[PART I](index=4&type=section&id=PART%20I) This section provides an overview of the company's business, including its operations, products, and strategies, alongside key risk factors, property details, and legal disclosures [Business](index=4&type=section&id=Item%201.%20Business) Trex Company, Inc. is the world's largest manufacturer of composite decking and railing, operating in residential and commercial segments with a growth strategy focused on innovation and market conversion from wood [General Overview](index=4&type=section&id=Item%201.%20Business-General) Trex Company, Inc. is the world's largest manufacturer of composite decking and railing products, operating in Trex Residential and Trex Commercial segments - Trex is the world's largest manufacturer of composite decking and railing products[15](index=15&type=chunk) - The company operates in two segments: Trex Residential Products and Trex Commercial Products[16](index=16&type=chunk) [Products](index=4&type=section&id=Item%201.%20Business-Products) Trex Residential offers eco-friendly composite decking and railing from recycled materials, while Trex Commercial provides custom-engineered railing and staging systems for large venues Trex Residential Product Lines | Category | Products | | :--- | :--- | | **Decking & Accessories** | Trex Transcend®, Trex Select®, Trex Enhance®, Trex Hideaway®, Trex DeckLighting™ | | **Railing** | Trex Transcend Railing, Trex Select Railing, Trex Enhance Railing, Trex Signature® aluminum railing | | **Fencing** | Trex Seclusions® | Trex Commercial Product Lines | Category | Description | | :--- | :--- | | **Architectural Railing Systems** | Pre-engineered and custom guardrails with various infill options (glass, mesh, cable, etc.) | | **Aluminum Railing Systems** | Trex Signature aluminum railings for commercial applications | | **Staging Equipment** | Modular, lightweight systems including platforms, shells, guardrails, and custom applications | - Trex licenses its brand to third parties for a range of outdoor products, including furniture, drainage systems, pergolas, and outdoor kitchens[21](index=21&type=chunk) [Customers and Distribution](index=7&type=section&id=Item%201.%20Business-Customers%20and%20Distribution) Trex Residential products are distributed through wholesale and direct channels to major retailers, with significant customer concentration, while Trex Commercial sells directly to facility owners - The company utilizes a dual distribution strategy for its residential products, selling through both wholesale distributors to retail lumber dealers and directly to large home improvement chains like Home Depot and Lowe's[24](index=24&type=chunk)[25](index=25&type=chunk) - There is significant customer concentration, with three customers accounting for approximately **56%** of total net sales in 2020, **57%** in 2019, and two customers accounting for **42%** in 2018[26](index=26&type=chunk)[27](index=27&type=chunk) [Manufacturing and Suppliers](index=8&type=section&id=Item%201.%20Business-Manufacturing%20and%20Suppliers) Trex manufactures residential products in Virginia and Nevada using reclaimed materials and commercial products in Minnesota, sourcing raw materials via purchase orders and supply contracts - The primary manufacturing process for residential products involves mixing reclaimed wood fiber and scrap polyethylene, which is then heated and extruded through a profile die[30](index=30&type=chunk) - Raw material sourcing for residential products includes reclaimed wood fiber (from cabinet/flooring manufacturers) and scrap polyethylene (plastic film/bags), secured through a mix of purchase orders and supply contracts[33](index=33&type=chunk)[34](index=34&type=chunk)[38](index=38&type=chunk) [Growth Strategies](index=9&type=section&id=Item%201.%20Business-Growth%20Strategies) The company's growth strategy aims to increase market share against wood and expand product categories and geographies through innovation, brand awareness, channel development, quality, cost reduction, and customer service - A core goal is to increase market share by converting wood buyers to composite decking and appealing to high-end homeowners[37](index=37&type=chunk) - Key strategies include: Innovation (new products), Brand (expand awareness), Channels (increase stocking dealers and international presence), Quality (superior product and service), Cost (lower manufacturing costs), and Customer Service[37](index=37&type=chunk)[43](index=43&type=chunk) [Competition](index=10&type=section&id=Item%201.%20Business-Competition) Trex primarily competes with traditional wood products and, within the wood-alternative market, with The Azek Company Inc. and Fiberon, leveraging product quality, price, aesthetics, and brand strength - The main competition for residential products is traditional wood, which constitutes the majority of decking and railing sales[40](index=40&type=chunk) - Within the wood-alternative market, Trex has the leading market share, with principal competitors being The Azek Company Inc. and Fiberon[41](index=41&type=chunk) - Key competitive factors include product quality, price, aesthetics, maintenance cost, distribution, and brand strength[42](index=42&type=chunk) [Human Capital and Governance](index=12&type=section&id=Item%201.%20Business-Human%20Capital%20and%20Governance) As of December 31, 2020, Trex employed **1,719** full-time employees, focusing on workforce diversity and growth, with corporate governance details available online - As of December 31, 2020, the company had **1,719** full-time employees: **1,555** in Trex Residential and **164** in Trex Commercial[55](index=55&type=chunk) - The company hired approximately **350** new employees over the past year to support growth and expansion efforts[58](index=58&type=chunk) - The company has a whistle-blowing policy and provides a toll-free hotline for reporting issues directly to the Board of Directors and General Counsel[62](index=62&type=chunk) [Environmental and Occupational Safety](index=13&type=section&id=Item%201.%20Business-Environmental%20and%20Occupational%20Safety) Trex prioritizes environmental stewardship by using **95%** reclaimed materials in residential products, minimizing emissions, and recycling, while also maintaining strong occupational safety programs - Trex Residential's decking products are made from a blend of **95%** reclaimed wood and recycled polyethylene film[64](index=64&type=chunk) - The company has received multiple environmental awards, including the 2020 Sustainability Leadership Award and Green Builder Media's Readers' Choice Award for "Greenest Decking" for a **10-year** streak[68](index=68&type=chunk) - The company has adopted an Occupational Health and Safety Policy and applies industry best-practices for monitoring and reporting safety incidents[71](index=71&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks including market acceptance, intense competition, customer concentration, supply chain volatility, adverse weather, labor shortages, and potential impacts from the COVID-19 pandemic and cybersecurity threats - The company's growth depends on its ability to compete with wood products, which constitute a substantial majority of the market, and other wood-alternative manufacturers[79](index=79&type=chunk) - A limited number of customers account for a significant percentage of sales, and the loss of a major customer could have a significant negative impact on business[80](index=80&type=chunk) - The business is subject to risks from raw material availability and pricing, particularly for wood fiber, scrap polyethylene, aluminum, and steel[99](index=99&type=chunk) - The COVID-19 pandemic poses a risk of disruption to employees, suppliers, and business partners, which could adversely affect operations and financial condition[104](index=104&type=chunk) - Cyberattacks and security breaches are a risk, as they could compromise proprietary and confidential information, harming the business and reputation[104](index=104&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None[109](index=109&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The company owns and leases properties for operations and R&D, with 2020 capital expenditures of **$172.8 million** primarily for a **$200 million** multi-year capacity expansion program expected to increase residential production by **70%** - The company owns manufacturing facilities, storage, and office space totaling over **1.2 million** square feet and **150** acres in Virginia and Nevada[110](index=110&type=chunk) - A multi-year capital expenditure program of approximately **$200 million** through 2021 is underway to increase Trex Residential production capacity by about **70%**[110](index=110&type=chunk) - Total capital expenditures in 2020 were **$172.8 million**, with **$162.9 million** related to capacity expansion and cost reduction initiatives[110](index=110&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine litigation and claims, the resolution of which is not expected to materially affect its financial condition or operations - The Company has pending lawsuits and claims that are considered ordinary and incidental to the business, and their resolution is not expected to have a material effect[112](index=112&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[113](index=113&type=chunk) [PART II](index=26&type=section&id=PART%20II) This section covers the company's common stock market, selected financial data, management's discussion and analysis of financial condition, market risks, and internal controls [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under 'TREX', with no cash dividends paid, a focus on retaining earnings for growth and share repurchases, and strong stock performance relative to market indices - The company's common stock trades on the New York Stock Exchange under the symbol '**TREX**'[115](index=115&type=chunk) - The company has never paid cash dividends and has no current intention to do so, preferring to retain earnings for growth and share repurchases[116](index=116&type=chunk) - A stock repurchase program for up to **11.6 million** shares was authorized in February 2018. As of October 31, 2020, **8,797,222** shares remained available for repurchase under this program[117](index=117&type=chunk)[118](index=118&type=chunk) Five-Year Cumulative Total Return | | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Trex Company, Inc.** | $100.00 | $169.30 | $284.96 | $312.09 | $472.56 | $880.34 | | **Russell 2000 Index** | $100.00 | $121.31 | $139.08 | $123.77 | $155.37 | $186.38 | | **S&P 600 Building Products** | $100.00 | $129.78 | $156.02 | $123.59 | $175.73 | $221.52 | [Selected Financial Data](index=27&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents selected five-year financial data, including consistent growth in net sales, gross profit, and net income, with all figures retroactively adjusted for a 2020 stock split and an EBITDA reconciliation provided Selected Financial Data (2016-2020) (in thousands, except per share data) | | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $880,831 | $745,347 | $684,250 | $565,153 | $479,616 | | **Gross profit** | $359,457 | $306,503 | $294,894 | $243,373 | $187,095 | | **Income from operations** | $233,635 | $188,199 | $176,669 | $142,380 | $103,955 | | **Net income** | $175,631 | $144,738 | $134,572 | $95,128 | $67,847 | | **Diluted earnings per share** | $1.51 | $1.24 | $1.14 | $0.81 | $0.58 | | **Total assets** | $770,492 | $592,239 | $465,122 | $326,227 | $221,430 | | **Total stockholders' equity** | $588,531 | $449,175 | $342,963 | $231,250 | $134,161 | EBITDA Reconciliation (Non-GAAP) (in thousands) | | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Net income** | $175,631 | $144,738 | $134,572 | $95,128 | $67,847 | | Interest (income) expense, net | (999) | (1,503) | (192) | 461 | 1,125 | | Income tax provision | 59,003 | 44,964 | 42,289 | 46,791 | 34,983 | | Depreciation and amortization | 17,940 | 14,031 | 16,467 | 16,730 | 14,181 | | **EBITDA (non-GAAP)** | $251,575 | $202,230 | $193,136 | $159,110 | $118,136 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results, highlighting **18.2%** net sales growth to **$880.8 million** in 2020, critical accounting policies, liquidity, and capital resources, including a **$200 million** capacity expansion program [Overview](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-OVERVIEW) The company's 2020 overview highlights record net sales of **$880.8 million** (an **18.2%** increase) and net income of **$175.6 million**, with operations largely undisrupted by COVID-19 despite **$6.0 million** in related costs - The company did not experience material disruptions to operations, production, or supply chain due to the COVID-19 pandemic[134](index=134&type=chunk) - In 2020, the company incurred **$6.0 million** in COVID-19 management costs, of which **$4.8 million** were related to higher production costs[134](index=134&type=chunk) 2020 Financial Highlights (in millions) | Metric | Value | Change vs 2019 | | :--- | :--- | :--- | | Net Sales | $880.8 | +18.2% | | Gross Profit | $359.5 | +17.3% | | Net Income | $175.6 | - | | Operating Cash Flow | $187.3 | - | [Critical Accounting Policies and Estimates](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section details critical accounting policies and estimates, primarily focusing on the product warranty reserve for legacy surface flaking issues, goodwill impairment testing, and revenue recognition methods for both segments - The company continues to manage and reserve for surface flaking claims on residential products manufactured at its Nevada facility prior to 2007[148](index=148&type=chunk) - In Q3 2020, a provision of **$6.5 million** was recorded to the warranty reserve for surface flaking claims due to an increase in estimated future claims and costs[152](index=152&type=chunk) Surface Flaking Claims Activity | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Claims received | 1,441 | 1,394 | 1,481 | | Claims resolved | (1,366) | (1,691) | (1,766) | | Average cost per claim | $3,390 | $3,447 | $2,631 | - Goodwill of **$68.5 million** was tested for impairment as of October 31, 2020, with a qualitative assessment concluding that impairment was not likely[161](index=161&type=chunk) [Results of Operations (2020 vs. 2019)](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-RESULTS%20OF%20OPERATIONS) In 2020, total net sales increased **18.2%** to **$880.8 million**, driven by residential growth, while gross margin slightly decreased due to expansion costs and a **$6.5 million** warranty provision, and SG&A expenses rose **6.4%** Net Sales Comparison (2020 vs. 2019) (in thousands) | | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total net sales** | **$880,831** | **$745,347** | **$135,484** | **18.2%** | | Trex Residential net sales | $827,792 | $694,267 | $133,525 | 19.2% | | Trex Commercial net sales | $53,039 | $51,080 | $1,959 | 3.8% | Gross Profit Comparison (2020 vs. 2019) (in thousands) | | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Gross profit** | **$359,457** | **$306,503** | **$52,954** | **17.3%** | | Gross margin | 40.8% | 41.1% | | | - SG&A expenses increased by **$7.5 million** (**6.4%**) primarily due to higher personnel-related expenses, including incentive compensation[172](index=172&type=chunk) - Total EBITDA increased **24.4%** to **$251.6 million**, driven by a **$45.8 million** increase in Trex Residential EBITDA[176](index=176&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is supported by **$187.3 million** in operating cash flow and a **$300 million** revolving credit facility, funding **$170.7 million** in capital expenditures for capacity expansion and **$43.8 million** in stock repurchases Summary of Cash Flows (in thousands) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $187,294 | $156,352 | $138,121 | | Net cash used in investing activities | ($170,658) | ($67,244) | ($33,733) | | Net cash used in financing activities | ($43,768) | ($45,974) | ($29,203) | - The company has a revolving credit facility with borrowing capacity up to **$300 million** and had no outstanding indebtedness at December 31, 2020[188](index=188&type=chunk)[189](index=189&type=chunk) Contractual Obligations as of Dec 31, 2020 (in thousands) | | Total | 1 year | 2-3 years | 4-5 years | After 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Purchase obligations | $71,323 | $33,570 | $30,577 | $7,176 | $— | | Operating leases | $39,132 | $7,835 | $13,953 | $10,745 | $6,599 | | **Total** | **$110,455** | **$41,405** | **$44,530** | **$17,921** | **$6,599** | [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk stems from variable interest rates on its revolving credit facility, though with no outstanding debt at year-end 2020, this risk is not considered materially adverse - The primary market risk is from changing interest rates on borrowings under the variable rate revolving line of credit[202](index=202&type=chunk) - As of December 31, 2020, there was no debt outstanding, and a **1%** increase in interest rates would not have a material adverse effect[202](index=202&type=chunk) [Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item incorporates by reference the company's consolidated financial statements and supplementary data, as listed in Item 15 - The financial statements listed in Item 15 are incorporated by reference in this item[204](index=204&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=43&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[205](index=205&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion affirmed by an unqualified audit opinion from Ernst & Young LLP - Management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2020[206](index=206&type=chunk) - Management assessed internal control over financial reporting based on the COSO framework and concluded it was effective as of December 31, 2020[210](index=210&type=chunk) - Ernst & Young LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2020[216](index=216&type=chunk) [Other Information](index=48&type=section&id=Item%209B.%20Other%20Information) On February 17, 2021, the Board approved an amendment to the incentive plan for outside directors, increasing their annual cash retainers, equity awards, and committee fees - On February 17, 2021, the Board amended the incentive plan for outside directors, increasing their compensation[225](index=225&type=chunk) - Key changes include increasing the annual cash retainer to **$73,750**, the annual equity award to **$110,000**, and raising fees for committee members and chairs[226](index=226&type=chunk) [PART III](index=49&type=section&id=PART%20III) This section details corporate governance, executive compensation, security ownership, related party transactions, and principal accounting fees [Directors, Executive Officers and Corporate Governance](index=49&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance, including the Code of Conduct and Ethics, is incorporated by reference from the 2021 proxy statement - Information responsive to this item is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders[228](index=228&type=chunk) [Executive Compensation](index=49&type=section&id=Item%2011.%20Executive%20Compensation) Information required for this item concerning executive compensation is incorporated by reference from the company's definitive proxy statement for its 2021 annual meeting of stockholders - Information responsive to this item is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders[230](index=230&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=49&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required for this item regarding security ownership is incorporated by reference from the company's definitive proxy statement for its 2021 annual meeting of stockholders - Information responsive to this item is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders[231](index=231&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=49&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required for this item concerning related transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2021 annual meeting of stockholders - Information responsive to this item is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders[232](index=232&type=chunk) [Principal Accounting Fees and Services](index=49&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information required for this item regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for its 2021 annual meeting of stockholders - Information responsive to this item is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders[233](index=233&type=chunk) [PART IV](index=50&type=section&id=PART%20IV) This section provides a comprehensive list of exhibits and financial statement schedules included in the report [Exhibits and Financial Statement Schedules](index=50&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements, financial statement schedules, and an extensive exhibit index filed as part of the Form 10-K report - This item lists the Consolidated Financial Statements, Schedule II—Valuation and Qualifying Accounts and Reserves, and all other exhibits filed with the report[235](index=235&type=chunk)[236](index=236&type=chunk) [Financial Statements](index=51&type=section&id=Index%20to%20Consolidated%20Financial%20Statements) This section presents the company's audited consolidated financial statements, including the independent auditor's report and detailed notes [Report of Independent Registered Public Accounting Firm](index=52&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements, identifying the Surface Flaking Warranty reserve as a Critical Audit Matter due to complex estimation judgments - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements as of December 31, 2020[241](index=241&type=chunk) - The audit identified the Surface Flaking Warranty reserve as a Critical Audit Matter due to the complexity and significant management judgment required for its estimation[245](index=245&type=chunk)[248](index=248&type=chunk) [Consolidated Financial Statements](index=54&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present the company's financial performance and position, with 2020 net sales of **$880.8 million** and net income of **$175.6 million** Consolidated Statement of Comprehensive Income (Year Ended Dec 31, 2020) (in thousands) | | Amount | | :--- | :--- | | Net sales | $880,831 | | Gross profit | $359,457 | | Income from operations | $233,635 | | **Net income** | **$175,631** | Consolidated Balance Sheet (As of Dec 31, 2020) (in thousands) | | Amount | | :--- | :--- | | Total current assets | $321,997 | | Total assets | $770,492 | | Total current liabilities | $106,353 | | Total liabilities | $181,961 | | **Total stockholders' equity** | **$588,531** | [Notes to Consolidated Financial Statements](index=58&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, including revenue recognition, customer concentration, inventory valuation, goodwill, debt, stock-based compensation, and the product warranty reserve for legacy surface flaking issues [Note 2: Summary of Significant Accounting Policies](index=58&type=section&id=Note%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines significant accounting policies, including customer concentration (three customers representing **56%** of 2020 sales), inventory valuation, goodwill, product warranty, and revenue recognition methods - In 2020, three customers represented approximately **56%** of the Company's total net sales[274](index=274&type=chunk) - Inventories for composite decking and railing products are valued using the last-in, first-out (LIFO) method[276](index=276&type=chunk) - Revenue for Trex Residential products is recognized at a point in time upon shipment, while revenue for Trex Commercial products is recognized over time as work progresses[293](index=293&type=chunk)[294](index=294&type=chunk) [Note 8: Debt](index=67&type=section&id=Note%208.%20DEBT) The company had no outstanding debt at year-end 2020 and 2019, maintaining a revolving credit facility with **$300 million** in total available borrowing capacity, enhanced in May 2020 to mitigate COVID-19 risks - The Company had no outstanding indebtedness at December 31, 2020 and 2019[319](index=319&type=chunk) - In May 2020, the credit agreement was amended to provide an additional **$100 million** line of credit, bringing total available borrowing capacity to **$300 million** at year-end[319](index=319&type=chunk)[321](index=321&type=chunk) [Note 11: Stockholders' Equity](index=70&type=section&id=Note%2011.%20STOCKHOLDERS%27%20EQUITY) This note details basic and diluted EPS, the stock repurchase program (with **2.8 million** shares repurchased), the increase in authorized common stock to **180 million** shares, and the two-for-one stock split in 2020 - A stock repurchase program for up to **11.6 million** shares is in place, with **2.8 million** shares repurchased as of December 31, 2020[333](index=333&type=chunk) - In April 2020, authorized common stock was increased from **120 million** to **180 million** shares[334](index=334&type=chunk) - A two-for-one stock split was distributed on September 14, 2020, and all share and per-share data have been retroactively adjusted[336](index=336&type=chunk) [Note 13: Stock-Based Compensation](index=73&type=section&id=Note%2013.%20STOCK-BASED%20COMPENSATION) This note details stock-based compensation expense, totaling **$7.1 million** in 2020, and provides activity tables for various equity awards, including assumptions for SARs valuation Stock-Based Compensation Expense (in thousands) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Time-based restricted stock/units | $3,219 | $3,676 | $2,687 | | Performance-based restricted stock/units | $2,881 | $2,399 | $3,144 | | Stock appreciation rights | $648 | $662 | $370 | | Employee stock purchase plan | $383 | $193 | $143 | | **Total** | **$7,131** | **$6,930** | **$6,344** | [Note 18: Commitments and Contingencies](index=80&type=section&id=Note%2018.%20COMMITMENTS%20AND%20CONTINGENCIES) This note covers legal matters, **$71.3 million** in purchase commitments, and product warranties, with a **$6.5 million** provision added in Q3 2020 for legacy surface flaking claims, bringing the total residential warranty reserve to **$29.5 million** - As of December 31, 2020, the company has purchase commitments under material supply contracts of **$33.6 million** for 2021 and **$15.0 million** for 2022[380](index=380&type=chunk) - A provision of **$6.5 million** was recorded in Q3 2020 for the future settlement of legacy surface flaking claims due to an increase in estimated future claims and costs[386](index=386&type=chunk) Residential Product Warranty Reserve Reconciliation (in thousands) | | Surface Flaking | Other Residential | Total | | :--- | :--- | :--- | :--- | | **Beginning balance, Jan 1, 2020** | **$19,024** | **$6,470** | **$25,494** | | Provisions and changes in estimates | 6,479 | 3,382 | 9,861 | | Settlements made during the period | (4,178) | (1,704) | (5,882) | | **Ending balance, Dec 31, 2020** | **$21,325** | **$8,148** | **$29,473** |

NYSE:TREX Investor Presentation November 2020 Safe Harbor / Non-GAAP Measures This presentation 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. These statements are subject to risks and uncertainties that could cause the Company's actual operating results to differ materially from those contemplated by the forward-looking statements. For further information on risk factors affecting the Company's bu ...

Trex Company, Inc. (NYSE:TREX) Q3 2020 Earnings Conference Call November 2, 2020 5:00 PM ET Company Participants Viktoriia Nakhla - IR Bill Gupp - SVP, General Counsel and Secretary Bryan Fairbanks - President and CEO Dennis Schemm - VP and CFO Conference Call Participants Keith Hughes - Truist Securities Stanley Elliott - Stifel Ryan Merkel - William Blair Phil Ng - Jefferies Tim Wjos - Baird Matthew Bouley - Barclays Alex Rygiel - B Riley FBR Kurt Yinger - D.A. Davidson Reuben Garner - The Benchmark Compa ...

PART I FINANCIAL INFORMATION This section encompasses the company's condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of comprehensive income, balance sheets, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, financial instruments, and segment information for the periods ended September 30, 2020 and 2019 [Condensed Consolidated Statements of Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement details the company's revenues, cost of sales, gross profit, operating expenses, and net income for the specified reporting periods **Three Months Ended September 30 (in thousands):** | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $231,502 | $194,551 | $36,951 | 19.0% | | Cost of sales | 146,538 | 112,120 | 34,418 | 30.7% | | Gross profit | 84,964 | 82,431 | 2,533 | 3.1% | | Selling, general and administrative expenses | 28,027 | 27,409 | 618 | 2.3% | | Income from operations | 56,937 | 55,022 | 1,915 | 3.5% | | Provision for income taxes | 14,435 | 13,790 | 645 | 4.7% | | Net income | $42,710 | $41,976 | $734 | 1.7% | | Basic earnings per common share | $0.37 | $0.36 | $0.01 | 2.8% | | Diluted earnings per common share | $0.37 | $0.36 | $0.01 | 2.8% | **Nine Months Ended September 30 (in thousands):** | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $652,545 | $580,575 | $71,970 | 12.4% | | Cost of sales | 385,479 | 345,334 | 40,145 | 11.6% | | Gross profit | 267,066 | 235,241 | 31,825 | 13.5% | | Selling, general and administrative expenses | 91,598 | 93,281 | (1,683) | (1.8)% | | Income from operations | 175,468 | 141,960 | 33,508 | 23.6% | | Provision for income taxes | 43,938 | 33,520 | 10,418 | 31.1% | | Net income | $132,331 | $109,241 | $23,090 | 21.1% | | Basic earnings per common share | $1.14 | $0.94 | $0.20 | 21.3% | | Diluted earnings per common share | $1.14 | $0.93 | $0.21 | 22.6% | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time **As of (in thousands):** | Asset/Liability/Equity | September 30, 2020 | December 31, 2019 | Change ($) | Change (%) | | :--------------------------------- | :----------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $20,081 | $148,833 | $(128,752) | (86.5)% | | Accounts receivable, net | 253,416 | 78,462 | 174,954 | 223.0% | | Inventories | 51,581 | 56,106 | (4,525) | (8.1)% | | Total current assets | 342,900 | 303,204 | 39,696 | 13.1% | | Property, plant and equipment, net | 260,519 | 171,300 | 89,219 | 52.1% | | Total assets | $718,235 | $592,239 | $125,996 | 21.3% | | Accounts payable | $33,345 | $15,227 | $18,118 | 119.0% | | Accrued expenses and other liabilities | 71,164 | 58,265 | 12,899 | 22.1% | | Total current liabilities | 110,109 | 78,670 | 31,439 | 39.9% | | Total liabilities | 174,171 | 143,064 | 31,107 | 21.7% | | Total stockholders' equity | 544,064 | 449,175 | 94,889 | 21.1% | | Total liabilities and stockholders' equity | $718,235 | $592,239 | $125,996 | 21.3% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement outlines the changes in the company's equity components, including net income, stock-based compensation, and share repurchases **Nine Months Ended September 30, 2020 (in thousands):** | Item | Amount | | :--------------------------------- | :----- | | Balance, December 31, 2019 | $449,175 | | Net income | 132,330 | | Net impact of employee stock plans and tax withholdings | (4,288) | | Stock-based compensation | 5,919 | | Repurchases of common stock | (39,072) | | Balance, September 30, 2020 | $544,064 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes the company's cash inflows and outflows from operating, investing, and financing activities for the periods presented **Nine Months Ended September 30 (in thousands):** | Activity | 2020 | 2019 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Net cash provided by operating activities | $12,514 | $98,986 | $(86,472) | (87.4)% | | Net cash used in investing activities | (97,546) | (36,905) | (60,641) | 164.3% | | Net cash used in financing activities | (43,720) | (34,498) | (9,222) | 26.7% | | Net (decrease) increase in cash and cash equivalents | $(128,752) | $27,583 | $(156,335) | (566.8)% | | Cash and cash equivalents, end of period | $20,081 | $133,282 | $(113,201) | (84.9)% | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's business, significant accounting policies, financial instruments, and segment-specific information [1. BUSINESS AND ORGANIZATION](index=7&type=section&id=1.%20BUSINESS%20AND%20ORGANIZATION) This note describes the company's primary business as a manufacturer of wood-alternative decking and its two distinct reportable segments - **Trex Company, Inc.** is the world's largest manufacturer of high-performance, low-maintenance wood-alternative decking and residential railing and outdoor living products[22](index=22&type=chunk) - The company operates in two reportable segments: **Trex Residential Products** and **Trex Commercial Products**[22](index=22&type=chunk) [2. BASIS OF PRESENTATION](index=7&type=section&id=2.%20BASIS%20OF%20PRESENTATION) This note outlines the basis of financial statement preparation and addresses the non-material impact of the COVID-19 pandemic on current operations - Unaudited condensed consolidated financial statements are prepared in accordance with **GAAP for interim financial information**[23](index=23&type=chunk) - The company has not experienced material disruptions to operations, production, supply chain, or demand due to the **COVID-19 pandemic** as of the report date, but the situation remains evolving[24](index=24&type=chunk) [3. RECENTLY ADOPTED ACCOUNTING STANDARDS](index=7&type=section&id=3.%20RECENTLY%20ADOPTED%20ACCOUNTING%20STANDARDS) This note details the adoption of new accounting standards and confirms their non-material impact on the company's financial condition or results - The company adopted **ASU 2018-15** (cloud computing arrangement costs), **ASU 2017-04** (goodwill impairment), and **ASU 2016-13** (CECL model) on January 1, 2020[26](index=26&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The adoption of these new accounting standards did not have a **material impact** on the company's consolidated financial condition or results of operations[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [4. NEW ACCOUNTING STANDARDS NOT YET ADOPTED](index=8&type=section&id=4.%20NEW%20ACCOUNTING%20STANDARDS%20NOT%20YET%20ADOPTED) This note discusses new accounting standards not yet adopted and their expected non-material effect on the consolidated financial statements - The company does not expect **ASU 2020-04** (Reference Rate Reform) or **ASU 2019-12** (Income Taxes) to have a material effect on its consolidated financial statements upon adoption[31](index=31&type=chunk)[32](index=32&type=chunk) [5. INVENTORIES](index=8&type=section&id=5.%20INVENTORIES) This note details the inventory valuation methods used for Trex Residential and Trex Commercial products and provides a breakdown of inventory balances - **Trex Residential products** are valued using the LIFO method, while **Trex Commercial products** use the FIFO method[34](index=34&type=chunk)[35](index=35&type=chunk) - As of September 30, 2020, management estimates **no LIFO inventory liquidations** or related impact on cost of sales for the nine months ended September 30, 2020[34](index=34&type=chunk) **Inventories (in thousands):** | Category | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Finished goods | $32,691 | $42,281 | | Raw materials | 36,515 | 31,686 | | Total FIFO inventories | 69,206 | 73,967 | | Reserve to adjust inventories to LIFO value | (19,062) | (19,062) | | Total LIFO inventories | $50,144 | $54,905 | [6. PREPAID EXPENSES AND OTHER ASSETS](index=9&type=section&id=6.%20PREPAID%20EXPENSES%20AND%20OTHER%20ASSETS) This note provides a breakdown of prepaid expenses and other current assets, including revenues in excess of billings and contract retainage **Prepaid Expenses and Other Assets (in thousands):** | Category | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Revenues in excess of billings | $8,838 | $8,282 | | Prepaid expenses | 6,407 | 6,664 | | Contract retainage | 2,277 | 1,832 | | Income tax receivable | — | 2,675 | | Other | 300 | 350 | | Total prepaid expenses and other assets | $17,822 | $19,803 | [7. GOODWILL AND OTHER INTANGIBLE ASSETS](index=9&type=section&id=7.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This note details the goodwill allocated to each segment and the value and amortization of other intangible assets - Goodwill at September 30, 2020, was **$14.2 million** for Trex Residential and **$54.3 million** for Trex Commercial[37](index=37&type=chunk) - Intangible assets, primarily domain names, were **$6.3 million** at September 30, 2020, and are amortized over **15 years**[38](index=38&type=chunk) [8. ACCRUED EXPENSES AND OTHER LIABILITIES](index=10&type=section&id=8.%20ACCRUED%20EXPENSES%20AND%20OTHER%20LIABILITIES) This note provides a detailed breakdown of accrued expenses and other current liabilities, including sales and marketing, compensation, and operating lease obligations **Accrued Expenses and Other Liabilities (in thousands):** | Category | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Sales and marketing | $32,645 | $28,402 | | Compensation and benefits | 14,485 | 13,475 | | Operating lease liabilities | 7,961 | 7,079 | | Manufacturing costs | 3,309 | 2,564 | | Customer deposits | 3,179 | 2,905 | | Income taxes | 2,696 | — | | Billings in excess of revenues | 1,498 | 816 | | Other | 5,391 | 3,024 | | Total accrued expenses and other liabilities | $71,164 | $58,265 | [9. DEBT](index=10&type=section&id=9.%20DEBT) This note details the company's revolving credit facility, available borrowing capacity, and confirms compliance with all loan covenants - As of September 30, 2020, the company had **no outstanding borrowings** under its revolving credit facility and **$300 million** in available borrowing capacity[41](index=41&type=chunk) - A First Amendment to the credit agreement was entered into on May 26, 2020, providing an additional **$100 million line of credit** primarily to reduce risk associated with the COVID-19 pandemic and support growth strategy[43](index=43&type=chunk) - The company was in **compliance with all loan compliance covenants** as of September 30, 2020[50](index=50&type=chunk) [10. LEASES](index=11&type=section&id=10.%20LEASES) This note outlines operating lease expenses, the weighted average remaining lease term, and the maturity schedule of operating lease liabilities - Total operating lease expense was **$6.3 million** for both the nine months ended September 30, 2020, and 2019[52](index=52&type=chunk) - The weighted average remaining lease term was **5.7 years** at September 30, 2020, down from 6.5 years at December 31, 2019[52](index=52&type=chunk) **Maturities of Operating Lease Liabilities at September 30, 2020 (in thousands):** | Year | Amount | | :--------------------------------- | :----- | | 2020 | $2,301 | | 2021 | 9,024 | | 2022 | 7,155 | | 2023 | 6,553 | | 2024 | 6,224 | | Thereafter | 11,078 | | Total lease payments | 42,335 | | Less imputed interest | (4,192) | | Total operating lease liabilities | $38,143 | [11. FINANCIAL INSTRUMENTS](index=12&type=section&id=11.%20FINANCIAL%20INSTRUMENTS) This note states that the recorded values of the company's financial assets and liabilities closely approximate their fair values - The recorded value of financial assets and liabilities, including cash, accounts receivable, accounts payable, and debt, **approximates their fair value**[55](index=55&type=chunk) [12. STOCKHOLDERS' EQUITY](index=12&type=section&id=12.%20STOCKHOLDERS'%20EQUITY) This note covers diluted earnings per share, the status of the stock repurchase program, and details of the recent two-for-one stock split **Diluted Earnings Per Share:** | Period | 2020 | 2019 | | :--------------------------------- | :----- | :----- | | Three Months Ended September 30 | $0.37 | $0.36 | | Nine Months Ended September 30 | $1.14 | $0.93 | - The stock repurchase program was **suspended on March 12, 2020**, due to COVID-19 market volatility and **lifted on October 30, 2020**[58](index=58&type=chunk) - The number of authorized common shares increased from **120 million to 180 million** on April 29, 2020, and a **two-for-one stock split** was approved on July 29, 2020, distributed on September 14, 2020[59](index=59&type=chunk)[60](index=60&type=chunk) [13. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=13&type=section&id=13.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This note explains the revenue recognition policies for Trex Residential and Trex Commercial segments, including performance obligations and net sales by segment - **Trex Residential** recognizes revenue at a point in time upon product shipment, primarily from short-term purchase orders[61](index=61&type=chunk) - **Trex Commercial** generates revenue from fixed-price contracts for modular and architectural railing and staging systems, with a single performance obligation recognized over time[63](index=63&type=chunk) - The transaction price allocated to remaining performance obligations for Trex Commercial contracts with original durations greater than one year was **$60.1 million** as of September 30, 2020, expected to be recognized within **24 months**[63](index=63&type=chunk) **Net Sales by Segment and Revenue Recognition (in thousands):** | Period | Trex Residential | Trex Commercial | Total | | :--------------------------------- | :--------------- | :-------------- | :---- | | Three Months Ended Sep 30, 2020 | $218,435 | $13,067 | $231,502 | | Nine Months Ended Sep 30, 2020 | $614,187 | $38,358 | $652,545 | | Three Months Ended Sep 30, 2019 | $182,775 | $11,776 | $194,551 | | Nine Months Ended Sep 30, 2019 | $541,722 | $38,853 | $580,575 | [14. STOCK-BASED COMPENSATION](index=14&type=section&id=14.%20STOCK-BASED%20COMPENSATION) This note describes the company's stock incentive plan, total stock-based compensation expense, and unrecognized compensation costs related to unvested awards - The company's **2014 Stock Incentive Plan** allows for grants of stock options, restricted stock, restricted stock units, SARs, and unrestricted stock to officers, directors, and key employees[66](index=66&type=chunk)[67](index=67&type=chunk) - Total stock-based compensation expense for the nine months ended September 30, 2020, was **$5.9 million**, compared to **$5.8 million** in the prior year[68](index=68&type=chunk) - Unrecognized compensation cost related to unvested awards was **$6.7 million** as of September 30, 2020[68](index=68&type=chunk) [15. INCOME TAXES](index=15&type=section&id=15.%20INCOME%20TAXES) This note details the effective tax rate, the reasons for its change, and the non-material impact of the CARES Act on the company's financial results - The effective tax rate for the nine months ended September 30, 2020, was **24.9%**, an increase from 23.5% in 2019, primarily due to a decrease in excess tax benefits from share-based payments and an increase in non-deductible executive compensation[69](index=69&type=chunk) - The **CARES Act** did not have a material impact on the company's consolidated financial condition or results of operations as of September 30, 2020[72](index=72&type=chunk) [16. SEGMENT INFORMATION](index=16&type=section&id=16.%20SEGMENT%20INFORMATION) This note provides financial data for the Trex Residential and Trex Commercial segments, with performance evaluated primarily based on net sales and EBITDA - The company operates in two reportable segments: **Trex Residential** (wood-alternative decking and residential railing) and **Trex Commercial** (modular and architectural railing and staging systems)[76](index=76&type=chunk) - Segment performance is evaluated primarily based on **net sales and EBITDA**[74](index=74&type=chunk) **Segment Data - Three Months Ended September 30 (in thousands):** | Metric | Trex Residential (2020) | Trex Commercial (2020) | Total (2020) | Trex Residential (2019) | Trex Commercial (2019) | Total (2019) | | :--------------------------------- | :---------------------- | :--------------------- | :----------- | :---------------------- | :--------------------- | :----------- | | Net sales | $218,435 | $13,067 | $231,502 | $182,775 | $11,776 | $194,551 | | Net income | $42,225 | $485 | $42,710 | $41,381 | $595 | $41,976 | | EBITDA | $60,619 | $853 | $61,472 | $57,639 | $970 | $58,609 | | Capital expenditures | $36,887 | $197 | $37,084 | $17,766 | $99 | $17,865 | | Total assets | $624,904 | $93,331 | $718,235 | $482,825 | $87,945 | $570,770 | **Segment Data - Nine Months Ended September 30 (in thousands):** | Metric | Trex Residential (2020) | Trex Commercial (2020) | Total (2020) | Trex Residential (2019) | Trex Commercial (2019) | Total (2019) | | :--------------------------------- | :---------------------- | :--------------------- | :----------- | :---------------------- | :--------------------- | :----------- | | Net sales | $614,187 | $38,358 | $652,545 | $541,722 | $38,853 | $580,575 | | Net income | $129,157 | $3,174 | $132,331 | $107,859 | $1,382 | $109,241 | | EBITDA | $183,064 | $4,854 | $187,918 | $150,058 | $2,282 | $152,340 | | Capital expenditures | $98,913 | $783 | $99,696 | $35,584 | $1,342 | $36,926 | | Total assets | $624,904 | $93,331 | $718,235 | $482,825 | $87,945 | $570,770 | [17. SEASONALITY](index=17&type=section&id=17.%20SEASONALITY) This note explains the historical seasonal nature of Trex Residential's operating results and the non-seasonal characteristics of Trex Commercial's operations - **Trex Residential's** operating results are historically seasonal, affected by weather conditions and incentive programs to build distributor inventory before the prime deck-building season[80](index=80&type=chunk) - **Trex Commercial's** operating results are driven by the timing of individual projects and do not historically vary due to seasonality[80](index=80&type=chunk) [18. COMMITMENTS AND CONTINGENCIES](index=17&type=section&id=18.%20COMMITMENTS%20AND%20CONTINGENCIES) This note discusses the warranty reserve for surface flaking claims, recent claim trends, and the expected non-material impact of routine legal matters - The company maintains a warranty reserve for **surface flaking claims** related to products manufactured at its Nevada facility prior to 2007, with warranty periods ranging from **10 to 25 years**[81](index=81&type=chunk)[82](index=82&type=chunk) - Incoming surface flaking claims in the nine months ended September 30, 2020, were higher than in 2019 and exceeded expectations, leading to a **$6.5 million provision** to the warranty reserve in Q3 2020[85](index=85&type=chunk)[86](index=86&type=chunk) - Legal matters are routine and not expected to have a material effect on the company's financial condition, results of operations, liquidity, or competitive position[90](index=90&type=chunk) **Residential Product Warranty Reserve (in thousands):** | Category | Surface Flaking (9M 2020) | Other Residential (9M 2020) | Total (9M 2020) | Surface Flaking (9M 2019) | Other Residential (9M 2019) | Total (9M 2019) | | :--------------------------------- | :------------------------ | :-------------------------- | :-------------- | :------------------------ | :-------------------------- | :-------------- | | Beginning balance, January 1 | $19,024 | $6,470 | $25,494 | $23,951 | $6,803 | $30,754 | | Provisions and changes in estimates | 6,479 | 1,932 | 8,411 | — | 1,571 | 1,571 | | Settlements made during the period | (3,078) | (1,178) | (4,256) | (4,027) | (1,004) | (5,031) | | Ending balance, September 30 | $22,425 | $7,224 | $29,649 | $19,924 | $7,370 | $27,294 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results for the three and nine months ended September 30, 2020, compared to the prior year, covering the impact of COVID-19, detailed segment operations, and a comprehensive analysis of net sales, gross profit, expenses, and liquidity [OVERVIEW](index=20&type=section&id=OVERVIEW) This section provides a general business description, the current impact of COVID-19, and key financial highlights for the third quarter of 2020 - The **COVID-19 pandemic** has not had a material adverse effect on the company's business, results of operations, cash flows, or financial condition as of the report date, with operations continuing at pre-pandemic output levels[94](index=94&type=chunk)[159](index=159&type=chunk) - The company implemented various **preventative measures** against COVID-19, including social distancing, remote work, PPE distribution, air purifiers, and enhanced cleaning protocols[97](index=97&type=chunk) - **Trex Residential** is the world's largest manufacturer of high-performance composite decking and residential railing, utilizing **95% reclaimed wood fibers** and recycled polyethylene film[99](index=99&type=chunk) - **Trex Commercial** is a leading national provider of custom-engineered railing and staging systems for commercial and multi-family markets[101](index=101&type=chunk) - Highlights for Q3 2020 include a **19% increase in net sales to $231.5 million**, a **3.1% increase in gross profit to $85.0 million**, and **net income of $42.7 million** ($0.37 diluted EPS)[102](index=102&type=chunk)[109](index=109&type=chunk) [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, including net sales, gross profit, and expenses, for the three and nine months ended September 30, 2020 [Three Months Ended September 30, 2020 Compared To The Three Months Ended September 30, 2019](index=24&type=section&id=Three%20Months%20Ended%20September%2030,%202020%20Compared%20To%20The%20Three%20Months%20Ended%20September%2030,%202019) This section compares the company's financial performance for the third quarter of 2020 against the same period in 2019, detailing changes in sales, profit, and expenses **Net Sales (in thousands):** | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Total Net Sales | $231,502 | $194,551 | $36,951 | 19.0% | | Trex Residential Net Sales | $218,435 | $182,775 | $35,660 | 19.5% | | Trex Commercial Net Sales | $13,067 | $11,776 | $1,291 | 11.0% | - **Trex Residential net sales** increased primarily due to volume growth driven by strong demand for outdoor living products, a robust residential repair and remodeling sector, and initiatives to accelerate conversion from wood[114](index=114&type=chunk) **Gross Profit (in thousands):** | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :---------------- | :------ | :------ | :------- | :------- | | Cost of Sales | $146,538 | $112,120 | $34,418 | 30.7% | | Gross Profit | $84,964 | $82,431 | $2,533 | 3.1% | | Gross Margin | 36.7% | 42.4% | -5.7% pts | -13.5% | - Gross margin was unfavorably impacted by a **$6.5 million provision** to the Trex Residential legacy warranty reserve for surface flaking issues, and increased labor costs and depreciation due to capacity expansion[116](index=116&type=chunk) **Selling, General and Administrative Expenses (in thousands):** | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :----------------------------------- | :------ | :------ | :------- | :------- | | SG&A Expenses | $28,027 | $27,409 | $618 | 2.3% | | % of Total Net Sales | 12.1% | 14.1% | -2.0% pts | -14.2% | **Provision for Income Taxes (in thousands):** | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Provision for Income Taxes | $14,435 | $13,790 | $645 | 4.7% | | Effective Tax Rate | 25.3% | 24.7% | +0.6% pts | +2.4% | **EBITDA (in thousands):** | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Total EBITDA | $61,472 | $58,609 | $2,863 | 4.9% | | Trex Residential EBITDA | $60,619 | $57,639 | $2,980 | 5.2% | | Trex Commercial EBITDA | $853 | $970 | $(117) | (12.1)% | - Excluding the **$6.5 million surface flaking reserve**, EBITDA growth for Q3 2020 was **15.9%**[121](index=121&type=chunk) [Nine Months Ended September 30, 2020 Compared To The Nine Months Ended September 30, 2019](index=26&type=section&id=Nine%20Months%20Ended%20September%2030,%202020%20Compared%20To%20The%20Nine%20Months%20Ended%20September%2030,%202019) This section compares the company's financial performance for the first nine months of 2020 against the same period in 2019, analyzing sales, profit, and expense trends **Net Sales (in thousands):** | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Total Net Sales | $652,545 | $580,575 | $71,970 | 12.4% | | Trex Residential Net Sales | $614,187 | $541,722 | $72,465 | 13.4% | | Trex Commercial Net Sales | $38,358 | $38,853 | $(495) | (1.3)% | - The increase in **Trex Residential net sales** was primarily due to volume growth from strong broad-based demand, positive momentum in the residential repair and remodeling sector, and initiatives to expand market and accelerate wood conversion[122](index=122&type=chunk) **Gross Profit (in thousands):** | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :---------------- | :------ | :------ | :------- | :------- | | Cost of Sales | $385,479 | $345,334 | $40,145 | 11.6% | | Gross Profit | $267,066 | $235,241 | $31,825 | 13.5% | | Gross Margin | 40.9% | 40.5% | +0.4% pts | +1.0% | - Gross margin was favorably impacted by the **non-recurrence of Enhance startup costs** in 2019 and an increase in gross margin at Trex Commercial due to a mix of higher margin contracts and cost savings initiatives[124](index=124&type=chunk) **Selling, General and Administrative Expenses (in thousands):** | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :----------------------------------- | :------ | :------ | :------- | :------- | | SG&A Expenses | $91,598 | $93,281 | $(1,683) | (1.8)% | | % of Total Net Sales | 14.0% | 16.1% | -2.1% pts | -13.0% | - The **decrease in SG&A expenses** was primarily due to disciplined branding and advertising spending, partially offset by increases in personnel-related and other operating expenses[125](index=125&type=chunk) **Provision for Income Taxes (in thousands):** | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :---------------------- | :------ | :------ | :------- | :------- | | Provision for Income Taxes | $43,938 | $33,520 | $10,418 | 31.1% | | Effective Tax Rate | 24.9% | 23.5% | +1.4% pts | +6.0% | - The increase in the effective tax rate was primarily due to a decrease in excess tax benefits from share-based payments and an increase in non-deductible executive compensation[126](index=126&type=chunk) **EBITDA (in thousands):** | Metric | 9M 2020 | 9M 2019 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Total EBITDA | $187,918 | $152,340 | $35,578 | 23.4% | | Trex Residential EBITDA | $183,064 | $150,058 | $33,006 | 22.0% | | Trex Commercial EBITDA | $4,854 | $2,282 | $2,572 | 112.7% | - Excluding the **$6.5 million surface flaking reserve**, EBITDA growth for 9M 2020 was **27.6%**[129](index=129&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=28&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's cash position, operating and investing activities, financing activities, and strategic capital expenditure plans - Cash and cash equivalents were **$20.1 million** at September 30, 2020[130](index=130&type=chunk) - Net cash provided by operating activities decreased significantly to **$12.5 million** in 9M 2020 from $99.0 million in 9M 2019, primarily due to higher working capital investment in accounts receivable[132](index=132&type=chunk) - Capital expenditures in 9M 2020 were **$99.7 million**, primarily for **capacity expansion ($82 million)** at Virginia and Nevada facilities and production improvements **($12.5 million)**[133](index=133&type=chunk) - Net cash used in financing activities was **$43.7 million** in 9M 2020, mainly for common stock repurchases of **$44.4 million**[134](index=134&type=chunk) - The stock repurchase program was **suspended on March 12, 2020**, due to COVID-19 volatility and uncertainty, and subsequently **lifted on October 30, 2020**[136](index=136&type=chunk)[168](index=168&type=chunk) - The company increased its authorized common stock to **180 million shares** and completed a **two-for-one stock split** in July 2020[135](index=135&type=chunk)[137](index=137&type=chunk) - An additional **$100 million line of credit** was secured in May 2020 to reduce COVID-19 related risk and support the strategy of accelerating wood decking conversion[139](index=139&type=chunk) - A multi-year capital expenditure program of approximately **$200 million through 2021** aims to increase Trex Residential production capacity by about **70%**[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there were no material changes to the company's market risk exposure during the nine months ended September 30, 2020, and refers to the Annual Report on Form 10-K for detailed disclosures - **No material changes** to the company's market risk exposure occurred during the nine months ended September 30, 2020[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the period - The company's disclosure controls and procedures were evaluated and deemed **effective** as of September 30, 2020[149](index=149&type=chunk) - There have been **no material changes** in the company's internal control over financial reporting during the nine-month period ended September 30, 2020[149](index=149&type=chunk) PART II OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, other information, and a comprehensive list of exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine litigation and claims, which management believes will not have a material adverse effect on its consolidated financial condition, results of operations, liquidity, or competitive position - Routine litigation and claims are not expected to materially affect the company's financial condition, results of operations, liquidity, or competitive position[90](index=90&type=chunk)[152](index=152&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) This section outlines supplemental risk factors, primarily focusing on the potential adverse impacts of global public health pandemics like COVID-19 and the risks associated with labor shortages or increased labor costs, while COVID-19 has not materially affected the company to date, its future impact remains uncertain - The company's business, results of operations, and financial condition may be disrupted and adversely affected by global public health pandemics, including **COVID-19**, potentially leading to reduced operations or inability to supply customers[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - As of the report date, the **COVID-19 pandemic** has not had a material adverse effect on the company's business, results of operations, cash flows, or financial condition, with operations continuing at pre-pandemic output levels[159](index=159&type=chunk) - **Labor shortages** or increases in labor costs could adversely impact the business by decreasing production ability and reducing profitability[161](index=161&type=chunk)[162](index=162&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not purchase shares under its publicly announced stock repurchase program during the third quarter of 2020, as the program was suspended in March 2020 due to market volatility from the COVID-19 pandemic and was subsequently lifted on October 30, 2020 - **No shares** were purchased under the Stock Repurchase Program during the three months ended September 30, 2020[167](index=167&type=chunk) - The Stock Repurchase Program was **suspended on March 12, 2020**, due to COVID-19 related market volatility and uncertainty, and the suspension was **lifted on October 30, 2020**[168](index=168&type=chunk) - As of September 30, 2020, **8,797,222 shares** remained available for repurchase under the program[166](index=166&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) The company's Board of Directors approved a two-for-one stock split on July 29, 2020, which was distributed as a stock dividend on September 14, 2020, and all common stock share and per share data in the financial statements have been retroactively adjusted to reflect this split - A **two-for-one stock split** of the company's common stock was approved on July 29, 2020, and distributed on September 14, 2020[169](index=169&type=chunk) - All common stock share and per share data presented in the unaudited condensed consolidated financial statements have been **retroactively adjusted** to reflect the stock split[169](index=169&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, and certifications, which are incorporated by reference - The exhibit index includes various corporate documents such as the **Restated Certificate of Incorporation, Credit Agreements, and certifications**[177](index=177&type=chunk)[178](index=178&type=chunk)

NYSE:TREX Investor Presentation August 2020 Safe Harbor / Non-GAAP Measures This presentation 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. These statements are subject to risks and uncertainties that could cause the Company's actual operating results to differ materially from those contemplated by the forward-looking statements. For further information on risk factors affecting the Company's busi ...

Trex Company, Inc. (NYSE:TREX) Q2 2020 Earnings Conference Call August 3, 2020 5:00 PM ET Company Participants Viktoriia Nakhla - Investor Relations Bill Gupp - Senior Vice President, General Counsel & Secretary Bryan Fairbanks - President & Chief Executive Officer Dennis Schemm - Vice President & Chief Financial Officer Conference Call Participants Ryan Merkel - William Blair Tim Wojs - Baird Keith Hughes - SunTrust Matthew Bouley - Barclays Phil Ng - Jefferies Reuben Garner - Benchmark Company Kurt Yinge ...

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 June 30, 2020 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 incorpo ...

NYSE:TREX Investor Presentation June 2020 Safe Harbor / Non-GAAP Measures This presentation 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. These statements are subject to risks and uncertainties that could cause the Company's actual operating results to differ materially from those contemplated by the forward-looking statements. For further information on risk factors affecting the Company's busine ...

Table of Contents 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 Not Applicable For the quarterly period ended March 31, 2020 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 (Stat ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ 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) (State or other jurisdiction of incor ...