Trex(TREX) - 2022 Q1 - Quarterly Report

PART I PART I FINANCIAL INFORMATION This section presents the company's condensed consolidated financial statements and related disclosures for the first quarter Item 1. Condensed Consolidated Financial Statements The company's Q1 2022 condensed consolidated financial statements show net sales increased 38.2% to $339.2 million and net income rose 46.7% to $71.2 million, with operating cash flow turning positive Condensed Consolidated Statements of Comprehensive Income For Q1 2022, Trex Company reported a 38.2% increase in net sales to $339.2 million and a 46.7% increase in net income to $71.2 million, with diluted EPS growing to $0.62 Condensed Consolidated Statements of Comprehensive Income (Unaudited, in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net sales | $339,228 | $245,524 | | Gross profit | $134,912 | $95,801 | | Income from operations | $94,952 | $64,489 | | Net income | $71,211 | $48,545 | | Diluted earnings per common share | $0.62 | $0.42 | Condensed Consolidated Balance Sheets As of March 31, 2022, total assets increased to $972.4 million driven by accounts receivable and inventories, while total liabilities also rose to $251.3 million due to higher payables and accrued expenses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $115,188 | $141,053 | | Accounts receivable, net | $200,920 | $151,096 | | Inventories | $98,176 | $83,753 | | Total current assets | $437,162 | $401,054 | | Total assets | $972,396 | $920,321 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $143,020 | $88,702 | | Total liabilities | $251,331 | $195,287 | | Total stockholders' equity | $721,065 | $725,034 | | Total liabilities and stockholders' equity | $972,396 | $920,321 | Condensed Consolidated Statements of Cash Flows In Q1 2022, net cash provided by operating activities significantly improved to $73.9 million, while investing activities used $22.3 million and financing activities used $77.5 million primarily for stock repurchases Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $73,879 | $(142,574) | | Net cash used in investing activities | $(22,288) | $(57,800) | | Net cash (used in) provided by financing activities | $(77,456) | $86,894 | | Net decrease in cash and cash equivalents | $(25,865) | $(113,480) | Notes to Condensed Consolidated Financial Statements The notes detail the company's two segments, Trex Residential and Trex Commercial, with Trex Residential dominating Q1 2022 net sales, and provide insights into warranty reserves and credit facility status - The company operates in two reportable segments: Trex Residential Products, the world's largest manufacturer of wood-alternative decking and railing, and Trex Commercial Products, a provider of custom-engineered railing and staging systems[22][65] Segment Net Sales (in thousands) | Segment | Q1 2022 Net Sales | Q1 2021 Net Sales | | :--- | :--- | :--- | | Trex Residential | $327,194 | $233,070 | | Trex Commercial | $12,034 | $12,454 | | Total | $339,228 | $245,524 | - The company had no outstanding borrowings under its revolving credit facility and an available borrowing capacity of $350 million at March 31, 2022[37] Residential Product Warranty Reserve Reconciliation (in thousands) | Description | Surface Flaking | Other Residential | Total | | :--- | :--- | :--- | :--- | | Beginning balance, Jan 1, 2022 | $18,542 | $10,053 | $28,595 | | Provisions and changes | $0 | $1,090 | $1,090 | | Settlements | $(745) | $(528) | $(1,273) | | Ending balance, Mar 31, 2022 | $17,797 | $10,615 | $28,412 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2022 performance to robust demand and market share gains, with net sales up 38.2% driven by Trex Residential's price and volume increases, and plans significant capital investment for future growth Results of Operations Q1 2022 net sales increased 38.2% to $339.2 million, driven by Trex Residential's price and volume gains, leading to a gross margin improvement to 39.8% despite higher SG&A expenses - The 40.4% increase in Trex Residential net sales was primarily due to an 18% increase in average price per unit and a 19% increase in volume[98] - Gross margin increased to 39.8% in Q1 2022 from 39.0% in Q1 2021, driven by pricing realization at Trex Residential, which was partially offset by inflationary pressures on raw materials, labor, and transportation[99] - Selling, general and administrative expenses increased by $8.6 million (27.6%), primarily due to a $4.8 million increase in marketing and branding spend and a $3.8 million increase in personnel-related expenses[100] EBITDA Reconciliation and Growth (in thousands) | Segment | Q1 2022 EBITDA | Q1 2021 EBITDA | % Change | | :--- | :--- | :--- | :--- | | Trex Residential | $106,483 | $70,964 | 50.1% | | Trex Commercial | $(1,058) | $(52) | NM | | Total EBITDA | $105,425 | $70,912 | 48.7% | Liquidity and Capital Resources The company maintains strong liquidity with $115.2 million cash and $350 million credit availability, supported by $73.9 million operating cash flow, and plans significant capital expenditures including a new $400 million Arkansas facility - The company had $115.2 million of cash and cash equivalents and $350 million of available borrowing capacity at March 31, 2022[104][114] - The company announced plans for a third U.S. manufacturing facility in Little Rock, Arkansas, with an expected investment of approximately $400 million over the next five years[118] - Capital expenditure guidance for 2022 is set at $200 million to $220 million, covering the new Arkansas facility, cost reductions, and equipment upgrades[119] - During Q1 2022, the company repurchased 833,963 shares of its common stock for $77.9 million[88][110] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's market risk exposure during Q1 2022, with further details available in the 2021 Annual Report on Form 10-K - There were no material changes to the Company's market risk exposure during the first quarter of 2022[121] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - The Company's management concluded that disclosure controls and procedures were effective as of March 31, 2022[122] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[122] PART II PART II OTHER INFORMATION This section covers other important information including legal proceedings, equity sales, and recent stockholder meeting outcomes Item 1. Legal Proceedings The company is involved in ordinary, routine litigation and claims, which management believes will not materially affect its financial condition or results of operations - The Company faces lawsuits and claims that are considered ordinary routine litigation incidental to the business, which are not expected to have a material financial impact[125] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2022, the company repurchased 833,963 shares of common stock, with 7,154,160 shares remaining available under the repurchase program as of March 31, 2022 Common Stock Repurchases in Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Jan 2022 | 363,918 | $90.12 | 363,918 | | Feb 2022 | 505,901 | $89.36 | 470,045 | | Mar 2022 | 0 | — | 0 | | Q1 Total | 869,819 | | 833,963 | Item 5. Other Information At the May 5, 2022 Annual Meeting, stockholders approved director elections, executive compensation, an increase in authorized common stock to 360 million shares, and ratified the independent auditor - At the May 5, 2022 Annual Meeting, stockholders approved an amendment to increase the number of authorized shares of common stock from 180 million to 360 million[130][131][132] - All other proposals at the Annual Meeting were also approved, including the election of three directors, advisory approval of executive compensation, and ratification of the independent auditor[129][130][131] Item 6. Exhibits This section refers to the Exhibit Index for a comprehensive list of all filed exhibits, including certifications and corporate amendments