Trex(US:TREX)2025-08-04 21:10PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The financial statements for H1 2025 show decreased net income and gross profit, increased assets and liabilities, and significantly higher operating cash flow Condensed Consolidated Statements of Comprehensive Income This section details comprehensive income, showing net sales, gross profit, and net income for Q2 and H1 2025 versus 2024 Financial Performance Summary (in thousands, except EPS) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $387,801 | $376,470 | 3.0% | $727,794 | $750,105 | (3.0)% | | Gross Profit | $158,132 | $168,110 | (5.9)% | $295,863 | $337,721 | (12.4)% | | Income from Operations | $102,398 | $116,904 | (12.4)% | $184,062 | $235,915 | (22.0)% | | Net Income | $75,909 | $86,998 | (12.7)% | $136,343 | $176,068 | (22.6)% | | Diluted EPS | $0.71 | $0.80 | (11.3)% | $1.27 | $1.62 | (21.6)% | Condensed Consolidated Balance Sheets This section details the company's financial position, outlining assets, liabilities, and equity for June 30, 2025, and December 31, 2024 Balance Sheet Summary (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $453,464 | $318,908 | | Property, Plant and Equipment, net | $1,000,852 | $922,868 | | Total Assets | $1,537,855 | $1,324,298 | | Total Current Liabilities | $419,357 | $342,477 | | Line of Credit | $245,447 | $202,600 | | Total Liabilities | $548,599 | $474,156 | | Total Stockholders' Equity | $989,256 | $850,142 | Condensed Consolidated Statements of Cash Flows This section outlines cash inflows and outflows from operating, investing, and financing activities for H1 2025 and 2024 Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $95,739 | $19,641 | | Net cash used in investing activities | $(130,987) | $(73,096) | | Net cash provided by financing activities | $39,479 | $52,668 | | Net increase (decrease) in cash | $4,231 | $(787) | | Cash and cash equivalents, end of period | $5,523 | $1,172 | - The significant increase in cash from operations in H1 2025 compared to H1 2024 was primarily driven by a $65.4 million decrease in inventories, whereas in the prior year, inventories increased by $41.8 million18104 - Expenditures for property, plant, and equipment increased to $126.3 million in H1 2025 from $73.2 million in H1 2024, reflecting ongoing investment in manufacturing facilities1885 Notes to Condensed Consolidated Financial Statements This section provides detailed explanations on accounting policies, financial instruments, and significant financial disclosures - The company operates in a single reportable segment, Trex Residential, manufacturing wood-alternative decking, railing, and outdoor living products2163 - As of June 30, 2025, the company had $245.4 million in borrowings outstanding under its revolving credit facility, with an available capacity of $304.6 million and a weighted average interest rate of 5.23%44 Product Warranty Reserve Reconciliation - H1 2025 (in thousands) | | Product Warranty | Surface Flaking | Total | | :--- | :--- | :--- | :--- | | Beginning Balance, Jan 1 | $15,596 | $7,239 | $22,835 | | Provisions | $6,705 | $0 | $6,705 | | Settlements | $(3,099) | $(690) | $(3,789) | | Ending Balance, June 30 | $19,202 | $6,549 | $25,751 | - The company's effective tax rate for the first six months of 2025 was 25.9%, compared to 25.4% for the same period in 202458 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses H1 2025 net sales decline, gross margin compression, increased SG&A, and capital investments in the Arkansas facility Results of Operations This section analyzes financial performance for Q2 and H1 2025, detailing changes in net sales, gross profit, gross margin, and SG&A expenses Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $387,801 | $376,470 | $11,331 | 3.0% | | Gross Profit | $158,132 | $168,110 | $(9,978) | (5.9)% | | Gross Margin | 40.8% | 44.7% | - | - | - The Q2 2025 increase in net sales was driven by higher volume, but gross margin decreased due to lower production, Arkansas facility start-up costs, and production process refinements for Enhance® decking9293 H1 2025 vs H1 2024 Performance (in thousands) | Metric | H1 2025 | H1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $727,794 | $750,105 | $(22,311) | (3.0)% | | Gross Profit | $295,863 | $337,721 | $(41,858) | (12.4)% | | Gross Margin | 40.7% | 45.0% | - | - | - The 3.0% decrease in H1 2025 net sales was due to lower volume from a revised channel inventory strategy, with gross margin declining due to lower production and Arkansas facility costs9899 - Selling, general and administrative (SG&A) expenses increased by 9.8% in H1 2025 to $111.8 million, driven by higher spending on branding ($6.6 million), personnel ($2.1 million), and Arkansas start-up costs ($1.7 million)100 Liquidity and Capital Resources This section discusses the company's liquidity, capital expenditure plans, and share repurchase activities - The company's primary sources of liquidity are cash from operations and borrowings under its revolving credit facility103 - Capital expenditures for H1 2025 were $126.3 million, with $97.6 million allocated to the new Arkansas manufacturing facility85105 - The full-year 2025 capital expenditure guidance is between $190 million and $210 million, with approximately $484 million of the total anticipated $550 million for the Arkansas facility already invested125126 - The company did not repurchase any shares of its common stock during the six months ended June 30, 2025, under its 10.8 million share repurchase program52109 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure during H1 2025, consistent with its 2024 Annual Report disclosures - There were no material changes to the Company's market risk exposure during the six months ended June 30, 2025135 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2025, with no material changes to internal controls over financial reporting - The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025136 - No changes in internal control over financial reporting occurred during the six-month period that have materially affected, or are reasonably likely to materially affect, the company's internal controls136 PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine litigation and claims, which management believes will not materially affect its financial condition or operations - The company faces lawsuits and claims incidental to its business, but management does not expect their resolution to have a material financial impact139 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock in Q2 2025, with its 10.8 million share repurchase program remaining active - No shares of common stock were repurchased during the three months ended June 30, 2025140141 - As of June 30, 2025, the company may still purchase up to 8,954,464 shares under its publicly announced stock repurchase program140 Item 5. Other Information No Rule 10b5-1 trading plan changes occurred during the quarter, and the company amended severance agreements for its CEO and other officers - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025142 - The company amended severance agreements for the CEO and other officers, modifying the timing of severance payments to occur no later than ten days after the effective date of a written release, rather than ten days after termination143144 Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including certifications and amended severance agreements - The Exhibit Index lists documents filed with the report, including an Amended and Restated Severance Agreement for the CEO and a new Form of Severance Agreement for other officers151