☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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54-1910453
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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160 Exeter Drive
Winchester, Virginia
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22603-8605
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Title of each class
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Trading
Symbol(s)
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Name of each exchange
on which registered
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||
Common stock
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TREX
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New York Stock Exchange LLC
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Page
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2
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Item 1.
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2
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2
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3
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4
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5
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6
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Item 2.
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16
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Item 3.
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23
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Item 4.
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24
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25
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Item 1.
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25
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Item 1A.
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25
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Item 2.
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25
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Item 5.
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26
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Item 6.
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27
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Item 1.
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Condensed Consolidated Financial Statements
|
|
Three Months Ended
March 31,
|
|||||||
|
2020
|
|
2019
|
|
||||
Net sales
|
$ |
200,395
|
$ |
179,571
|
||||
Cost of sales
|
110,699
|
110,206
|
||||||
Gross profit
|
89,696
|
69,365
|
||||||
Selling, general and administrative expenses
|
34,561
|
30,166
|
||||||
Income from operations
|
55,135
|
39,199
|
||||||
Interest income, net
|
(522
|
) |
(56
|
) | ||||
Income before income taxes
|
55,657
|
39,255
|
||||||
Provision for income taxes
|
13,255
|
7,700
|
||||||
Net income
|
$ |
42,402
|
$ |
31,555
|
||||
Basic earnings per common share
|
$ |
0.73
|
$ |
0.54
|
||||
Basic weighted average common shares outstanding
|
58,129,529
|
58,543,478
|
||||||
Diluted earnings per common share
|
$ |
0.73
|
$ |
0.54
|
||||
Diluted weighted average common shares outstanding
|
58,323,721
|
58,829,177
|
||||||
Comprehensive income
|
$ |
42,402
|
$ |
31,555
|
||||
|
March 31,
2020
|
|
December 31,
2019 |
|
||||
|
(Unaudited)
|
|
|
|
||||
Assets
|
|
|
|
|
|
|
||
Current assets:
|
|
|
||||||
Cash and cash equivalents
|
$ |
5,339
|
$ |
148,833
|
||||
Accounts receivable, net
|
241,242
|
78,462
|
||||||
Inventories
|
58,716
|
56,106
|
||||||
Prepaid expenses and other assets
|
16,582
|
19,803
|
||||||
Total current assets
|
321,879
|
303,204
|
||||||
Property, plant and equipment, net
|
193,099
|
171,300
|
||||||
Goodwill and other intangible assets, net
|
73,980
|
74,084
|
||||||
Operating lease assets
|
38,329
|
40,049
|
||||||
Other assets
|
3,569
|
3,602
|
||||||
Total assets
|
$ |
630,856
|
$ |
592,239
|
||||
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
||
Current liabilities:
|
|
|
||||||
Accounts payable
|
$ |
28,917
|
$ |
15,227
|
||||
Accrued expenses and other liabilities
|
54,355
|
58,265
|
||||||
Accrued warranty
|
5,178
|
5,178
|
||||||
Line of credit
|
28,500
|
—
|
||||||
Total current liabilities
|
116,950
|
78,670
|
||||||
Operating lease liabilities
|
32,440
|
34,242
|
||||||
Deferred income taxes
|
9,831
|
9,831
|
||||||
Non-current
accrued warranty
|
19,912
|
20,317
|
||||||
Other long-term liabilities
|
—
|
4
|
||||||
Total liabilities
|
179,133
|
143,064
|
||||||
Commitments and contingencies
|
—
|
—
|
||||||
Stockholders’ equity:
|
|
|
||||||
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding
|
—
|
—
|
||||||
Common stock, $0.01 par value, 120,000,000 shares authorized; 70,241,911 and 70,187,463 shares issued and 57,853,160 and 58,240,721 shares outstanding at March 31, 2020 and December 31, 2019, respectively
|
702
|
702
|
||||||
Additional
paid-in
capital
|
123,214
|
123,996
|
||||||
Retained earnings
|
604,082
|
561,680
|
||||||
Treasury stock, at cost, 12,388,751 and 11,946,742 shares at March 31, 2020 and December 31, 2019, respectively
|
(276,275
|
) |
(237,203
|
) | ||||
Total stockholders’ equity
|
451,723
|
449,175
|
||||||
Total liabilities and stockholders’ equity
|
$ |
630,856
|
$ |
592,239
|
||||
|
Common Stock
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Treasury Stock
|
Total
|
|
||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
||||||||||||||||||||
Balance, December 31, 2019
|
58,240,721
|
$ |
702
|
$ |
123,996
|
$ |
561,680
|
11,946,742
|
$ |
(237,203
|
) | $ |
449,175
|
|||||||||||||||
Net income
|
—
|
—
|
—
|
42,402
|
—
|
—
|
42,402
|
|||||||||||||||||||||
Employee stock plans
|
16,386
|
—
|
299
|
—
|
—
|
—
|
299
|
|||||||||||||||||||||
Shares withheld for taxes on awards
|
(38,142
|
) |
—
|
(3,856
|
) |
—
|
—
|
—
|
(3,856
|
) | ||||||||||||||||||
Stock-based compensation
|
76,204
|
—
|
2,775
|
—
|
—
|
—
|
2,775
|
|||||||||||||||||||||
Repurchases of common stock
|
(442,009
|
) |
—
|
—
|
—
|
442,009
|
(39,072
|
) |
(39,072
|
) | ||||||||||||||||||
Balance, March 31, 2020
|
57,853,160
|
$ |
702
|
$ |
123,214
|
$ |
604,082
|
12,388,751
|
$ |
(276,275
|
) | $ |
451,723
|
|||||||||||||||
|
Common Stock
|
Additional
Paid-In
Capital |
|
Retained
Earnings |
|
Treasury Stock
|
Total
|
|
||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
||||||||||||||||||||
Balance, December 31, 2018
|
58,551,653
|
$ |
700
|
$ |
124,224
|
$ |
416,942
|
11,446,683
|
$ |
(198,903
|
) | $ |
342,963
|
|||||||||||||||
Net income
|
—
|
—
|
—
|
31,555
|
—
|
—
|
31,555
|
|||||||||||||||||||||
Employee stock plans
|
24,472
|
—
|
302
|
—
|
—
|
—
|
302
|
|||||||||||||||||||||
Shares withheld for taxes on awards
|
(74,010
|
) |
—
|
(5,727
|
) |
—
|
—
|
—
|
(5,727
|
) | ||||||||||||||||||
Stock-based compensation
|
160,359
|
1
|
2,793
|
—
|
—
|
—
|
2,794
|
|||||||||||||||||||||
Repurchases of common stock
|
(124,989
|
) |
—
|
—
|
—
|
124,989
|
(8,730
|
) |
(8,730
|
) | ||||||||||||||||||
Balance, March 31, 2019
|
58,537,485
|
$ |
701
|
$ |
121,592
|
$ |
448,497
|
11,571,672
|
$ |
(207,633
|
) | $ |
363,157
|
|||||||||||||||
|
Three Months Ended
March 31, |
|||||||
|
2020
|
|
2019
|
|
||||
Operating Activities
|
|
|
|
|
|
|
||
Net income
|
$ |
42,402
|
$ |
31,555
|
||||
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
||||||
Depreciation and amortization
|
3,851
|
3,394
|
||||||
Stock-based compensation
|
2,775
|
2,793
|
||||||
(Gain) loss on disposal of property, plant and equipment
|
(123
|
) |
10
|
|||||
Other
non-cash
adjustments
|
32
|
31
|
||||||
Changes in operating assets and liabilities:
|
|
|
||||||
Accounts receivable
|
(162,780
|
) |
(128,182
|
) | ||||
Inventories
|
(2,610
|
) |
7,645
|
|||||
Prepaid expenses and other assets
|
1,059
|
1,214
|
||||||
Accounts payable
|
8,865
|
(7,556
|
) | |||||
Accrued expenses and other liabilities
|
(14,089
|
) |
(27,332
|
) | ||||
Income taxes receivable/payable
|
11,850
|
6,438
|
||||||
Net cash used in operating activities
|
(108,768
|
) |
(109,990
|
) | ||||
Investing Activities
|
|
|
|
|
|
|
||
Expenditures for property, plant and equipment
|
(22,733
|
) |
(8,647
|
) | ||||
Proceeds from sales of property, plant and equipment
|
2,136
|
—
|
||||||
Net cash used in investing activities
|
(20,597
|
) |
(8,647
|
) | ||||
Financing Activities
|
|
|
|
|
|
|
||
Borrowings under line of credit
|
36,500
|
35,000
|
||||||
Principal payments under line of credit
|
(8,000
|
) |
—
|
|||||
Repurchases of common stock
|
(42,929
|
) |
(14,457
|
) | ||||
Proceeds from employee stock purchase and option plans
|
300
|
302
|
||||||
Net cash (used in) provided by financing activities
|
(14,129
|
) |
20,845
|
|||||
Net decrease in cash and cash equivalents
|
(143,494
|
) |
(97,792
|
) | ||||
Cash and cash equivalents, beginning of period
|
148,833
|
105,699
|
||||||
Cash and cash equivalents, end of period
|
$ |
5,339
|
$ |
7,907
|
||||
Supplemental Disclosure:
|
|
|
||||||
Cash paid for interest
|
$ |
1
|
$ |
11
|
||||
Cash paid for income taxes, net
|
$ |
1,405
|
$ |
1,262
|
1.
|
BUSINESS AND ORGANIZATION
|
2.
|
BASIS OF PRESENTATION
|
3.
|
RECENTLY ADOPTED ACCOUNTING STANDARDS
|
4.
|
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
|
5.
|
INVENTORIES
|
|
March 31,
2020
|
|
December 31,
2019 |
|
||||
Finished goods
|
$ |
43,458
|
$ |
42,281
|
||||
Raw materials
|
33,050
|
31,686
|
||||||
Total FIFO
(first-in,
first-out)
inventories
|
76,508
|
73,967
|
||||||
Reserve to adjust inventories to LIFO value
|
(19,062
|
) |
(19,062
|
) | ||||
Total LIFO inventories
|
$ |
57,446
|
$ |
54,905
|
||||
6.
|
PREPAID EXPENSES AND OTHER ASSETS
|
|
March 31,
2020
|
|
December 31,
2019 |
|
||||
Prepaid expenses
|
$ |
6,901
|
$ |
8,282
|
||||
Revenues in excess of billings
|
6,247
|
6,664
|
||||||
Contract retainage
|
2,273
|
1,832
|
||||||
Income tax receivable
|
513
|
2,675
|
||||||
Other
|
648
|
350
|
||||||
Total prepaid expenses and other assets
|
$ |
16,582
|
$ |
19,803
|
||||
7.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
8.
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
March 31,
2020
|
|
December 31,
2019 |
|
||||
Sales and marketing
|
$ |
18,392
|
$ |
28,402
|
||||
Income taxes
|
9,688
|
—
|
||||||
Compensation and benefits
|
7,721
|
13,475
|
||||||
Operating lease liabilities
|
7,111
|
7,079
|
||||||
Customer deposits
|
3,232
|
2,905
|
||||||
Manufacturing costs
|
2,504
|
2,564
|
||||||
Billings in excess of revenues
|
2,125
|
816
|
||||||
Other
|
3,582
|
3,024
|
||||||
Total accrued expenses and other liabilities
|
$ |
54,355
|
$ |
58,265
|
||||
9.
|
DEBT
|
10.
|
LEASES
|
|
|
Three Months Ended
|
|
|||||
Supplemental cash flow information
|
|
March 31,
2020 |
|
|
March 31,
2019 |
|
||
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
2,143
|
|
|
$
|
2,118
|
|
Operating ROU assets obtained in exchange for lease liabilities
|
|
$
|
—
|
|
|
$
|
388
|
|
Supplemental balance sheet information
|
March 31,
2020
|
|
December 31,
2019 |
|
||||
Operating lease ROU assets
|
$ |
38,329
|
$ |
40,049
|
||||
|
|
|
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
||||||
Accrued expenses and other current liabilities
|
$ |
7,111
|
$ |
7,079
|
||||
Operating lease liabilities
|
32,440
|
34,242
|
||||||
Total operating lease liabilities
|
$ |
39,551
|
$ |
41,321
|
||||
11.
|
FINANCIAL INSTRUMENTS
|
12.
|
STOCKHOLDERS’ EQUITY
|
|
Three Months Ended
March 31,
|
|||||||
|
2020
|
|
2019
|
|
||||
Numerator:
|
|
|
||||||
Net income available to common shareholders
|
$ |
42,402
|
$ |
31,555
|
||||
Denominator:
|
|
|
||||||
Basic weighted average shares outstanding
|
58,129,529
|
58,543,478
|
||||||
Effect of dilutive securities:
|
|
|
||||||
Stock appreciation rights and options
|
90,723
|
154,076
|
||||||
Restricted stock
|
103,469
|
131,623
|
||||||
Diluted weighted average shares outstanding
|
58,323,721
|
58,829,177
|
||||||
Basic earnings per share
|
$ |
0.73
|
$ |
0.54
|
||||
Diluted earnings per share
|
$ |
0.73
|
$ |
0.54
|
||||
|
Three Months Ended
March 31, |
|||||||
|
|
2020
|
|
|
2019
|
|
||
Stock appreciation rights
|
9,135
|
12,813
|
13.
|
REVENUE FROM CONTRACTS WITH CUSTOMERS
|
Three Months Ended March 31, 2020
|
Reportable Segment
|
|||||||||||
|
Trex
Residential
|
|
Trex
Commercial
|
|
Total
|
|
||||||
Timing of Revenue Recognition and Type of Contract
|
|
|
|
|
|
|
|
|
|
|||
Products transferred at a point in time and variable consideration contracts
|
$ |
186,874
|
$ |
—
|
$ |
186,874
|
||||||
Products transferred over time and fixed price contracts
|
—
|
13,521
|
13,521
|
|||||||||
|
$ |
186,874
|
$ |
13,521
|
$ |
200,395
|
||||||
Three Months Ended March 31, 2019
|
Reportable Segment
|
|||||||||||
|
Trex
Residential
|
|
Trex
Commercial
|
|
Total
|
|
||||||
Timing of Revenue Recognition and Type of Contract
|
|
|
|
|
|
|
|
|
|
|||
Products transferred at a point in time and variable consideration contracts
|
$ |
165,479
|
$ |
—
|
$ |
165,479
|
||||||
Products transferred over time and fixed price contracts
|
—
|
14,092
|
14,092
|
|||||||||
|
$ |
165,479
|
$ |
14,092
|
$ |
179,571
|
||||||
14.
|
STOCK-BASED COMPENSATION
|
|
Stock Awards Granted
|
|
Weighted-Average
Grant Price
Per Share
|
|
||||
Time-based restricted stock units
|
19,769
|
$ |
101.53
|
|||||
Performance-based restricted stock units (a)
|
36,510
|
$ |
78.18
|
|||||
Stock appreciation rights
|
19,792
|
$ |
101.66
|
(a) | Includes 24,320 of target performance-based restricted stock unit awards granted during the three months ended March 31, 2020, and adjustments of (2,562), 3,029 and 11,723 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2019, 2018 and 2017, respectively. |
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
||||
Weighted-average fair value of grants
|
$ |
35.65
|
$ |
29.56
|
||||
Dividend yield
|
0
|
% |
0
|
% | ||||
Average risk-free interest rate
|
1.4
|
% |
2.5
|
% | ||||
Expected term (years)
|
5
|
5
|
||||||
Expected volatility
|
37.8
|
% |
39.1
|
% |
|
Three Months Ended
March 31 |
|||||||
|
2020
|
|
2019
|
|
||||
Stock appreciation rights
|
$ |
354
|
$ |
295
|
||||
Time-based restricted stock and restricted stock units
|
1,256
|
1,149
|
||||||
Performance-based restricted stock and restricted stock units
|
1,135
|
1,314
|
||||||
Employee stock purchase plan
|
30
|
35
|
||||||
Total stock-based compensation
|
$ |
2,775
|
$ |
2,793
|
||||
15.
|
INCOME TAXES
|
16.
|
SEGMENT INFORMATION
|
• |
Trex Residential manufactures wood-alternative decking and residential railing and related products marketed under the brand name Trex
®
. Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products.
|
• | Trex Commercial designs, engineers, and markets modular and architectural railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. Trex Commercial products are marketed to architects, specifiers, contractors, and others doing business within the commercial and multi-family market. |
|
Three Months Ended
March 31, 2020
|
Three Months Ended
March 31, 2019 |
||||||||||||||||||||||
|
Trex
Residential
|
|
Trex
|
|
Total
|
|
Trex
|
|
Trex
|
|
Total
|
|
||||||||||||
Net sales
|
$ |
186,874
|
$ |
13,521
|
$ |
200,395
|
$ |
165,479
|
$ |
14,092
|
$ |
179,571
|
||||||||||||
Net income
|
$ |
41,020
|
$ |
1,382
|
$ |
42,402
|
$ |
31,255
|
$ |
300
|
$ |
31,555
|
||||||||||||
EBITDA
|
$ |
56,950
|
$ |
2,036
|
$ |
58,986
|
$ |
42,067
|
$ |
526
|
$ |
42,593
|
||||||||||||
Depreciation and amortization
|
$ |
3,664
|
$ |
187
|
$ |
3,851
|
$ |
3,268
|
$ |
126
|
$ |
3,394
|
||||||||||||
Income tax expense
|
$ |
12,788
|
$ |
467
|
$ |
13,255
|
$ |
7,600
|
$ |
100
|
$ |
7,700
|
||||||||||||
Capital expenditures
|
$ |
22,416
|
$ |
317
|
$ |
22,733
|
$ |
7,694
|
$ |
953
|
$ |
8,647
|
||||||||||||
Total assets
|
$ |
539,352
|
$ |
91,504
|
$ |
630,856
|
$ |
448,303
|
$ |
87,342
|
$ |
535,645
|
|
Three Months Ended
March 31, 2020
|
Three Months Ended
March 31, 2019 |
||||||||||||||||||||||
|
Trex
Residential
|
|
Trex
|
|
Total
|
|
Trex
|
|
Trex
|
|
Total
|
|
||||||||||||
Net income
|
$ |
41,020
|
$ |
1,382
|
$ |
42,402
|
$ |
31,255
|
$ |
300
|
$ |
31,555
|
||||||||||||
Interest income, net
|
(522
|
) |
—
|
(522
|
) |
(56
|
) |
—
|
(56
|
) | ||||||||||||||
Income tax expense
|
12,788
|
467
|
13,255
|
7,600
|
100
|
7,700
|
||||||||||||||||||
Depreciation and amortization
|
3,664
|
187
|
3,851
|
3,268
|
126
|
3,394
|
||||||||||||||||||
EBITDA
|
$ |
56,950
|
$ |
2,036
|
$ |
58,986
|
$ |
42,067
|
$ |
526
|
$ |
42,593
|
||||||||||||
17.
|
SEASONALITY
|
18.
|
COMMITMENTS AND CONTINGENCIES
|
|
Three Months Ended March 31, 2020
|
|||||||||||
|
Surface
Flaking |
|
Other
Residential |
|
Total
|
|
||||||
Beginning balance, January 1
|
$ |
19,024
|
$ |
6,470
|
$ |
25,494
|
||||||
Provisions and changes in estimates
|
—
|
321
|
321
|
|||||||||
Settlements made during the period
|
(557
|
) |
(168
|
) |
(725
|
) | ||||||
Ending balance, March 31
|
$ |
18,467
|
$ |
6,623
|
$ |
25,090
|
||||||
|
Three Months Ended March 31, 2019
|
|||||||||||
|
Surface
Flaking |
|
Other
Residential |
|
Total
|
|
||||||
Beginning balance, January 1
|
$ |
23,951
|
$ |
6,803
|
$ |
30,754
|
||||||
Provisions and changes in estimates
|
—
|
505
|
505
|
|||||||||
Settlements made during the period
|
(633
|
) |
(292
|
) |
(925
|
) | ||||||
Ending balance, March 31
|
$ |
23,318
|
$ |
7,016
|
$ |
30,334
|
||||||
Decking and Accessories
|
Our principal decking products are Trex Transcend
®
, Trex Select
®
and Trex Enhance
®
. Differentiating the Enhance collection is a scalloped profile that is lighter weight for easier handling and installation. Our high-performance,
low-maintenance,
eco-friendly
composite decking products are comprised of a blend of 95 percent reclaimed wood fibers and recycled plastic film and feature a protective polymer shell for enhanced protection against fading, staining, mold and scratching.
We also offer Trex Hideaway
®
, a hidden fastening system for grooved boards, and Trex DeckLighting
™
, an outdoor lighting system. Trex DeckLighting is a line of energy-efficient LED dimmable deck lighting, which is designed for use on posts, floors and steps. The line includes a post cap light, deck rail light, riser light and a recessed deck light.
|
Railing
|
Our residential railing products are Trex Transcend Railing, Trex Select Railing, Trex Enhance Railing and Trex Signature
®
aluminum railing. Trex Transcend Railing, made from approximately 40 percent recycled content, is available in the colors of Trex Transcend decking and finishes that make it appropriate for use with Trex decking products as well as other decking materials, which we believe enhances the sales prospects of our railing products. Trex Select Railing, made from approximately 40 percent recycled content, is offered in a white finish and is ideal for consumers who desire a simple clean finished look for their deck. Trex Enhance, made from approximately 40 percent recycled content, is available in three colors and is offered through home improvement retailers in kits that contain the complete railing system. Trex Signature aluminum railing, made from a minimum of 50 percent recycled content, is available in three colors and designed for consumers who want a sleek, contemporary look.
|
||
Fencing
|
Our Trex Seclusions
®
fencing product is offered through two specialty distributors. This product consists of structural posts, bottom rail, pickets, top rail and decorative post caps.
|
||
Steel Deck Framing
|
Our triple-coated steel deck framing system called Trex Elevations
®
leverages the strength and dimensional stability of steel to create a flat surface for our decking. Trex Elevations provides consistency and reliability that wood does not and is fire resistant.
|
Architectural Railing Systems
|
Our architectural railing systems are
pre-engineered
guardrails with options to accommodate styles ranging from classic and elegant wood top rail combined with sleek stainless components and glass infill, to modern and minimalist stainless cable and rod infill choices. Trex Commercial can also design, engineer and manufacture custom railing systems tailored to the customer’s specific material, style and finish. Many railing styles are achievable, including glass, mesh, perforated railing and cable railing.
|
||
Aluminum Railing Systems
|
Trex Signature
®
aluminum railing collection, made from a minimum of 50 percent recycled content, combines superior styling with the unparalleled strength of aluminum – making it an ideal railing choice for a variety of commercial settings. Its straightforward, unobtrusive design features traditional balusters and contemporary vertical rods, and can be installed with continuously graspable rail options for added safety, comfort and functionality. Trex Signature is available in three colors – charcoal black, bronze and classic white – and is available in a variety of stock lengths.
|
||
Staging Equipment and Accessories
|
Our advanced modular, lightweight custom staging systems include portable platforms, orchestra shells, guardrails, stair units, barricades, camera platforms, VIP viewing decks, ADA infills, DJ booths, pool covers, and other custom applications. Our systems provide superior staging product solutions for facilities and venues with custom needs. Our modular stage equipment is designed to appear seamless, feel permanent, and maximize the functionality of the space.
|
• | Increase in net sales of 11.6%, or $20.8 million, to $200.4 million for the three months ended March 31, 2020 compared to $179.6 million for the three months ended March 31, 2019. |
• | Increase in gross profit of 29.3%, or $20.3 million, to $89.7 million for the three months ended March 31, 2020 compared to $69.4 million for the three months ended March 31, 2019. |
• | Increase in net income to $42.4 million, or $0.73 per diluted share, for the three months ended March 31, 2020 compared to $31.6 million, or $0.54 per diluted share, for the three months ended March 31, 2019. |
• | Capital expenditures of $22.7 million to increase production capacity at the Trex Residential facilities in Virginia and Nevada and general plant cost reduction initiatives and other production improvements. |
• | Repurchase of 442,009 shares of our outstanding common stock during the three months ended March 31, 2020 under our Stock Repurchase Program, for a total of 1.4 million shares repurchased under the program as March 31, 2020. |
(1) | Claims received include new claims received or identified during the period. |
(2) | Claims resolved include all claims settled with or without payment and closed during the period. |
(3) | Average cost per claim represents the average settlement cost of claims closed with payment during the period. |
|
Three Months Ended March 31,
|
$ Change
|
|
% Change
|
|
|||||||||||
|
2020
|
|
2019
|
|
||||||||||||
|
(dollars in thousands)
|
|||||||||||||||
Total net sales
|
$ |
200,395
|
$ |
179,571
|
$ |
20,824
|
11.6
|
% | ||||||||
Trex Residential net sales
|
$ |
186,874
|
$ |
165,479
|
$ |
21,395
|
12.9
|
% | ||||||||
Trex Commercial net sales
|
$ |
13,521
|
$ |
14,092
|
$ |
(571
|
) |
(4.1
|
)% |
|
Three Months Ended March 31,
|
$ Change
|
|
% Change
|
|
|||||||||||
|
2020
|
|
2019
|
|
||||||||||||
|
(dollars in thousands)
|
|||||||||||||||
Cost of sales
|
$ |
110,699
|
$ |
110,206
|
$ |
493
|
0.4
|
% | ||||||||
% of total net sales
|
55.2
|
% |
61.4
|
% |
|
|
||||||||||
Gross profit
|
$ |
89,696
|
$ |
69,365
|
$ |
20,331
|
29.3
|
% | ||||||||
Gross margin
|
44.8
|
% |
38.6
|
% |
|
|
|
Three Months Ended March 31,
|
$ Change
|
|
% Change
|
|
|||||||||||
|
2020
|
|
2019
|
|
||||||||||||
|
(dollars in thousands)
|
|||||||||||||||
Selling, general and administrative expenses
|
$ |
34,561
|
$ |
30,166
|
$ |
4,395
|
14.6
|
% | ||||||||
% of total net sales
|
17.3
|
% |
16.8
|
% |
|
|
|
Three Months Ended March 31,
|
$ Change
|
|
% Change
|
|
|||||||||||
|
2020
|
|
2019
|
|
||||||||||||
|
(dollars in thousands)
|
|||||||||||||||
Provision for income taxes
|
$ |
13,255
|
$ |
7,700
|
$ |
5,555
|
72.1
|
% | ||||||||
Effective tax rate
|
23.8
|
% |
19.6
|
% |
|
|
|
Three Months Ended March 31, 2020
|
|||||||||||
|
Trex
Residential
|
|
Trex
Commercial |
|
Total
|
|
||||||
Net income
|
$ |
41,020
|
$ |
1,382
|
$ |
42,402
|
||||||
Interest income, net
|
(522
|
) |
—
|
(522
|
) | |||||||
Income tax expense
|
12,788
|
467
|
13,255
|
|||||||||
Depreciation and amortization
|
3,664
|
187
|
3,851
|
|||||||||
EBITDA
|
$ |
56,950
|
$ |
2,036
|
$ |
58,986
|
||||||
|
Three Months Ended March 31, 2019
|
|||||||||||
|
Trex
Residential
|
|
Trex
Commercial |
|
Total
|
|
||||||
Net income
|
$ |
31,255
|
$ |
300
|
$ |
31,555
|
||||||
Interest income, net
|
(56
|
) |
—
|
(56
|
) | |||||||
Income tax expense
|
7,600
|
100
|
7,700
|
|||||||||
Depreciation and amortization
|
3,268
|
126
|
3,394
|
|||||||||
EBITDA
|
$ |
42,067
|
$ |
526
|
$ |
42,593
|
||||||
1
|
EBITDA represents net income before interest, income taxes, depreciation and amortization. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States (GAAP). We have included data with respect to EBITDA because management believes it facilitates performance comparison between the Company and its competitors, and management evaluates the performance of its reportable segments using several measures, including EBITDA. Management considers EBITDA to be an important supplemental indicator of our core operating performance because it eliminates interest, income taxes, and depreciation and amortization charges to net income or loss. In relation to competitors, EBITDA eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. For these reasons, management believes that EBITDA provides important information regarding the operating performance of the Company and its reportable segments. |
|
Three Months Ended March 31,
|
$ Change
|
|
% Change
|
|
|||||||||||
|
2020
|
|
2019
|
|
||||||||||||
|
(dollars in thousands)
|
|||||||||||||||
Total EBITDA
|
$ |
58,986
|
$ |
42,593
|
$ |
16,393
|
38.5
|
% | ||||||||
Trex Residential EBITDA
|
$ |
56,950
|
$ |
42,067
|
$ |
14,883
|
35.4
|
% | ||||||||
Trex Commercial EBITDA
|
$ |
2,036
|
$ |
526
|
$ |
1,510
|
287.1
|
% |
|
Three Months Ended March 31,
|
|||||||
|
2020
|
|
2019
|
|
||||
Net cash used in operating activities
|
$ |
(108,768
|
) | $ |
(109,990
|
) | ||
Net cash used in investing activities
|
(20,597
|
) |
(8,647
|
) | ||||
Net cash used in financing activities
|
(14,129
|
) |
20,845
|
|||||
Net decrease in cash and cash equivalents
|
$ |
(143,494
|
) | $ |
(97,792
|
) | ||
Item
|
3. Quantitative and Qualitative Disclosures About Market Risk
|
Item
|
4. Controls and Procedures
|
Item
|
1A. Risk Factors
|
Risk
|
|
Discussion
|
||
Description:
Our business, results of operations and financial condition may be disrupted and adversely affected by global public health pandemics, including the strain of coronavirus known as
COVID-19.
Impact:
If our employees or the employees of our suppliers or transportation providers are unable to work because of illness related to the
COVID-19
pandemic, or if we or our suppliers or transportation providers are forced to temporarily cease operations, either on a voluntary or mandatory basis, then we may have a period of reduced operations and be unable to supply our customers in a timely manner, which could have a material negative impact on our business.
If the
COVID-19
outbreak disrupts the operations of our distributors and retail outlets and negatively impacts economies in the United States, Canada and the rest of the world, our business, results of operations and financial condition may be adversely affected.
|
|
In December 2019, a novel strain of coronavirus,
COVID-19,
was reported to have surfaced in Wuhan, China. It spread to other countries, including the United States, and efforts to contain
COVID-19
have intensified. In March 2020, the World Health Organization characterized
COVID-19
as a pandemic. Our business, results of operations and financial condition may be adversely affected if
COVID-19
interferes with the ability of our employees, suppliers and other business partners to perform their respective responsibilities and obligations relative to the conduct of our business.
We continue to monitor the recent outbreak of
COVID-19
and evaluate its impact on our business, including new information as it emerges concerning its severity and any actions to prevent, contain or treat it, among others. The extent to which
COVID-19
may impact our business will depend on future developments, which are highly uncertain and cannot be predicted.
|
Item
|
2. Unregistered Sales of Equity Securities and Use of Proceeds
|
Period
|
(a)
Total Number of
Shares (or Units) Purchased (1) |
|
(b)
Average Price Paid
per Share (or Unit)
($)
|
|
(c)
Total Number of
Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) |
|
(d)
Maximum number of
Shares (or Units) that May Yet Be Purchased Under the Plan or Program |
|
||||||||
January 1, 2020 – January 31, 2020
|
47,062
|
$ |
96.61
|
42,238
|
4,798,382
|
|||||||||||
February 1, 2020 – February 29, 2020
|
71,626
|
$ |
101.46
|
38,292
|
4,760,090
|
|||||||||||
March 1, 2020 – March 31, 2020
|
361,479
|
$ |
86.08
|
361,479
|
4,398,611
|
|||||||||||
Quarterly period ended March 31, 2020
|
480,167
|
|
442,009
|
|
||||||||||||
(1) | Includes shares withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s 2014 Stock Incentive Plan allowing the Company to withhold, or the recipient to deliver to the Company, the number of shares having the fair value equal to tax withholding due. |
(2) | On February 16, 2018, the Company’s Board of Directors authorized a common stock repurchase program of up to 5.8 million shares of the Company’s outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018. During the three months ended March 31, 2020, the Company repurchased 442,009 shares under the Stock Repurchase Program. |
|
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
|
||||||||
Jay M. Gratz
|
48,040,385
|
2,538,485
|
62,250
|
4,792,513
|
||||||||||||
Kristine L. Juster
|
48,961,427
|
1,175,968
|
503,725
|
4,792,513
|
||||||||||||
Ronald W. Kaplan
|
47,377,257
|
3,201,360
|
62,503
|
4,792,513
|
||||||||||||
Gerald Volas
|
49,121,078
|
1,010,571
|
509,471
|
4,792,513
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||
49,322,107
|
946,485
|
372,528
|
4,792,513
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||
50,004,012
|
5,353,216
|
76,405
|
—
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||
54,467,137
|
904,751
|
61,745
|
—
|
|
|
TREX COMPANY, INC.
|
||||
Date: May 4, 2020
|
By:
|
/s/ Bryan H. Fairbanks
|
||||
|
|
|
Bryan H. Fairbanks
|
|||
|
|
|
President and Chief Executive Officer
|
|||
|
|
|
(Duly Authorized Officer)
|
|
|
|
Incorporated by reference
|
|||||||||||||||||
Exhibit
No.
|
|
Description
|
Form
|
|
Exhibit
|
|
Filing Date
|
|
File No.
|
|
||||||||||
3.1
|
S-1/A
|
3.1
|
March 24, 1999
|
333-63287
|
||||||||||||||||
3.2
|
10-Q
|
3.2
|
May 5, 2014
|
001-14649
|
||||||||||||||||
3.3
|
10-Q
|
3.3
|
May 7, 2018
|
001-14649
|
||||||||||||||||
3.4
|
8-K
|
3.1
|
May 1, 2019
|
001-14649
|
||||||||||||||||
3.5*
|
|
|
|
|
||||||||||||||||
3.6
|
8-K
|
3.2
|
May 1, 2019
|
001-14649
|
||||||||||||||||
10.1***
|
8-K
|
10.1
|
February 25, 2020
|
001-14649
|
||||||||||||||||
10.2***
|
8-K
|
10.2
|
February 25, 2020
|
001-14649
|
||||||||||||||||
10.3***
|
8-K
|
10.3
|
February 25, 2020
|
001-14649
|
||||||||||||||||
31.1*
|
|
|
|
|
||||||||||||||||
31.2*
|
|
|
|
|
||||||||||||||||
32**
|
|
|
|
|
||||||||||||||||
101.INS*
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
|
|
|
|
|||||||||||||||
101.SCH*
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
|
|
|
|||||||||||||||
101.CAL*
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
|
|
|
|
Incorporated by reference
|
|||||||||||||||||
Exhibit
No.
|
|
Description
|
Form
|
|
Exhibit
|
|
Filing Date
|
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File No.
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101.DEF*
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Inline XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB*
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Inline XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE*
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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104.1*
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Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
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Filed herewith
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Furnished herewith
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***
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Management contract or compensatory plan or agreement
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Exhibit 3.5
FOURTH CERTIFICATE OF AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION OF
TREX COMPANY, INC.
Trex Company, Inc., a Delaware corporation (the Corporation), does hereby certify:
FIRST: That Article IV of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
The Corporation shall have the authority to issue a total of one hundred eighty-three million (183,000,000) shares of capital stock, each with a par value of $0.01, consisting of one hundred eighty million (180,000,000) shares of common stock and three million (3,000,000) shares of preferred stock.
SECOND: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
In witness whereof, the Corporation has caused this Certificate to be signed by its duly authorized officer, this 29th day of April, 2020.
By: /s/ William R. Gupp |
Name: William R. Gupp |
Title: Senior Vice President, General Counsel and Secretary |
Exhibit 31.1
CERTIFICATION
I, Bryan H. Fairbanks, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Trex Company, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function(s)): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 4, 2020
/s/ Bryan H. Fairbanks |
Bryan H. Fairbanks |
President and Chief Executive Officer |
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Bryan H. Fairbanks, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Trex Company, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function(s)): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 4, 2020
/s/ Bryan H. Fairbanks |
Bryan H. Fairbanks |
Acting Chief Financial Officer (Principal Financial Officer) |
Exhibit 32
Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
The undersigned, the President and Chief Executive Officer and the Acting Chief Financial Officer of Trex Company, Inc. (the Company), each hereby certifies that, on the date hereof:
(a) |
the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2020 filed on the date hereof with the U.S. Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(b) |
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 4, 2020 |
/s/ Bryan H. Fairbanks |
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Bryan H. Fairbanks | ||
President and Chief Executive Officer | ||
Date: May 4, 2020 |
/s/ Bryan H. Fairbanks |
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Bryan H. Fairbanks | ||
Acting Chief Financial Officer |