replenished by

year-end

do not result in a LIFO liquidation. Accordingly, interim LIFO calculations are based, in part, on management’s estimates of expected

year-end

inventory levels and costs ~~which~~and may differ from actual results. Since inventory levels and costs are subject to factors beyond management’s control, interim results are subject to the final

year-end

LIFO inventory valuation. ~~There were no LIFO inventory liquidations or related impact on cost of sales in~~

In the nine months ended September 30, ~~2022.~~

~~Inventories valued at lower~~2023, the Company had a reduction in inventory that it does not expect will be replenished by year end. However, the Company estimates that the LIFO liquidation will not have a material impact on cost of sales for the year ended December 31, 2023 and, accordingly, it did not impact the cost ~~(FIFO method) and net realizable value were $7.9 million at,~~of sales for the nine months ended September 30, ~~2022, and $5.4 million at December 31, 2021, consisting primarily of raw materials. The Company utilizes the FIFO method of accounting related to its Trex Commercial products.~~

2023.

6.	PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consist of the following (in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Prepaid expenses	$	12,412	$	15,061	$	6,859	$	10,787
Revenues in excess of billings		4,306		9,109
Income tax receivable		1,176		406		—		23,979
Other		753		576		271		339

Total prepaid expenses and other assets	$	18,647	$	25,152	$	7,130	$	35,105

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7.	GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The carrying amount of goodwill at September 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, was $14.2 million for Trex Residential. The Company’s intangible assets, purchased in 2018, consist of domain names for Trex Residential. At September 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, intangible assets were $6.3 million and accumulated amortization was ~~$1.8~~$2.2 million and ~~$1.5~~$1.9 million, respectively. Intangible asset amounts were determined based on the

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estimated economics of the asset and are amortized over the estimated useful lives on a straight-line basis over 15 years, which approximates the pattern in which the economic benefits are expected to be received. The Company evaluates the recoverability of intangible assets periodically and considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the nine months ended September 30, ~~2022,~~2023, and September 30, ~~2021,~~2022, was $0.3 million and $0.3 million, respectively.

8.	ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Sales and marketing	$	43,564	$	16,439	$	45,374	$	19,194
Compensation and benefits		9,075		25,450		24,470		8,646
Operating lease liabilities		7,596		7,066		7,409		7,488
Manufacturing costs		3,503		4,110		3,507		3,425
Income taxes		7,850		—		3,111		—
Billings in excess of revenues		1,213		1,436
Other		3,694		3,540		5,048		5,311

Total accrued expenses and other liabilities	$	76,495	$	58,041	$	88,919	$	44,064

DEBT

Revolving Credit Facility

Indebtedness on and after May

18, 2022 and prior to December

22, 2022

. On May 18, 2022, the Company, as borrower; Trex Commercial, ~~Products, Inc. (TCP),~~ as guarantor; ~~Bank of America, N.A. (BOA),~~BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo, ~~Bank, National Association (Wells Fargo),~~ as lender and Syndication Agent; Regions Bank, PNC Bank, National Association (PNC), and TD Bank, N.A. ~~(each,~~(TD)(each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, entered into a Credit Agreement (Credit Agreement) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019.

Under the Credit Agreement, the Lenders agreed to provide the Company with one or more Revolving Loans in a collective maximum principal amount of $400,000,000 (Loan Limit) throughout the term, which ends May 18, 2027 (Term). Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans are for the purpose of raising working capital and supporting general business operations.

The ~~Facility~~Credit Agreement provides the Company, in the aggregate, the ability to borrow an amount up to the Loan Limit during the Term. The Company is not obligated to borrow any amount under the Loan Limit. Within the Loan Limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are in effect. Base Rate Loans (as defined in the Credit Agreement) under the Revolving Loans and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors. Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term.

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The Company and BofA Securities ~~Inc.~~ as a sustainability coordinator, are entitled to establish specified key performance indicators (KPIs) with respect to certain environmental, social and governance targets of the Company and its subsidiaries. The sustainability coordinator and the Company may amend the Credit Agreement for the purpose of incorporating the KPIs and other related provisions, unless the Lenders object to such amendment on or prior to the date that is ten business days after the date on which such amendment is posted for review by the Lenders. Based on the performance of the Company and its subsidiaries against the KPIs, certain adjustments (increase, decrease or no adjustment) to otherwise applicable pricing will be made; provided that the amount of such adjustments shall not exceed certain aggregate caps as in the definitive loan documentation.

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Under the terms of the Security and Pledge Agreement, the Company and ~~TCP,~~Trex Commercial, subject to certain permitted encumbrances, as collateral security for the above-stated loans and all other present and future indebtedness of the Company owing to the Lenders grants to BOA, as Administrative Agent for the Lenders, a continuing security interest in certain collateral described and defined in the Security and Pledge Agreement but excluding the Excluded Property (as defined in the Security and Pledge Agreement).

Indebtedness ~~prior to May~~On and After December

~~18,~~22, 2022

. ~~On November 5, 2019,~~As of December 22, 2022, the Company entered into a ~~Fourth Amended and Restated~~First Amendment to the Credit Agreement ~~(Fourth Amended Credit Agreement)~~(First Amendment) by and among the Company, as borrower, ~~Trex Commercial Products, Inc., as guarantor; Bank of America, N.A.~~the guarantors party thereto; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD as lender and ~~certain other lenders including~~Syndication Agent; Regions Bank, PNC, and Wells Fargo ~~Bank, N.A., who is also Syndication Agent,~~(each, a Lender and ~~Truist Bank,~~collectively, the Lenders), arranged by ~~BOA~~BofA Securities ~~Inc.,~~ as Sole Lead Arranger and Sole Bookrunner, ~~to amend and restate the Third Amended and Restated~~amending that certain Credit Agreement ~~(Third Amended Credit Agreement),~~ dated as of ~~January 12, 2016,~~May 18, 2022, by and among the Company, as ~~amended.~~borrower, the guarantors party thereto, BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer and the other lenders identified therein (as so amended, the “Credit Agreement”). The ~~Fourth Amended~~First Amendment removes Trex Commercial as a guarantor to any and all indebtedness under the Credit Agreement.

As a part of the First Amendment, the Credit Agreement ~~provides~~was amended and restated to provide for an additional Revolving B Loan (as hereinafter defined).

Under the First Amendment, the Lenders agreed to provide the Company with a Revolving B Loan consisting of one or more ~~Revolving Loans~~revolving loans in a collective maximum principal amount of ~~$250 million from January 1 through June 30 of each year and a maximum principal amount of $200 million from July 1 through December 31 of each year~~$150,000,000 (Revolving B Loan Limit) throughout the term, which ends ~~November 5, 2024.~~December 22, 2024 (Revolving B Loan Term). Previously, under the Credit Agreement, there was no Revolving B Loan. The First Amendment also provided that TD would serve as Syndication Agent.

As of December 22, 2022, the Credit Agreement was amended and restated to refer to this loan as the Revolving A Loan. The amended and restated Credit Agreement was made an Exhibit A to the First Amendment. All of the terms of the Credit Agreement apply to the Revolving B Loan. The Credit Agreement continues to include sublimits under the Revolving A Loan for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans under Revolving A Loan are for the purpose of raising working capital and supporting general business operations.

~~On May 26, 2020,~~The Notes provide the Company, ~~entered into a First Amendment~~in the aggregate, the ability to borrow an amount up to the ~~Original Credit Agreement (the First Amendment)~~Revolving A Loan Limit during the Revolving A Loan Term and Revolving B Loan Limit during the Revolving B Loan Term. The Company is not obligated to provide for an additional $100 million line of credit through May 26, 2022. As a matter of convenience, the parties incorporated the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement,borrow any amount under the revolving ~~commitments under~~loans. Within the ~~Original Credit Agreement~~respective loan limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are ~~referred~~in effect. With respect to as Revolving ~~A Commitments~~B Loans, for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio. The applicable rate for Revolving B Loans that are Base Rate Loans range between 1.20% and 2.15% and the ~~new $100 million line of credit is referred to as~~applicable rate for Revolving B ~~Commitments. In the New Credit Agreement, all of the material terms~~Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 0.20% and ~~conditions related to the original line of credit (Revolving A Commitments) remained unchanged from the Original Credit Agreement.~~

1.15%.

~~The Company’s revolving credit facility executed November 5, 2019, was completely replaced by the Company’s revolving credit facility executed May 18, 2022.~~ The Company had ~~$76~~$56.5 million in borrowings outstanding under its revolving credit facility and available borrowing capacity of ~~$324~~$493.5 million at September 30, ~~2022.~~

2023. The weighted average interest rate on the revolving credit facility was 6.11% as of September 30, 2023.

Compliance with Debt Covenants and Restrictions

Pursuant to the terms of the Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants as of September 30, ~~2022.~~2023. Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding.

10.

LEASES

The Company leases office space, storage warehouses, training and manufacturing facilities, and certain plant equipment under various operating leases. The Company’s operating leases have remaining lease terms of ~~less than~~ 1 year to 76 years. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

For the nine months ended September 30, ~~2022,~~2023, and September 30, ~~2021,~~2022, total operating lease expense was ~~$6.3~~$6.1 million and ~~$6.1~~$6.3 million, respectively. The weighted average remaining lease term at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~5.5~~4.6 years and ~~5.8~~5.2 years, respectively. The weighted average discount rate at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~2.19%~~2.25% and ~~2.47%~~2.10%, respectively.

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Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus the dilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive:~~~~


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Stock appreciation rights		47,303		14,409		41,627		12,206		86,250		47,303		95,467		41,627
Restricted stock		68,008		1,844		48,552		8,308		—		68,008		69,764		48,552

Stock Repurchase Program

On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). ~~As of September 30, 2022,~~From January 1, 2023 through May 3, 2023, Trex ~~has repurchased 9.0 million~~did not repurchase shares of its outstanding common stock under the Stock Repurchase Program.

On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. This repurchase program has no set expiration date. During the quarterly period ended September 30, 2023, Trex did not repurchase shares of its outstanding common stock under the 2023 Stock Repurchase Program.

13.	REVENUE FROM CONTRACTS WITH CUSTOMERS

Trex Residential Products

Trex Residential principally generates revenue from the manufacture and sale of its high-performance,

low-maintenance,

eco-friendly

wood-alternative composite decking and residential railing products and accessories. Substantially all of its revenues are from contracts with customers, which are purchase orders of short-term duration of less than one year. Its customers, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation, is recognized when the product ships and the performance obligation is satisfied and is included in “Accrued expenses and other liabilities, Sales and marketing” in Note 8 to the Condensed Consolidated Financial Statements.

Trex Commercial Products

On December 30, 2022, the Company completed the sale of its wholly-owned subsidiary and reportable segment, Trex Commercial. Prior to December 30, 2022, Trex Commercial ~~generates~~generated revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues ~~are~~were from fixed-price contracts with customers. Trex Commercial contracts ~~have~~had a single performance obligation as the promise to transfer the individual goods or services iswere not separately identifiable from other promises in the contract and ~~is,~~was, therefore, not distinct. The transaction price allocated to remaining performance obligations on contracts with an original duration greater than one year was $42.5 million as of September 30, 2022. The Company will recognize this revenue as contracts are completed, which is expected to occur within the next 24 months.

For the three months and nine months ended September 30, ~~2022,~~2023, and September 30, ~~2021,~~2022, net sales were disaggregated in the following tables by (1) market, (2) timing of revenue recognition, and (3) type of contract. The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands).~~~~

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Three Months Ended September 30, 2022

Reportable Segment


Trex

Residential

Trex

Commercial

Total

Timing of Revenue Recognition and Type of Contract

Products transferred at a point in time and variable consideration contracts
   $ 177,776    $ —      $ 177,776
Products transferred over time and fixed price contracts
   —      10,696    10,696






   $ 177,776    $ 10,696    $ 188,472

Three Months Ended September 30, 2021

Reportable Segment


Trex
Residential

Trex
Commercial

Total

Timing of Revenue Recognition and Type of Contract

Products transferred at a point in time and variable consideration contracts
   $ 319,207    $ —      $ 319,207
Products transferred over time and fixed price contracts
   —      16,665    16,665






   $ 319,207    $ 16,665    $ 335,872


Three Months Ended September 30, 2023
	Trex Residential and Consolidated
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	303,836

	$	303,836


Three Months Ended September 30, 2022	Reportable Segment
	Trex Residential		Trex Commercial		Total
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	177,776	$	—	$	177,776
Products transferred over time and fixed price contracts		—		10,696		10,696

	$	177,776	$	10,696	$	188,472


Nine months Ended September 30, 2023
	Trex Residential and Consolidated
Timing of Revenue and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	899,092

	$	899,092


Nine Months Ended September 30, 2022	Reportable Segment
	Trex Residential		Trex Commercial		Total
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	878,892	$	—	$	878,892
Products transferred over time and fixed price contracts		—		35,058		35,058

	$	878,892	$	35,058	$	913,950

Nine Months Ended September 30, 2021

Reportable Segment


Trex
Residential

Trex
Commercial

Total

Timing of Revenue Recognition and Type of Contract

Products transferred at a point in time and variable consideration contracts
   $ 850,909    $ —      $ 850,909
Products transferred over time and fixed price contracts
   —      42,082    42,082






   $ 850,909    $ 42,082    $ 892,991

14.	STOCK-BASED COMPENSATION

At the annual meeting of stockholders of the Company held on May 4, 2023, the Company’s stockholders approved the Trex Company, Inc. 2023 Stock Incentive Plan (Plan). The Company’s board of directors unanimously approved the Plan on April 10, 2023, subject to stockholder approval. The Plan amends and restates in its entirety the Trex Company, ~~has one stock-based compensation plan, the~~Inc. 2014 Stock Incentive Plan ~~(Plan)~~(2014 Plan), which was last approved by ~~Trex~~the Company’s stockholders inat the annual meeting held on April 30, 2014. The Plan, iswhich will be administered by the ~~Compensation Committee~~compensation committee of the ~~Trex Board~~board of ~~Directors. Stock-based compensation is granted to officers,~~ directors, ~~and certain key employees in accordance with the provisions of the Plan. The Plan~~ provides for ~~grants~~the grant of stock options, restricted stock, restricted stock units, stock appreciation rights ~~(SARs)~~and unrestricted stock, which are referred to collectively as “awards.” Awards may be granted under the Plan to officers, directors (including

non-employee

directors) and other employees of the Company or any subsidiary thereof, to any adviser, consultant or other provider of services to the Company (and any employee thereof), and ~~unrestricted stock. The~~to any other individuals who are approved by the board of directors as eligible to participate in the Plan. Only employees of the Company or any subsidiary thereof are eligible to receive incentive stock options. Subject to certain adjustments as provided in the Plan, the total ~~aggregate~~ number of shares of ~~Trex~~ common stock ~~that may~~permitted to be ~~issued~~granted under the Plan ~~is 25,680,000~~was 4,000,000 shares at the time of adoption, and as of September 30, ~~2022,~~2023, the total number of shares available for future ~~issuance is 11,060,097.~~grants was 3,984,956.

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The following table summarizes the Company’s stock-based compensation grants for the nine months ended September 30, ~~2022:~~2023:

Stock Awards Granted

Weighted-Average

Grant Price

Per Share

Time-based restricted stock units
   56,818    $ 56.18
Performance-based restricted stock units (a)
   72,152    $ 76.14
Stock appreciation rights
   32,971    $ 82.01


	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		91,742	$	58.67
Performance-based restricted stock units (a)		96,103	$	56.79
Stock appreciation rights		51,916	$	56.80

(a)

Includes ~~47,072~~85,044 of target performance-based restricted stock unit awards granted during the nine months ended September 30, ~~2022,~~2023, and adjustments of ~~8,160, 11,684,~~1,413 and ~~5,236~~9,646 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2021 and 2020, ~~and 2019,~~ respectively.

The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing formula. For SARs issued in the nine months ended September 30, ~~2022,~~2023, and September 30, ~~2021,~~2022, the data and assumptions shown in the following table were used:


	Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022
Weighted-average fair value of grants	$	33.9		$	51.84		$	27.19		$	33.9
Dividend yield		0	%		0	%		0	%		0	%
Average risk-free interest rate		1.9	%		0.6	%		4.0	%		1.9	%
Expected term (years)		5			5			5			5
Expected volatility		44.85	%		58.7	%		49.50	%		44.85	%

The Company recognizes stock-based compensation expense ratably over the period from the grant date to the earlier of: (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is likely to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expense is recognized related to the discount on purchases. Stock-based compensation expense is included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Comprehensive Income. The following table summarizes the Company’s stock-based compensation expense (in thousands):~~~~


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021		2023		2022			2023		2022
Stock appreciation rights	$	196		$	94	$	547		$	352	$	248	$	196		$	660	$	547
Time-based restricted stock and restricted stock units		1,012			692		2,818			2,133		1,098		1,012			2,904		2,818
Performance-based restricted stock and restricted stock units		(1,012	)		1,047		(5	)		3,487		1,425		(1,012	)		3,470		(5	)
Employee stock purchase plan		52			54		171			223		50		52			350		171

Total stock-based compensation	$	248		$	1,887	$	3,531		$	6,195	$	2,821	$	248		$	7,384	$	3,531

Total unrecognized compensation cost related to unvested awards as of September 30, ~~2022,~~2023, was ~~$6.3~~$12.5 million. The cost of these unvested awards is being recognized over the requisite vesting period of each award.

15.	INCOME TAXES

The Company’s effective tax rate for the nine months ended September 30, ~~2022,~~2023, was ~~24.8%~~25.3% and was comparable to the effective tax rate for the nine months ended September 30, ~~2021,~~2022, of ~~25%~~24.8%, which resulted in income tax expense of $62.1 million and $57.7 million, ~~and $61.2 million,~~ respectively.

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During the nine months ended September 30, ~~2022~~2023 and September 30, ~~2021,~~2022, the Company realized ~~$0.1~~$0.4 million and ~~$2.1~~$0.1 million, respectively, of excess tax benefits from stock-based awards and recorded a corresponding benefit to income tax expense.

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The Company analyzes its deferred tax assets each reporting period, considering all available positive and negative evidence in determining the expected realization of those deferred tax assets. As of September 30, ~~2022,~~2023, the Company maintains a valuation allowance of ~~$2.2~~$3.0 million against deferred tax assets primarily related to state tax credits it estimates will expire before they are realized.

The Company operates in multiple tax jurisdictions, and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company accrues a liability when it believes that it is more likely than not that benefits of tax positions will not be realized. The Company believes that adequate provisions have been made for all tax returns subject to examination. As of September 30, ~~2022,~~2023, for certain tax jurisdictions tax years ~~2017~~2019 through ~~2021~~2022 remain ~~subject to examination. The Company believes that adequate provisions have been made for all tax returns~~ subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdiction as the Company does not have a taxable presence in any foreign jurisdiction.

16.	SEGMENT INFORMATION

~~The~~Through December 30, 2022, the Company operated in two reportable segments. On December 30, 2022, the Company completed the sale of its wholly-owned subsidiary and reportable segment, Trex Commercial. Subsequent to the sale of Trex Commercial, the Company operates in ~~two~~one reportable ~~segments:~~segment, Trex Residential:

Trex Residential manufactures wood-alternative decking and residential railing and related products marketed under the brand name Trex

. Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products.

Trex Commercial ~~designs, engineers,~~designed, engineered, and ~~markets~~marketed modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. Trex Commercial products ~~are~~were marketed to architects, specifiers, contractors, and others doing business within the commercial and multi-family market.

The Company’s reportable segments ~~have been~~are determined in accordance with its internal management structure, which, ~~is organized~~through December 30, 2022, was based on residential and commercial sales activities and, subsequent to December 30, 2022, is based on its residential sales activities. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, income taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, income taxes, and depreciation and amortization charges to income. The below segment data for the three months and nine months ended September 30, ~~2022~~2023 and September 30, ~~2021~~2022 includes data for ~~Trex Residential and Trex Commercial~~its reportable segments (in thousands):~~~~

~~Segment Data:~~

Three Months Ended

September 30, 2022

Three Months Ended

September 30, 2021


Trex

Residential

Trex

Commercial

Total

Trex

Residential

Trex

Commercial

Total

Net sales
   $ 177,776    $ 10,696 $ 188,472    $ 319,207    $ 16,665    $ 335,872
Net income (loss)
   $ 15,287    $ (864 ) $ 14,423    $ 72,603    $ 1,192    $ 73,795
EBITDA
   $ 31,692    $ (876 ) $ 30,816    $ 106,135    $ 1,862    $ 107,997
Depreciation and amortization
   $ 11,194    $ 271 $ 11,465    $ 9,643    $ 258    $ 9,901
Income tax expense (benefit)
   $ 5,211    $ (283 ) $ 4,928    $ 23,899    $ 412    $ 24,311
Capital expenditures
   $ 41,403    $ 154 $ 41,557    $ 29,554    $ 66    $ 29,620
Total assets
   $ 802,926    $ 38,972 $ 841,898    $ 858,330    $ 95,121    $ 953,451

~~Reconciliation of Net Income to EBITDA:~~

Three Months Ended

September 30, 2022

Three Months Ended

September 30, 2021


Trex

Residential

Trex

Commercial

Total

Trex

Residential

Trex

Commercial

Total

Net income (loss)
   $ 15,287    $ (864)    $ 14,423    $ 72,603    $ 1,192    $ 73,795
Interest income, net
   —      —      —      (10)    —      (10)
Income tax expense (benefit)
   5,211    (283)    4,928    23,899    412    24,311
Depreciation and amortization
   11,194    271    11,465    9,643    258    9,901












EBITDA
   $ 31,692    $ (876)    $ 30,816    $ 106,135    $ 1,862    $ 107,997

144

Table of Contents

Segment Data:


	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022
	Trex Residential and Consolidated		Trex Residential		Trex Commercial			Consolidated
Net sales	$	303,836	$	177,776	$	10,696		$	188,472
Net Income (loss)	$	65,266	$	15,287	$	(864	)	$	14,423
EBITDA	$	99,359	$	31,692	$	(876	)	$	30,816
Depreciation and amortization	$	12,996	$	11,194	$	271		$	11,465
Income tax expense (benefit)	$	21,831	$	5,211	$	(283	)	$	4,928
Capital expenditures	$	30,563	$	41,403	$	154		$	41,557
Total assets	$	996,812	$	802,926	$	38,972		$	841,898

Reconciliation of Net Income to EBITDA:


	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022
	Trex Residential and Consolidated			Trex Residential		Trex Commercial			Consolidated
Net Income (loss)	$	65,266		$	15,287	$	(864	)	$	14,423
Interest (income), net		(734	)		—		—			—
Income tax expense (benefit)		21,831			5,211		(283	)		4,928
Depreciation and amortization		12,996			11,194		271			11,465

EBITDA	$	99,359		$	31,692	$	(876	)	$	30,816

Segment Data:


	Nine months Ended September 30, 2023		Nine months Ended September 30, 2022
	Trex Residential and Consolidated		Trex Residential		Trex Commercial			Consolidated
Net sales	$	899,092	$	878,892	$	35,058		$	913,950
Net Income (loss)	$	183,433	$	176,939	$	(2,390	)	$	174,549
EBITDA	$	285,271	$	267,725	$	(2,344	)	$	265,381
Depreciation and amortization	$	37,194	$	32,435	$	835		$	33,270
Income tax expense (benefit)	$	62,089	$	58,454	$	(789	)	$	57,665
Capital expenditures	$	112,920	$	107,937	$	226		$	108,163
Total assets	$	996,812	$	802,926	$	38,972		$	841,898

Table of Contents

Reconciliation of Net Income to EBITDA:


	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021						Nine months Ended September 30, 2023		Nine months Ended September 30, 2022
	Trex Residential		Trex Commercial		Total		Trex Residential		Trex Commercial		Total		Trex Residential and Consolidated		Trex Residential			Trex Commercial			Consolidated
Net income (loss)	$	176,939	$	(2,390)	$	174,549	$	182,437	$	1,268	$	183,705
Interest income, net		(103)		—		(103)		—		—		—
Net Income (loss)													$	183,433	$	176,939		$	(2,390	)	$	174,549
Interest expense (income), net														2,555		(103	)		—			(103	)
Income tax expense (benefit)		58,454		(789)		57,665		60,797		438		61,235		62,089		58,454			(789	)		57,665
Depreciation and amortization		32,435		835		33,270		24,873		731		25,604		37,194		32,435			835			33,270

EBITDA	$	267,725	$	(2,344)	$	265,381	$	268,107	$	2,437	$	270,544	$	285,271	$	267,725		$	(2,344	)	$	265,381

17.	SEASONALITY

The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary each quarterly period.

18.	COMMITMENTS AND CONTINGENCIES

Product Warranty

The Company warrants that for the applicable warranty period its ~~decking~~Trex Residential products, when properly installed, used and ~~residential railing products~~maintained, will be free from material defects in workmanship and materials and its decking, cladding, fascia and railing products will not split, splinter, rot or suffer structural damage from termites or fungal decay.

Products sold on or after January 1, 2023: The warranty period for residential use is 50 years for Transcend

decking, 35 years for Select

decking and Universal Fascia, and 25 years for Enhance

decking and Transcend, Select, Enhance and Signature

railing. The warranty ~~periods ranging from~~period for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of 25 years. The Company further warrants that Trex Transcend, Trex Enhance and Trex Select decking and cladding and Universal Fascia products will not fade in color from light and weathering exposure more than a certain amount and will be resistant to ~~25 years, depending on~~permanent staining from food and beverage substances or mold and mildew, provided the ~~product and its use.~~stain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. ~~Depending on~~

Products sold prior to January 1, 2023: The warranty period is 25 years for residential use and 10 years for commercial use. With respect to Trex Signature railing, the ~~product~~warranty period is 25 years for both residential and ~~its use, the~~commercial use. The Company ~~also~~further warrants ~~its~~that Trex ~~Commercial~~Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than a certain amount and will be ~~free~~resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of ~~manufacturing defects~~appearance, for ~~one~~the warranty period referred to ~~three years.~~

above. If there is a breach of such warranties, the company has an obligation either to replace the defective product or refund the purchase price.

~~The Company~~Trex Residential continues to receive and settle claims for decking products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty reserve to provide for the settlement of these claims. Estimating the warranty reserve for surface flaking claims requires management to estimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.

To estimate the number of claims to be settled with payment, the Company utilizes actuarial techniques to ~~quantify both the expected number~~determine a reasonable possible range of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim ~~counts.~~counts to determine its best estimate of future claims for which to record a related liability. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.

The Company monitors surface flaking claims activity each quarter for indications that its estimates require revision. Typically, a majority of surface flaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has been the Company’s practice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful.

Average cost per claim experienced in the nine months ended September 30, 2023 was lower than that experienced in the nine months ended September 30, 2022, which was elevated due to the closure of three large claims, and lower than the Company’s expectations for 2023. The number of incoming claims received in the nine months ended September 30, ~~2022,~~2023 was ~~significantly~~ lower than the number of claims received in the nine months ended September 30, ~~2021~~2022, and lower than the Company’s expectations for ~~2022. Average cost per claim experienced~~2023. After evaluating the declining trend in incoming claims in its actuarial analysis, the Company decreased its estimate of the number of future claims to be settled with payment. As a result of the decrease in estimated future claims, in the ~~nine months~~three-month period ended September 30, ~~2022 was significantly higher than that experienced in~~2023, the ~~nine months ended September 30, 2021 and higher than the Company’s expectations~~Company recorded a reduction of $3.8 million to its warranty reserve for the ~~current year. The elevated average cost per claim experienced in the nine months ended September 30, 2022, was primarily the result~~future settlement of ~~the closure of three large claims, which were considered in the Company’s estimation of its~~ surface flaking ~~warranty reserve.~~claims. The Company believes ~~its~~the reserve at September 30, ~~2022~~2023 is sufficient to cover future surface flaking obligations.

The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s ~~consolidated~~ financial condition, results of operations or cash flows. The Company estimates that the annual number of claims received will continue to decline over time and that the average cost per claim will ~~increase.~~increase slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or an increase in earnings and cash flows in future periods. The Company estimates that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a ~~$1.6~~$1.1 million change in the surface flaking warranty reserve.

The Company also maintains a warranty reserve for the settlement of other residential product warranty claims and records the provision at the time of product sale.

The following is a reconciliation of the Company’s residential product warranty reserve (in thousands):

Nine Months Ended September 30, 2022


Surface

Flaking

Other

Residential

Total

Beginning balance, January 1
   $ 18,542    $ 10,053    $ 28,595
Provisions and changes in estimates
   —      3,098    3,098
Settlements made during the period
   (2,243 )    (1,901 )    (4,144 )






Ending balance, September 30
   $ 16,299    $ 11,250    $ 27,549


	Nine months Ended September 30, 2023
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	15,905		$	9,694		$	25,599
Provisions (changes in estimates)		(3,800	)		4,824			1,024
Settlements made during the period		(1,522	)		(2,135	)		(3,657	)

Ending balance, September 30	$	10,583		$	12,383		$	22,966

Nine Months Ended September 30, 2021


Surface

Flaking

Other

Residential

Total

Beginning balance, January 1
   $ 21,325    $ 8,148    $ 29,473
Provisions and changes in estimates
   —      3,743    3,743
Settlements made during the period
   (2,315 )    (1,539 )    (3,854 )






Ending balance, September 30
   $ 19,010    $ 10,352    $ 29,362


	Nine months Ended September 30, 2022
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	18,542		$	10,053		$	28,595
Provisions (changes in estimates)		—			3,098			3,098
Settlements made during the period		(2,243	)		(1,901	)		(4,144	)

Ending balance, September 30	$	16,299		$	11,250		$	27,549

Legal Matters

The Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business. Management has evaluated the merits of these lawsuits and claims and believes that their ultimate resolution will not have a material effect on the Company’s consolidated financial condition, results of operations, liquidity or competitive position.

~~Table of Contents~~

Arkansas Facility

In October 2021, the Company announced plans to add a third U.S.-based Trex Residential manufacturing facility located in Little Rock, Arkansas, that will sit on approximately 300 acres of land. The development approach for the new campus will be modular and calibrated to demand trends for Trex Residential outdoor living products. Construction began on the new facility in the second quarter of 2022, and in July 2022, the Company entered into a design-build agreement. As previously announced, the Company anticipates spending approximately $400 million on the facility and the budget for the design-build agreement is contained within this amount. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit.

177

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management discussion should be read in conjunction with the Trex Company, Inc. ~~(Trex)~~(Trex, Company, we or our) Annual Report on Form

10-K

for the year ended December 31, ~~2021~~2022 filed with the U.S. Securities and Exchange Commission (SEC) and the condensed consolidated financial statements and notes thereto included in Part I, Item 1. “Financial Statements” of this quarterly report. ~~Trex has one wholly-owned subsidiary, Trex Commercial Products, Inc. Together, Trex and Trex Commercial Products, Inc. are referred to as the Company, we or our.~~

NOTE ON FORWARD-LOOKING STATEMENTS

This management’s discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors” in our Annual Report on Form

10-K

for the year ended December 31, ~~2021~~2022 filed with the SEC. These statements are also subject to risks and uncertainties that could cause the Company’s actual operating results to differ materially. Such risks and uncertainties include, but are not limited to: the extent of market acceptance of the Company’s current and newly developed products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economic conditions; the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the availability and cost of third-party transportation services for the Company’s products and raw materials; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber, and other materials used in making our products, at acceptable prices; increasing inflation in the macro-economic environment; the Company’s ability to maintain product quality and product performance at an acceptable cost; the Company’s ability to increase throughput and capacity to adequately match supply with demand; the level of expenses associated with warranty claims, product replacement and consumer relations expenses related to product quality; the highly competitive markets in which the Company operates; cyber-attacks, security breaches or other security vulnerabilities; the impact of current and upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences; material adverse impacts from global public health pandemics, ~~including the strain of coronavirus known as~~

~~COVID-19;~~

geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.

OVERVIEW

The following MD&A is intended to help the reader understand the operations and current business environment of the Company. The MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes thereto contained in “

Item 1. Condensed Consolidated Financial Statements

” of this report. MD&A includes the following sections:

~~Operations and Products~~

~~— a general description of our business, a brief overview of our reportable segments’ products, and a discussion of our operational highlights.~~

~~Highlights and Financial Performance~~

~~Quarter-to-Date~~

~~and~~

~~Year-to-Date~~

–

•

Operations and Products — a general description of our business, a brief overview of our reportable segments’ products, and a discussion of our operational highlights.

•

Highlights and Financial Performance – a summary of financial performance and highlights for the three months and nine months ended September 30, 2023, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.

•

Results of Operations — an analysis of our consolidated results of operations for the three months and nine months ended September 30, 2023 compared to three months and nine months ended September 30, 2022, respectively.

•

Liquidity and Capital Resources — an analysis of cash flows; contractual obligations, and a discussion of our capital and other cash requirements.

OPERATIONS AND PRODUCTS

Prior to December 30, 2022, ~~a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.~~

~~Results of Operations~~

~~— an analysis of our consolidated results of operations for~~ the ~~three months and nine months in the period ended September 30, 2022 compared to three months and nine months in the period ended September 30, 2021, respectively.~~

~~Liquidity and Capital Resources~~

~~— an analysis of cash flows; contractual obligations, and a discussion of our capital and other cash requirements.~~

~~OPERATIONS AND PRODUCTS~~

~~The~~ Company ~~currently operates~~operated in two reportable ~~segments:~~segments, Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial). Subsequent to December 30, 2022, the Company currently operates in one reportable segment, Trex Residential. Refer to Note 16,

Segments

, in the Notes to the Condensed Consolidated Financial Statements in Part I. Item 1.

Condensed Consolidated

Financial Statements

of this Quarterly Report on Form

10-Q

for additional information. The Company is focused on using renewable resources within ~~both~~ our Trex Residential ~~and Trex Commercial segments.~~segment.

Trex ~~offers~~offered the following products through Trex ~~Commercial:~~Commercial through December 30, 2022:

Architectural railing systems;

Aluminum railing systems; and

Staging equipment and accessories.


~~Architectural Railing Systems~~		~~Our architectural railing systems are~~ ~~pre-engineered~~ guardrails with options to accommodate styles ranging from classic and elegant wood top rail combined with sleek stainless components and glass infill, to modern and minimalist stainless cable and rod infill choices. Trex Commercial can also design, engineer and manufacture custom railing systems tailored to the customer’s specific material, style and finish. Many railing styles are achievable, including glass, mesh, perforated railing and cable railing.

~~Aluminum Railing Systems~~		~~Our Trex Signature aluminum railings, made from a minimum of 40 percent recycled content, are a versatile, cost-effective and~~ ~~low-maintenance~~ choice for a variety of interior and exterior applications that we believe blend form, function and style. Its straightforward, unobtrusive design features traditional balusters and contemporary vertical rods, and can be installed with continuously graspable rail options for added safety, comfort and functionality. The strength and durability of Trex Signature railings make them a choice for any commercial setting, from high-rise condominiums and resort projects to public walkways and balconies. Aluminum railings come in a variety of colors and stock lengths to accommodate project needs.

~~Staging Equipment and Accessories~~		Our advanced modular, lightweight custom staging systems, including portable platforms and other custom applications, provide solutions for facilities and venues with custom needs. Our modular stage equipment is designed to appear seamless, feel permanent, and maximize the functionality of the space.

~~Operational Highlights:~~

~~Trex Residential Arkansas Facility~~

. Construction began on the new Trex Residential Arkansas manufacturing facility in the second quarter 2022. The new campus will sit on approximately 300 acres of land and will address increased demand for Trex Residential outdoor living products. The development approach for the new campus will be modular and calibrated to demand trends for Trex Residential outdoor living products. In July 2022, the Company entered into a design-build agreement and, as previously announced, anticipates spending approximately $400 million on the facility. The budget for the design-build agreement is contained within this amount.

~~Trex Residential NexTrex~~

~~Grassroots Movement.~~

In August 2022, Trex Residential launched its NexTrex Grassroots Movement to broaden its recycling initiative to enlist communities and organizations to partner in its robust recycling efforts. The initiative provides a turnkey framework for municipalities, universities, nonprofits and other qualifying businesses to serve as centralized

~~drop-off~~

~~locations for recycling polyethylene plastic film while earnings funds for their organizations. Organizations approved for participation in the NexTrex program can earn funding by serving as~~

~~drop-off~~

locations where community members can recycle their discarded plastic film packaging. Trex will pick up and transport the material to its manufacturing facilities in Virginia or Nevada, where it will begin its new life as high-performance Trex Residential composite decking.

~~Russian Invasion of Ukraine~~

. The conflict between Russia and Ukraine has not directly affected our business and results of operations. We have no operations in Russia or Ukraine but continue to monitor the potential economic impact of the conflict on supply chains, commodity and fuel prices, and prices of raw materials. We cannot predict the impact of the continued conflict on the global economy, our industry or our business.

HIGHLIGHTS AND FINANCIAL PERFORMANCE

~~QUARTER-TO-DATE~~

~~AND~~

~~YEAR-TO-DATE~~

Highlights:

•

Trex Named a 2023 Eco Leader by Green Builder Media. Trex earned highest honors awarded by Green Builder Media in the Eco Leader category. This is the second time Trex has earned this prestigious honor having previously been recognized in 2019. Trex is the only decking brand ever to be awarded Eco Leader status, which signifies companies across the building products arena that are working to quantify ESG concepts in meaningful ways.

•

Trex and Keep Arkansas Beautiful Awarded “Recycling Education Program of the Year.” A joint initiative by Trex Company and Keep Arkansas Beautiful was celebrated in September as the “2023 Recycling Education Program of the Year” by the Arkansas Recycling Coalition (ARC). The annual ARC Awards honors organizations that have made significant contributions to the education and advancement of waste reduction, recycling, and sustainability in Arkansas over the previous year.

•

Trex Hosts Investor Day in New York. In September, Bryan Fairbanks, President and CEO laid out the company’s five-year financial targets for organic growth.

•

Trex Launches New Community Recycling Challenge. The updated NexTrex Recycling Challenge combines the company’s award-winning community and school recycling programs and moves from competition-driven model to self-initiated challenge. Additionally, Trex has made the process easier and more equitable, so more participants have the opportunity to earn recognition and rewards for their recycling efforts. Under the new structure, any participating organization that collects at least 1,000 pounds of recycled plastic film during a 12-month period qualifies to receive a composite bench from the Trex Outdoor Furniture Collection.

•

Trex Transcend Lineage Recognized in Good Housekeeping’s Renovation Awards. Trex Transcend Lineage has been recognized in Good Housekeeping’s 2023 Home Renovation Awards in the Exterior Enhancements category. Enhancing its appeal, Trex Transcend Lineage offers the look and feel of real wood, but without the environmental impact of deforestation.

Financial ~~performance.~~ Performance:

The following table presents

~~quarter-to-date~~

~~and~~

~~year-to-date~~

highlights of our financial performance:

Three Months Ended
September 30

Nine Months Ended
September 30


2022

2021

2022

2021


(in thousands, except per share amounts)

Net sales
   $ 188,472    $ 335,872    $ 913,950    $ 892,991
Gross profit
   $ 46,208    $ 128,250    $ 338,498    $ 342,323
Net income
   $ 14,423    $ 73,795    $ 174,549    $ 183,705
Diluted earnings per share
   $ 0.13    $ 0.64    $ 1.55    $ 1.59
EBITDA
   $ 30,816    $ 107,997    $ 265,381    $ 270,544


	Three Months Ended September 30,
	2023		2022		$ Change		% Change
($000s omitted, except per share data)
Net sales	$	303,836	$	188,472	$	115,364		61.2	%
Gross profit	$	130,895	$	46,208	$	84,687		183.3	%
Net income	$	65,266	$	14,423	$	50,843		352.5	%
EBITDA	$	99,359	$	30,816	$	68,543		222.4	%
Diluted earnings per share	$	0.60	$	0.13	$	0.47		361.5	%


	Nine months Ended September 30,
	2023		2022		$ Change			% Change
($000s omitted, except per share data)
Net sales	$	899,092	$	913,950	$	(14,858	)		(1.6	)%
Gross profit	$	381,771	$	338,498	$	43,273			12.8	%
Net income	$	183,433	$	174,549	$	8,884			5.1	%
EBITDA	$	285,271	$	265,381	$	19,890			7.5	%
Diluted earnings per share	$	1.69	$	1.55	$	0.14			9.0	%

Capital expenditures

. During the ~~2022 third quarter,~~nine months ended September 30, 2023, our capital expenditures were ~~$41.6~~$112.9 million primarily ~~at Trex Residential~~ related to $65.1 million for the Arkansas manufacturing facility, $17.9 million in cost reduction initiatives, ~~the new Arkansas manufacturing facility, capacity expansion in our existing facilities,~~$12.2 million for our new corporate headquarters, and $9.5 million related to other capacity expansion, safety, environmental and general support.

~~Repurchase~~

Repurchases of common ~~shares~~

~~. We~~shares. During the nine months ended September 30, 2023, we repurchased ~~1.7 million~~264,896 shares of our outstanding common stock inunder the ~~2022 third quarter under our~~2023 Stock Repurchase ~~Program for a total 9.0 million shares repurchased under the program as of September 30, 2022.~~Program.

RESULTS OF OPERATIONS

General.

Our results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, interest rates, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from ~~the~~

~~COVID-19~~

~~pandemic~~global health pandemics and geopolitical conflicts.

Strong sales growth in the first and second quarters of 2022 reflected an increase in Trex Residential net sales driven by pricing actions taken in 2021 and 2022, volume growth that continued to reflect strong secular trends in the outdoor living category, continued execution of our

~~wood-to-composite~~

market strategy share conversion, and channel inventory build to support historically high growth rates. The channel inventory build was due in part to expected consumer demand along the lines of what was seen in 2020 and 2021, but also was a consequence of improved product availability following more than two years of capacity constraints and product allocations.

~~However, towards~~

Towards the end of June 2022, Trex Residential experienced a reduction in demand from its distribution partners, spurred by concerns over a potential easing in consumer demand due to rising interest rates, declining consumer sentiment and expectations of a general slowing in the economy. As a result, beginning in the third quarter of 2022 Trex Residential’s channel partners met demand partially through inventory drawdown. The drawdown negatively impacted third quarter ~~sales~~ and ~~will impact~~ fourth quarter 2022 sales. In response to this changed environment, Trex Residential immediately took measures to manage a production slowdown, including labor force reductions, production ~~optimization,~~organization, as well as other cost actions.

Sale of Substantially All of the Assets of Trex Commercial Products, Inc. On December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial, for net proceeds of $7.3 million. The divestiture of Trex Commercial reflects our decision to focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of our outdoor living strategy. The divestiture did not represent a strategic shift with a major effect on the Company’s operations and financial results. As such, the results of operations of Trex Commercial are consolidated in the Company’s results of operations for the three months and nine months ended September 30, 2022.

Net Sales

. Net sales consist of sales, ~~and freight,~~ net of discounts. The level of net sales is principally affected by sales volume and the prices paid for Trex products. Trex Residential operating results have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home and commercial improvement and residential and commercial construction and can shift demand for our products to a later period. As part of our normal business practice and consistent with industry practice, we have historically provided our distributors and dealers of our Trex Residential products incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of our product to meet anticipated seasonal consumer demand and to enable production planning. These incentives include payment discounts, favorable payment terms, price discounts, or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs. The timing of our incentive programs can significantly impact sales, receivables and inventory levels during the offering period. ~~In addition, the operating results for Trex Commercial are driven by the timing of individual projects, which may vary each quarterly period.~~

Gross Profit.

Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw material costs, direct labor costs, manufacturing costs, subcontract costs and freight. Raw material costs generally include the costs to purchase and transport reclaimed wood fiber, reclaimed polyethylene, pigmentation for coloring our products, and commodities used in the production of railing and staging. Direct labor costs include wages and benefits of personnel engaged in the manufacturing process. Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouse and equipment rental activities.

Selling, General and Administrative Expenses.

The largest component of selling, general and administrative expenses is personnel related costs, which includes salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology, corporate operations, research and development, and other business functions. Another component of selling, general and administrative expenses is branding and other sales and marketing costs, which are used to build brand awareness. These costs consist primarily of advertising, merchandising, and other promotional costs. Other general and administrative expenses include professional fees, office occupancy costs attributable to the business functions previously referenced, and consumer relations expenses. As a percentage of net sales, selling, general and administrative expenses may vary from quarter to quarter due, in part, to the seasonality of our business.

Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended September 30, ~~2022 (2022~~2023 (2023 quarter) compared to the three months ended September 30, ~~2021 (2021~~2022 (2022 quarter), and for the nine months ended September 30, ~~2022 (2022~~2023 (2023 nine-month period) compared to the nine months ended September 30, ~~2021 (2021~~2022 (2022 nine-month period).

Three Months Ended September 30, ~~2022~~2023 Compared To The Three Months Ended September 30, ~~2021~~

2022

Net Sales

Three Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Total net sales
   $ 188,472    $ 335,872    $ (147,400 ) (43.9 )%
Trex Residential net sales
   $ 177,776    $ 319,207    $ (141,431 ) (44.3 )%
Trex Commercial net sales
   $ 10,696    $ 16,665    $ (5,969 ) (35.8 )%


	Three Months Ended September 30,				$ Change		% Change
	2023		2022		$ Change		% Change

	(dollars in thousands)
Total net sales	$	303,836	$	188,472	$	115,364		61.2	%
Trex Residential net sales	$	303,836	$	177,776	$	126,060		70.9	%
Trex Commercial net sales		N/A	$	10,696		N/A		N/A

Total net sales ~~decreased by 43.9%~~in the 2023 quarter were higher compared to net sales in the 2022 quarter ~~compared to the 2021 quarter reflecting a 44.3% decrease~~resulting in ~~Trex Residential net sales and a 35.8% decrease~~an increase of $115.4 million, or 61.2%. The increase in ~~Trex Commercial net sales. The decrease in Trex Residential~~ net sales was ~~primarily~~substantially all due to ~~a 48.2% decline in volume. Beginning~~increased volume which was the result of strong secular trends in the ~~third quarter, our~~outdoor living category and by the non-recurrence of the channel ~~partners looked to rightsize their inventory and meet demand partially through~~ inventory drawdown ~~rather than reordering products, which adversely impacted third quarter sales.~~

that occurred during the 2022 quarter.

Gross Profit

Three Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Cost of sales
   $ 142,264 $ 207,622 $ (65,358 ) (31.5 )%
% of total net sales
   75.5 % 61.8 %
Gross profit
   $ 46,208 $ 128,250 $ (82,042 ) (64.0 )%
Gross margin
   24.5 % 38.2 %


	Three Months Ended September 30,						$ Change		% Change
	2023			2022			$ Change		% Change

	(dollars in thousands)
Cost of sales	$	172,941		$	142,264		$	30,677		21.6	%
% of total net sales		56.9	%		75.5	%
Gross profit	$	130,895		$	46,208		$	84,687		183.3	%
Gross margin		43.1	%		24.5	%

Gross profit as a percentage of net sales, gross margin, was 43.1% in the 2023 quarter compared to 24.5% in the 2022 ~~quarter compared to 38.2% in~~quarter. Excluding the ~~2021 quarter. Gross~~$3.8 million dollar benefit from a reduction of the surface flaking warranty reserve, gross margin for ~~Trex Residential and~~the 2023 quarter was 41.8%. Excluding Trex Commercial, ~~was 25.4% and 10.2%, respectively, in~~gross margin for the 2022 quarter ~~compared to 38.9% and 24.0%, respectively,~~was 25.4%. The increase in gross margin in the ~~2021 quarter.~~2023 quarter was the result of higher volume, cost out initiatives, and positive plant performance. The ~~decrease in consolidated gross margin~~2022 quarter was ~~driven~~negatively impacted by ~~the decrease in Trex Residential gross margin. The decrease was primarily due to reduced production resulting from~~ our channel partners inventory drawdown to rightsize their inventories and additional costs as we ~~rightsize~~restructured our ~~inventory with current~~operations for reduced production levels. ~~The decrease was offset by labor force reductions, production optimization, and other actions to improve our cost position.~~

Selling, General and Administrative Expenses

Three Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Selling, general and administrative expenses
   $ 26,857 $ 33,931 $ (7,074 ) (20.8 )%
% of total net sales
   14.2 % 10.1 %


	Three Months Ended September 30,						$ Change		% Change
	2023			2022			$ Change		% Change

	(dollars in thousands)
Selling, general and administrative expenses	$	44,532		$	26,857		$	17,675		65.8	%
% of total net sales		14.7	%		14.2	%

Selling, general and administrative expenses ~~decreased $7.1~~increased $17.7 million in the ~~2022~~2023 quarter. ~~Excluding the $1.2 million severance charge~~The increase was primarily related to ~~labor force reductions in the 2022 quarter, the decrease in selling, general and administrative expenses in the 2022 quarter was $8.3~~a $10.6 million ~~compared to the 2021 quarter. The $8.3 million decrease was primarily the result of a $10.2 million decrease~~increase in personnel related expenses ~~offset by~~including incentive compensation. The 2022 quarter included a ~~$1.9~~$2.9 million reduction in incentive compensation related to restructuring of our operations to support our channel partner inventory drawdown. Other changes to the 2023 quarter included a $5.8 million increase in ~~marketing and~~ branding ~~spend,~~expenses and a ~~$1.7~~$1.5 million increase into other ~~operating~~ expenses.

Provision for Income Taxes

Three Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Provision for income taxes
   $ 4,928 $ 24,311 $ (19,383 ) (79.7 )%
Effective tax rate
   25.5 % 24.8 %


	Three Months Ended September 30,						$ Change		% Change
	2023			2022			$ Change		% Change

	(dollars in thousands)
Provision for income taxes	$	21,831		$	4,928		$	16,903		343.0	%
Effective tax rate		25.1	%		25.5	%

The effective tax rate for the ~~2022~~2023 quarter of ~~25.5% and~~25.1% was ~~0.7% higher than~~comparable to the effective tax rate of ~~24.8%~~25.5% for the ~~2021~~2022 quarter.

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

~~(dollars~~ (dollars in thousands)

Reconciliation of net income (GAAP) to EBITDA and EBITDA margin

(non-GAAP):

Three Months Ended September 30, 2022


Trex

Residential

Trex

Commercial

Total

Net income (loss)
   $ 15,287    $ (864 )    $ 14,423
Interest (income) expense, net
   —      —      —
Income tax expense (benefit)
   5,211    (283 )    4,928
Depreciation and amortization
   11,194    271    11,465






EBITDA
   $ 31,692    $ (876 )    $ 30,816






Net income as a percentage of net sales
         7.7 %






EBITDA as a percentage of net sales (EBITDA margin)
         16.4 %

Three Months Ended September 30, 2021


Trex

Residential

Trex

Commercial

Total

Net income
   $ 72,603    $ 1,192    $ 73,795
Interest (income), net
   (10 )    —      (10 )
Income tax expense
   23,899    412    24,311
Depreciation and amortization
   9,643    258    9,901






EBITDA
   $ 106,135    $ 1,862    $ 107,997






Net income as a percentage of net sales
         22.0 %






EBITDA as a percentage of net sales (EBITDA margin)
         32.2 %

Three Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Total EBITDA
   $ 30,816    $ 107,997    $ (77,181 )    (71.5 )%
Trex Residential EBITDA
   $ 31,692    $ 106,135    $ (74,443 )    (70.1 )%
Trex Commercial EBITDA
   $ (876 )    $ 1,862    $ (2,738 )    (147.0 )%


	Three Months Ended September 30, 2023			Three Months Ended September 30, 2022
	Trex Residential and Consolidated			Trex Residential		Trex Commercial			Consolidated
Net Income (loss)	$	65,266		$	15,287	$	(864	)	$	14,423
Interest (income), net		(734	)		—		—			—
Income tax expense (benefit)		21,831			5,211		(283	)		4,928
Depreciation and amortization		12,996			11,194		271			11,465

EBITDA	$	99,359		$	31,692	$	(876	)	$	30,816


	Three Months Ended September 30,					$ Change		% Change
	2023		2022			$ Change		% Change

	(dollars in thousands)
Total EBITDA	$	99,359	$	30,816		$	68,543		222.4	%
Trex Residential EBITDA	$	99,359	$	31,692		$	67,667		213.5	%
Trex Commercial EBITDA		N/A	$	(876	)		N/A		N/A

Total EBITDA ~~decreased 71.5%~~increased 222.4% to $99.4 million for the 2023 quarter compared to $30.8 million for the 2022 ~~quarter compared to $108 million for the 2021 quarter. EBITDA as a percentage of net sales, EBITDA margin, was 16.4% for the 2022 quarter compared to 32.2% in the 2021~~ quarter. The ~~decrease~~increase in EBITDA ~~and EBITDA margin~~ was driven primarily by ~~a 70.1% decrease in Trex Residential EBITDA, primarily due to the decrease~~an increase in net sales and gross ~~margin.~~

profit.

Nine Months Ended September 30, 2023 Compared To The Nine Months Ended September 30, 2022

Net Sales


	Nine months Ended September 30,				$ Change			% Change
	2023		2022		$ Change			% Change

	(dollars in thousands)
Total net sales	$	899,092	$	913,950	$	(14,858	)		(1.6	)%
Trex Residential net sales	$	899,092	$	878,892	$	20,200			2.3	%
Trex Commercial net sales		N/A	$	35,058		N/A			N/A

Total net sales decreased by $14.9 million, or 1.6%, in the 2023 nine-month period compared to the 2022 nine-month period. The reduction in total net sales was the result of the divesture of Trex Commercial at the end of 2022. The $20.2 million, or 2.3%, increase in Trex Residential net sales was primarily due to the launch of premium performance products and their associated pricing designed to support the high end of the market.

EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). We have included data with respect to EBITDA ~~and EBITDA as a percentage of net sales (EBITDA margin)~~ because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including ~~EBITDA and EBITDA margin.~~EBITDA. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss. In relation to competitors, EBITDA ~~and EBITDA margin eliminate~~eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA ~~and EBITDA margin provide~~provides important information regarding the operating performance of the Company and its reportable segments.

Non-GAAP

financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP and are not meant to be considered superior to or a substitute for our GAAP results.

~~Nine Months Ended September 30, 2022 Compared To The Nine Months Ended September 30, 2021~~

~~Net Sales~~

Nine Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Total net sales
   $ 913,950    $ 892,991    $ 20,959    2.3 %
Trex Residential net sales
   $ 878,892    $ 850,909    $ 27,983    3.3 %
Trex Commercial net sales
   $ 35,058    $ 42,082    $ (7,024 )    (16.7 )%

Total net sales increased by 2.3% in the 2022 nine-month period compared to the 2021 nine-month period reflecting a 3.3% increase in Trex Residential net sales and a 16.7% decrease in Trex Commercial net sales. Trex Residential net sales were impacted positively by a 16.1% increase in pricing, offset by an 11.1% reduction in volume. The decrease in Trex Residential net sales was primarily due to a decline in demand in the third quarter as our distribution and pro channel partners drew down their inventory levels to address the expectations of a slowing economy.

Gross Profit

Nine Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Cost of sales
   $ 575,452 $ 550,668 $ 24,784 4.5 %
% of total net sales
   63.0 % 61.7 %
Gross profit
   $ 338,498 $ 342,323 $ (3,825 ) (1.1 )%
Gross margin
   37.0 % 38.3 %


	Nine months Ended September 30,						$ Change			% Change
	2023			2022			$ Change			% Change

	(dollars in thousands)
Cost of sales	$	517,321		$	575,452		$	(58,131	)		(10.1	)%
% of total net sales		57.5	%		63.0	%
Gross profit	$	381,771		$	338,498		$	43,273			12.8	%
Gross margin		42.5	%		37.0	%

Gross profit as a percentage of net sales, gross margin, was 42.5% in the 2023 nine-month period compared to 37.0% in the 2022 nine-month ~~period compared to 38.3%~~period. Excluding Trex Commercial, gross margin for the 2022 quarter was 38.1%. The increase in the ~~2021 nine-month period. Gross margin for Trex Residential and Trex Commercial products in the 2022~~2023 nine-month period ~~were 38.1%~~was primarily the result of cost efficiencies, positive plant performance and ~~11.1%, respectively, compared to 39.2% and 21.2%, respectively, in the 2021 nine-month period.~~materials management. The ~~decrease in consolidated gross margin~~increase was ~~driven primarily~~partially offset by ~~a slight decrease in gross margin at Trex Residential primarily~~lower absorption due to reduced production ~~volume.~~

and higher depreciation and utilities.

Selling, General and Administrative Expenses

Nine Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Selling, general and administrative expenses
   $ 106,387 $ 102,880 $ 3,507    3.4 %
% of total net sales
   11.6 % 11.5 %


	Nine months Ended September 30,						$ Change		% Change
	2023			2022			$ Change		% Change

	(dollars in thousands)
Selling, general and administrative expenses	$	133,694		$	106,387		$	27,307		25.7	%
% of total net sales		14.9	%		11.6	%

Selling, general and administrative expenses increased ~~$3.5~~$27.3 million ~~during~~in the ~~2022~~2023 nine-month ~~periods.~~period. The ~~$3.5 million~~ increase ~~resulted~~ primarily ~~from~~related to a ~~$12.3~~$19.9 million increase in ~~marketing and branding spend, offset by a $10.7 million reduction in~~ personnel related expenses including incentive compensation, a $4.5 million increase in branding expenses, a $2.9 million increase in research and development expenses and other expenses.

Provision for Income Taxes

Nine Months Ended September 30,

$ Change

% Change


2022

2021


(dollars in thousands)

Provision for income taxes
   $ 57,665 $ 61,235 $ (3,570 ) 5.8 %
Effective tax rate
   24.8 % 25.0 %


	Nine months Ended September 30,						$ Change		% Change
	2023			2022			$ Change		% Change

	(dollars in thousands)
Provision for income taxes	$	62,089		$	57,665		$	4,424		7.7	%
Effective tax rate		25.3	%		24.8	%

The effective tax rate for the ~~2022~~2023 nine-month period of 25.3% was comparable to the effective tax rate of 24.8% for the ~~2021~~2022 nine-month period.

net income (GAAP) to EBITDA and EBITDA margin (non-GAAP):


	Nine months Ended September 30, 2023		Nine months Ended September 30, 2022
	Trex Residential and Consolidated		Trex Residential			Trex Commercial			Consolidated
Net Income (loss)	$	183,433	$	176,939		$	(2,390	)	$	174,549
Interest expense (income), net		2,555		(103	)		—			(103	)
Income tax expense (benefit)		62,089		58,454			(789	)		57,665
Depreciation and amortization		37,194		32,435			835			33,270

EBITDA	$	285,271	$	267,725		$	(2,344	)	$	265,381


	Nine months Ended September 30,					$ Change		% Change
	2023		2022			$ Change		% Change

	(dollars in thousands)
Total EBITDA	$	285,271	$	265,381		$	19,890		7.5	%
Trex Residential EBITDA	$	285,271	$	237,725		$	47,546		20.0	%
Trex Commercial EBITDA		N/A	$	(2,344	)		N/A		N/A

Total EBITDA increased 7.5% to $285.3 million for the 2023 nine-month period compared to $265.4 million for the 2022 nine-month period. The increase in EBITDA was driven primarily by an increase in gross profit.

LIQUIDITY AND CAPITAL RESOURCES

We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facilities, operating leases and normal trade credit terms from operating activities. AtAs of September 30, ~~2022~~2023 we had ~~$5.9~~$4.6 million of cash and cash equivalents.

ources and Uses of Cash.

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

Nine Months Ended September 30,


2022

2021

Net cash provided by operating activities
   $ 244,393    $ 113,059
Net cash used in investing activities
   (108,118 )    (123,096 )
Net cash used in financing activities
   (271,443 )    (57,622 )




Net decrease in cash and cash equivalents
   $ (135,168 )    $ (67,659 )


	Nine Months Ended September 30,
	2023			2022
Net cash provided by operating activities	$	288,225		$	244,393
Net cash used in investing activities		(112,920	)		(108,118	)
Net cash used in financing activities		(182,986	)		(271,443	)

Net decrease in cash and cash equivalents	$	(7,681)		$	(135,168	)

Operating Activities

Cash provided by ~~operations~~operating activities was ~~$244.4~~$288.2 million during the ~~2022~~2023 nine-month period compared to cash provided by operations of ~~$113.1~~$244.4 million during the ~~2021~~2022 nine-month period. ~~The~~In general, the $43.8 million increase in cash provided by operating activities reflects higher earnings and reduced investment in working capital in the 2023 period. Specifically, cash provided by operating activities was impacted significantly by two offsetting factors, an increase in accounts receivable and a decrease in inventory.

The increase in accounts receivable in the 2023 period was primarily due to increased sales in the three months ended September 2023 compared to sales in the three months ended September 2022, and, to a lesser extent, a result of differences in payment terms offered to customers in 2023 compared to those offered in 2022. We expect substantially all of the accounts receivables balances as of September 30, 2023 will be collected during the fourth quarter of 2023.

The effect of the increase in accounts receivable was offset, in part, by a decrease in ~~accounts receivable, offset by~~inventory in the 2023 nine-month period compared to an increase in ~~inventories and~~inventory in the 2022 nine-month period. The increase in inventory in the 2022 period was a result of the decline in sales that occurred as our distribution partners met demand partially through inventory drawdowns. The decrease in ~~accounts payable and accrued expenses.~~inventory in the 2023 period reflects a return to more normal purchase patterns from our distribution partners.

Investing Activities

Capital expenditures in the ~~2022~~2023 nine-month period were ~~$107.9~~$112.9 million ~~at Trex Residential,~~ primarily related to $65.1 million for the Arkansas manufacturing facility, $17.9 million in cost reduction initiatives, ~~the new Arkansas manufacturing facility, capacity expansion in our existing facilities,~~$12.2 million for our new corporate headquarters, and $9.5 million related to other capacity expansion, safety, environmental and general support.

Financing Activities

Net cash used in financing activities in the ~~2022~~2023 nine-month period consisted primarily of ~~$348 million in~~net borrowings under our line of credit and repurchases of our outstanding common ~~stock, offset by net borrowings of $76 million.~~

stock.

Stock Repurchase Program.

On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). ~~As of September 30, 2022, the~~The Company has repurchased ~~9.0~~10.1 million shares under the Stock Repurchase Program.

On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. The 2023 Stock Repurchase Program has no set expiration date and 264,896 shares were repurchased under the 2023 Stock Repurchase Program as of September 30, 2023.

Indebtedness Onon and ~~After~~after May

18, 2022

and prior to December 22, 2022. On May 18, 2022, the Company, as borrower; Trex Commercial, ~~Products, Inc. (TCP),~~ as guarantor; ~~Bank of America, N.A. (BOA),~~BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo, ~~Bank, National Association (Wells Fargo),~~ as lender and Syndication Agent; Regions Bank, PNC Bank, National Association (PNC), and TD Bank, N.A. ~~(each,~~(TD)(each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, entered into a Credit Agreement (Credit Agreement) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019.

Indebtedness ~~Prior to May~~

~~18, 2022.~~

~~Our Fourth Amended~~On and ~~Restated Credit Agreement (Fourth Amended Credit Agreement) provides us with revolving loan capacity in a collective maximum principal amount~~After December 22, 2022. As of ~~$250 million from January 1 through June 30 of each year, and a maximum principal amount of $200 million from July 1 through~~ December ~~31 of each year throughout the term, which ends November 5, 2024.~~

~~On May 26, 2020,~~22, 2022, the Company entered into a First Amendment to the ~~Original~~ Credit Agreement ~~(the First~~(First Amendment) ~~to provide for an additional $100 million line of credit. As a matter of convenience,~~by and among the ~~parties incorporated~~Company, as borrower, the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement, the revolving commitments under the Original Credit Agreement are referred to as Revolving A Commitments and the new $100 million line of credit is referred to as Revolving B Commitments. In the New Credit Agreement, all of the material terms and conditions related to the original line of credit (Revolving A Commitments) remained unchanged from the Original Credit Agreement.

~~The Company entered into the First Amendment, as borrower; Trex Commercial Products, Inc. (TCP), as guarantor; Bank of America, N.A. (BOA),~~guarantors party thereto; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD as lender and ~~certain other lenders including~~Syndication Agent; Regions Bank, PNC, and Wells Fargo ~~Bank, N.A. (Wells Fargo), who is also Syndication Agent; Truist Bank (Truist); and Regions Bank (Regions)~~ (each, a Lender and collectively, the Lenders), arranged by BofA Securities ~~Inc.~~ as Sole Lead Arranger and Sole ~~Bookrunner.~~Bookrunner, amending that certain Credit Agreement dated as of May 18, 2022, by and among the Company, as borrower, the guarantors party thereto, BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer and the other lenders identified therein (as so amended, the “Credit Agreement”). The First Amendment ~~further provides that~~removes Trex Commercial as a guarantor to any and all indebtedness under the ~~New~~Credit Agreement. As a part of the First Amendment, the Credit Agreement iswas amended and restated ~~by changing Schedule 2.01~~ to ~~add applicable Lender percentages related~~provide for an additional Revolving B Loan (as hereinafter defined).

Under the First Amendment, the Lenders agreed to provide the Company with a Revolving B Loan consisting of one or more revolving loans in a collective maximum principal amount of $150,000,000 (Revolving B Loan Limit) throughout the term, which ends December 22, 2024 (Revolving B Loan Term). Previously, under the Credit Agreement, there was no Revolving B Loan. The First Amendment also provided that TD would serve as Syndication Agent.

As of December 22, 2022, the Credit Agreement was amended and restated to refer to this loan as the Revolving A Loan. The amended and restated Credit Agreement was made an Exhibit A to the First Amendment. All of the terms of the Credit Agreement apply to the Revolving B ~~Commitment~~Loan. The Credit Agreement continues to include sublimits under the Revolving A Loan for ~~BOA~~a Letter of ~~47.5%, Well Fargo~~Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of ~~28.0%~~Credit facility and ~~Regions~~the Swing Line Loans under Revolving A Loan are for the purpose of ~~24.5%.~~

raising working capital and supporting general business operations.

The ~~Company’s~~Notes provide the Company, in the aggregate, the ability to borrow an amount up to the Revolving A Loan Limit during the Revolving A Loan Term and Revolving B Loan Limit during the Revolving B Loan Term. The Company is not obligated to borrow any amount under the revolving ~~credit facility executed November 5, 2019 was completely replaced by~~loans. Within the ~~Company’s revolving credit facility executed May 18, 2022.~~ respective loan limit, the Company may borrow, repay and reborrow at any time or from time to time while the Notes are in effect. With respect to Revolving B Loans, for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio. The applicable rate for Revolving B Loans that are Base Rate Loans range between 1.20% and 2.15% and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 0.20% and 1.15%.

At September 30, ~~2022,~~2023, we had ~~$76~~$56.5 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of ~~$324~~$493.5 million.

Compliance with Debt Covenants.

We believe that cash on hand, cash from operations and borrowings expected to be available under our revolving credit facilities will provide sufficient funds to fund planned capital expenditures, make scheduled principal and interest payments, fund warranty payments, and meet other cash requirements. We currently expect to fund future capital expenditures from operations and financing activities. The actual amount and timing of future capital requirements may differ materially from our estimate depending on the demand for Trex products and new market developments and opportunities.

Capital Requirements.

In October 2021, we announced plans to add a third U.S.-based Trex Residential manufacturing facility located in Little Rock, Arkansas. The new campus will sit on approximately 300 acres of land and will address increased demand for Trex Residential outdoor living products. The development approach for the new campus will be modular and calibrated to demand trends for Trex Residential outdoor living products. Construction began on the new facility in the second quarter 2022, and in July 2022, the Company entered into a design-build agreement. As previously announced, the Company anticipates spending approximately $400 million on the facility and the budget for the design-build agreement is contained within this amount. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit.

Our capital expenditure guidance for ~~2022~~2023 is ~~$170~~$145 million to ~~$180~~$155 million. In addition to the construction of our third facility ~~which will be~~ located in Arkansas, our capital allocation priorities include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment and support systems, and acquisitions which fit our long-term growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to ~~shareholders~~shareholders.

Inventory in Distribution ~~Channels.~~

Channels. We sell our Trex Residential decking and railing products through a tiered distribution system. We have over 50 distributors worldwide and two national retail merchandisers to which we sell our products. The distributors in turn sell the products to dealers and retail locations who in turn sell the products to end users. Significant increases in inventory levels in the distribution channel without a corresponding change in

end-use

demand could have an adverse effect on future sales.

Product Warranty.

~~We warrant~~ The Company warrants that ~~our~~for the applicable warranty period its Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and its decking, cladding, fascia and railing products will not split, splinter, rot or suffer structural damage from termites or fungal decay.

Products sold on or after January 1, 2023: The warranty period for residential use is 50 years for Transcend^® decking, 35 years for Select^® decking and Universal Fascia, and 25 years for Enhance^® decking and Transcend, Select, Enhance and Signature^® railing. The warranty ~~periods ranging from~~period for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of 25 years. The Company further warrants that Trex Transcend, Trex Enhance and Trex Select decking and cladding and Universal Fascia products will not fade in color from light and weathering exposure more than a certain amount and will be resistant to ~~25 years, depending on~~permanent staining from food and beverage substances or mold and mildew, provided the ~~product and its use.~~stain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, ~~we have~~the Company has an obligation either to replace the defective product or refund the purchase price. ~~Depending on~~

Products sold prior to January 1, 2023: The warranty period is 25 years for residential use and 10 years for commercial use. With respect to Trex Signature railing, the ~~product~~warranty period is 25 years for both residential and ~~its use, we also warrant our~~commercial use. The Company further warrants that Trex ~~Commercial~~Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than a certain amount and will be ~~free~~resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of ~~manufacturing defects~~appearance, for ~~periods ranging from 1 year~~the warranty period referred to ~~3 years.~~

~~We continue~~above. If there is a breach of such warranties, the company has an obligation either to replace the defective product or refund the purchase price.

Trex Residential continues to receive and settle claims for decking products manufactured at ~~our Trex Residential~~its Nevada facility prior to 2007 that exhibit surface flaking and ~~maintain~~maintains a warranty reserve to provide for the settlement of these claims. ~~We monitor~~Estimating the warranty reserve for surface flaking claims requires management to estimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.

To estimate the number of claims to be settled with payment, the Company utilizes actuarial techniques to determine a reasonable possible range of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts to determine its best estimate of future claims for which to record a related liability. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.

The Company monitors surface flaking claims activity each quarter for indications that ~~our~~its estimates require revision. Typically, a majority of surface flaking claims received in a ~~fiscal~~ year are received during the summer outdoor season, which spans the second and third ~~fiscal~~ quarters.

It has been ~~our~~the Company’s practice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful. ~~Our~~

The Company’s analysis is based on currently known facts and a number of ~~assumptions.~~assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect ~~our~~the Company’s financial condition, results of operations or cash flows.

The number of incoming claims received in the nine months ended September 30, 2022, was significantly lower than the number of claims received in the nine months ended September 30, 2021 and lower than our expectations for 2022. Average cost per claim experienced in the nine months ended September 30, 2022 was significantly higher than that experienced in the nine months ended September 30, 2021 and higher than our expectations for the current year. The elevated average cost per claim experienced in the nine months ended September 30, 2022, was primarily the result of the closure of three large claims, which were considered in our estimation of the surface flaking warranty reserve. We believe the reserve at September 30, 2022 is sufficient to cover future surface flaking obligations. Refer to Note 18,

~~Commitments and Contingencies, Product Warranty~~

~~, in the Notes to the Condensed Consolidated Financial Statements in Part I. Item 1.~~

~~Condensed Consolidated Financial Statements~~

~~of this Quarterly Report on Form~~

~~10-Q~~

~~for additional information.~~

~~We estimate~~Company estimates that the annual number of claims received will continue to decline over time and that the average cost per claim will ~~increase.~~increase slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. ~~We estimate~~The Company estimates that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a ~~$1.6~~$1.1 million change in the surface flaking warranty reserve.

The Company also maintains a warranty reserve for the settlement of other residential product warranty claims and records the provision at the time of product sale.

The following table details surface flaking claims activity related to our warranty:

Nine Months Ended September 30,


2022

2021

Claims open, beginning of period
   1,759    1,799
Claims received (1)
   507    788
Claims resolved (2)
   (506 )    (785 )




Claims open, end of period
   1,760    1,802




Average cost per claim (3)
   $ 5,200    $ 3,492


	Nine Months Ended September 30,
	2023			2022
Claims open, beginning of period		1,729			1,759
Claims received (1)		451			507
Claims resolved (2)		(453	)		(506	)

Claims open, end of period		1,727			1,760

Average cost per claim (3)	$	3,977		$	5,200

(1)	Claims received include new claims received or identified during the period.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Since December 31, 2022, there have been no material changes to the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. You should carefully consider the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings made with the SEC. You should be aware that such risk factors and other information may not describe every risk we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information relating to the purchases of our common stock during the three months ended September 30, ~~2022~~2023 in accordance with Item 703 of Regulation

S-K:

Period

(a)

Total Number of
Shares (or Units)
Purchased (1)

(b)

Average Price Paid
per Share (or Unit)

($)

(c)

Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs (2)

(d)

Maximum number of
Shares (or Units) that
May Yet Be
Purchased Under the
Plan or Program

July 1, 2022 – July 31, 2022
   1,709,785    $ 58.47    1,709,785    2,629,558
August 1, 2022 – August 31, 2022
   891    $ 64.51    891    2,628,667
September 1, 2022 – September 30, 2022
   57    $ 47.40    —      2,628,667








Quarterly period ended September 30, 2022
   1,710,733       1,710,676


Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid per Share (or Unit) ($)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)		(d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program
July 1, 2023 – July 31, 2023		—		—		—		10,535,104
August 1, 2023 – August 31, 2023		3,454	$	75.95		—		10,535,104
September 1, 2023 – September 30, 2023		686	$	72.75		—		10,535,104

Quarterly period ended September 30, 2022		4,140				—

(1)

During the three months ended September 30, ~~2022, 57~~2023, 4,140 shares were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Trex 2014 and 2023 Stock Incentive Plan allowing the Company to withhold, or the recipient to deliver to the Company, the number of shares having the fair value equal to tax withholding due.

On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. The 2023 Stock Repurchase Program has no set expiration date and 264,896 shares were repurchased under the 2023 Stock Repurchase Program as of September 30, 2023.

~~(2)~~Item 5.

On February 16, 2018, the Trex Board of Directors authorized a common stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018. The Company purchased 1.7 million shares of its common stock under the Stock Repurchase Program during the three months ended September 30, 2022.

Other Information

~~Item 5.~~

~~Other Information~~

~~Trex Company Named Among Top 50 U.S. Manufacturers By Industry Week.~~

~~In July 2022, Trex was named by~~

~~Industry Week~~

~~magazine as one~~

Amended and Restated By-Laws of the ~~50 Best U.S. Manufacturers. In its first year~~Company dated October 25, 2023. On October 25, 2023 the Board of ~~eligibility, Trex ranked #6 on the exclusive annual ranking of~~

~~top-performing~~

~~manufacturing companies. Companies ranked on IW’s “50 Best” list are pulled from the Industry Week U.S. 500, an annual listing~~Directors of the ~~top 500 publicly held U.S. manufacturing companies based~~Company approved and adopted amendments to Article IV, Section 1 and Article V, Section 2.(b) of the Company’s Amended and Restated By-laws, effective immediately, to grant authority to the Chief Executive Officer to appoint officers of the Corporation at the level of Vice-President or below and to fill any vacancy among such officers, any such appointment to be reported to the Board of Directors no later than the next regular meeting of the Board of Directors after such action is taken.

A copy of the Amended and Restated By-Laws, as amended October 25, 2023, is attached as Exhibit 3.3 hereto and is incorporated by reference.

Appointment of Adam D. Zambanini as Executive Vice President and Chief Operating Officer. On October 25, 2023, our Board of Directors appointed Adam Zambanini to serve as our Executive Vice President and Chief Operating Officer. Mr. Zambanini, age 46, previously served as President of Trex Residential Products since July 2018. There was no change to Mr. Zambanini’s compensation, and the information related to Mr. Zambanini’s compensation set forth in our definitive proxy statement filed on ~~revenue. The “50 Best” formula then examines profit margin, revenue growth and inventory over a three-year period, as well as return~~Schedule 14A on ~~assets and return on equity over a five-year timeframe, with the most recent numbers weighted most heavily.~~

March 21, 2023 is incorporated herein by reference.

Item 6.

Exhibits

See Exhibit Index at the end of the Quarterly Report on Form

10-Q

for the information required by this Item which is incorporated by reference.

EXHIBIT INDEX

Incorporated by reference

Exhibit

Number

Description

Form

Exhibit

Filing Date

File No.

3.1

Restated Certificate of Incorporation of Trex Company, Inc. dated July 28, 2021.

10-Q

3.6

August 2, 2021

001-14649

3.2

First Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 5, 2022.

10-Q

3.2

May 9, 2022

001-14649

3.3*

Amended and Restated By-Laws of the Company dated October 25, 2023.

10.1**

Trex Company, Inc. 2023 Stock Incentive Plan.

10-Q

10.1

May 8, 2023

001-14649

10.2**

Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors as amended on July 26, 2023.

10-Q

10.2

July 31, 2023

001-14649

10.3**

Form of Trex Company, Inc. 2023 Stock Incentive Plan Stock Appreciation Rights Agreement.

10-Q

10.3

July 31, 2023

001-14649

10.4**

Form of Trex Company, Inc. 2023 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement.

10-Q

10.4

July 31, 2023

001-14649

10.5**

Form of Trex Company, Inc. 2023 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement.

10-Q

10.5

July 31, 2023

001-14649

10.6**

Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement.

10-Q

10.6

July 31, 2023

001-14649

10.7**

Amended and Restated Severance Agreement dated July 31, 2023 by and between Trex Company, Inc. and Bryan H. Fairbanks.

10-Q

10.7

July 31, 2023

001-14649

10.8**

Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer.

10-Q

10.8

July 31, 2023

001-14649

31.1*

Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*

Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32***

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).

101.INS*

Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Incorporated by reference

Exhibit
Number

Description

Form

Exhibit

Filing Date

File No.

    3.1 Restated Certificate of Incorporation of Trex Company, Inc. dated July 28, 2021.    10-Q    3.6    August 2, 2021    001-14649
    3.2 First Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 5, 2022    10-Q    3.2    May 9, 2022    001-14649
    3.3 Amended and Restated By-Laws of the Company.    8-K    3.2    May 1, 2019    001-14649
  10.1 AIA document A141 – 2014 Agreement dated July 7, 2022 by and between Trex Company, Inc. and Gray Construction, Inc.    8-K    10.1    July 12, 2022    001-14649
  31.1* Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  31.2* Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  32*** Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).
101.INS* Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.1 Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Incorporated by reference

Exhibit

Number

Description

Form

Exhibit

Filing Date

File No.

104.1

Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

*	Filed herewith.

**	Management contract or compensatory plan or agreement.

***	Furnished herewith.


	Nine Months Ended September 30,
	2022			2021
OPERATING ACTIVITIES
Net income	$	174,549		$	183,705
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		33,269			25,604
Stock-based compensation		3,531			6,195
Gain on disposal of property, plant and equipment		(43	)		(1,057	)
Other non-cash adjustments		(171	)		(40	)
Changes in operating assets and liabilities:
Accounts receivable		62,343			(158,813	)
Inventories		(48,362	)		(5,399	)
Prepaid expenses and other assets		7,125			(4,311	)
Accounts payable		(3,769	)		17,219
Accrued expenses and other liabilities		8,842			28,472
Income taxes receivable/payable		7,079			21,484

Net cash provided by operating activities		244,393			113,059

INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(108,163	)		(124,451	)
Proceeds from sales of property, plant and equipment		45			1,355

Net cash used in investing activities		(108,118	)		(123,096	)

FINANCING ACTIVITIES
Borrowings under line of credit		156,000			416,000
Principal payments under line of credit		(80,000	)		(416,000	)
Repurchases of common stock		(347,957	)		(58,945	)
Proceeds from employee stock purchase and option plans		1,381			1,323
Financing costs		(867	)		—

Net cash used in financing activities		(271,443)			(57,622	)

Net decrease in cash and cash equivalents		(135,168	)		(67,659	)
Cash and cash equivalents, beginning of period		141,053			121,701

Cash and cash equivalents, end of period	$	5,885		$	54,042

Supplemental Disclosure:
Cash paid for interest, net of capitalized interest	$	—		$	—
Cash paid for income taxes, net	$	50,585		$	39,750


	Nine Months Ended September 30,
	2023			2022
OPERATING ACTIVITIES
Net income	$	183,433		$	174,549
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		37,194			33,269
Stock-based compensation		7,384			3,531
Loss (gain) on disposal of property, plant and equipment		1,081			(43	)
Other non-cash adjustments		(169	)		(171	)
Changes in operating assets and liabilities:
Accounts receivable		(102,852	)		62,343
Inventories		80,971			(48,362	)
Prepaid expenses and other assets		4,376			7,125
Accounts payable		10,678			(3,769	)
Accrued expenses and other liabilities		39,039			8,842
Income taxes receivable/payable		27,090			7,079

Net cash provided by operating activities		288,225			244,393

INVESTING ACTIVITIES
Expenditures for property, plant and equipment		(112,920	)		(108,163	)
Proceeds from sales of property, plant and equipment		—			45

Net cash used in investing activities		(112,920	)		(108,118	)

FINANCING ACTIVITIES
Borrowings under line of credit		509,500			156,000
Principal payments under line of credit		(675,000	)		(80,000	)
Repurchases of common stock		(18,441	)		(347,957	)
Proceeds from employee stock purchase and option plans		925			1,381
Financing costs		30			(867	)

Net cash used in financing activities		(182,986	)		(271,443	)

Net decrease in cash and cash equivalents		(7,681	)		(135,168	)
Cash and cash equivalents, beginning of period		12,325			141,053

Cash and cash equivalents, end of period	$	4,644		$	5,885

Supplemental Disclosure:
Cash paid for interest, net of capitalized interest	$	4,165		$	—
Cash paid for income taxes, net	$	35,106		$	50,585
Supplemental non-cash investing and financing disclosure:
Capital expenditures in accounts payable	$	1,183		$	787


	Nine Months Ended September 30,
Supplemental cash flow information	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,532	$	6,196
Operating ROU assets obtained in exchange for lease liabilities	$	7,332	$	7,047


	Nine months Ended September 30,
Supplemental cash flow information	2023		2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,236	$	6,532
Operating ROU assets obtained in exchange for lease liabilities	$	1,882	$	7,332


Maturities of operating lease liabilities
2022	$	2,147
2023		7,775		$	1,893
2024		6,962			7,386
2025		5,627			5,552
2026		4,977			4,851
2027					4,446
Thereafter		10,158			4,845

Total lease payments		37,646			28,973
Less imputed interest		(2,141	)		(1,367	)

Total operating lease liabilities	$	35,505		$	27,606


Supplemental balance sheet information	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Operating lease ROU assets	$	34,933	$	34,571	$	27,286	$	30,991
Operating lease liabilities:
Accrued expenses and other current liabilities	$	7,596	$	7,066	$	7,409	$	7,488
Operating lease liabilities		27,909		28,263		20,197		23,974

Total operating lease liabilities	$	35,505	$	35,329	$	27,606	$	31,462


Three Months Ended September 30, 2021	Reportable Segment
	Trex Residential		Trex Commercial		Total
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	319,207	$	—	$	319,207
Products transferred over time and fixed price contracts		—		16,665		16,665

	$	319,207	$	16,665	$	335,872


Nine Months Ended September 30, 2021	Reportable Segment
	Trex Residential		Trex Commercial		Total
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	850,909	$	—	$	850,909
Products transferred over time and fixed price contracts		—		42,082		42,082

	$	850,909	$	42,082	$	892,991


	Three Months Ended September 30, 2022							Three Months Ended September 30, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential		Trex Commercial		Total
Net sales	$	177,776	$	10,696		$	188,472	$	319,207	$	16,665	$	335,872
Net income (loss)	$	15,287	$	(864	)	$	14,423	$	72,603	$	1,192	$	73,795
EBITDA	$	31,692	$	(876	)	$	30,816	$	106,135	$	1,862	$	107,997
Depreciation and amortization	$	11,194	$	271		$	11,465	$	9,643	$	258	$	9,901
Income tax expense (benefit)	$	5,211	$	(283	)	$	4,928	$	23,899	$	412	$	24,311
Capital expenditures	$	41,403	$	154		$	41,557	$	29,554	$	66	$	29,620
Total assets	$	802,926	$	38,972		$	841,898	$	858,330	$	95,121	$	953,451


	Nine Months Ended September 30, 2022
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	18,542		$	10,053		$	28,595
Provisions and changes in estimates		—			3,098			3,098
Settlements made during the period		(2,243	)		(1,901	)		(4,144	)

Ending balance, September 30	$	16,299		$	11,250		$	27,549



Decking and Accessories		Our principal decking products are Trex Transcend ^® Lineage ^™ , Trex Transcend ^® , Trex Signature^®,Trex Select ^® , and Trex Enhance ^® . In addition, our Trex Transcend decking product can also be used as cladding. Our high-performance, low-maintenance, eco-friendly composite decking products are comprised of a blend of 95 percent reclaimed wood fibers and recycled polyethylene film and feature a protective polymer shell for enhanced protection against fading, staining, mold and scratching. Trex Transcend Lineage is the next generation of design and performance in composite decking and is available in four luxurious, on-trend hues inspired by some of the most picturesque locales in the United States. Our Trex Transcend decking provides elevated aesthetics paired with the highest level of performance and is available in eight multi-tonal monochromatic classical earth tones and premium tropical colors. Trex Signature decking offers realistic woodgrain aesthetics that raises the bar for beauty, performance and sustainability and is available in two luxurious hues inspired by stunning natural settings. Trex Select decking offers the perfect pairing of price and minimal maintenance and is available in five nature-inspired earth tone colors. Our Trex Enhance boards pair the beauty of authentic wood-grain appearance with the durability of composite with minimal maintenance and the affordability of wood and is available in natural and basic colors. We also offer accessories to our decking ~~products, including~~products. Trex Hideaway ^® ~~and~~, a self-gapping universal hidden fastener designed to give a seamless finish to every project. Trex DeckLighting ^™ , an outdoor lighting ~~system. Trex DeckLighting~~system, is a line of energy-efficient LED dimmable deck lighting ~~which is~~ designed ~~for~~to use ~~on posts, floors and steps.~~75% less energy compared to incandescent lighting. It can be installed into the railing, stair risers or the deck itself. The line includes a post cap light, deck rail light, riser light, a soffit light and a recessed deck light.Pre-assembled stair panels that allow for easier installation and are designed to save time on the jobsite.



Railing		Our ~~residential~~ railing products are Trex Transcend ® Railing, Trex Select ® Railing, Trex Select T-Rail and Trex Signature ® aluminum railing. Our high-performance composite and aluminum deck railing kits and systems are sustainably manufactured, easy to install and durable. Trex railing systems are built with the same durability as Trex decking and will not rot, warp, peel or splinter and resist fading and corrosion. Trex Transcend Railing, made from approximately 40 percent recycled content, is available in the colors of Trex Transcend decking and finishes that make it appropriate for use with Trex decking products as well as other decking materials, which we believe enhances the sales prospects of our railing products. Trex Select Railing, made from approximately 40 percent recycled content, is offered in a white finish and is ideal for consumers who desire a simple clean finished look for their deck. Trex Select T-Rail, made from a minimum of 40 percent recycled materials, is available in square composite balusters in Classic White for a cohesive, coordinated look, or round aluminum balusters in Charcoal Black for a more modern contrast. Trex Signature aluminum railing, made from a minimum of 40 percent recycled content, is available in three colors and designed for consumers who want a sleek, contemporary look.

Fencing		Our Trex Seclusions ^® composite fencing product is offered through two specialty distributors. This product consists of structural posts, bottom ~~rail,~~rails, pickets, top ~~rail~~rails and decorative post caps. The top and bottom rails of Trex fencing are designed to provide a “picture frame’ element and the deep rich colors have a matte surface to prevent harsh sunlight reflections.


Trex^® Outdoor Furniture^™		A line of outdoor furniture products manufactured and sold by PolyWood, Inc.

Trex^® RainEscape^® and Trex^® Protect^®		An above joist deck drainage system manufactured and sold by DriDeck Enterprises, LLC. Trex Protect Joist, Beam and Rim tape is a self-adhesive butyl tape that protects wooden deck framing/substructure elements.

Trex^® Pergola^™		Pergolas made from low maintenance cellular PVC and all-aluminum product, manufactured by Home & Leisure, Inc. dba Structureworks Fabrication.

Trex^® Latticeworks^™		Outdoor lattice boards manufactured and sold by Structureworks Fabrication.
Trex^® Cornhole^™		Cornhole boards manufactured and sold by IPC Global Marketing LLC.

Trex^® Blade^™		A specialty saw blade for wood-alternative composite decking manufactured and sold by Freud America, Inc.
Trex^® SpiralStairs		A staircase alternative for use with all deck substructures manufactured and sold by M. Cohen and Sons, Inc. dba The Iron Shop.

Trex^® Outdoor Kitchens^™		Outdoor kitchen cabinetry manufactured and sold by Danver Stainless Outdoor Kitchens.


	Three Months Ended September 30				Nine Months Ended September 30
	2022		2021		2022		2021
	(in thousands, except per share amounts)
Net sales	$	188,472	$	335,872	$	913,950	$	892,991
Gross profit	$	46,208	$	128,250	$	338,498	$	342,323
Net income	$	14,423	$	73,795	$	174,549	$	183,705
Diluted earnings per share	$	0.13	$	0.64	$	1.55	$	1.59
EBITDA	$	30,816	$	107,997	$	265,381	$	270,544


Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid per Share (or Unit) ($)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)		(d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program
July 1, 2022 – July 31, 2022		1,709,785	$	58.47		1,709,785		2,629,558
August 1, 2022 – August 31, 2022		891	$	64.51		891		2,628,667
September 1, 2022 – September 30, 2022		57	$	47.40		—		2,628,667

Quarterly period ended September 30, 2022		1,710,733				1,710,676


	TREX COMPANY, INC.

Date: October ~~31, 2022~~30, 2023	By:	/s/ ~~Dennis C. Schemm~~ Bryan H. Fairbanks
		~~Dennis C. Schemm~~Bryan H. Fairbanks
		~~Senior Vice~~ President and Chief ~~Financial~~Executive Officer
		( Duly Authorized Officer and Principal Financial Officer )

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company