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 JuneSeptember 30, 2023
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to      
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.)
2500 Trex Way
Winchester, Virginia
 
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.:
Large accelerated filer ☒  Accelerated filer ☐
Non-accelerated filer ☐  Smaller reporting company ☐
 
  Emerging growth company ☐
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 July 17,October 16, 2023 was 108,563,043108,595,381 shares.
 
 
 

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 SixNine Months Ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 (unaudited)

   2 
 

Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2023 and December 31, 2022 (unaudited)

   3 
 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the SixNine Months Ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 (unaudited)

   4 
 

Condensed Consolidated Statements of Cash Flows for the SixNine Months Ended JuneSeptember 30, 2023 and JuneSeptember 30, 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

   30 

Item 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

   31 

Item 5.

 

Other Information

   31 

Item 6.

 

Exhibits

   3332 

 

1

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

June 30,
  
Six Months Ended

June 30,
 
   
2023
   
2022
  
2023
   
2022
 
Net sales  $356,538   $386,249  $595,256   $725,477 
Cost of sales   200,090    228,872   344,380    433,188 
                   
Gross profit   156,448    157,377   250,876    292,289 
Selling, general and administrative expenses   51,681    39,568   89,162    79,529 
                   
Income from operations   104,767    117,809   161,714    212,760 
Interest expense (income), net   1,305    (116)   3,289    (104) 
                   
Income before income taxes   103,462    117,925   158,425    212,864 
Provision for income taxes   26,426    29,009   40,258    52,737 
                   
Net income  $77,036   $88,916  $118,167   $160,127 
                   
Basic earnings per common share  $0.71   $0.79  $1.09   $1.41 
                   
Basic weighted average common shares outstanding   108,770,204    113,099,561   108,771,077    113,864,741 
                   
Diluted earnings per common share  $0.71   $0.79  $1.09   $1.40 
                   
Diluted weighted average common shares outstanding   108,871,440    113,259,514   108,893,848    114,052,447 
                   
Comprehensive income  $77,036   $88,916  $118,167   $160,127 
                   
   
Three Months Ended

September 30,
   
Nine Months Ended

September 30,
 
   
2023
  
2022
   
2023
   
2022
 
Net sales
  $303,836  $188,472   $899,092   $913,950 
Cost of sales
   172,941   142,264    517,321    575,452 
  
 
 
  
 
 
   
 
 
   
 
 
 
Gross profit
   130,895   46,208    381,771    338,498 
Selling, general and administrative expenses
   44,532   26,857    133,694    106,387 
  
 
 
  
 
 
   
 
 
   
 
 
 
Income from operations
   86,363   19,351    248,077    232,111 
Interest (income) expense, net
   (734)   —     2,555    (103) 
  
 
 
  
 
 
   
 
 
   
 
 
 
Income before income taxes
   87,097   19,351    245,522    232,214 
Provision for income taxes
   21,831   4,928    62,089    57,665 
  
 
 
  
 
 
   
 
 
   
 
 
 
Net income
  $65,266  $14,423   $183,433   $174,549 
  
 
 
  
 
 
   
 
 
   
 
 
 
Basic earnings per common share
  $0.60  $0.13   $1.69   $1.55 
  
 
 
  
 
 
   
 
 
   
 
 
 
Basic weighted average common shares outstanding
   108,583,009   110,140,496    108,707,699    112,609,684 
  
 
 
  
 
 
   
 
 
   
 
 
 
Diluted earnings per common share
  $0.60  $0.13   $1.69   $1.55 
  
 
 
  
 
 
   
 
 
   
 
 
 
Diluted weighted average common shares outstanding
   108,702,495   110,300,017    108,829,374    112,787,994 
  
 
 
  
 
 
   
 
 
   
 
 
 
Comprehensive income
  $65,266  $14,423   $183,433   $174,549 
  
 
 
  
 
 
   
 
 
   
 
 
 
See Notes to Condensed Consolidated Financial Statements (Unaudited).
 
2
Table of Contents
TREX COMPANY, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
 
  
September 30,

2023
 
December 31,
2022
 
  
June 30,

2023
 
December 31,
2022
       
  
(Unaudited)
   
(Unaudited)
 
ASSETS
      
Current assets
      
Cash and cash equivalents  $4,226  $12,325   $4,644  $12,325 
Accounts receivable, net   266,808   98,057    200,909   98,057 
Inventories   74,007   141,355    60,384   141,355 
Prepaid expenses and other assets   24,403   35,105    7,130   35,105 
              
Total current assets
   369,444   286,842    273,067   286,842 
Property, plant and equipment, net   645,656   589,892    671,035   589,892 
Operating lease assets   29,099   30,991    27,286   30,991 
Goodwill and other intangible assets, net   18,372   18,582    18,267   18,582 
Other assets   7,244   7,398    7,157   7,398 
              
Total assets
  
$
1,069,815
 
 
$
933,705
 
  
$
996,812
 
 
$
933,705
 
              
LIABILITIES AND STOCKHOLDERS’ EQUITY
      
Current liabilities
      
Accounts payable  $32,228  $19,935   $31,795  $19,935 
Accrued expenses and other liabilities   79,803   44,064    88,919   44,064 
Accrued warranty   4,766   4,600    5,092   4,600 
Line of credit   206,000   222,000    56,500   222,000 
              
Total current liabilities
   322,797   290,599    182,306   290,599 
Deferred income taxes   68,224   68,224    68,224   68,224 
Operating lease liabilities   21,916   23,974    20,197   23,974 
Non-current
accrued warranty
   21,793   20,999    17,874   20,999 
Other long-term liabilities   11,560   11,560    16,560   11,560 
              
Total liabilities
   446,290   415,356    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; 140,931,122 and 140,841,833 shares issued and 108,567,816 and 108,743,423 share outstanding, at June 30, 2023 and December 31, 2022, respectively
   1,409   1,408 
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
   134,293   131,539    137,088   131,539 
Retained earnings   1,248,841   1,130,674    1,314,107   1,130,674 
Treasury stock, at cost, 32,363,306 shares at June 30, 2023 and 32,098,410 shares at December 31, 2022   (761,018)   (745,272) 
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
   623,525   518,349    691,651   518,349 
              
Total liabilities and stockholders’ equity
  
$
1,069,815
 
 
$
933,705
 
  
$
996,812
 
 
$
933,705
 
              
See Notes to Condensed Consolidated Financial Statements (Unaudited).
 
3
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, 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, 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
 
  
 
 
  
 
 
   
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
   
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
 
  
 
 
  
 
 
   
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
   
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
 
                                
See Notes to Condensed Consolidated Financial Statements (Unaudited).
 
4
Table of Contents
TREX COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
   
Six Months Ended
June 30,
 
   
2023
  
2022
 
OPERATING ACTIVITIES
   
Net income
  $118,167  $160,127 
Adjustments to reconcile net income to net cash provided by operating activities:
   
Depreciation and amortization
   24,198   21,804 
Stock-based compensation
   4,562   3,282 
Gain on disposal of property, plant and equipment
   1,081   (43) 
Other
non-cash
adjustments
   (388)   (365) 
Changes in operating assets and liabilities:
   
Accounts receivable
   (168,751)   (26,988) 
Inventories
   67,348   (17,119) 
Prepaid expenses and other assets
   2,046   949 
Accounts payable
   13,816   32,943 
Accrued expenses and other liabilities
   20,686   13,175 
Income taxes receivable/payable
   25,016   2,227 
  
 
 
  
 
 
 
Net cash provided by operating activities
  
 
107,781
 
 
 
189,992
 
  
 
 
  
 
 
 
INVESTING ACTIVITIES
   
Expenditures for property, plant and equipment
   (82,357)   (66,606) 
Proceeds from sales of property, plant and equipment
   —     45 
  
 
 
  
 
 
 
Net cash used in investing activities
  
 
(82,357
) 
 
 
(66,561
) 
  
 
 
  
 
 
 
FINANCING ACTIVITIES
   
Borrowings under line of credit
   330,000   —   
Principal payments under line of credit
   (346,000)   —   
Repurchases of common stock
   (18,192)   (247,921) 
Proceeds from employee stock purchase and option plans
   639   951 
Financing costs
   30   (866) 
  
 
 
  
 
 
 
Net cash used in financing activities
  
 
(33,523
)  
  
(247,836)
 
  
 
 
 
Net decrease in cash and cash equivalents
  
 
(8,099
) 
 
 
(124,405
) 
Cash and cash equivalents, beginning of period
   12,325   141,053 
  
 
 
  
 
 
 
Cash and cash equivalents, end of period
  
$
4,226
 
 
$
16,648
 
  
 
 
  
 
 
 
Supplemental Disclosure:
   
Cash paid for interest, net of capitalized interest
  $2,602  $—  
Cash paid for income taxes, net
  $15,348  $48,915 
Supplemental
non-cash
investing and financing disclosure:
   
Capital expenditures in accounts payable
  $1,523  $21 
   
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 
See Notes to Condensed Consolidated Financial Statements (Unaudited).
 
5
Table of Contents
TREX COMPANY, INC.
Notes to Condensed Consolidated Financial Statements
For the SixNine Months Ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022
(Unaudited)
 
1.
BUSINESS AND ORGANIZATION
Trex Company, Inc. (Trex, Company), a Delaware corporation, was incorporated on September 4, 1998. As of December 30, 2022, the Company operates in one reportable segment, Trex Residential Products (Trex Residential). Through December 30, 2022, Trex had one wholly-owned subsidiary, Trex Commercial Products, Inc. (Trex Commercial) and operated in two reportable segments, Trex Residential and Trex Commercial.
Trex Res
iden
tial,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. The principal executive offices are located at 2500 Trex Way, Winchester, Virginia 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 sixnine months ended JuneSeptember 30, 2023, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 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 global health pandemics and geopolitical conflicts. Towards the end of June 2022, the Company experienced a reduction in demand from its distribution partners, which 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 of 2022 the Company’s channel partners met demand partially through inventory drawdown rather than reordering products and maintaining current inventories. This inventory recalibration was completed by year end.
Thes
eThese unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2022, and December 31, 2021, and for each of the three years in the period ended December 31, 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.
SALE OF TREX COMMERCIAL PRODUCTS, INC.
On December 30, 2022, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiary and reportable segment, Trex Commercial. The divestiture reflected the Company’s decision to focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of its outdoor living strategy. With the sale complete, the Company will dedicate its resources to accelerating conversion to composites from wood and further strengthen its leadership position in the outdoor living category. The divestiture did not represent a strategic shift with a major effect on the Company’s operations. The results of operations of Trex Commercial are consolidated in the Company’s results of operations for the three months and sixnine months ended JuneSeptember 30, 2022.
 
6
Table of Contents
4.
REC
EN
TLYRECENTLY ADOPTED ACCOUNTING STANDARDS
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.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASU
No. 2020-04
provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The FASB included a sunset provision within Topic 848 based on the expectations of when the LIBOR would cease being published intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 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 amendments did not have a material effect on the Company’s consolidated financial statements.
5.
INVENTORIES
Inventories valued at LIFO
(last-in,
first-out),
consist of the following (in thousands):
 
   
June 30,
2023
   
December 31,
2022
 
Finished goods
  $52,660   $107,114 
Raw materials
   56,398    69,292 
  
 
 
   
 
 
 
Total FIFO
(first-in,
first-out)
inventories
   109,058    176,406 
Reserve to adjust inventories to LIFO value
   (35,051)    (35,051) 
  
 
 
   
 
 
 
Total LIFO inventories
  $74,007   $141,355 
  
 
 
   
 
 
 
   
September 30,
2023
   
December 31,
2022
 
Finished goods  $43,180   $107,114 
Raw materials   52,255    69,292 
          
Total FIFO
(first-in,
first-out)
inventories
   95,435    176,406 
Reserve to adjust inventories to LIFO value   (35,051)    (35,051) 
          
Total LIFO inventories  $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 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.
In the sixnine months ended JuneSeptember 30, 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 of sales for the sixnine months ended JuneSeptember 30, 2023.
 
6.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following (in thousands):
 
   
June 30,

2023
   
December 31,
2022
 
Prepaid expenses
  $9,314   $10,787 
Income tax receivable
   14,810    23,979 
Other
   279    339 
  
 
 
   
 
 
 
Total prepaid expenses and other assets
  $24,403   $35,105 
  
 
 
   
 
 
 
   
September 30,

2023
   
December 31,
2022
 
Prepaid expenses  $ 6,859   $10,787 
Income tax receivable   —     23,979 
Other   271    339 
          
Total prepaid expenses and other assets  $7,130   $35,105 
          
 
7.
GOO
DWI
LLGOODWILL AND OTHER INTANGIBLE ASSETS, NET
The carrying amount of goodwill at JuneSeptember 30, 2023, and December 31, 2022, was $14.2 million for Trex Residential. The Company’s intangible assets, purchased in 2018, consist of domain names for Trex Residential. At JuneSeptember 30, 2023, and December 31, 2022, intangible assets were $6.3 million and accumulated amortization was $2.1$2.2 million and $1.9 million, respectively. Intangible asset amounts were determined based on the
7
Table of Contents
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 sixnine months ended JuneSeptember 30, 2023, and JuneSeptember 30, 2022, was $0.2$0.3 million and $0.2$0.3 million, respectively.
 
7
Table of Contents
8.
ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in thousands):
 
   
June 30,

2023
   
December 31,
2022
 
Sales and marketing
  $31,230   $19,194 
Compensation and benefits
   15,576    8,646 
Operating lease liabilities
   7,498    7,488 
Manufacturing costs
   3,802    3,425 
Income taxes
   15,848    —   
Other
   5,849    5,311 
  
 
 
   
 
 
 
Total accrued expenses and other liabilities
  $79,803   $44,064 
  
 
 
   
 
 
 
   
September 30,

2023
   
December 31,
2022
 
Sales and marketing  $45,374   $ 19,194 
Compensation and benefits   24,470    8,646 
Operating lease liabilities   7,409    7,488 
Manufacturing costs   3,507    3,425 
Income taxes   3,111    —  
Other   5,048    5,311 
          
Total accrued expenses and other liabilities  $ 88,919   $44,064 
          
 
9.
DEBT
Revolving Credit Facility
Indebtedness prior to May
 18, 2022
. On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial, as guarantor; Bank of America, N.A. (BOA) as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A. (Wells Fargo), who is also Syndication Agent, and Truist Bank, arranged by BOA Securities, Inc. (BOA Securities), as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), dated as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more 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 throughout the term, which ends November 5, 2024.
On May 26, 2020, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) 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, 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’s revolving credit facility executed November 5, 2019, was completely replaced by the Company’s revolving credit facility executed May 18, 2022.
Indebtedness on and after May
 18, 2022 and prior to December
 22, 2022
. On May 18, 2022, the Company, as borrower; Trex Commercial, as guarantor; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo, as lender and Syndication Agent; Regions Bank, PNC Bank, National Association (PNC), and TD Bank, N.A. (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.
8
Table of Contents
The 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.
The Company and BofA Securities 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.
8
Table of Contents
Under the terms of the Security and Pledge Agreement, the Company and 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 On and After December
 22, 2022
. As of December 22, 2022, the Company entered into a First Amendment to the Credit Agreement (First Amendment) by and among the Company, as borrower, the guarantors party thereto; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD as lender and Syndication Agent; Regions Bank, PNC, and Wells Fargo (each, a Lender and collectively, the Lenders), arranged by BofA Securities as Sole Lead Arranger and Sole 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 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 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 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 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.
The 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 loans. Within the 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%.
The Company had $206$56.5 million in borrowings outstanding under its revolving credit facility and available borrowing capacity of $344$493.5 million at JuneSeptember 30, 2023. The weighted average interest rate on the revolving credit facility was 6.15%6.11% as of JuneSeptember 30, 2023.
9
Table of Contents
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 JuneSeptember 30, 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 1 year to 6 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 sixnine months ended JuneSeptember 30, 2023, and JuneSeptember 30, 2022, total operating lease expense was $4.2$6.1 million and $4.2$6.3 million, respectively. The weighted average remaining lease term at JuneSeptember 30, 2023 and December 31, 2022 was 4.84.6 years and 5.2 years, respectively. The weighted average discount rate at JuneSeptember 30, 2023 and December 31, 2022 was 2.27%2.25% and 2.10%, respectively.
9
Table of Contents
The following table includes supplemental cash flow information for the sixnine months ended JuneSeptember 30, 2023, and JuneSeptember 30, 2022, and supplemental balance sheet information at JuneSeptember 30, 2023 and December 31, 2022 related to operating leases (in thousands):
 
   
Six Months Ended

June 30,
 
Supplemental cash flow information
  
2023
   
2022
 
Cash paid for amounts included in the measurement of operating lease liabilities
  $4,302   $4,334 
Operating ROU assets obtained in exchange for lease liabilities
  $  1,882   $6,714 
   
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 
 
Supplemental balance sheet information
  
June 30,

2023
   
December 31,
2022
 
Operating lease ROU assets
  $29,099   $30,991 
Operating lease liabilities:
    
Accrued expenses and other current liabilities
  $7,498   $7,488 
Operating lease liabilities
   21,916    23,974 
  
 
 
   
 
 
 
Total operating lease liabilities
  $  29,414   $31,462 
  
 
 
   
 
 
 
Supplemental balance sheet information
  
September 30,

2023
   
December 31,
2022
 
Operating lease ROU assets  $27,286   $30,991 
Operating lease liabilities:    
Accrued expenses and other current liabilities  $7,409   $7,488 
Operating lease liabilities   20,197    23,974 
          
Total operating lease liabilities  $27,606   $31,462 
          
The following table summarizes maturities of operating lease liabilities at JuneSeptember 30, 2023 (in thousands):
 
Maturities of operating lease liabilities
    
2023
  $3,863 
2024
   7,386 
2025
   5,552 
2026
   4,851 
2027
   4,446 
Thereafter
   4,845 
  
 
 
 
Total lease payments
   30,943 
Less imputed interest
   (1,529) 
  
 
 
 
Total operating lease liabilities
  $29,414 
  
 
 
 
Maturities of operating lease liabilities
    
2023  $1,893 
2024   7,386 
2025   5,552 
2026   4,851 
2027   4,446 
Thereafter   4,845 
     
Total lease payments   28,973 
Less imputed interest   (1,367) 
     
Total operating lease liabilities  $27,606 
     
 
10
Table of Contents
11.
FINANCIAL INSTRUMENTS
The Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and debt to approximate the fair value of the respective assets and liabilities on the Condensed Consolidated Balance Sheets at JuneSeptember 30, 2023 and December 31, 2022.
 
12.
STOCKHOLDERS’ EQUITY
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):
   
Three Months Ended

September 30,
   
Nine Months Ended

September 30,
 
   
2023
   
2022
   
2023
   
2022
 
Numerator:        
Net income available to common shareholders  $65,266   $14,423   $183,433   $174,549 
                    
Denominator:        
Basic weighted average shares outstanding   108,583,009    110,140,496    108,707,699    112,609,684 
Effect of dilutive securities:        
Stock appreciation rights and options   80,256    85,396    72,580    101,967 
Restricted stock   39,230    74,125    49,095    76,343 
                    
Diluted weighted average shares outstanding   108,702,495    110,300,017    108,829,374    112,787,994 
                    
Basic earnings per share  $0.60   $0.13   $1.69   $1.55 
                    
Diluted earnings per share  $0.60   $0.13   $1.69   $1.55 
                    
10
   
Three Months Ended

June 30,
   
Six Months Ended

June 30,
 
   
2023
   
2022
   
2023
   
2022
 
Numerator:
        
Net income available to common shareholders
  $77,036   $88,916   $118,167   $160,127 
  
 
 
   
 
 
   
 
 
   
 
 
 
Denominator:
        
Basic weighted average shares outstanding
   108,770,204    113,099,561    108,771,077    113,864,741 
Effect of dilutive securities:
        
Stock appreciation rights and options
   67,479    96,179    68,742    110,253 
Restricted stock
   33,757    63,774    54,029    77,453 
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted weighted average shares outstanding
   108,871,440    113,259,514    108,893,848    114,052,447 
  
 
 
   
 
 
   
 
 
   
 
 
 
Basic earnings per share
  $0.71   $0.79   $1.09   $1.41 
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted earnings per share
  $0.71   $0.79   $1.09   $1.40 
  
 
 
   
 
 
   
 
 
   
 
 
 
Table of Contents
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
June 30,
   
Six Months Ended
June 30,
 
   
2023
   
2022
   
2023
   
2022
 
Stock appreciation rights
   91,402    47,303    100,076    38,789 
Restricted stock
   101,722    63,131    104,646    38,823 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2023
   
2022
   
2023
   
2022
 
Stock appreciation rights   86,250    47,303    95,467    41,627 
Restricted stock   —     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). From January 1, 2023 through May 3, 2023, Trex 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. From May 4, 2023 through JuneDuring the quarterly period ended September 30, 2023, Trex repurchased 264,896did 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.
11
Table of Contents
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 generated revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues were from fixed-price contracts with customers. Trex Commercial contracts had a single performance obligation as the promise to transfer the individual goods or services were not separately identifiable from other promises in the contract and was, therefore, not distinct.
For the three months and sixnine months ended JuneSeptember 30, 2023, and JuneSeptember 30, 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).
 
Three Months Ended June 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
  $356,538 
  
 
 
 
  $356,538 
  
 
 
 
1
Three Months Ended June 30, 2022
  
Reportable Segment
 
   
Trex
Residential
   
Trex
Commercial
   
Consolidated
 
Timing of Revenue Recognition and Type of Contract
      
Products transferred at a point in time and variable consideration contracts
  $373,922   $—     $373,922 
Products transferred over time and fixed price contracts
   —      12,327    12,327 
  
 
 
   
 
 
   
 
 
 
  $373,922   $12,327   $386,249 
  
 
 
   
 
 
   
 
 
 
Six Months Ended June 30, 2023
    
   
Trex
Residential
and
Consolidated
 
Timing of Revenue and Type of Contract
  
Products transferred at a point in time and variable consideration contracts
  $595,256 
  
 
 
 
  $595,256 
  
 
 
 
121
Table of Contents
Six Months Ended June 30, 2022
  
Reportable Segment
 
   
Trex
Residential
   
Trex
Commercial
   
Consolidated
 
Timing of Revenue Recognition and Type of Contract
      
Products transferred at a point in time and variable consideration contracts
  $701,117   $—     $701,117 
Products transferred over time and fixed price contracts
   —      24,360    24,360 
  
 
 
   
 
 
   
 
 
 
  $701,117   $24,360   $725,477 
  
 
 
   
 
 
   
 
 
 
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 
               
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, Inc. 2014 Stock Incentive Plan (2014 Plan), which was last approved by the Company’s stockholders at the annual meeting held on April 30, 2014. The Plan, which will be administered by the compensation committee of the board of directors, provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights 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 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 number of shares of common stock permitted to be granted under the Plan was 4,000,000 shares at the time of adoption, and as of JuneSeptember 30, 2023, the total number of shares available for future grants was 3,999,023.3,984,956.
1
2
Table of Contents
The following table summarizes the Company’s stock-based compensation grants for the sixnine months ended JuneSeptember 30, 2023:
 
   
Stock Awards Granted
   
Weighted-Average

Grant Price

Per Share
 
Time-based restricted stock units
   77,675   $56.73 
Performance-based restricted stock units (a)
   96,013   $56.79 
Stock appreciation rights
   51,916   $56.80 
   
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 85,044 of target performance-based restricted stock unit awards granted during the sixnine months ended JuneSeptember 30, 2023, and adjustments of 1,413 and 9,646 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2021 and 2020, 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 sixnine months ended JuneSeptember 30, 2023, and JuneSeptember 30, 2022, the data and assumptions shown in the following table were used:
 
   
Six Months Ended

June 30, 2023
  
Six Months Ended

June , 2022
 
Weighted-average fair value of grants
  $27.19  $33.90 
Dividend yield
   0%   0% 
Average risk-free interest rate
   4.0%   1.9% 
Expected term (years)
   5   5 
Expected volatility
   49.5%   44.9% 
13
Table of Contents
   
Nine Months Ended

September 30, 2023
  
Nine Months Ended

September 30, 2022
 
Weighted-average fair value of grants  $27.19  $33.9 
Dividend yield   0%   0% 
Average risk-free interest rate   4.0%   1.9% 
Expected term (years)   5   5 
Expected volatility   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
June 30,
   
Six Months Ended
June 30,
 
   
2023
   
2022
   
2023
   
2022
 
Stock appreciation rights
  $198   $196   $412   $350 
Time-based restricted stock and restricted stock units
   871    959    1,806    1,806 
Performance-based restricted stock and restricted stock units
   1,320    (151)    2,044    1,007 
Employee stock purchase plan
   201    53    300    119 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total stock-based compensation
  $2,590   $1,057   $4,562   $3,282 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2023
   
2022
   
2023
   
2022
 
Stock appreciation rights  $248   $196   $660   $547 
Time-based restricted stock and restricted stock units   1,098    1,012    2,904    2,818 
Performance-based restricted stock and restricted stock units   1,425    (1,012)    3,470    (5) 
Employee stock purchase plan   50    52    350    171 
                    
Total stock-based compensation  $2,821   $248   $7,384   $3,531 
                    
Total unrecognized compensation cost related to unvested awards as of JuneSeptember 30, 2023, was $14.4$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 sixnine months ended JuneSeptember 30, 2023, was 25.4%25.3% and was comparable to the effective tax rate for the sixnine months ended JuneSeptember 30, 2022, of 24.8%, which resulted in income tax expense of $40.3$62.1 million and $52.7$57.7 million, respectively.
1
3
Table of Contents
During the sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022, the Company realized $0.2$0.4 million and $0.1 million, respectively, of excess tax benefits from stock-based awards and recorded a corresponding benefit to income tax expense.
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 JuneSeptember 30, 2023, the Company maintains a valuation allowance of $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 JuneSeptember 30, 2023, for certain tax jurisdictions tax years 2019 through 2022 remain 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
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 one reportable 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 designed, engineered, and 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 were marketed to architects, specifiers, contractors, and others doing business within the commercial and multi-family market.
14
Table of Contents
The Company’s reportable segments are determined in accordance with its internal management structure, which, 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 sixnine months ended JuneSeptember 30, 2023 and JuneSeptember 30, 2022 includes data for its reportable segments (in thousands):
Segment Data:
 
   
Three Months
Ended

June 30, 2023
   
Three Months Ended June 30, 2022
 
   
Trex Residential
and Consolidated
   
Trex
Residential
   
Trex
Commercial
   
Consolidated
 
Net sales
  $356,538   $373,922   $12,327   $386,249 
Net Income (loss)
  $77,036   $89,437   $(521)   $88,916 
EBITDA
  $117,050   $129,550   $(410)   $129,140 
Depreciation and amortization
  $12,283   $11,049   $282   $11,331 
Income tax expense (benefit)
  $26,426   $29,180   $(171)   $29,009 
Capital expenditures
  $43,165   $44,251   $67   $44,318 
Total assets
  $1,069,815   $846,112   $41,182   $887,294 
1
Reconciliation of Net Income to EBITDA:
   
Three Months
Ended

June 30, 2023
   
Three Months Ended June 30, 2022
 
   
Trex Residential
and Consolidated
   
Trex
Residential
   
Trex
Commercial
   
Consolidated
 
Net Income (loss)
  $77,036   $89,437   $(521)   $88,916 
Interest expense (income), net
   1,305    (116)    —      (116) 
Income tax expense (benefit)
   26,426    29,180    (171)    29,009 
Depreciation and amortization
   12,283    11,049    282    11,331 
  
 
 
   
 
 
   
 
 
   
 
 
 
EBITDA
  $117,050   $129,550   $(410)   $129,140 
  
 
 
   
 
 
   
 
 
   
 
 
 
Segment Data:
   
Six Months Ended

June 30, 2023
   
Six Months Ended June 30, 2022
 
   
Trex Residential
and Consolidated
   
Trex
Residential
   
Trex
Commercial
   
Consolidated
 
Net sales
  $595,256   $701,117   $24,360   $725,477 
Net Income (loss)
  $118,167   $161,652   $(1,525)   $160,127 
EBITDA
  $185,912   $236,031   $(1,466)   $234,565 
Depreciation and amortization
  $24.198   $21,240   $565   $21,805 
Income tax expense (benefit)
  $40,258   $53,243   $(506)   $52,737 
Capital expenditures
  $82,357   $66,534   $72   $66,606 
Total assets
  $1,069,815   $846,112   $41,182   $887,294 
154
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 
1
5
Table of Contents
Reconciliation of Net Income to EBITDA:
   
Six Months
Ended

June 30, 2023
   
Six Months Ended June 30, 2022
 
   
Trex Residential
and Consolidated
   
Trex
Residential
   
Trex
Commercial
   
Consolidated
 
Net Income (loss)
  $118,167   $161,652   $(1,525)   $160,127 
Interest expense (income), net
   3,289    (104)    —      (104) 
Income tax expense (benefit)
   40,258    53,243    (506)    52,737 
Depreciation and amortization
   24,198    21,240    565    21,805 
  
 
 
   
 
 
   
 
 
   
 
 
 
EBITDA
  $185,912   $236,031   $(1,466)   $234,565 
  
 
 
   
 
 
   
 
 
   
 
 
 
 
   
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 
                    
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.
 
18.
COMMITMENTS AND CONTINGENCIES
Product Warranty
The Company warrants that 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 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 permanent staining from food and beverage substances or mold and mildew, provided the 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.
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 warranty period is 25 years for both residential and commercial use. The Company further warrants that Trex Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than a certain amount and will be resistant to permanent staining from food substances or mold, provided the 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.
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 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.
1
6
Table of Contents
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.
16
Table of Contents
The number of incoming claims received in the six months ended June 30, 2023 was lower than the number of claims received in the six months ended June 30, 2022, and lower than the Company’s expectations for 2023. Average cost per claim experienced in the sixnine months ended JuneSeptember 30, 2023 was lower than that experienced in the sixnine months ended JuneSeptember 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, 2023 was lower than the number of claims received in the nine months ended September 30, 2022, and lower than the Company’s expectations for 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 three-month period ended September 30, 2023, the Company recorded a reduction of $3.8 million to its warranty reserve for the future settlement of surface flaking claims. The Company believes the reserve at JuneSeptember 30, 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 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 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. 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 $1.5$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):
 
   
Six Months Ended June 30, 2023
 
   
Surface
Flaking
   
Other
Residential
   
Total
 
Beginning balance, January 1
  $15,905   $9,694   $25,599 
Provisions and changes in estimates
   —      3,008    3,008 
Settlements made during the period
   (891)    (1,157)    (2,048) 
  
 
 
   
 
 
   
 
 
 
Ending balance, June 30
  $15,014   $11,545   $26,559 
  
 
 
   
 
 
   
 
 
 
   
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 
               
 
   
Six Months Ended June 30, 2022
 
   
Surface
Flaking
   
Other
Residential
   
Total
 
Beginning balance, January 1
  $18,542   $10,053   $28,595 
Provisions and changes in estimates
   —      2,369    2,369 
Settlements made during the period
   (1,345)    (1,089)    (2,434) 
  
 
 
   
 
 
   
 
 
 
Ending balance, June 30
  $17,197   $11,333   $28,530 
  
 
 
   
 
 
   
 
 
 
   
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.
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.
 
1
7
17

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, Company, we or our) Annual Report on Form 10-K for the year ended December 31, 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.

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, 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, 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 – a summary of financial performance and highlights for the three months and sixnine months ended JuneSeptember 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 sixnine months ended JuneSeptember 30, 2023 compared to three months and sixnine months ended JuneSeptember 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, the Company operated in two reportable 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 our Trex Residential segment.

 

18

Trex Residential is the world’s largest manufacturer of high-performance composite decking and residential railing products, which are marketed under the brand name Trex® and manufactured in the United States. With more than 30 years of product experience, we offer a comprehensive set of aesthetically appealing and durable, low-maintenance product offerings in the decking, residential railing, fencing and outdoor lighting categories. A majority of the products are eco-friendly and leverage recycled and reclaimed materials to the extent possible. Trex Residential decking is made in a proprietary process that combines reclaimed wood fibers and recycled polyethylene film, making Trex Residential one of the largest recyclers of plastic film in North America. In addition to resisting fading and surface staining, Trex Residential products require no sanding and sealing, resist moisture damage, provide a splinter-free surface and do not require chemical treatment against rot or insect infestation. Combined, these aspects yield significant aesthetic advantages and lower maintenance than wood decking and railing and ultimately render Trex Residential products less costly than wood over the life of the deck. Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate installation, reduce contractor call-backs and afford consumers a wide range of design options. Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market.

Trex offers the following products through Trex Residential:

 

  

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. Trex Hideaway®, a self-gapping universal hidden fastener designed to give a seamless finish to every project. Trex DeckLighting™, an outdoor lighting system, is a line of energy-efficient LED dimmable deck lighting designed to use 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.

 

 

19

Railing

  

Our 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 won’twill 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 railrails 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.

 

We are a licensor in a number of licensing agreements with third parties to manufacture and sell products under the Trex trademark. Our licensed products are:

 

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.

 

20

Trex Commercial designed and engineered custom solutions prevalent in professional and collegiate sports facilities, commercial and high-rise applications, performing arts, sports, and event production and rentals. Trex Commercial marketed to architects, specifiers, contractors, and building owners.

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

 

Architectural railing systems;

 

Aluminum railing systems; and

 

Staging equipment and accessories.

20

HIGHLIGHTS AND FINANCIAL PERFORMANCE

Highlights:

 

 • 

Trex Introduced New Style-Centric, Entry Level Composite Railing SystemNamed a 2023 Eco Leader by Green Builder Media. . The Trex Select T-Rail composite railing system features a popular T-shaped top rail andearned highest honors awarded by Green Builder Media in the Eco Leader category. This is designedthe second time Trex has earned this prestigious honor having previously been recognized in 2019. Trex is the only decking brand ever to makebe awarded Eco Leader status, which signifies companies across the beauty and convenience of Trex’s high-performance composite and aluminum railing availablebuilding products arena that are working to a wider audience with pricing that competes head-to-head with PVC vinyl railing.quantify ESG concepts in meaningful ways.

 

 • 

Trex Updated itsand Keep Arkansas Beautiful Awarded “Recycling Education Program of the Year.” A joint initiative by Trex® Deck Design Tool Company and Online Deck PlannerKeep Arkansas Beautiful was celebrated in September as the “2023 Recycling Education Program of the Year” by the Arkansas Recycling Coalition (ARC). The interactive deck design tool allows homeownersannual ARC Awards honors organizations that have made significant contributions to plan every detailthe education and advancement of their outdoor spacewaste reduction, recycling, and is engineered to makesustainability in Arkansas over the deck planning journey efficient and all-inclusive.

•

Builders Rank Trex Their Brand of Choice for Composite Decking and Railing. Trex earned top honors in the Composite Decking and Deck Railing categories in Builder Magazine’s 2023 Brand Use Study for the 16th consecutiveprevious year.

 

 • 

The Board of Directors of Trex Appointed Human Resources Leader Melkeya McDuffie as aHosts Investor Day in New Independent Member of its Board of Directors.York. Ms. McDuffie is an accomplished executiveIn September, Bryan Fairbanks, President and leader with a long career in human capital and general business management. She is currently Executive Vice President, Chief Human Resources OfficerCEO laid out the company’s five-year financial targets for Clean Harbors.organic growth.

 

 • 

Trex PublishedLaunches 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 2022 Environmental, Socialappeal, Trex Transcend Lineage offers the look and Governance (ESG) Report. In June 2023, Trex published its 2022 ESG report. Highlights included focusing on circularity and energy efficiency, prioritizing employee safety and career growth, fostering diversity in leadership, resolute on governance and ethics, supporting communities where we operate, and earning industrywide ESG recognition.feel of real wood, but without the environmental impact of deforestation.

Financial Performance:

The following table presents highlights of our financial performance:

 

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

 

 
($ 000s omitted, except per share data)                
($000s omitted, except per share data)                

Net sales

  $356,538   $386,249   $(29,711)    (7.7)%   $303,836   $188,472   $115,364    61.2% 

Gross profit

  $156,448   $157,377   $(929)    (0.6)%   $130,895   $46,208   $84,687    183.3% 

Net income

  $77,036   $88,916   $(11,880)    (13.4)%   $65,266   $14,423   $50,843    352.5% 

EBITDA

  $117,050   $129,140   $(12,090)    (9.4)%   $99,359   $30,816   $68,543    222.4% 

Diluted earnings per share

  $0.71   $0.79   $(0.08)    (10.1)%   $0.60   $0.13   $0.47    361.5% 

 

   Six Months Ended
June 30,		         
   2023   2022   $ Change   % Change 
   

 

 
($ 000s omitted, except per share data)                

Net sales

  $595,256   $725,477   $(130,221)    (17.9)% 

Gross profit

  $250,876   $292,289   $(41,413)    (14.2)% 

Net income

  $118,167   $160,127   $(41,960)    (26.2)% 

EBITDA

  $185,912   $234,565   $(48,653)    (20.7)% 

Diluted earnings per share

  $1.09   $1.40   $(0.31)    (22.1)% 

21

   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 sixnine months ended JuneSeptember 30, 2023, our capital expenditures were $82.4$112.9 million primarily related to $45.5$65.1 million for the Arkansas manufacturing facility, $10.6$17.9 million in cost reduction initiatives, $9.6$12.2 million for our new corporate headquarters, $2.4and $9.5 million inrelated to other capacity expansion, in our existing facilities, and $3.6 million for safety, environmental and general support.

Repurchases of common shares. During the sixnine months ended JuneSeptember 30, 2023, we repurchased 264,896 shares of our outstanding common stock under the 2023 Stock Repurchase Program.

21

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 global health pandemics and geopolitical conflicts.

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 and 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 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. With the sale complete, we will dedicate our resources to accelerating conversion to composites from wood and further strengthen our leadership position in the outdoor living category. 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 sixnine months ended JuneSeptember 30, 2022.

Russian / Ukraine Conflict. The conflict between Russia and Ukraine has not directly affected our business and results of operations. We have no operations or direct sales 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.

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.

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 JuneSeptember 30, 2023 (2023 quarter) compared to the three months ended JuneSeptember 30, 2022 (2022 quarter), and for the sixnine months ended JuneSeptember 30, 2023 (2023 six-monthnine-month period) compared to the sixnine months ended JuneSeptember 30, 2022 (2022 six-monthnine-month period).

 

22

Three Months Ended JuneSeptember 30, 2023 Compared To The Three Months Ended JuneSeptember 30, 2022

Net Sales

 

  Three Months Ended September 30,   $ Change   % Change 
  Three Months Ended June 30,   $ Change   % Change   2023   2022 
  2023   2022                 
  (dollars in thousands)   (dollars in thousands) 

Total net sales

  $ 356,538   $ 386,249   $(29,711)    (7.7)%   $ 303,836   $ 188,472   $ 115,364    61.2% 

Trex Residential net sales

  $356,538   $373,922   $(17,384)    (4.6)%   $303,836   $177,776   $126,060    70.9% 

Trex Commercial net sales

   N/A   $12,327    N/A    N/A    N/A   $10,696    N/A    N/A 

Total net sales in the 2023 quarter were lowerhigher compared to net sales in the 2022 quarter resulting in a decreasean increase of $29.7$115.4 million, or 7.7%61.2%. The changeincrease in the 2023 quarternet sales was substantially all due to increased volume which was the result of strong secular trends in the outdoor living category continued execution of our wood-to-composite market strategy share conversion offsetand by the non-recurrence of the channel inventory builddrawdown that occurred during the second quarter prior year. In addition, on December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial, whose sales are reflected in the 2022 quarter.

Gross Profit

 

  Three Months Ended September 30,  $ Change   % Change 
  Three Months Ended June 30,  $ Change   % Change   2023 2022 
  2023 2022             
  (dollars in thousands)   (dollars in thousands) 

Cost of sales

  $ 200,090  $228,872  $(28,782)    (12.6)%   $ 172,941  $142,264  $ 30,677    21.6% 

% of total net sales

   56.1%   59.3%       56.9%   75.5%    

Gross profit

  $156,448  $157,377  $(929)    (0.6)%   $130,895  $46,208  $84,687    183.3% 

Gross margin

   43.9%   40.7%       43.1%   24.5%    

Gross profit as a percentage of net sales, gross margin, was 43.9%43.1% in the 2023 quarter compared to 40.7%24.5% in the 2022 quarter. Excluding the $3.8 million dollar benefit from a reduction of the surface flaking warranty reserve, gross margin for the 2023 quarter was 41.8%. Excluding Trex Commercial, gross margin for the 2022 quarter was 41.7%25.4%. The increase in gross margin in the 2023 quarter was primarily the result of higher volume, cost out initiatives, and positive plant performance. The 2022 quarter was negatively impacted by our channel partners inventory drawdown to rightsize their inventories and additional costs as we restructured our operations for reduced production optimization and cost savings programs, partially offset by lower absorption due to decreased production and higher depreciation.levels.

Selling, General and Administrative Expenses

 

  Three Months Ended September 30,  $ Change   % Change 
  Three Months Ended June 30,  $ Change   % Change   2023 2022 
  2023 2022             
  (dollars in thousands)   (dollars in thousands) 

Selling, general and administrative expenses

  $51,681  $39,568  $ 12,113    30.6%   $ 44,532  $26,857  $ 17,675    65.8% 

% of total net sales

   14.5%   10.2%       14.7%   14.2%    

Selling, general and administrative expenses increased $12.1$17.7 million in the 2023 quarter. The increase was primarily related to a $9.1$10.6 million increase in personnel related expenses including incentive compensation. The 2022 quarter included a $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 $0.8$5.8 million increase related to disposal of manufacturing equipment,in branding expenses and a $0.9$1.5 million increase related to expenses to exit our prior corporate headquarters, and a $0.9 million increase in other expenses.

Provision for Income Taxes

 

   Three Months Ended June 30,  $ Change   % Change 
   2023  2022 
   (dollars in thousands) 

Provision for income taxes

  $ 26,426  $29,009  $ (2,583)    (8.9)% 

Effective tax rate

   25.5%   24.6%    

23

   Three Months Ended September 30,  $ Change   % Change 
   2023  2022 
               
   (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 2023 quarter of 25.5% and25.1% was comparable to the effective tax rate of 24.6%25.5% for the 2022 quarter.

23

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)1 (dollars in thousands)

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

 

  Three Months
Ended
June 30, 2023		   Three Months Ended June 30, 2022   Three Months
Ended
September 30,
2023		   Three Months Ended September 30, 2022 
  Trex Residential
and Consolidated		   Trex
Residential		   Trex
Commercial		   Consolidated   Trex Residential
and Consolidated		   Trex
Residential		   Trex
Commercial		   Consolidated 

Net Income (loss)

  $77,036   $89,437   $(521)   $88,916   $ 65,266   $ 15,287   $(864)   $ 14,423 

Interest expense (income), net

   1,305    (116)    —      (116) 

Interest (income), net

   (734)    —     —     —  

Income tax expense (benefit)

   26,426    29,180    (171)    29,009    21,831    5,211    (283)    4,928 

Depreciation and amortization

   12,283    11,049    282    11,331    12,996    11,194    271    11,465 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

EBITDA

  $117,050   $129,550   $(410)   $129,140   $99,359   $31,692   $(876)   $30,816 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

  Three Months Ended September 30,   $ Change   % Change 
  Three Months Ended June 30,   $ Change   % Change   2023   2022 
  2023   2022                 
  (dollars in thousands)   (dollars in thousands) 

Total EBITDA

  $ 117,050   $129,140   $ (12,090)    (9.4)%   $ 99,359   $ 30,816   $ 68,543    222.4% 

Trex Residential EBITDA

  $117,050   $ 129,550   $(12,500)    (9.6)%   $99,359   $31,692   $67,667    213.5% 

Trex Commercial EBITDA

   N/A   $(410)    N/A    N/A    N/A   $(876)    N/A    N/A 

Total EBITDA decreased 9.4%increased 222.4% to $117.1$99.4 million for the 2023 quarter compared to $129.1$30.8 million for the 2022 quarter. The decreaseincrease in EBITDA was driven primarily by a decreasean increase in net sales.sales and gross profit.

SixNine Months Ended JuneSeptember 30, 2023 Compared To The SixNine Months Ended JuneSeptember 30, 2022

Net Sales

 

  Nine months Ended September 30,   $ Change   % Change 
  Six Months Ended June 30,   $ Change   % Change   2023   2022 
  2023   2022                 
  (dollars in thousands)   (dollars in thousands) 

Total net sales

  $ 595,256   $ 725,477   $ (130,221)    (17.9)%   $ 899,092   $ 913,950   $ (14,858)    (1.6)% 

Trex Residential net sales

  $595,256   $701,117   $(105,861)    (15.1)%   $899,092   $878,892   $20,200    2.3% 

Trex Commercial net sales

   N/A   $24,360    N/A    N/A    N/A   $35,058    N/A    N/A 

Total net sales decreased by $130.2$14.9 million, or 17.9%1.6%, in the 2023 six-monthnine-month period compared to the 2022 six-monthnine-month period. The decreasereduction in total net sales was substantially all due to a decrease in volume, which was primarily the result of the non-recurrencedivesture 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 2022 distribution inventory build and more cautious purchase patterns due to concerns regarding the economic strength of the consumer. On December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial.market.

 

1 

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 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. 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 eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA 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.

 

24

Gross Profit

 

  Nine months Ended September 30,  $ Change   % Change 
  Six Months Ended June 30,  $ Change   % Change   2023 2022 
  2023 2022             
  (dollars in thousands)   (dollars in thousands) 

Cost of sales

  $ 344,380  $433,188  $(88,808)    (20.5)%   $ 517,321  $575,452  $ (58,131)    (10.1)% 

% of total net sales

   57.9%   59.7%       57.5%   63.0%    

Gross profit

  $250,876  $292,289  $(41,413)    (14.2)%   $381,771  $338,498  $43,273    12.8% 

Gross margin

   42.1%   40.3%       42.5%   37.0%    

Gross profit as a percentage of net sales, gross margin, was 42.1%42.5% in the 2023 six-monthnine-month period compared to 40.3%37.0% in the 2022 six-monthnine-month period. Excluding Trex Commercial, gross margin for the 2022 quarter was 41.3%38.1%. The increase in the 2023 nine-month period was primarily the result of production optimizationcost efficiencies, positive plant performance and cost savings programs,materials management. The increase was partially offset by lower absorption due to decreasedreduced production and higher depreciation.depreciation and utilities.

Selling, General and Administrative Expenses

 

  Nine months Ended September 30,  $ Change   % Change 
  Six Months Ended June 30,  $ Change   % Change   2023 2022 
  2023 2022             
  (dollars in thousands)   (dollars in thousands) 

Selling, general and administrative expenses

  $ 89,162  $79,529  $9,633    12.1%   $ 133,694  $ 106,387  $ 27,307    25.7% 

% of total net sales

   15.0%   11.0%       14.9%   11.6%    

Selling, general and administrative expenses increased $9.6$27.3 million in the 2023 six-monthnine-month period. The increase primarily related to a $5.6$19.9 million increase in personnel related expenses including incentive compensation, a $1.5$4.5 million increase in branding expenses, a $2.9 million increase in research and development expenses a $0.8 million increase related to disposal of manufacturing equipment, a $0.9 million increase in expenses related the exit of our prior corporate headquarters, and a $1.2 million increase in other expenses.

Provision for Income Taxes

 

  Nine months Ended September 30,  $ Change   % Change 
  Six Months Ended June 30,  $ Change   % Change   2023 2022 
  2023 2022             
  (dollars in thousands)   (dollars in thousands) 

Provision for income taxes

  $ 40,258  $52,737  $(12,479)    (23.7)%   $ 62,089  $57,665  $ 4,424    7.7% 

Effective tax rate

   25.4%   24.8%       25.3%   24.8%    

The effective tax rate for the 2023 six-monthnine-month period of 25.4% and25.3% was comparable to the effective tax rate of 24.8% for the 2022 six-monthnine-month period.

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)2 (dollars in thousands)

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

 

2 

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 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. 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 eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA 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.

 

25

   Six Months Ended
June 30, 2023		   Six Months Ended June 30, 2022 
   Trex Residential
and Consolidated		   Trex
Residential		   Trex
Commercial		   Consolidated 

Net Income (loss)

  $ 118,167   $ 161,652   $(1,525)   $160,127 

Interest expense (income), net

   3,289    (104)    —      (104) 

Income tax expense (benefit)

   40,258    53,243    (506)    52,737 

Depreciation and amortization

   24,198    21,240    565    21,805 
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $185,912   $236,031   $(1,466)   $ 234,565 
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

   Six Months Ended June 30,   $ Change   % Change 
   2023   2022 
   (dollars in thousands) 

Total EBITDA

  $ 185,912   $234,565   $(48,653)    (20.7)% 

Trex Residential EBITDA

  $185,912   $236,031   $(50,119)    (21.2)% 

Trex Commercial EBITDA

   N/A   $(1,466)    N/A    N/A 
   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 
                 
   (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 decreased 20.7%increased 7.5% to $185.9$285.3 million for the 2023 six-monthnine-month period compared to $234.6$265.4 million for the 2022 six-monthnine-month period. The decreaseincrease in EBITDA was driven primarily by a decreasean increase in net sales and 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. At JuneAs of September 30, 2023 we had $4.2$4.6 million of cash and cash equivalents.

Sources and Uses of Cash. The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

 

  Six Months Ended June 30,   Nine Months Ended September 30, 
  2023   2022   2023   2022 

Net cash provided by operating activities

  $107,781   $189,992   $288,225   $244,393 

Net cash used in investing activities

   (82,357)    (66,561)    (112,920)    (108,118) 

Net cash used in financing activities

   (33,523)    (247,836)    (182,986)    (271,443) 
  

 

   

 

   

 

   

 

 

Net decrease in cash and cash equivalents

  $(8,099)   $(124,405)   $(7,681)   $(135,168) 
  

 

   

 

   

 

   

 

 

Operating Activities

Cash provided by operating activities was $107.8$288.2 million during the 2023 six-monthnine-month period compared to cash provided by operations of $190.0$244.4 million during the 2022 six-monthnine-month period. The $82.2In general, the $43.8 million decreaseincrease 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 primarily related toimpacted 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, reduced profitabilitya result of differences in the 2023 six-month period. Shorter payment terms offered as part of our 2022 early buy program resultedto customers in stronger cash collections from accounts receivable in the 2022 six-month period2023 compared to historical collections. The timing of collectionsthose offered in the 2023 six-month period were more aligned with the timing of collections in six-month periods prior to 2022. We anticipate the timing of collections in the third quarter of 2023 will be more comparable to those in the third quarter of 2022. Substantiallyexpect substantially all of the accounts receivables balances as of JuneSeptember 30, 2023 will be collected during the thirdfourth quarter of 2023.

The effectseffect of the increase in accounts receivable and reduced profitability werewas offset, in part, by a decrease in inventoriesinventory in the 2023 six-monthnine-month period compared to an increase in 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 inventory in the 2023 period reflects a return to more normal purchase patterns from our distribution partners.

26

Investing Activities

Capital expenditures in the 2023 six-monthnine-month period were $82.4$112.9 million primarily related to $45.5$65.1 million for the Arkansas manufacturing facility, $10.6$17.9 million in cost reduction initiatives, $9.6$12.2 million for our new corporate headquarters, $2.4and $9.5 million inrelated to other capacity expansion, in our existing facilities, and $3.6 million for safety, environmental and general support.

26

Financing Activities

Net cash used in financing activities in the 2023 six-monthnine-month period consisted primarily of net borrowings under our line of credit and repurchases of our outstanding common 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). The Company has repurchased 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 as of June 30, 2023, the Company has repurchased 264,896 shares were repurchased under the 2023 Stock Repurchase Program.

Indebtedness prior to May 18, 2022. On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial, as guarantor; Bank of America, N.A. (BOA) as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A. (Wells Fargo), who is also Syndication Agent, and Truist Bank, arranged by BOA Securities, Inc. (BOA Securities), as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), datedProgram as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more Revolving Loans in a collective maximum principal amount of $250 million from January 1 through JuneSeptember 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, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) 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, 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’s revolving credit facility executed November 5, 2019, was completely replaced by the Company’s revolving credit facility executed May 18, 2022.2023.

Indebtedness on and after May 18, 2022 and prior to December 22, 2022. On May 18, 2022, the Company, as borrower; Trex Commercial, as guarantor; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; Wells Fargo, as lender and Syndication Agent; Regions Bank, PNC Bank, National Association (PNC), and TD Bank, N.A. (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 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.

27

The Company and BofA Securities 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.

Under the terms of the Security and Pledge Agreement, the Company and 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).

27

Indebtedness On and After December 22, 2022. As of December 22, 2022, the Company entered into a First Amendment to the Credit Agreement (First Amendment) by and among the Company, as borrower, the guarantors party thereto; BOA, as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; TD as lender and Syndication Agent; Regions Bank, PNC, and Wells Fargo (each, a Lender and collectively, the Lenders), arranged by BofA Securities as Sole Lead Arranger and Sole 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 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 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 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 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.

The 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 loans. Within the 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 JuneSeptember 30, 2023, we had $206$56.5 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of $344$493.5 million.

Compliance with Debt Covenants. 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 JuneSeptember 30, 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.

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.

28

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 2023 is $145 million to $155 million. In addition to the construction of our third facility 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.

28

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 warrantThe Company warrants that for the applicable warranty period ourits Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and ourits 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 period for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of 25 years. WeThe Company further warrantwarrants 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 permanent staining from food and beverage substances or mold and mildew, provided the stain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, we havethe Company has an obligation either to replace the defective product or refund the purchase price.

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 warranty period is 25 years for both residential and commercial use. WeThe Company further warrantwarrants that Trex Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than a certain amount and will be resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, we havethe company has an obligation either to replace the defective product or refund the purchase price.

We continueTrex Residential continues to receive and settle claims for decking products manufactured at our Trex Residentialits Nevada facility prior to 2007 that exhibit surface flaking and maintainmaintains a warranty reserve to provide for the settlement of these claims. We monitorEstimating 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 ourits 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 ourthe 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

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, 2023 was lower than the number of claims received in the nine months ended September 30, 2022, and lower than the Company’s expectations for 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 three-month period ended September 30, 2023, the Company recorded a reduction of $3.8 million to its warranty reserve for the future settlement of surface flaking claims. The Company believes the reserve at September 30, 2023 is sufficient to cover future surface flaking obligations.

29

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 ourthe Company’s financial condition, results of operations or cash flows.

The number of incoming claims received in the six months ended June 30, 2023, was lower than the number of claims received in the six months ended June 30, 2023 and lower than our expectations for 2023. Average cost per claim experienced in the six months ended June 30, 2023 was lower than that experienced in the six months ended June 30, 2022, which was elevated due to the closure of three large claims, and lower than our expectations for the current year. We believe the reserve at June 30, 2023 is sufficient to cover future surface flaking obligations.

29

We estimateCompany 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 estimateThe 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 $1.5$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:

 

  Six Months Ended June 30,   Nine Months Ended September 30, 
  2023   2022   2023   2022 

Claims open, beginning of period

   1,729    1,759    1,729    1,759 

Claims received (1)

   236    292    451    507 

Claims resolved (2)

   (212)    (304)    (453)    (506) 
  

 

   

 

   

 

   

 

 

Claims open, end of period

   1,753    1,747    1,727    1,760 
  

 

   

 

   

 

   

 

 

Average cost per claim (3)

  $ 4,160   $5,233   $3,977   $5,200 

 

(1)

Claims received include new claims received or identified during the period.

(2)

Claims resolved include all claims settled with or without payment and closed during the period.

(3)

Average cost per claim represents the average settlement cost of claims closed with payment during the period.

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.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes to the Company’s market risk exposure during the sixnine months ended JuneSeptember 30, 2023.

 

Item 4.

Controls and Procedures

The Company’s management, with the participation of its President and Chief Executive Officer (the Company’s principal executive officer) and its Acting Chief Financial Officer (the Company’s principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of JuneSeptember 30, 2023. Based on this evaluation, the President and Chief Executive Officer and the Acting Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective. There have been no changes in the Company’s internal control over financial reporting during the six-monththree-month period ended JuneSeptember 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

30

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

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.

 

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 JuneSeptember 30, 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		 

April 1, 2023 – April 30, 2023

   —     $—      —      10,800,000 

May 1, 2023 – May 31, 2023

   15,663   $ 54.56    —      10,800,000 

June 1, 2023 – June 30, 2023

   264,896   $59.44    264,896    10,535,104 
  

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly period ended June 30, 2023

   280,559      264,896   
  

 

 

     

 

 

   

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 JuneSeptember 30, 2023, 15,6634,140 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.

(2)

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 did not purchase shares of its common stock under the Stock Repurchase Program during the period April 1, 2023 through May 3, 2023.

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 JuneSeptember 30, 2023.

 

Item 5.

Other Information

Amended and Restated By-Laws of the Company dated JulyOctober 26, 202325, 2023.. On July 26,October 25, 2023 the Board of Directors of the Company approved and adopted amendments to Article IV, Section 1 and Article V, Section 2.(b) of the Company’s Amended and Restated By-LawsBy-laws, effective immediately, to grant authority to the Chief Executive Officer to appoint officers of the Company (as so amended, New By-Laws), which became effective upon approval. The New By-Laws,Corporation at the level of Vice-President or below and to fill any vacancy among other things, provided for the following changessuch officers, any such appointment to be reported to the Company’s prior by laws:

PlacesBoard of Meetings; ListDirectors no later than the next regular meeting of Stockholders – The New By-Laws provide that stockholder meetings may be held by meansthe Board of remote communication. Further, the New By-Laws clarify that in connection with any stockholder meetings, the list of stockholders entitled to vote at the meeting will be available for examination for a period of at least ten days ending on the day before the meeting date.Directors after such action is taken.

 

31

Advance Notice – Informational and Disclosure Requirements. The New By-Laws require that the stockholder proposing business or nominating directors (other than proposals to be included in the Company’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (Exchange Act)) provide certain additional information regarding the stockholder and the proposal or nominee, as applicable. Additionally, the New By-Laws require any candidate for the Board nominated by a stockholder to provide certain additional information and representations, including, but not limited to, information regarding the absence of any voting commitments, disclosure of compensation for service, compliance with the Company’s corporate governance and other policies, and intention to serve the entire term. The New By-Laws also clarify the Company’s authority to reasonably request additional information from such stockholders and director nominees. All disclosures must be updated as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten business days prior to the meeting. Additionally, the New By-Laws state explicitly that the Board is entitled to solicit against any such nomination or proposal.

Advance Notice – Other. The New By-Laws require that a stockholder proposing business to be brought before an annual meeting or nominating person(s) for election to the Board of Directors at an annual meeting or special meeting, or, if the proposing stockholder is not an individual, a qualified representative of such proposing stockholder, appear at such meeting. Further, the New By-Laws prohibit stockholders from submitting more nominees than the number of directors up for election at the applicable meeting.

Advance Notice – Universal Proxy. The New By-Laws Rule 14a-19 under the Exchange Act by requiring that any stockholder soliciting proxies in support of a nominee other than the Board’s nominees must comply with Rule 14a-19 under the Exchange Act, including applicable notice and solicitation requirements, and providing the Company a remedy if a stockholder fails to comply with the requirements of Rule 14a-19 or fails to timely provide reasonable evidence that certain requirements of such rule have been satisfied. Further, any stockholder directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, with the white proxy card being reserved for the exclusive use by the Board.

A copy of the New 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 Schedule 14A on March 21, 2023 is incorporated herein by reference. The foregoing summary of the material changes to the Company’s prior bylaws is qualified in its entirety by reference to the text of Exhibit 3.3.

The Trex Company Amended and Restated 1999 Incentive Plan for Outside Directors as amended on July 26, 2023.On March 12, 1999, Trex adopted the Trex Company Amended and Restated 1999 Incentive Plan for Outside Directors (the Outside Directors Plan). On July 26, 2023, the Company approved an amendment to the Outside Directors Plan (the Amendment). The purpose of the Amendment was to (1) replace references to the 2014 Stock Incentive Plan with references to the 2023 Stock Incentive Plan, (2) align the vesting provisions with the 2023 Stock Incentive Plan, (3) modify compensation when the Lead Independent Director role is being filled by the chair of a Committee, and (4) remove the five-year expiration term of vested SARs in the event of termination of service. No other changes were made to the Outside Directors Plan by the Amendment. The Amended and Restated 1999 Incentive Plan for Outside Directors, as amended, is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q.

Form of Trex Company, Inc. 2023 Stock Incentive Plan Stock Appreciation Rights Agreement. The Company had previously filed a Form of Trex Company, Inc. 2014 Stock Incentive Plan Stock Appreciation Rights Agreement (the Old SAR Form). On July 26, 2023, the Company approved a new Form of Trex Company, Inc. 2023 Stock Incentive Plan Stock Appreciation Rights Agreement (New SAR Form) which replaced the Old SAR Form. The New SAR Form is the same as the Old SAR Form except that all references to the 2014 Stock Incentive Plan have been replaced with references to the 2023 Stock Incentive Plan and the five-year expiration term in in the event of termination of service due to death, disability or retirement has been deleted, which is aligned with the 2023 Stock Incentive Plan. The New SAR Form is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q.

Form of Trex Company, Inc. 2023 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement. The Company had previously filed a Form of Trex Company, Inc. 2014 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement (the Old Time-Based RSU Form). On July 26, 2023, the Company approved a new Form of Trex Company, Inc. 2023 Stock Incentive Plan Time-Based Restricted Stock Unit Agreement (New Time-Based RSU Form). The New Time-Based RSU Form is the same as the Old Time-Based RSU Form except that all references to the 2014 Stock Incentive Plan have been replaced with references to the 2023 Stock Incentive Plan and the Shareholder Rights Section has been aligned with the 2023 Stock Incentive Plan. The Old Time-Based RSU Form included shareholder rights in the event of dividends but the New Time-Based RSU Form states there are no shareholder rights with respect to restricted stock units, which is aligned with the 2023 Stock Incentive Plan. The New Time-Based RSU Form is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q.

 

32

Form of Trex Company, Inc. 2023 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement. The Company had previously filed a Form of Trex Company, Inc. 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Agreement (the Old RSU Performance-Based Form). On July 26, 2023, the Company approved a new Form of Trex Company, Inc. 2023 Stock Incentive Plan Performance-Based Stock Unit Agreement (the New RSU Performance-Based Form). The New Performance-Based RSU Form is the same as the Old Performance-Based RSU Form except that all references to the 2014 Stock Incentive Plan have been replaced with references to the 2023 Stock Incentive Plan and the Shareholder Rights Section has been aligned with the 2023 Stock Incentive Plan. The Old Performance-Based RSU Form included shareholder rights in the event of dividends, but the New Performance-Based RSU Form states there are no shareholder rights with respect to restricted stock units, which is aligned with the 2023 Stock Incentive Plan. The New Performance-Based RSU Form is filed as Exhibit 10.5 to this Quarterly Report on Form 10-Q.

Form of Trex Company, Inc. Amended and Restated Stock Incentive Plan for Outside Directors Restricted Stock Unit Agreement.The Company had previously filed a Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement (the Old Form for Outside Director RSU Grants). On July 26, 2023, the Company approved a new Form of Trex Company, Inc. Amended and Restated 1999 Incentive Plan for Outside Directors Restricted Stock Unit Agreement (the New Form for Outside Director RSU Grants). The New Form for Outside Director RSU Grants is the same as the Old Form for Outside Director RSU Grants except that all reference to the 2014 Stock Incentive Plan have been replaced with references to the 2023 Stock Incentive Plan and the Shareholder Rights Section has been aligned with the 2023 Stock Incentive Plan. The Old Form for Outside Director RSU Grants included shareholder rights in the event of dividends, but the New Form for Outside Director RSU Grants states there are no shareholder rights with respect to restricted stock units, which is aligned with the 2023 Stock Incentive Plan. The New Form for Outside Director RSU Grants is filed as Exhibit 10.6 to this Quarterly Report on Form 10-Q.

Amended and Restated Severance Agreement by and between Trex Company, Inc. and Bryan H. Fairbanks.The Company had previously filed an Amended and Restated Severance Agreement dated February 21, 2020 by and between Trex Company, Inc. and Bryan H. Fairbanks (the Old Severance Agreement). The Old Severance Agreement expires in August 2023. As a result the Company is entering into an Amended and Restated Severance Agreement dated July 31, 2023 by and between Trex Company, Inc. and Bryan H. Fairbanks (the New Severance Agreement) which is substantially the same as the Old Severance Agreement except that the New Severance Agreement (1) auto renews every three years for renewal terms of three years each, but has a one year notice of termination, (2) indicates that in the event of termination for cause there is no bonus payout if the bonus has not already been paid, and (3) clarifies language to indicate that in the event of termination for cause, the executive is entitled only to earned but unpaid salary. The New Severance Agreement is filed as Exhibit 10.7 to this Quarterly Report on Form 10-Q.

Form of Severance Agreement between Trex Company Inc. and Officers other than the Chief Executive Officer.The Company previously filed a Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer (the Old Form of Severance Agreement). On July 26, 2023, the Company approved a new Form of Severance Agreement between Trex Company, Inc. and Officers other than the Chief Executive Officer (the New Form of Severance Agreement). The Old Form of Severance Agreement expires in August 2023, so the New Form of Severance Agreements is being adopted. The New Form of Severance Agreement is substantially the same as the Old Form of Severance Agreement except that the New Form of Severance Agreement (1) auto renews every three years for renewal terms of three years each, but has a one year notice of termination, (2) indicates in the event of termination for cause there is no bonus payout if the bonus has not already been paid, (3) clarifies language to indicate that in the event of termination for cause executive is entitled only to earned but unpaid salary, and (4) removes references to “him” and “his” to make it gender neutral. The New Form of Severance Agreement is filed as Exhibit 10.8 to this Quarterly Report on Form 10-Q.

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.

 

3332

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  TREX COMPANY, INC.
Date: July 31,October 30, 2023  By: /s/ Bryan H. Fairbanks
   Bryan H. Fairbanks
   President and Chief Executive Officer
   (Duly Authorized Officer and Principal Financial Officer)

EXHIBIT INDEX

 

   

Incorporated by reference

    

Incorporated by reference

 

Exhibit

Number

 

Description

  

Form

   

Exhibit

   

Filing Date

   

File No.

  

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  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  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 July 26, 2023.         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  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.        
10.2** 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.        
10.3** 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.        
10.4** 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.        
10.5** 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.        
10.6** 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.        
10.7** 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.        
10.8** 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.         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.         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).         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.         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.         Inline XBRL Taxonomy Extension Schema Document.        
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.         Inline XBRL Taxonomy Extension Calculation Linkbase Document.        
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.         Inline XBRL Taxonomy Extension Definition Linkbase Document.        
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.         Inline XBRL Taxonomy Extension Label Linkbase Document.        
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.         Inline XBRL Taxonomy Extension Presentation Linkbase 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.