QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ||||
Emerging growth company |
Page |
||||||
2 |
||||||
Item 1. |
2 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
Item 2. |
18 | |||||
Item 3. |
29 | |||||
Item 4. |
29 | |||||
30 |
||||||
Item 1. |
30 | |||||
Item 2. |
30 | |||||
Item 5. |
30 | |||||
Item 6. |
30 |
Item 1. |
Condensed Consolidated Financial Statements |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Net sales |
$ | $ | $ | $ | ||||||||||||
Cost of sales |
||||||||||||||||
Gross profit |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Gain on insurance proceeds |
— | ( |
) | — | ( |
) | ||||||||||
Income from operations |
||||||||||||||||
Interest income, net |
— | ( |
) | ( |
) | — | ||||||||||
Income before income taxes |
||||||||||||||||
Provision for income taxes |
||||||||||||||||
Net income |
$ | $ | $ | $ | ||||||||||||
Basic earnings per common share |
$ | $ | $ | $ | ||||||||||||
Basic weighted average common shares outstanding |
||||||||||||||||
Diluted earnings per common share |
$ | $ | $ | $ | ||||||||||||
Diluted weighted average common shares outstanding |
||||||||||||||||
Comprehensive income |
$ | $ | $ | $ | ||||||||||||
September 30, 2022 |
December 31, 2021 |
|||||||
(Unaudited) |
||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
||||||||
Inventories |
||||||||
Prepaid expenses and other assets |
||||||||
Total current assets |
||||||||
Property, plant and equipment, net |
||||||||
Operating lease assets |
||||||||
Goodwill and other intangible assets, net |
||||||||
Other assets |
||||||||
Total assets |
$ |
$ |
||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | $ | ||||||
Accrued expenses and other liabilities |
||||||||
Accrued warranty |
||||||||
Line of credit |
— | |||||||
Total current liabilities |
||||||||
Deferred income taxes |
||||||||
Operating lease liabilities |
||||||||
Non-current accrued warranty |
||||||||
Other long-term liabilities |
||||||||
Total liabilities |
||||||||
Commitments and contingencies |
||||||||
Stockholders’ equity |
||||||||
Preferred stock, $ |
||||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Retained earnings |
||||||||
Treasury stock, at cost, |
( |
) | ( |
) | ||||
Total stockholders’ equity |
||||||||
Total liabilities and stockholders’ equity |
$ |
$ |
||||||
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balance, December 31, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance, March 31, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance, June 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance, September 30, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balance, December 31, 2020 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance, March 31, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance, June 30, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
Balance, September 30, 2021 |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||||||||||
Nine Months Ended September 30, |
||||||||
2022 |
2021 |
|||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
||||||||
Stock-based compensation |
||||||||
Gain on disposal of property, plant and equipment |
( |
) | ( |
) | ||||
Other non-cash adjustments |
( |
) | ( |
) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
( |
) | ||||||
Inventories |
( |
) | ( |
) | ||||
Prepaid expenses and other assets |
( |
) | ||||||
Accounts payable |
( |
) | ||||||
Accrued expenses and other liabilities |
||||||||
Income taxes receivable/payable |
||||||||
Net cash provided by operating activities |
||||||||
INVESTING ACTIVITIES |
||||||||
Expenditures for property, plant and equipment |
( |
) | ( |
) | ||||
Proceeds from sales of property, plant and equipment |
||||||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
FINANCING ACTIVITIES |
||||||||
Borrowings under line of credit |
||||||||
Principal payments under line of credit |
( |
) | ( |
) | ||||
Repurchases of common stock |
( |
) | ( |
) | ||||
Proceeds from employee stock purchase and option plans |
||||||||
Financing costs |
( |
) | — | |||||
Net cash used in financing activities |
( |
( |
) | |||||
Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
Cash and cash equivalents, beginning of period |
||||||||
Cash and cash equivalents, end of period |
$ |
$ |
||||||
Supplemental Disclosure: |
||||||||
Cash paid for interest, net of capitalized interest |
$ | $ | ||||||
Cash paid for income taxes, net |
$ | $ |
1. |
BUSINESS AND ORGANIZATION |
2. |
BASIS OF PRESENTATION |
3. |
RECENTLY ADOPTED ACCOUNTING STANDARDS |
4. |
NEW ACCOUNTING STANDARDS NOT YET ADOPTED |
5. |
INVENTORIES |
September 30, 2022 |
December 31, 2021 |
|||||||
Finished goods |
$ | $ | ||||||
Raw materials |
||||||||
|
|
|
|
|||||
Total FIFO (first-in, first-out) inventories |
||||||||
Reserve to adjust inventories to LIFO value |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Total LIFO inventories |
$ | $ | ||||||
|
|
|
|
6. |
PREPAID EXPENSES AND OTHER ASSETS |
September 30, 2022 |
December 31, 2021 |
|||||||
Prepaid expenses |
$ | $ | ||||||
Revenues in excess of billings |
||||||||
Income tax receivable |
||||||||
Other |
||||||||
|
|
|
|
|||||
Total prepaid expenses and other assets |
$ | $ | ||||||
|
|
|
|
7. |
GOODWILL AND OTHER INTANGIBLE ASSETS, NET |
8. |
ACCRUED EXPENSES AND OTHER LIABILITIES |
September 30, 2022 |
December 31, 2021 |
|||||||
Sales and marketing |
$ | $ | ||||||
Compensation and benefits |
||||||||
Operating lease liabilities |
||||||||
Manufacturing costs |
||||||||
Income taxes |
||||||||
Billings in excess of revenues |
||||||||
Other |
||||||||
|
|
|
|
|||||
Total accrued expenses and other liabilities |
$ | $ | ||||||
|
|
|
|
9. |
DEBT |
10. |
LEASES |
Nine Months Ended September 30, |
||||||||
Supplemental cash flow information |
2022 |
2021 |
||||||
Cash paid for amounts included in the measurement of operating lease liabilities |
$ | $ | ||||||
Operating ROU assets obtained in exchange for lease liabilities |
$ | |
$ |
Supplemental balance sheet information |
September 30, 2022 |
December 31, 2021 |
||||||
Operating lease ROU assets |
$ | $ | ||||||
Operating lease liabilities: |
||||||||
Accrued expenses and other current liabilities |
$ | $ | ||||||
Operating lease liabilities |
||||||||
Total operating lease liabilities |
$ | |
$ | |||||
Maturities of operating lease liabilities |
||||
2022 |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
2026 |
||||
Thereafter |
||||
Total lease payments |
||||
Less imputed interest |
( |
) | ||
Total operating lease liabilities |
$ | |||
11. |
FINANCIAL INSTRUMENTS |
12. |
STOCKHOLDERS’ EQUITY |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Numerator: |
||||||||||||||||
Net income available to common shareholders |
$ | $ | $ | $ | ||||||||||||
Denominator: |
||||||||||||||||
Basic weighted average shares outstanding |
||||||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock appreciation rights and options |
||||||||||||||||
Restricted stock |
||||||||||||||||
Diluted weighted average shares outstanding |
||||||||||||||||
Basic earnings per share |
$ | $ | $ | $ | ||||||||||||
Diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Stock appreciation rights |
||||||||||||||||
Restricted stock |
13. |
REVENUE FROM CONTRACTS WITH CUSTOMERS |
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 |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
Three Months Ended September 30, 2021 |
Reportable Segment |
|||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Timing of Revenue Recognition and Type of Contract |
||||||||||||
Products transferred at a point in time and variable consideration contracts |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
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 |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
Nine Months Ended September 30, 2021 |
Reportable Segment |
|||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Timing of Revenue Recognition and Type of Contract |
||||||||||||
Products transferred at a point in time and variable consideration contracts |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
14. |
STOCK-BASED COMPENSATION |
Stock Awards Granted |
Weighted-Average Grant Price Per Share |
|||||||
Time-based restricted stock units |
$ | |||||||
Performance-based restricted stock units (a) |
$ | |||||||
Stock appreciation rights |
$ |
(a) | Includes |
Nine Months Ended September 30, 2022 |
Nine Months Ended September 30, 2021 |
|||||||
Weighted-average fair value of grants |
$ | $ | ||||||
Dividend yield |
% | % | ||||||
Average risk-free interest rate |
% | % | ||||||
Expected term (years) |
||||||||
Expected volatility |
% | % |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Stock appreciation rights |
$ | $ | $ | $ | ||||||||||||
Time-based restricted stock and restricted stock units |
||||||||||||||||
Performance-based restricted stock and restricted stock units |
( |
) | ( |
) | ||||||||||||
Employee stock purchase plan |
||||||||||||||||
Total stock-based compensation |
$ | $ | $ | $ | ||||||||||||
15. |
INCOME TAXES |
16. |
SEGMENT INFORMATION |
• | Trex Residential manufactures wood-alternative decking and residential railing and related products marketed under the brand name Trex ® . Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. |
• | Trex Commercial designs, engineers, and markets modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. Trex Commercial products are marketed to architects, specifiers, contractors, and others doing business within the commercial and multi-family market. |
Three Months Ended September 30, 2022 |
Three Months Ended September 30, 2021 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net sales |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Net income (loss) |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
EBITDA |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Depreciation and amortization |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Income tax expense (benefit) |
$ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||
Capital expenditures |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Total assets |
$ | $ | $ | $ | $ | $ |
Three Months Ended September 30, 2022 |
Three Months Ended September 30, 2021 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net income (loss) |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
Interest income, net |
— | ( |
— | ( |
||||||||||||||||||||
Income tax expense (benefit) |
( |
|||||||||||||||||||||||
Depreciation and amortization |
||||||||||||||||||||||||
EBITDA |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
Nine Months Ended September 30, 2022 |
Nine Months Ended September 30, 2021 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net sales |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Net income (loss) |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
EBITDA |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
Depreciation and amortization |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Income tax expense (benefit) |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
Capital expenditures |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Total assets |
$ | $ | $ | $ | $ | $ |
Nine Months Ended September 30, 2022 |
Nine Months Ended September 30, 2021 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net income (loss) |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
Interest income, net |
( |
— | ( |
— | — | — | ||||||||||||||||||
Income tax expense (benefit) |
( |
|||||||||||||||||||||||
Depreciation and amortization |
||||||||||||||||||||||||
EBITDA |
$ | $ | ( |
$ | $ | $ | $ | |||||||||||||||||
17. |
SEASONALITY |
18. |
COMMITMENTS AND CONTINGENCIES |
Nine Months Ended September 30, 2022 |
||||||||||||
Surface Flaking |
Other Residential |
Total |
||||||||||
Beginning balance, January 1 |
$ | $ | $ | |||||||||
Provisions and changes in estimates |
— | |||||||||||
Settlements made during the period |
( |
) | ( |
) | ( |
) | ||||||
Ending balance, September 30 |
$ | $ | $ | |||||||||
Nine Months Ended September 30, 2021 |
||||||||||||
Surface Flaking |
Other Residential |
Total |
||||||||||
Beginning balance, January 1 |
$ | $ | $ | |||||||||
Provisions and changes in estimates |
— | |||||||||||
Settlements made during the period |
( |
) | ( |
) | ( |
) | ||||||
Ending balance, September 30 |
$ | $ | $ | |||||||||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Operations and Products |
• | Highlights and Financial Performance Quarter-to-Date Year-to-Date |
• | Results of Operations |
• | Liquidity and Capital Resources |
Decking and Accessories |
Our principal decking products are Trex Transcend ® Lineage™ , Trex Transcend® , Trex Select® ® . 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.We also offer accessories to our decking products, including Trex Hideaway ® and Trex DeckLighting™ , an outdoor lighting system. Trex DeckLighting is a line of energy-efficient LED dimmable deck lighting, which is designed for use on posts, floors and steps. The line includes a post cap light, deck rail light, riser light and a recessed deck light. | |
Railing |
Our residential railing products are Trex Transcend ® Railing, Trex Select® Railing, and Trex Signature® aluminum railing. 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 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 ® fencing product is offered through two specialty distributors. This product consists of structural posts, bottom rail, pickets, top rail and decorative post caps. |
Architectural Railing Systems |
Our architectural railing systems are pre-engineered guardrails with options to accommodate styles ranging from classic and elegant wood top rail combined with sleek stainless components and glass infill, to modern and minimalist stainless cable and rod infill choices. Trex Commercial can also design, engineer and manufacture custom railing systems tailored to the customer’s specific material, style and finish. Many railing styles are achievable, including glass, mesh, perforated railing and cable railing. | |
Aluminum Railing Systems |
Our Trex Signature aluminum railings, made from a minimum of 40 percent recycled content, are a versatile, cost-effective and low-maintenance choice for a variety of interior and exterior applications that we believe blend form, function and style. Its straightforward, unobtrusive design features traditional balusters and contemporary vertical rods, and can be installed with continuously graspable rail options for added safety, comfort and functionality. The strength and durability of Trex Signature railings make them a choice for any commercial setting, from high-rise condominiums and resort projects to public walkways and balconies. Aluminum railings come in a variety of colors and stock lengths to accommodate project needs. | |
Staging Equipment and Accessories |
Our advanced modular, lightweight custom staging systems, including portable platforms and other custom applications, provide solutions for facilities and venues with custom needs. Our modular stage equipment is designed to appear seamless, feel permanent, and maximize the functionality of the space. |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
(in thousands, except per share amounts) |
||||||||||||||||
Net sales |
$ | 188,472 | $ | 335,872 | $ | 913,950 | $ | 892,991 | ||||||||
Gross profit |
$ | 46,208 | $ | 128,250 | $ | 338,498 | $ | 342,323 | ||||||||
Net income |
$ | 14,423 | $ | 73,795 | $ | 174,549 | $ | 183,705 | ||||||||
Diluted earnings per share |
$ | 0.13 | $ | 0.64 | $ | 1.55 | $ | 1.59 | ||||||||
EBITDA |
$ | 30,816 | $ | 107,997 | $ | 265,381 | $ | 270,544 |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Total net sales |
$ | 188,472 | $ | 335,872 | $ | (147,400 | ) | (43.9 | )% | |||||||
Trex Residential net sales |
$ | 177,776 | $ | 319,207 | $ | (141,431 | ) | (44.3 | )% | |||||||
Trex Commercial net sales |
$ | 10,696 | $ | 16,665 | $ | (5,969 | ) | (35.8 | )% |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Cost of sales |
$ | 142,264 | $ | 207,622 | $ | (65,358 | ) | (31.5 | )% | |||||||
% of total net sales |
75.5 | % | 61.8 | % | ||||||||||||
Gross profit |
$ | 46,208 | $ | 128,250 | $ | (82,042 | ) | (64.0 | )% | |||||||
Gross margin |
24.5 | % | 38.2 | % |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Selling, general and administrative expenses |
$ | 26,857 | $ | 33,931 | $ | (7,074 | ) | (20.8 | )% | |||||||
% of total net sales |
14.2 | % | 10.1 | % |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Provision for income taxes |
$ | 4,928 | $ | 24,311 | $ | (19,383 | ) | (79.7 | )% | |||||||
Effective tax rate |
25.5 | % | 24.8 | % |
Three Months Ended September 30, 2022 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income (loss) |
$ | 15,287 | $ | (864 | ) | $ | 14,423 | |||||
Interest (income) expense, net |
— | — | — | |||||||||
Income tax expense (benefit) |
5,211 | (283 | ) | 4,928 | ||||||||
Depreciation and amortization |
11,194 | 271 | 11,465 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 31,692 | $ | (876 | ) | $ | 30,816 | |||||
|
|
|
|
|
|
|||||||
Net income as a percentage of net sales |
7.7 | % | ||||||||||
|
|
|
|
|
|
|||||||
EBITDA as a percentage of net sales (EBITDA margin) |
16.4 | % | ||||||||||
|
|
|
|
|
|
Three Months Ended September 30, 2021 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 72,603 | $ | 1,192 | $ | 73,795 | ||||||
Interest (income), net |
(10 | ) | — | (10 | ) | |||||||
Income tax expense |
23,899 | 412 | 24,311 | |||||||||
Depreciation and amortization |
9,643 | 258 | 9,901 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 106,135 | $ | 1,862 | $ | 107,997 | ||||||
|
|
|
|
|
|
|||||||
Net income as a percentage of net sales |
22.0 | % | ||||||||||
|
|
|
|
|
|
|||||||
EBITDA as a percentage of net sales (EBITDA margin) |
32.2 | % | ||||||||||
|
|
|
|
|
|
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Total EBITDA |
$ | 30,816 | $ | 107,997 | $ | (77,181 | ) | (71.5 | )% | |||||||
Trex Residential EBITDA |
$ | 31,692 | $ | 106,135 | $ | (74,443 | ) | (70.1 | )% | |||||||
Trex Commercial EBITDA |
$ | (876 | ) | $ | 1,862 | $ | (2,738 | ) | (147.0 | )% |
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 and EBITDA as a percentage of net sales (EBITDA margin) because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including EBITDA and EBITDA margin. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss. In relation to competitors, EBITDA and EBITDA margin eliminate differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA and EBITDA margin provide important information regarding the operating performance of the Company and its reportable segments. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP and are not meant to be considered superior to or a substitute for our GAAP results. |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Total net sales |
$ | 913,950 | $ | 892,991 | $ | 20,959 | 2.3 | % | ||||||||
Trex Residential net sales |
$ | 878,892 | $ | 850,909 | $ | 27,983 | 3.3 | % | ||||||||
Trex Commercial net sales |
$ | 35,058 | $ | 42,082 | $ | (7,024 | ) | (16.7 | )% |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Cost of sales |
$ | 575,452 | $ | 550,668 | $ | 24,784 | 4.5 | % | ||||||||
% of total net sales |
63.0 | % | 61.7 | % | ||||||||||||
Gross profit |
$ | 338,498 | $ | 342,323 | $ | (3,825 | ) | (1.1 | )% | |||||||
Gross margin |
37.0 | % | 38.3 | % |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Selling, general and administrative expenses |
$ | 106,387 | $ | 102,880 | $ | 3,507 | 3.4 | % | ||||||||
% of total net sales |
11.6 | % | 11.5 | % |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Provision for income taxes |
$ | 57,665 | $ | 61,235 | $ | (3,570 | ) | 5.8 | % | |||||||
Effective tax rate |
24.8 | % | 25.0 | % |
Nine Months Ended September 30, 2022 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income (loss) |
$ | 176,939 | $ | (2,390 | ) | $ | 174,549 | |||||
Interest income, net |
(103 | ) | — | (103 | ) | |||||||
Income tax expense (benefit) |
58,454 | (789 | ) | 57,665 | ||||||||
Depreciation and amortization |
32,435 | 835 | 33,270 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 267,725 | $ | (2,344 | ) | $ | 265,381 | |||||
|
|
|
|
|
|
|||||||
Net income as a percentage of net sales |
19.1 | % | ||||||||||
|
|
|
|
|
|
|||||||
EBITDA as a percentage of net sales (EBITDA margin) |
29.0 | % | ||||||||||
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 182,437 | $ | 1,268 | $ | 183,705 | ||||||
Interest expense, net |
— | — | — | |||||||||
Income tax expense |
60,797 | 438 | 61,235 | |||||||||
Depreciation and amortization |
24,873 | 731 | 25,604 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 268,107 | $ | 2,437 | $ | 270,544 | ||||||
|
|
|
|
|
|
|||||||
Net income as a percentage of net sales |
20.6 | % | ||||||||||
|
|
|
|
|
|
|||||||
EBITDA as a percentage of net sales (EBITDA margin) |
30.3 | % | ||||||||||
|
|
|
|
|
|
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2022 |
2021 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Total EBITDA |
$ | 265,381 | $ | 270,544 | $ | (5,163 | ) | (1.9 | )% | |||||||
Trex Residential EBITDA |
$ | 267,725 | $ | 268,107 | $ | (382 | ) | (0.1 | )% | |||||||
Trex Commercial EBITDA |
$ | (2,344 | ) | $ | 2,437 | $ | (4,781 | ) | (196.2 | )% |
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 and EBITDA as a percentage of net sales (EBITDA margin) because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including EBITDA and EBITDA margin. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss. In relation to competitors, EBITDA and EBITDA margin eliminate differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA and EBITDA margin provide important information regarding the operating performance of the Company and its reportable segments. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP and are not meant to be considered superior to or a substitute for our GAAP results. |
Nine Months Ended September 30, |
||||||||
2022 |
2021 |
|||||||
Net cash provided by operating activities |
$ | 244,393 | $ | 113,059 | ||||
Net cash used in investing activities |
(108,118 | ) | (123,096 | ) | ||||
Net cash used in financing activities |
(271,443 | ) | (57,622 | ) | ||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
$ | (135,168 | ) | $ | (67,659 | ) | ||
|
|
|
|
Nine Months Ended September 30, |
||||||||
2022 |
2021 |
|||||||
Claims open, beginning of period |
1,759 | 1,799 | ||||||
Claims received (1) |
507 | 788 | ||||||
Claims resolved (2) |
(506 | ) | (785 | ) | ||||
|
|
|
|
|||||
Claims open, end of period |
1,760 | 1,802 | ||||||
|
|
|
|
|||||
Average cost per claim (3) |
$ | 5,200 | $ | 3,492 |
(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. |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Item 4. |
Controls and Procedures |
Item 1. |
Legal Proceedings |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Period |
(a) Total Number of Shares (or Units) Purchased (1) |
(b) Average Price Paid per Share (or Unit) ($) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) |
(d) Maximum number of Shares (or Units) that May Yet Be Purchased Under the Plan or Program |
||||||||||||
July 1, 2022 – July 31, 2022 |
1,709,785 | $ | 58.47 | 1,709,785 | 2,629,558 | |||||||||||
August 1, 2022 – August 31, 2022 |
891 | $ | 64.51 | 891 | 2,628,667 | |||||||||||
September 1, 2022 – September 30, 2022 |
57 | $ | 47.40 | — | 2,628,667 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Quarterly period ended September 30, 2022 |
1,710,733 | 1,710,676 | ||||||||||||||
|
|
|
|
(1) | During the three months ended September 30, 2022, 57 shares were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Trex 2014 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 purchased 1.7 million shares of its common stock under the Stock Repurchase Program during the three months ended September 30, 2022. |
Item 5. |
Other Information |
Item 6. |
Exhibits |
TREX COMPANY, INC. | ||||||
Date: October 31, 2022 | By: | /s/ Dennis C. Schemm | ||||
Dennis C. Schemm | ||||||
Senior Vice President and Chief Financial Officer | ||||||
( Duly Authorized Officer and Principal Financial Officer |
Incorporated by reference |
||||||||||||||||||
Exhibit Number |
Description |
Form |
Exhibit |
Filing Date |
File No. |
|||||||||||||
3.1 | Restated Certificate of Incorporation of Trex Company, Inc. dated July 28, 2021. | 10-Q |
3.6 | August 2, 2021 | 001-14649 |
|||||||||||||
3.2 | First Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 5, 2022 | 10-Q |
3.2 | May 9, 2022 | 001-14649 |
|||||||||||||
3.3 | Amended and Restated By-Laws of the Company. | 8-K |
3.2 | May 1, 2019 | 001-14649 |
|||||||||||||
10.1 | AIA document A141 – 2014 Agreement dated July 7, 2022 by and between Trex Company, Inc. and Gray Construction, Inc. | 8-K |
10.1 | July 12, 2022 | 001-14649 |
|||||||||||||
31.1* | Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||||||||||||||||
31.2* | Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||||||||||||||||
32*** | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350). | |||||||||||||||||
101.INS* | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||||||||||||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||||||||||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||||||||||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||||||||||||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||||||||||||
104.1 | Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
* | Filed herewith. |
*** | Furnished herewith. |
Exhibit 31.1
CERTIFICATION
I, Bryan H. Fairbanks, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Trex Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function(s)): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: October 31, 2022
/s/ Bryan H. Fairbanks |
Bryan H. Fairbanks |
President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Dennis C. Schemm, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Trex Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function(s)): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: October 31, 2022
/s/ Dennis C. Schemm |
Dennis C. Schemm |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 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. Section 1350)
The undersigned, the President and Chief Executive Officer and the Vice President and Chief Financial Officer of Trex Company, Inc. (the Company), each hereby certifies that, on the date hereof:
(a) | the Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2022 filed on the date hereof with the U.S. Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(b) | information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: October 31, 2022 | /s/ Bryan H. Fairbanks | |||
Bryan H. Fairbanks | ||||
President and Chief Executive Officer | ||||
Date: October 31, 2022 | /s/ Dennis C. Schemm | |||
Dennis C. Schemm | ||||
Senior Vice President and Chief Financial Officer |