QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
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(Address of principal executive offices) |
(Zip Code) |
☒ | Accelerated filer | ☐ | ||||
Non-accelerated filer |
☐ | Smaller reporting company | ||||
Emerging growth company |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
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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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4 |
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5 |
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6 |
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Item 2. |
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Item 3. |
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Item 4. |
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30 |
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Item 1. |
30 |
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Item 1A. |
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Item 2. |
31 |
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Item 5. |
32 |
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Item 6. |
32 |
Item 1. |
Condensed Consolidated Financial Statements |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2020 |
2019 |
2020 |
2019 |
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Net sales |
$ | $ | $ | $ | ||||||||||||
Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Income from operations |
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Interest income, net |
( |
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Income before income taxes |
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Provision for income taxes |
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Net income |
$ | $ | $ | $ | ||||||||||||
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Basic earnings per common share |
$ | $ | $ | $ | ||||||||||||
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Basic weighted average common shares outstanding |
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Diluted earnings per common share |
$ | $ | $ | $ | ||||||||||||
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Diluted weighted average common shares outstanding |
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Comprehensive income |
$ | $ | $ | $ | ||||||||||||
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September 30, 2020 |
December 31, 2019 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
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Inventories |
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Prepaid expenses and other assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill and other intangible assets, net |
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Operating lease assets |
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Other assets |
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Total assets |
$ | $ | ||||||
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
Accrued expenses and other liabilities |
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Accrued warranty |
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Total current liabilities |
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Operating lease liabilities |
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Non-current accrued warranty |
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Deferred income taxes |
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Other long-term liabilities |
— | |||||||
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock, at cost, |
( |
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) | ||||
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
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Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total |
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Shares |
Amount |
Shares |
Amount |
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Balance, December 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance, March 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Net income |
— |
— | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
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Balance, June 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
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Balance, September 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
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Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Treasury Stock |
Total |
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Shares |
Amount |
Shares |
Amount |
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Balance, December 31, 2018 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | |||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance, March 31, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | — | ||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance, June 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Employee stock plans |
— | — | — | |||||||||||||||||||||||||
Shares withheld for taxes on awards |
( |
) | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||
Stock-based compensation |
— | — | — | — | ||||||||||||||||||||||||
Repurchases of common stock |
( |
) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
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Balance, September 30, 2019 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
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Nine Months Ended September 30, |
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2020 |
2019 |
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Operating Activities |
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Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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(Gain) loss on disposal of property, plant and equipment |
( |
) | ||||||
Other non-cash adjustments |
( |
) | ( |
) | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
( |
) | ( |
) | ||||
Inventories |
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Prepaid expenses and other assets |
( |
) | ||||||
Accounts payable |
( |
) | ||||||
Accrued expenses and other liabilities |
( |
) | ||||||
Income taxes receivable/payable |
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Net cash provided by operating activities |
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Investing Activities |
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Expenditures for property, plant and equipment |
( |
) | ( |
) | ||||
Proceeds from sales of property, plant and equipment |
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Net cash used in investing activities |
( |
) | ( |
) | ||||
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Financing Activities |
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Borrowings under line of credit |
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Principal payments under line of credit |
( |
) | ( |
) | ||||
Repurchases of common stock |
( |
) | ( |
) | ||||
Financing costs |
( |
) | — | |||||
Proceeds from employee stock purchase and option plans |
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Net cash used in financing activities |
( |
) | ( |
) | ||||
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Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
$ | $ | ||||||
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Supplemental Disclosure: |
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Cash paid for interest |
$ | $ | ||||||
Cash paid for income taxes, net |
$ | $ |
1. |
BUSINESS AND ORGANIZATION |
2. |
BASIS OF PRESENTATION |
3. |
RECENTLY ADOPTED ACCOUNTING STANDARDS |
4. |
NEW ACCOUNTING STANDARDS NOT YET ADOPTED |
5. |
INVENTORIES |
September 30, 2020 |
December 31, 2019 |
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Finished goods |
$ | $ | ||||||
Raw materials |
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Total FIFO (first-in, first-out) inventories |
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Reserve to adjust inventories to LIFO value |
( |
) | ( |
) | ||||
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Total LIFO inventories |
$ | $ | ||||||
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6. |
PREPAID EXPENSES AND OTHER ASSETS |
September 30, 2020 |
December 31, 2019 |
|||||||
Revenues in excess of billings |
$ | $ | ||||||
Prepaid expenses |
||||||||
Contract retainage |
||||||||
Income tax receivable |
— | |||||||
Other |
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Total prepaid expenses and other assets |
$ | |
$ | |
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7. |
GOODWILL AND OTHER INTANGIBLE ASSETS |
8. |
ACCRUED EXPENSES AND OTHER LIABILITIES |
September 30, 2020 |
December 31, 2019 |
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Sales and marketing |
$ | |
$ | |
||||
Compensation and benefits |
||||||||
Operating lease liabilities |
||||||||
Manufacturing costs |
||||||||
Customer deposits |
||||||||
Income taxes |
— | |||||||
Billings in excess of revenues |
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Other |
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Total accrued expenses and other liabilities |
$ | $ | ||||||
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9. |
DEBT |
Pricing Tier |
Consolidated Debt to Consolidated EBITDA Ratio |
Eurodollar Rate Loans / LIBOR Index Rate |
Base Rate Loans | Revolving B Commitment Fee |
||||||||||||
1 |
% | % | % | |||||||||||||
2 |
> 2.00:1.00 |
but |
% | % | % | |||||||||||
3 |
> 1.50:1.00 |
but |
% | % | % | |||||||||||
4 |
% | % | % |
10. |
LEASES |
Nine Months Ended |
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Supplemental cash flow information |
September 30, 2020 |
September 30, 2019 |
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Cash paid for amounts included in the measurement of operating lease liabilities |
$ | |
$ | |
||||
Operating ROU assets obtained in exchange for lease liabilities |
$ | $ |
Supplemental balance sheet information |
September 30, 2020 |
December 31, 2019 |
||||||
Operating lease ROU assets |
$ | |
$ | |
||||
Operating lease liabilities: |
||||||||
Accrued expenses and other current liabilities |
$ | $ | ||||||
Operating lease liabilities |
||||||||
Total operating lease liabilities |
$ | $ | ||||||
Maturities of operating lease liabilities |
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2020 |
$ | |||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
Thereafter |
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Total lease payments |
||||
Less imputed interest |
( |
) | ||
Total operating lease liabilities |
$ | |||
11. |
FINANCIAL INSTRUMENTS |
12. |
STOCKHOLDERS’ EQUITY |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2020 |
2019 |
2020 |
2019 |
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Numerator: |
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Net income available to common shareholders |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic weighted average shares outstanding |
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Effect of dilutive securities: |
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Stock appreciation rights and options |
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Restricted stock |
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Diluted weighted average shares outstanding |
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Basic earnings per share |
$ | $ | $ | $ | ||||||||||||
Diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2020 |
2019 |
2020 |
2019 |
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Stock appreciation rights |
13. |
REVENUE FROM CONTRACTS WITH CUSTOMERS |
Three Months Ended September 30, 2020 |
Reportable Segment |
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Trex Residential |
Trex Commercial |
Total |
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Timing of Revenue Recognition and Type of Contract |
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Products transferred at a point in time and variable consideration contracts |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
Nine Months Ended September 30, 2020 |
Reportable Segment |
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Trex Residential |
Trex Commercial |
Total |
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Timing of Revenue Recognition and Type of Contract |
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Products transferred at a point in time and variable consideration contracts |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
Three Months Ended September 30, 2019 |
Reportable Segment |
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Trex Residential |
Trex Commercial |
Total |
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Timing of Revenue Recognition and Type of Contract |
||||||||||||
Products transferred at a point in time and variable consideration contracts |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
Nine Months Ended September 30, 2019 |
Reportable Segment |
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Trex Residential |
Trex Commercial |
Total |
||||||||||
Timing of Revenue Recognition and Type of Contract |
||||||||||||
Products transferred at a point in time and variable consideration contracts |
$ | $ | — | $ | ||||||||
Products transferred over time and fixed price contracts |
— | |||||||||||
$ | $ | $ | ||||||||||
14. |
STOCK-BASED COMPENSATION |
Stock Awards Granted |
Weighted-Average Grant Price Per Share |
|||||||
Time-based restricted stock units |
$ | |||||||
Performance-based restricted stock units (a) |
$ | |||||||
Stock appreciation rights |
$ |
(a) | Includes |
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
|||||||
Weighted-average fair value of grants |
$ | $ | ||||||
Dividend yield |
% | % | ||||||
Average risk-free interest rate |
% | % | ||||||
Expected term (years) |
||||||||
Expected volatility |
% | % |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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2020 |
2019 |
2020 |
2019 |
|||||||||||||
Stock appreciation rights |
$ | $ | $ | $ | ||||||||||||
Time-based restricted stock and restricted stock units |
||||||||||||||||
Performance-based restricted stock and restricted stock units |
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Employee stock purchase plan |
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Total stock-based compensation |
$ | $ | $ | $ | ||||||||||||
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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 September 30, 2020 |
Three Months Ended September 30, 2019 |
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Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net sales |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Net income |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
EBITDA |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Depreciation and |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Income tax expense |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Capital expenditures |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Total assets |
$ |
$ |
$ |
$ |
$ |
$ |
Three Months Ended September 30, 2020 |
Three Months Ended September 30, 2019 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net income |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Interest income, net |
( |
) |
— |
( |
) |
( |
) |
— |
( |
) | ||||||||||||||
Income tax expense |
||||||||||||||||||||||||
Depreciation and amortization |
||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
EBITDA |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net sales |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Net income |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
EBITDA |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Depreciation and amortization |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Income tax expense |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Capital expenditures |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Total assets |
$ |
$ |
$ |
$ |
$ |
$ |
Nine Months Ended September 30, 2020 |
Nine Months Ended September 30, 2019 |
|||||||||||||||||||||||
Trex Residential |
Trex Commercial |
Total |
Trex Residential |
Trex Commercial |
Total |
|||||||||||||||||||
Net income |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Interest income, net |
( |
) |
— |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||
Income tax expense |
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Depreciation and amortization |
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EBITDA |
$ |
$ |
$ |
$ |
$ |
$ |
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17. |
SEASONALITY |
18. |
COMMITMENTS AND CONTINGENCIES |
Nine Months Ended September 30, 2020 |
||||||||||||
Surface Flaking |
Other Residential |
Total |
||||||||||
Beginning balance, January 1 |
$ | $ | $ | |||||||||
Provisions and changes in estimates |
||||||||||||
Settlements made during the period |
( |
) | ( |
) | ( |
) | ||||||
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|
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Ending balance, September 30 |
$ | $ | $ | |||||||||
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|
|
|
|
Nine Months Ended September 30, 2019 |
||||||||||||
Surface Flaking |
Other Residential |
Total |
||||||||||
Beginning balance, January 1 |
$ | $ | $ | |||||||||
Provisions and changes in estimates |
— | |||||||||||
Settlements made during the period |
( |
) | ( |
) | ( |
) | ||||||
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|
|
|
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|
|||||||
Ending balance, September 30 |
$ | $ | $ | |||||||||
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Decking and Accessories |
Our principal decking products are Trex Transcend ® , Trex Select® ® . 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 polyethylene 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 19%, or $37.0 million, to $231.5 million for the three months ended September 30, 2020 compared to $194.6 million for the three months ended September 30, 2019. |
• | Increase in gross profit of 3.1%, or $2.5 million, to $85.0 million for the three months ended September 30, 2020 compared to $82.4 million for the three months ended September 30, 2019. |
• | Increase in net income to $42.7 million, or $0.37 per diluted share, for the three months ended September 30, 2020 compared to $42.0 million, or $0.36 per diluted share, for the three months ended September 30, 2019. |
• | Capital expenditures of $37.1 million, primarily to increase production capacity at the Trex Residential facilities in Virginia and Nevada and for cost reduction initiatives and other production improvements. |
Nine Months Ended September 30, |
||||||||
2020 |
2019 |
|||||||
Claims open, beginning of period |
1,724 | 2,021 | ||||||
Claims received (1) |
1,263 | 1,184 | ||||||
Claims resolved (2) |
(1,042 | ) | (1,239 | ) | ||||
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|
|
|
|||||
Claims open, end of period |
1,945 | 1,966 | ||||||
|
|
|
|
|||||
Average cost per claim (3) |
$ | 3,396 | $ | 3,475 |
(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 September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
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 | % |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Cost of sales |
$ | 146,538 | $ | 112,120 | $ | 34,418 | 30.7 | % | ||||||||
% of total net sales |
63.3 | % | 57.6 | % | ||||||||||||
Gross profit |
$ | 84,964 | $ | 82,431 | $ | 2,533 | 3.1 | % | ||||||||
Gross margin |
36.7 | % | 42.4 | % |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Selling, general and administrative expenses |
$ | 28,027 | $ | 27,409 | $ | 618 | 2.3 | % | ||||||||
% of total net sales |
12.1 | % | 14.1 | % |
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Provision for income taxes |
$ | 14,435 | $ | 13,790 | $ | 645 | 4.7 | % | ||||||||
Effective tax rate |
25.3 | % | 24.7 | % |
Three Months Ended September 30, 2020 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 42,225 | $ | 485 | $ | 42,710 | ||||||
Interest income, net |
(208 | ) | — | (208 | ) | |||||||
Income tax expense |
14,276 | 159 | 14,435 | |||||||||
Depreciation and amortization |
4,326 | 209 | 4,535 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 60,619 | $ | 853 | $ | 61,472 | ||||||
|
|
|
|
|
|
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 September 30, 2019 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 41,381 | $ | 595 | $ | 41,976 | ||||||
Interest income, net |
(744 | ) | — | (744 | ) | |||||||
Income tax expense |
13,580 | 210 | 13,790 | |||||||||
Depreciation and amortization |
3,422 | 165 | 3,587 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 57,639 | $ | 970 | $ | 58,609 | ||||||
|
|
|
|
|
|
Three Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
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 | )% |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
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 | )% |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Cost of sales |
$ | 385,479 | $ | 345,334 | $ | 40,145 | 11.6 | % | ||||||||
% of total net sales |
59.1 | % | 59.5 | % | ||||||||||||
Gross profit |
$ | 267,066 | $ | 235,241 | $ | 31,825 | 13.5 | % | ||||||||
Gross margin |
40.9 | % | 40.5 | % |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Selling, general and administrative expenses |
$ | 91,598 | $ | 93,281 | $ | (1,683 | ) | (1.8 | )% | |||||||
% of total net sales |
14.0 | % | 16.1 | % |
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
Provision for income taxes |
$ | 43,938 | $ | 33,520 | $ | 10,418 | 31.1 | % | ||||||||
Effective tax rate |
24.9 | % | 23.5 | % |
Nine Months Ended September 30, 2020 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 129,157 | $ | 3,174 | $ | 132,331 | ||||||
Interest income, net |
(801 | ) | — | (801 | ) | |||||||
Income tax expense |
42,853 | 1,085 | 43,938 | |||||||||
Depreciation and amortization |
11,855 | 595 | 12,450 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 183,064 | $ | 4,854 | $ | 187,918 | ||||||
|
|
|
|
|
|
2 |
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. |
Nine Months Ended September 30, 2019 |
||||||||||||
Trex Residential |
Trex Commercial |
Total |
||||||||||
Net income |
$ | 107,859 | $ | 1,382 | $ | 109,241 | ||||||
Interest income, net |
(794 | ) | (7 | ) | (801 | ) | ||||||
Income tax expense |
33,046 | 474 | 33,520 | |||||||||
Depreciation and amortization |
9,947 | 433 | 10,380 | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
$ | 150,058 | $ | 2,282 | $ | 152,340 | ||||||
|
|
|
|
|
|
Nine Months Ended September 30, |
$ Change |
% Change |
||||||||||||||
2020 |
2019 |
|||||||||||||||
(dollars in thousands) |
||||||||||||||||
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 | % |
Nine Months Ended September 30, |
||||||||
2020 |
2019 |
|||||||
Net cash provided by operating activities |
$ | 12,514 | $ | 98,986 | ||||
Net cash used in investing activities |
(97,546 | ) | (36,905 | ) | ||||
Net cash used in financing activities |
(43,720 | ) | (34,498 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
$ | (128,752 | ) | $ | 27,583 | |||
|
|
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Item 4. |
Controls and Procedures |
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 outbreak of COVID-19 and evaluate its impact on our business, including new information as it emerges concerning its severity and the continuation and possible escalation of new cases, and any actions to prevent, contain or treat it, among others. These developments are constantly evolving and cannot be accurately predicted. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted.Currently, we continue to operate at output levels similar to those prior to the COVID-19 pandemic, and the pandemic has not had a material adverse effect on our business, results of operations, cash flows or financial condition. We are actively managing our business to respond to the impact, such as engaging with our distributor network regarding market demand, ongoing communications with our suppliers, and continuing to ensure the safety of our employees. |
Risk |
Discussion | |||
Description: Labor shortages or increases in labor costs could adversely impact our business and results of operations. Impact: If we are not successful in our recruiting and retention efforts, we could encounter a shortage of qualified employees in future periods. Any such shortage would decrease our ability to produce sufficient quantities of our product to serve our customers effectively. Such a shortage may also require us to pay higher wages for employees and incur a corresponding reduction in our profitability. |
Labor is a key component of our production process. We rely heavily on our employees and any shortage of qualified labor could adversely affect our business. Our success is dependent upon recruiting qualified employees to manufacture our product. Our future success depends on, among other things, our ability to identify, attract, hire, train, retain and motivate operational personnel on a timely basis as we continue our pace of growth. Further, improvements in the economy and labor markets could impact our ability to attract and retain key personnel. We foster the development and engagement of our employees, and our compensation, incentive and benefit packages encourage retention of our employees and aid in our ability to attract personnel. |
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 |
||||||||||||
July 1, 2020 – July 31, 2020 |
4,486 | $ | 69.67 | — | 8,797,222 | |||||||||||
August 1, 2020 – August 31, 2020 |
— | — | — | 8,797,222 | ||||||||||||
September 1, 2020 – September 30, 2020 |
— | — | — | 8,797,222 | ||||||||||||
|
|
|
|
|||||||||||||
Quarterly period ended September 30, 2020 |
4,486 | — | ||||||||||||||
|
|
|
|
(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 11.6 million shares of the Company’s outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018. The Company did not purchase any shares under the Stock Repurchase Program during the three months ended September 30, 2020. |
TREX COMPANY, INC. | ||||||
Date: November 2, 2020 | By: | /s/ Dennis C. Schemm | ||||
Dennis C. Schemm | ||||||
Vice President and Chief Financial Officer | ||||||
(Duly Authorized Officer and Principal Financial Officer) |
* | Filed herewith |
** | Furnished herewith |
*** | Management contract or compensatory plan or agreement |