Trex(US:TREX)2023-05-08 21:11PART I FINANCIAL INFORMATION Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, and 2022, including key financial statements and notes, highlighting the company's transition to a single-segment entity Condensed Consolidated Statements of Comprehensive Income (Unaudited) | | Three Months Ended March 31, | | | | :--- | :--- | :--- | :--- | | (In thousands, except per share data) | 2023 | 2022 | | | Net sales | $ 238,718 | $ 339,228 | | | Cost of sales | 144,290 | 204,316 | | | Gross profit | 94,428 | 134,912 | | | Selling, general and administrative expenses | 37,480 | 39,960 | | | Income from operations | 56,948 | 94,952 | | | Net income | $ 41,131 | $ 71,211 | | | Diluted earnings per common share | $ 0.38 | $ 0.62 | Condensed Consolidated Balance Sheets Highlights (Unaudited) | (In thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $ 459,483 | $ 286,842 | | Total assets | $ 1,133,121 | $ 933,705 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $ 447,765 | $ 290,599 | | Total liabilities | $ 572,944 | $ 415,356 | | Total stockholders' equity | $ 560,177 | $ 518,349 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $ (115,471) | $ 73,879 | | Net cash used in investing activities | $ (39,192) | $ (22,288) | | Net cash provided by (used in) financing activities | $ 146,254 | $ (77,456) | | Net decrease in cash and cash equivalents | $ (8,409) | $ (25,865) | - On December 30, 2022, the Company completed the sale of its Trex Commercial segment to focus on its core outdoor living strategy, resulting in the company now operating in a single reportable segment, Trex Residential222769 - On May 4, 2023, the Board of Directors adopted a new stock repurchase program for up to 10.8 million shares of its common stock, terminating the existing program56 Residential Product Warranty Reserve Reconciliation (in thousands) | | Surface Flaking | Other Residential | Total | | :--- | :--- | :--- | :--- | | Three Months Ended March 31, 2023 | | | | | Beginning balance, January 1 | $ 15,905 | $ 9,694 | $ 25,599 | | Provisions and changes in estimates | — | 1,945 | 1,945 | | Settlements made during the period | (316) | (551) | (867) | | Ending balance, March 31 | $ 15,589 | $ 11,088 | $ 26,677 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a significant 29.6% decrease in net sales for Q1 2023 due to channel inventory reduction, with a slight gross margin decline and increased revolving credit facility borrowings Q1 Financial Performance Highlights | ($ 000s omitted, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $ 238,718 | $ 339,228 | (29.6)% | | Gross profit | $ 94,428 | $ 134,912 | (30.0)% | | Net income | $ 41,131 | $ 71,211 | (42.2)% | | EBITDA | $ 68,862 | $ 105,425 | (34.7)% | | Diluted earnings per share | $ 0.38 | $ 0.62 | (38.7)% | - The decrease in net sales was substantially due to a decrease in volume, resulting from more cautious purchasing by channel partners due to softening economic conditions99106 - Gross margin decreased slightly to 39.6% from 39.8% in the prior-year quarter, primarily due to lower absorption from decreased production levels108 - Capital expenditures in Q1 2023 were $39.2 million, with $22.6 million allocated to the new Arkansas manufacturing facility, and full-year 2023 capital expenditure guidance is $130 million to $140 million117138 - Cash used in operations was $115.5 million, a $189.4 million decrease from the prior year, primarily due to an increase in accounts receivable resulting from different payment terms on the early buy program114115 - As of March 31, 2023, the company had $369.5 million in outstanding borrowings under its revolving credit facility, with an available capacity of $180.5 million48133 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure during the three months ended March 31, 2023, referring to prior annual report disclosures - There were no material changes to the Company's market risk exposure during the three months ended March 31, 2023149 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - The Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures are effective as of March 31, 2023150 - No changes in the Company's internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls150 PART II OTHER INFORMATION Legal Proceedings The company is subject to routine litigation and claims, which management believes will not materially affect its financial condition or operations - The Company has pending lawsuits and claims that are considered ordinary routine litigation incidental to the business and are not expected to have a material effect on its financial condition or operations152 Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q1 2023 under the existing program, which was terminated and replaced by a new 10.8 million share repurchase program on May 4, 2023 - The Company did not purchase any shares of its common stock under its publicly announced stock repurchase program during the three months ended March 31, 2023154 - On May 4, 2023, the Board of Directors approved a new stock repurchase program for up to 10.8 million shares and terminated the prior program from 2018154 Other Information Stockholders approved the Trex Company, Inc. 2023 Stock Incentive Plan and ratified all five proposals at the Annual Meeting on May 4, 2023 - At the annual meeting on May 4, 2023, stockholders approved the Trex Company, Inc. 2023 Stock Incentive Plan, which amends and restates the 2014 Plan and makes 4,000,000 shares of common stock available for future grants155 - Stockholders elected three directors, approved executive compensation on an advisory basis, recommended an annual frequency for future say-on-pay votes, and ratified the selection of Ernst & Young LLP as the independent auditor for 2023158159160 Exhibits This section provides an index of all exhibits filed with or furnished as part of the Quarterly Report on Form 10-Q, including certifications and XBRL data files - An index of exhibits filed with the Form 10-Q is provided, including the 2023 Stock Incentive Plan, CEO/CFO certifications, and Inline XBRL documents161168