10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-14649

Trex Company, Inc.

(Exact name of registrant as specified in its charter)

Delaware	54-1910453
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
160 Exeter Drive Winchester, Virginia	22603-8605
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (540) 542-6300

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	TREX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act):    Yes  ☐    No  ☒

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding at April 26, 2022 was 113,199,234 shares.

TREX COMPANY, INC.

INDEX

		Page
PART I FINANCIAL INFORMATION			2
Item 1.	Condensed Consolidated Financial Statements		2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and March 31, 2021 (unaudited)		2
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited)		3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and March 31, 2021 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and March 31, 2021 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		23
PART II OTHER INFORMATION			24
Item 1.	Legal Proceedings		24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		24
Item 5.	Other Information		24
Item 6.	Exhibits		25

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PART I

FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

TREX COMPANY, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share data)

	Three Months Ended March 31,
	2022		2021
Net sales	$	339,228	$	245,524
Cost of sales		204,316		149,723
Gross profit		134,912		95,801
Selling, general and administrative expenses		39,960		32,049
Gain on insurance proceeds		—		(737	)
Income from operations		94,952		64,489
Interest expense (income), net		14		(3	)
Income before income taxes		94,938		64,492
Provision for income taxes		23,727		15,947
Net income	$	71,211	$	48,545
Basic earnings per common share	$	0.62	$	0.42
Basic weighted average common shares outstanding		114,638,424		115,663,366
Diluted earnings per common share	$	0.62	$	0.42
Diluted weighted average common shares outstanding		114,853,881		116,017,400
Comprehensive income	$	71,211	$	48,545

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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TREX COMPANY, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	March 31, 2022			December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	115,188		$	141,053
Accounts receivable, net		200,920			151,096
Inventories		98,176			83,753
Prepaid expenses and other assets		22,878			25,152
Total current assets		437,162			401,054
Property, plant and equipment, net		472,525			460,365
Operating lease assets		37,479			34,571
Goodwill and other intangible assets, net		18,896			19,001
Other assets		6,334			5,330
Total assets	$	972,396		$	920,321
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	61,707		$	24,861
Accrued expenses and other liabilities		75,013			58,041
Accrued warranty		6,300			5,800
Total current liabilities		143,020			88,702
Deferred income taxes		43,967			43,967
Operating lease liabilities		30,672			28,263
Non-current accrued warranty		22,112			22,795
Other long-term liabilities		11,560			11,560
Total liabilities		251,331			195,287
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, 180,000,000 shares authorized; 140,787,904 and 140,734,753 shares issued and 114,367,340 and 115,148,152 shares outstanding at March 31, 2022 and December 31, 2021, respectively		1,408			1,407
Additional paid-in capital		127,623			127,787
Retained earnings		1,017,259			946,048
Treasury stock, at cost, 26,420,564 and 25,586,601 shares at March 31, 2022 and December 31, 2021, respectively		(425,225	)		(350,208	)
Total stockholders’ equity		721,065			725,034
Total liabilities and stockholders’ equity	$	972,396		$	920,321

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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TREX COMPANY, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

	Common Stock					Additional Paid-In Capital			Retained Earnings		Treasury Stock					Total
	Shares			Amount							Shares		Amount
Balance, December 31, 2021		115,148,152		$	1,407	$	127,787		$	946,048		25,586,601	$	(350,208	)	$	725,034
Net income		—			—		—			71,211		—		—			71,211
Employee stock plans		9,081			—		523			—		—		—			523
Shares withheld for taxes on awards		(35,856	)		—		(2,912	)		—		—		—			(2,912	)
Stock-based compensation		79,926			1		2,225			—		—		—			2,226
Repurchases of common stock		(833,963	)		—		—			—		833,963		(75,017	)		(75,017	)
Balance, March 31, 2022		114,367,340		$	1,408	$	127,623		$	1,017,259		26,420,564	$	(425,225	)	$	721,065

	Common Stock					Additional Paid-In Capital			Retained Earnings		Treasury Stock					Total
	Shares			Amount							Shares		Amount
Balance, December 31, 2020		115,799,503		$	1,406	$	126,087		$	737,311		24,777,502	$	(276,273	)	$	588,531
Net income		—			—		—			48,545		—		—			48,545
Employee stock plans		28,286			—		460			—		—		—			460
Shares withheld for taxes on awards		(38,212	)		—		(4,045	)		—		—		—			(4,045	)
Stock-based compensation		76,094			—		2,176			—		—		—			2,176
Repurchases of common stock		(504,275	)		—		—			—		504,275		(45,523	)		(45,523	)
Balance, March 31, 2021		115,361,396		$	1,406	$	124,678		$	785,856		25,281,777	$	(321,796	)	$	590,144

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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TREX COMPANY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2022			2021
Operating Activities
Net income	$	71,211		$	48,545
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		10,473			6,423
Stock-based compensation		2,226			2,176
Gain on disposal of property, plant and equipment		—			(98	)
Other non-cash adjustments		77			77
Changes in operating assets and liabilities:
Accounts receivable		(49,825	)		(202,781	)
Inventories		(14,423	)		(6,774	)
Prepaid expenses and other assets		1,560			(809	)
Accounts payable		36,605			10,494
Accrued expenses and other liabilities		(6,149	)		(14,453	)
Income taxes receivable/payable		22,124			14,626
Net cash provided by (used in) operating activities		73,879			(142,574	)
Investing Activities
Expenditures for property, plant and equipment		(22,288	)		(58,093	)
Proceeds from sales of property, plant and equipment		—			293
Net cash used in investing activities		(22,288	)		(57,800	)
Financing Activities
Borrowings under line of credit		—			142,000
Principal payments under line of credit		—			(6,000	)
Repurchases of common stock		(77,929	)		(49,566	)
Proceeds from employee stock purchase and option plans		523			460
Financing costs		(50	)		—
Net cash (used in) provided by financing activities		(77,456	)		86,894
Net decrease in cash and cash equivalents		(25,865	)		(113,480	)
Cash and cash equivalents, beginning of period		141,053			121,701
Cash and cash equivalents, end of period	$	115,188		$	8,221
Supplemental Disclosure:
Cash paid for interest, net of capitalized interest	$	—		$	—
Cash paid for income taxes, net	$	1,604		$	1,319

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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TREX COMPANY, INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021 and 2022

(Unaudited)

1. BUSINESS AND ORGANIZATION

Trex Company, Inc. (Trex), a Delaware corporation, was incorporated on September 4, 1998. Together, Trex and its wholly-owned subsidiary, Trex Commercial Products, Inc., are referred to as the Company. The Company operates in two reportable segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). Trex Residential, the Company’s principal business based on net sales, is the world’s largest manufacturer of high-performance, low-maintenance wood-alternative decking and residential railing and outdoor living products and accessories, marketed under the brand name Trex®, with more 30 years of product experience. A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. Also, the Company is a leading national provider of custom-engineered railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and the telephone number at that address is (540) 542-6300.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments, except as otherwise described herein) considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company for all periods presented. Intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. The Company’s results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from the COVID-19 pandemic and geopolitical conflicts.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021 included in the Annual Report of Trex Company, Inc. on Form 10-K, as filed with the U.S. Securities and Exchange Commission.

3. RECENTLY ADOPTED ACCOUNTING STANDARDS

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”. The guidance requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model, such as IAS 20, ASC 958-605. The annual disclosure requirements include: the nature of the transactions, the entities related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item, and significant terms and conditions of the transactions. The disclosure requirements could be applied either prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application, or retrospectively. The guidance was effective for fiscal years beginning after December 15, 2021, with early application permitted. The adoption of the guidance did not have a material effect on the Company’s consolidated financial statements.

4. NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The guidance provides temporary optional expedients and exceptions

6

related to contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The new guidance allows entities to elect not to apply certain modification accounting requirements, if certain criteria are met, to contracts affected by what the guidance calls reference rate reform. An entity that makes this election would consider changes in reference rates and other contract modifications related to reference rate reform to be events that do not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The guidance is effective upon issuance and generally can be applied as of March 12, 2020 through December 31, 2022. The Company does not expect adoption of the guidance to have a material effect on its consolidated financial statements.

5. INVENTORIES

Inventories valued at LIFO (last-in, first-out), consist of the following (in thousands):

	March 31, 2022			December 31, 2021
Finished goods	$	64,382		$	58,401
Raw materials		63,175			56,441
Total FIFO (first-in, first-out) inventories		127,557			114,842
Reserve to adjust inventories to LIFO value		(36,467	)		(36,467	)
Total LIFO inventories	$	91,090		$	78,375

The Company utilizes the LIFO method of accounting related to its Trex Residential wood-alternative decking and residential railing products, which generally provides for the matching of current costs with current revenues. However, under the LIFO method, reductions in annual inventory balances cause a portion of the Company’s cost of sales to be based on historical costs rather than current year costs (LIFO liquidation). Reductions in interim inventory balances expected to be replenished by year-end do not result in a LIFO liquidation. Accordingly, interim LIFO calculations are based, in part, on management’s estimates of expected year-end inventory levels and costs, which may differ from actual results. Since inventory levels and costs are subject to factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation. There were no LIFO inventory liquidations or related impact on cost of sales in the three months ended March 31, 2022.

Inventories valued at lower of cost (FIFO method) and net realizable value were $7.1 million at March 31, 2022 and $5.4 million at December 31, 2021, consisting primarily of raw materials. The Company utilizes the FIFO method of accounting related to its Trex Commercial products.

6. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consist of the following (in thousands):

	March 31, 2022		December 31, 2021
Prepaid expenses	$	12,599	$	15,061
Revenues in excess of billings		8,897		9,109
Income tax receivable		723		406
Other		659		576
Total prepaid expenses and other assets	$	22,878	$	25,152

7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The carrying amount of goodwill by reportable segment at March 31, 2022 and December 31, 2021 was $14.2 million for Trex Residential. The Company’s intangible assets consist of domain names. At March 31, 2022 and December 31, 2021, intangible assets were $6.3 million and accumulated amortization was $1.6 million and $1.5 million, respectively. Intangible asset amounts were determined based on the estimated economics of the asset and are amortized over the estimated useful lives on a straight-line basis over 15 years, which approximates the pattern in which the economic benefits are expected to be received. The Company evaluates the recoverability of intangible assets periodically and considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the three months ended March 31, 2022 and March 31, 2021 was $0.1 million and $0.1 million, respectively.

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8. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):

	March 31, 2022		December 31, 2021
Income taxes	$	22,441	$	—
Sales and marketing		21,948		16,439
Compensation and benefits		12,719		25,450
Operating lease liabilities		7,504		7,066
Manufacturing costs		4,060		4,110
Billings in excess of revenues		2,151		1,436
Other		4,190		3,540
Total accrued expenses and other liabilities	$	75,013	$	58,041

9. DEBT

Revolving Credit Facility

On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial Products, Inc., as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, and Truist Bank, arranged by BOA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), dated as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more Revolving Loans in a collective maximum principal amount of $250 million from January 1 through June 30 of each year and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024.

On May 26, 2020, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) to provide for an additional $100 million line of credit through May 26, 2022. As a matter of convenience, the parties incorporated the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement, the revolving commitments under the Original Credit Agreement are referred to as Revolving A Commitments and the new $100 million line of credit is referred to as Revolving B Commitments. In the New Credit Agreement, all of the material terms and conditions related to the original line of credit (Revolving A Commitments) remain unchanged from the Original Credit Agreement.

The Company had no outstanding borrowings under its revolving credit facility and available borrowing capacity of $350 million at March 31, 2022.

Compliance with Debt Covenants and Restrictions

Pursuant to the terms of the Fourth Amended Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants as of March 31, 2022. Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding.

10. LEASES

The Company leases office space, storage warehouses and certain plant equipment under various operating leases. The Company’s operating leases have remaining lease terms of less than 1 year to 8 years. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

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For the three months ended March 31, 2022 and March 31, 2021, total operating lease expense was $2.1 million and $2.0 million, respectively. The weighted average remaining lease term at March 31, 2022 and December 31, 2021 was 5.9 years and 5.8 years, respectively. The weighted average discount rate at March 31, 2022 and December 31, 2021 was 2.20% and 2.47%, respectively.

The following table includes supplemental cash flow information for the three months ended March 31, 2022 and March 31, 2021 and supplemental balance sheet information at March 31, 2022 and December 31, 2021 related to operating leases (in thousands):

	Three Months Ended March 31,
Supplemental cash flow information	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,174	$	2,056
Operating ROU assets obtained in exchange for lease liabilities	$	6,053	$	1,038
Supplemental balance sheet information	March 31, 2022		December 31, 2021
Operating lease ROU assets	$	37,479	$	34,571
Operating lease liabilities:
Accrued expenses and other current liabilities	$	7,504	$	7,066
Operating lease liabilities		30,672		28,263
Total operating lease liabilities	$	38,176	$	35,329

The following table summarizes maturities of operating lease liabilities at March 31, 2022 (in thousands):

Maturities of operating lease liabilities
2022	$	6,276
2023		7,377
2024		6,653
2025		5,362
2026		4,852
Thereafter		10,156
Total lease payments		40,676
Less imputed interest		(2,500	)
Total operating lease liabilities	$	38,176

11. FINANCIAL INSTRUMENTS

The Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and debt to approximate the fair value of the respective assets and liabilities on the Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021.

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12. STOCKHOLDERS’ EQUITY

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2022		2021
Numerator:
Net income available to common shareholders	$	71,211	$	48,545
Denominator:
Basic weighted average shares outstanding		114,638,424		115,663,366
Effect of dilutive securities:
Stock appreciation rights and options		124,327		207,060
Restricted stock		91,130		146,974
Diluted weighted average shares outstanding		114,853,881		116,017,400
Basic earnings per share	$	0.62	$	0.42
Diluted earnings per share	$	0.62	$	0.42

Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus the dilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive:

	Three Months Ended March 31,
	2022		2021
Stock appreciation rights		31,006		7,181
Restricted stock		52,278		23,079

Stock Repurchase Program

On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). As of March 31, 2022, Trex has repurchased 4.4 million shares of its outstanding common stock under the Stock Repurchase Program.

First Certificate of Amendment to the Restated Certificate of Incorporation

At the annual meeting of stockholders of Trex held on May 5, 2022, its stockholders approved an amendment of the Trex Restated Certificate of Incorporation (Amendment), effective as of May 5, 2022. The Board of Directors of Trex unanimously approved the Amendment on February 23, 2022, subject to stockholder approval. The Amendment increases the number of shares of common stock, par value $.01 per share, that Trex is authorized to issue from 180 million shares to 360 million shares. The Amendment was filed with the Delaware Secretary of State on May 5, 2022.

13. REVENUE FROM CONTRACTS WITH CUSTOMERS

Trex Residential Products

Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly wood-alternative composite decking and residential railing products and accessories. Substantially all of its revenues are from contracts with customers, which are purchase orders of short-term duration of less than one year. Its customers, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation, is recognized when the product ships and the performance obligation is satisfied and is included in “Accrued expenses and other liabilities, Sales and marketing” in Note 8 to the Condensed Consolidated Financial Statements.

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Trex Commercial Products

Trex Commercial generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. The transaction price allocated to remaining performance obligations on contracts with an original duration greater than one year was $26.0 million as of March 31, 2022. The Company will recognize this revenue as contracts are completed, which is expected to occur within the next 26 months.

For the three months ended March 31, 2022 and March 31, 2021, net sales were disaggregated in the following tables by (1) market, (2) timing of revenue recognition, and (3) type of contract. The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands).

Three Months Ended March 31, 2022	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	$	327,194	$	—	$	327,194
Products transferred over time and fixed price contracts		—		12,034		12,034
	$	327,194	$	12,034	$	339,228

Three Months Ended March 31, 2021	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	$	233,070	$	—	$	233,070
Products transferred over time and fixed price contracts		—		12,454		12,454
	$	233,070	$	12,454	$	245,524

14. STOCK-BASED COMPENSATION

The Company has one stock-based compensation plan, the 2014 Stock Incentive Plan (Plan), approved by Trex stockholders in April 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan. The Plan is administered by the Compensation Committee of the Trex Board of Directors. Stock-based compensation is granted to officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and unrestricted stock. The total aggregate number of shares of Trex common stock that may be issued under the Plan is 25,680,000 and as of March 31, 2022, the total number of shares available for future issuance is 11,072,584.

The following table summarizes the Company’s stock-based compensation grants for the three months ended March 31, 2022:

	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		38,164	$	82.27
Performance-based restricted stock units (a)		71,731	$	76.24
Stock appreciation rights		32,971	$	82.01

(a) Includes 46,651 of target performance-based restricted stock unit awards granted during the three months ended March 31, 2022, and adjustments of 8,160, 11,684, and 5,236 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2021, 2020, and 2019, respectively.

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The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing formula. For SARs issued in the three months ended March 31, 2021 and March 31, 2020 the data and assumptions shown in the following table were used:

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Weighted-average fair value of grants	$	33.90		$	51.84
Dividend yield		0	%		0	%
Average risk-free interest rate		1.9	%		0.6	%
Expected term (years)		5			5
Expected volatility		44.9	%		58.7	%

The Company recognizes stock-based compensation expense ratably over the period from the grant date to the earlier of: (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is likely to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expense is recognized related to the discount on purchases. Stock-based compensation expense is included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Comprehensive Income. The following table summarizes the Company’s stock-based compensation expense (in thousands):

	Three Months Ended March 31
	2022		2021
Stock appreciation rights	$	154	$	114
Time-based restricted stock and restricted stock units		847		687
Performance-based restricted stock and restricted stock units		1,158		1,275
Employee stock purchase plan		67		100
Total stock-based compensation	$	2,226	$	2,176

Total unrecognized compensation cost related to unvested awards as of March 31, 2022 was $15.9 million. The cost of these unvested awards is being recognized over the requisite vesting period of each award.

15. INCOME TAXES

The Company’s effective tax rate for the three months ended March 31, 2022 and March 31, 2021 was 25.0% and 24.7%, respectively, which resulted in expense of $23.7 million and $15.9 million, respectively. The increase of 0.3% in the effective tax rate was primarily due to a current year decrease in excess tax benefits from the exercise of share-based payments.

During the three months ended March 31, 2022 and March 31, 2021, the Company realized $0.1million and $0.8 million, respectively, of excess tax benefits from stock-based awards and recorded a corresponding benefit to income tax expense.

The Company analyzes its deferred tax assets each reporting period, considering all available positive and negative evidence in determining the expected realization of those deferred tax assets. As of March 31, 2022, the Company maintains a valuation allowance of $2.2 million against deferred tax assets primarily related to state tax credits it estimates will expire before they are realized.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company accrues a liability when it believes that it is more likely than not that benefits of tax positions will not be realized. The Company believes that adequate provisions have been made for all tax returns subject to examination. As of March 31, 2022, for certain tax jurisdictions tax years 2018 through 2021 remain subject to examination. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdiction as the Company does not have a taxable presence in any foreign jurisdiction.

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16. SEGMENT INFORMATION

The Company operates in two reportable segments:

• 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.

The Company’s reportable segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial sales activities. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, income taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products, and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, income taxes, and depreciation and amortization charges to income. The below segment data for the three months ended March 31, 2022 and March 31, 2021 includes data for Trex Residential and Trex Commercial (in thousands):

Segment Data:

	Three Months Ended March 31, 2022							Three Months Ended March 31, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential		Trex Commercial			Total
Net sales	$	327,194	$	12,034		$	339,228	$	233,070	$	12,454		$	245,524
Net income (loss)	$	72,215	$	(1,004	)	$	71,211	$	48,745	$	(200	)	$	48,545
EBITDA	$	106,483	$	(1,058	)	$	105,425	$	70,964	$	(52	)	$	70,912
Depreciation and amortization	$	10,191	$	282		$	10,473	$	6,210	$	213		$	6,423
Income tax expense (benefit)	$	24,063	$	(336	)	$	23,727	$	16,012	$	(65	)	$	15,947
Capital expenditures	$	22,283	$	5		$	22,288	$	56,563	$	1,530		$	58,093
Total assets	$	929,737	$	42,659		$	972,396	$	808,864	$	91,426		$	900,290

Reconciliation of Net Income to EBITDA:

	Three Months Ended March 31, 2022							Three Months Ended March 31, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential			Trex Commercial			Total
Net income (loss)	$	72,215	$	(1,004	)	$	71,211	$	48,745		$	(200	)	$	48,545
Interest expense (income), net		14		—			14		(3	)		—			(3	)
Income tax expense (benefit)		24,063		(336	)		23,727		16,012			(65	)		15,947
Depreciation and amortization		10,191		282			10,473		6,210			213			6,423
EBITDA	$	106,483	$	(1,058	)	$	105,425	$	70,964		$	(52	)	$	70,912

17. SEASONALITY

The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary each quarterly period.

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18. COMMITMENTS AND CONTINGENCIES

Product Warranty

The Company warrants that its decking and residential railing products will be free from material defects in workmanship and materials for warranty periods ranging from 10 years to 25 years, depending on the product and its use. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years.

The Company continues to receive and settle claims for products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty reserve to provide for the settlement of these claims. Estimating the warranty reserve for surface flaking claims requires management to estimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.

To estimate the number of claims to be settled with payment, the Company utilizes actuarial techniques to quantify both the expected number of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.

The Company monitors surface flaking claims activity each quarter for indications that its estimates require revision. Typically, a majority of surface flaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has been the Company’s practice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful.

The number of incoming claims received in the three months ended March 31, 2022, was lower than the number of claims received in the three months ended March 31, 2021 and lower than the Company’s expectations for the first quarter of 2022. Average cost per claim experienced in the three months ended March 31, 2022 was significantly higher than that experienced in the three months ended March 31, 2021 and higher than the Company’s expectations for the current year. The elevated average cost per claim experienced in the three months ended March 31, 2022, was primarily the result of the closure of two large claims, which were considered in the Company’s estimation of its surface flaking warranty reserve. The Company believes its reserve at March 31, 2022 is sufficient to cover future surface flaking obligations.

The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause actual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s consolidated financial condition, results of operations or cash flows. The Company estimates that the annual number of claims received will decline over time and that the average cost per claim will increase. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or an increase in earnings and cash flows in future periods. The Company estimates that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $1.8 million change in the surface flaking warranty reserve.

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The following is a reconciliation of the Company’s residential product warranty reserve (in thousands):

	Three Months Ended March 31, 2022
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	18,542		$	10,053		$	28,595
Provisions and changes in estimates		—			1,090			1,090
Settlements made during the period		(745	)		(528	)		(1,273	)
Ending balance, March 31	$	17,797		$	10,615		$	28,412

	Three Months Ended March 31, 2021
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	21,325		$	8,148		$	29,473
Provisions and changes in estimates		—			1,092			1,092
Settlements made during the period		(604	)		(416	)		(1,020	)
Ending balance, March 31	$	20,721		$	8,824		$	29,545

Legal Matters

The Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business. Management has evaluated the merits of these lawsuits and claims and believes that their ultimate resolution will not have a material effect on the Company’s consolidated financial condition, results of operations, liquidity or competitive position.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management discussion should be read in conjunction with the Trex Company, Inc. (Trex) Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (SEC) and the condensed consolidated financial statements and notes thereto included in Part I, Item 1. “Financial Statements” of this quarterly report. Trex has one wholly-owned subsidiary, Trex Commercial Products, Inc. Together, Trex and Trex Commercial Products, Inc. are referred to as the Company, we or our.

NOTE ON FORWARD-LOOKING STATEMENTS

This management’s discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements regarding our expected financial position and operating results, our business strategy, our financing plans, forecasted demographic and economic trends relating to our industry and similar matters are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” “intend” or similar expressions. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including the factors discussed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. These statements are also subject to risks and uncertainties that could cause the Company’s actual operating results to differ materially. Such risks and uncertainties include, but are not limited to: the extent of market acceptance of the Company’s current and newly developed products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company’s business to general economic conditions; the impact of seasonal and weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the availability and cost of third-party transportation services for the Company’s products and raw materials; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber, and other materials used in making our products, at acceptable prices; the Company’s ability to maintain product quality and product performance at an acceptable cost; the Company’s ability to increase throughput and capacity to adequately match supply with demand; the level of expenses associated with product replacement and consumer relations expenses related to product quality; the highly competitive markets in which the Company operates; cyber-attacks, security breaches or other security vulnerabilities; the impact of upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences; material adverse impacts from global public health pandemics, including the strain of coronavirus known as COVID-19; and material adverse impacts related to labor shortages or increases in labor costs.

OVERVIEW

Operations and Products: The Company currently operates in two reportable segments: Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial). Refer to Note 16, Segments, in the Notes to the Condensed Consolidated Financial Statements in Part I. Item 1. Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information. The Company is focused on using renewable resources within both our Trex Residential and Trex Commercial segments.

Trex Residential is the world’s largest manufacturer of high-performance composite decking and residential railing products, which are marketed under the brand name Trex® and manufactured in the United States. We offer a comprehensive set of aesthetically appealing and durable, low-maintenance product offerings in the decking, residential railing, fencing and outdoor lighting categories. A majority of the products are eco-friendly and leverage recycled materials to the extent possible. Trex Residential decking is made in a proprietary process that combines reclaimed wood fibers and recycled polyethylene film, making Trex Residential one of the largest recyclers of plastic film in North America. In addition to resisting fading and surface staining, Trex Residential products require no sanding and sealing, resist moisture damage, provide a splinter-free surface and do not require chemical treatment against rot or insect infestation. Combined, these aspects yield significant aesthetic advantages and lower maintenance than wood decking and railing and ultimately render Trex Residential products less costly than wood over the life of the deck. Special characteristics (including resistance to splitting, the ability to bend, and ease and consistency of machining and finishing) facilitate installation, reduce contractor call-backs and afford consumers a wide range of design options. Trex Residential products are sold to distributors and home centers for final resale primarily to the residential market.

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Trex offers the following products through Trex Residential:

Decking and Accessories	Our principal decking products are Trex Transcend®, Trex Select® and Trex Enhance®. In addition, our Trex Transcend decking product can also be used as cladding. Our high-performance, low-maintenance, eco-friendly composite decking products are comprised primarily of a blend of 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 accessories to our decking products, including Trex Hideaway® 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 40 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.

Trex Commercial is a leading national provider of custom-engineered railing and staging systems. Trex Commercial designs and engineers custom solutions, which are prevalent in professional and collegiate sports facilities, commercial and high-rise applications, performing arts, sports, and event production and rentals. With a team of devoted engineers, and industry-leading reputation for quality and dedication to customer service, Trex Commercial markets to architects, specifiers, contractors, and building owners.

Trex offers the following products through Trex Commercial:

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

Our Trex Signature aluminum railings, made from a minimum of 40 percent recycled content, are a versatile, cost-effective and low-maintenance choice for a variety of interior and exterior applications that we believe blend form, function and style. 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. The strength and durability of Trex Signature railings make them a choice for any commercial setting, from high-rise condominiums and resort projects to public walkways and balconies. Aluminum railings come in a variety of colors and stock lengths to accommodate project needs.

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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.

Highlights for the three months ended March 31, 2022:

• Increase in net sales of 38.2%, or $93.7 million, to $339.2 million for the three months ended March 31, 2022 compared to $245.5 million for the three months ended March 31, 2021.

• Increase in net income to $71.2 million, or $0.62 per diluted share, for the three months ended March 31, 2022 compared to $48.5 million, or $0.42 per diluted share, for the three months ended March 31, 2021.

• Increase in EBITDA (earnings before interest, income tax and depreciation and amortization) of 48.7%, or $34.5 million, to $105.4 million for the three months ended March 31, 2022 compared to $70.9 million for the three months ended March 31, 2021.

• Capital expenditures of $22.3 million at Trex Residential, primarily related to cost reduction initiatives, the new Arkansas manufacturing facility, capacity expansion in our existing facilities, and safety, environmental and general support.

• Repurchase of 833,963 shares of our outstanding common stock during the three months ended March 31, 2022 under our Stock Repurchase Program for a total 4.4 million shares repurchased under the program as of March 31, 2022.

Net Sales. Net sales consist of sales and freight, net of discounts. The level of net sales is principally affected by sales volume and the prices paid for Trex products. Trex Residential operating results have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home and commercial improvement and residential and commercial construction and can shift demand for our products to a later period. As part of our normal business practice and consistent with industry practice, we have historically provided our distributors and dealers of our Trex Residential products incentives to build inventory levels before the start of the prime deck-building season to ensure adequate availability of our product to meet anticipated seasonal consumer demand and to enable production planning. These incentives include payment discounts, favorable payment terms, price discounts, or volume rebates on specified products and other incentives based on increases in purchases as part of specific promotional programs. The timing of our incentive programs can significantly impact sales, receivables and inventory levels during the offering period. In addition, the operating results for Trex Commercial are driven by the timing of individual projects, which may vary each quarterly period.

Gross Profit. Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw material costs, direct labor costs, manufacturing costs, subcontract costs and freight. Raw material costs generally include the costs to purchase and transport reclaimed wood fiber, reclaimed polyethylene, pigmentation for coloring our products, and commodities used in the production of railing and staging. Direct labor costs include wages and benefits of personnel engaged in the manufacturing process. Manufacturing costs consist of costs of depreciation, utilities, maintenance supplies and repairs, indirect labor, including wages and benefits, and warehouse and equipment rental activities.

Selling, General and Administrative Expenses. The largest component of selling, general and administrative expenses is personnel related costs, which includes salaries, commissions, incentive compensation, and benefits of personnel engaged in sales and marketing, accounting, information technology, corporate operations, research and development, and other business functions. Another component of selling, general and administrative expenses is branding and other sales and marketing costs, which are used to build brand awareness. These costs consist primarily of advertising, merchandising, and other promotional costs. Other general and administrative expenses include professional fees, office occupancy costs attributable to the business functions previously referenced, and consumer relations expenses. As a percentage of net sales, selling, general and administrative expenses may vary from quarter to quarter due, in part, to the seasonality of our business.

Product Warranty. We warrant that our Trex Residential products will be free from material defects in workmanship and materials for warranty periods ranging from 10 years to 25 years, depending on the product and its use. If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, we also warrant our Trex Commercial products will be free of manufacturing defects for periods ranging from 1 year to 3 years.

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We continue to receive and settle claims for decking products manufactured at our Trex Residential Nevada facility prior to 2007 that exhibit surface flaking and maintain a warranty reserve to provide for the settlement of these claims. We monitor surface flaking claims activity each quarter for indications that our estimates require revision. Typically, a majority of surface flaking claims received in a fiscal year are received during the summer outdoor season, which spans the second and third fiscal quarters.

It has been our practice to utilize actuarial techniques during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful. Our actuarial analysis is based on currently known facts and a number of assumptions. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows.

The number of incoming claims received in the three months ended March 31, 2022, was lower than the number of claims received in the three months ended March 31, 2021 and lower than our expectations for the first quarter of 2022. Average cost per claim experienced in the three months ended March 31, 2022 was significantly higher than that experienced in the three months ended March 31, 2021 and higher than our expectations for the current year. The elevated average cost per claim experienced in the three months ended March 31, 2022, was primarily the result of the closure of two large claims, which were considered in our estimation of the surface flaking warranty reserve. We believe the reserve at March 31, 2022 is sufficient to cover future surface flaking obligations. Refer to Note 18, Commitments and Contingencies, Product Warranty, in the Notes to the Condensed Consolidated Financial Statements in Part I. Item 1. Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information.

We estimate that the annual number of claims received will decline over time and that the average cost per claim will increase. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. We estimate that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $1.8 million change in the surface flaking warranty reserve.

The following table details surface flaking claims activity related to our warranty:

	Three Months Ended March 31,
	2022			2021
Claims open, beginning of period		1,759			1,799
Claims received (1)		121			214
Claims resolved (2)		(145	)		(215	)
Claims open, end of period		1,735			1,798
Average cost per claim (3)	$	6,362		$	3,620

(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.

General. Our results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from the COVID-19 pandemic and geopolitical conflicts.

RESULTS OF OPERATIONS

Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended March 31, 2022 (2022 quarter) compared to the three months ended March 31, 2021 (2021 quarter).

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Three Months Ended March 31, 2022 Compared To The Three Months Ended March 31, 2021

Net Sales

	Three Months Ended March 31,				$ Change			% Change
	2022		2021
	(dollars in thousands)
Total net sales	$	339,228	$	245,524	$	93,704			38.2	%
Trex Residential net sales	$	327,194	$	233,070	$	94,124			40.4	%
Trex Commercial net sales	$	12,034	$	12,454	$	(420	)		(3.4	)%

Total net sales increased by 38.2% in the 2022 quarter compared to the 2021 quarter reflecting a 40.4% increase in Trex Residential net sales and a 3.4% decrease in Trex Commercial net sales. The increase in Trex Residential net sales was primarily due to an increase in average price per unit of 18% and an increase in volume of 19%. The increase in price was due to price increases on certain products to address inflationary pressures across many key raw materials and transportation. The sustained broad-based demand continued to reflect strong secular trends, including growth in the outdoor living category as homeowners choose to invest in their existing residences and pursue renovations that enhance their outdoor living space. In addition, we continue execute on our wood-to-composite market share conversion strategy and drive consumers from wood decking to our eco-friendly Trex decking, a benefit that we believe is not only continuing but accelerating. The capacity expansion program at Trex Residential, which included construction of a new facility and incremental production lines at our existing Virginia site and the installation of additional production lines at our Nevada facility, enabled us to effectively meet current demand and expected future growth and ensure capacity to service our channel partners.

Gross Profit

	Three Months Ended March 31,						$ Change		% Change
	2022			2021
	(dollars in thousands)
Cost of sales	$	204,316		$	149,723		$	54,593		36.5	%
% of total net sales		60.2	%		61.0	%
Gross profit	$	134,912		$	95,801		$	39,111		40.8	%
Gross margin		39.8	%		39.0	%

Gross profit as a percentage of net sales, gross margin, was 39.8% in the 2022 quarter compared to 39.0% in the 2021 quarter. Gross margin for Trex Residential and Trex Commercial was 40.9% and 10.4%, respectively, in the 2022 quarter compared to 40.2% and 17.2%, respectively, in the 2021 quarter. The increase in gross margin was driven primarily by pricing realization on certain product lines at Trex Residential, partially offset by inflationary pressures on raw materials, labor and transportation.

Selling, General and Administrative Expenses

	Three Months Ended March 31,						$ Change		% Change
	2022			2021
	(dollars in thousands)
Selling, general and administrative expenses	$	39,960		$	31,312		$	8,648		27.6	%
% of total net sales		11.8	%		12.8	%

The increase in selling, general and administrative expenses in the 2022 quarter compared to the 2021 quarter was primarily the result of a $4.8 million increase in marketing and branding spend and a $3.8 million increase in personnel related expenses.

Provision for Income Taxes

	Three Months Ended March 31,						$ Change		% Change
	2022			2021
	(dollars in thousands)
Provision for income taxes	$	23,727		$	15,947		$	7,780		48.8	%
Effective tax rate		25.0	%		24.7	%

The effective tax rate for the 2022 quarter of 25.0% was relatively unchanged with an increase of 0.3% compared to the effective tax rate of 24.7% for the 2021 quarter.

20

Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)1 (in thousands)

Reconciliation of net income (GAAP) to EBITDA (non-GAAP):

	Three Months Ended March 31, 2022
	Trex Residential		Trex Commercial			Total
Net income (loss)	$	72,215	$	(1,004	)	$	71,211
Interest income, net		14		—			14
Income tax expense (benefit)		24,063		(336	)		23,727
Depreciation and amortization		10,191		282			10,473
EBITDA	$	106,483	$	(1,058	)	$	105,425

	Three Months Ended March 31, 2021
	Trex Residential			Trex Commercial			Total
Net income	$	48,745		$	(200	)	$	48,545
Interest income, net		(3	)		—			(3	)
Income tax expense		16,012			(65	)		15,947
Depreciation and amortization		6,210			213			6,423
EBITDA	$	70,964		$	(52	)	$	70,912

	Three Months Ended March 31,						$ Change			% Change
	2022			2021
	(dollars in thousands)
Total EBITDA	$	105,425		$	70,912		$	34,513			48.7	%
Trex Residential EBITDA	$	106,483		$	70,964		$	35,519			50.1	%
Trex Commercial EBITDA	$	(1,058	)	$	(52	)	$	(1,006	)		NM

Total EBITDA increased 48.7% to $105.4 million for the 2022 quarter compared to $70.9 million for the 2021 quarter. The increase was driven by a 50.1% increase in Trex Residential EBITDA, primarily due to the increase in net sales.

LIQUIDITY AND CAPITAL RESOURCES

We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facilities, operating leases and normal trade credit terms from operating activities. At March 31, 2022 we had $115.2 million of cash and cash equivalents.

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. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP and are not meant to be considered superior to or a substitute for our GAAP results.

21

Sources and Uses of Cash. The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

	Three Months Ended March 31,
	2022			2021
Net cash provided by (used in) operating activities	$	73,879		$	(142,574	)
Net cash used in investing activities		(22,288	)		(57,800	)
Net cash (used in) provided by financing activities		(77,456	)		86,894
Net decrease in cash and cash equivalents	$	(25,865	)	$	(113,480	)

Operating Activities

Cash provided by operations was $73.9 million during the 2022 quarter compared to cash used in operations of $142.6 million during the 2021 quarter. The increase of $216.5 million in cash provided by operating activities in the 2022 quarter compared to the 2021 quarter was primarily due to an increase in net sales at Trex Residential and higher collection of accounts receivables in the 2022 quarter compared to the 2021 quarter.

Investing Activities

Capital expenditures in the 2022 quarter were $22.3 million at Trex Residential, primarily related to cost reduction initiatives, the new Arkansas manufacturing facility, capacity expansion in our existing facilities, and safety, environmental and general support.

Financing Activities

Net cash used in financing activities of $77.5 million in the 2022 quarter consisted primarily of repurchases of our common stock of $77.9 million.

Stock Repurchase Program. On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). As of March 31, 2022, the Company has repurchased 4.4 million shares under the Stock Repurchase Program.

Our Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) provides us with revolving loan capacity in a collective maximum principal amount of $250 million from January 1 through June 30 of each year, and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024.

On May 26, 2020, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) to provide for an additional $100 million line of credit. As a matter of convenience, the parties incorporated the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement, the revolving commitments under the Original Credit Agreement are referred to as Revolving A Commitments and the new $100 million line of credit is referred to as Revolving B Commitments. In the New Credit Agreement, all of the material terms and conditions related to the original line of credit (Revolving A Commitments) remain unchanged from the Original Credit Agreement.

The Company entered into the First Amendment, as borrower; Trex Commercial Products, Inc. (TCP), as guarantor; Bank of America, N.A. (BOA), as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A. (Wells Fargo), who is also Syndication Agent; Truist Bank (Truist); and Regions Bank (Regions) (each, a Lender and collectively, the Lenders), arranged by BofA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner. The First Amendment further provides that the New Credit Agreement is amended and restated by changing Schedule 2.01 to add applicable Lender percentages related to the Revolving B Commitment for BOA of 47.5%, Well Fargo of 28.0% and Regions of 24.5%.

At March 31, 2022, we had no outstanding borrowings under the revolving credit facilities and borrowing capacity under the facilities of $350 million.

Compliance with Debt Covenants. Pursuant to the terms of the Fourth Amended Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants as of March 31, 2022. Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding.

22

We believe that cash on hand, cash from operations and borrowings expected to be available under our revolving credit facilities, as amended, will provide sufficient funds to fund planned capital expenditures, make scheduled principal and interest payments, fund warranty payments, and meet other cash requirements. We currently expect to fund future capital expenditures from operations and financing activities. The actual amount and timing of future capital requirements may differ materially from our estimate depending on the demand for Trex products and new market developments and opportunities.

Capital Requirements. On October 26, 2021, we announced plans to add a third U.S.-based Trex Residential manufacturing facility in Little Rock, Arkansas. The new campus will sit on nearly 300 acres of land and will address increased demand for Trex Residential outdoor living products. Construction is scheduled to begin in 2022 with the first production output anticipated in 2024. Funded primarily through ongoing cash generation, we expect to invest approximately $400 million over the next five years in the development of the new Arkansas site.

Our capital expenditure guidance for 2022 is $200 million to $220 million. In addition to the construction of our third facility in Arkansas, our capital allocation priorities include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment and support systems, and acquisitions which fit our long-term growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to shareholders

Inventory in Distribution Channels. We sell our Trex Residential decking and railing products through a tiered distribution system. We have over 50 distributors worldwide and two national retail merchandisers to which we sell our products. The distributors in turn sell the products to dealers and retail locations who in turn sell the products to end users. Significant increases in inventory levels in the distribution channel without a corresponding change in end-use demand could have an adverse effect on future sales.

Seasonality. The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary significantly each quarterly period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to the Company’s market risk exposure during the three months ended March 31, 2022.

Item 4. Controls and Procedures

The Company’s management, with the participation of its President and Chief Executive Officer, who is the Company’s principal executive officer, and its Senior Vice President and Chief Financial Officer, who is the Company’s principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2022. Based on this evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective. There have been no changes in the Company’s internal control over financial reporting during the three-month period ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

23

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business. Management has evaluated the merits of these lawsuits and claims and believes that their ultimate resolution will not have a material effect on the Company’s consolidated financial condition, results of operations, liquidity or competitive position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information relating to the purchases of our common stock during the three months ended March 31, 2021 in accordance with Item 703 of Regulation S-K:

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, 2022 – January 31, 2022		363,918	$	90.12		363,918		7,624,205
February 1, 2022 – February 28, 2022		505,901	$	89.36		470,045		7,154,160
March 1, 2022 – March 31, 2022		—		—		—		7,154,160
Quarterly period ended March 31, 2022		869,819				833,963

(1) Includes shares withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Trex 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 Trex Board of Directors authorized a common stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). The Stock Repurchase Program was publicly announced on February 21, 2018. The Company purchased 833,963 shares of its common stock under the Stock Repurchase Program during the three months ended March 31, 2022.

Item 5. Other Information

Submission of Matters to a Vote of Security Holders

Trex held its Annual Meeting of Stockholders on May 5, 2022. Only holders of Trex common stock at the close of business on March 9, 2022 (Record Date) were entitled to vote at the Annual Meeting. As of the Record Date, there were 114,358,259 shares of common stock entitled to vote. A total of 105,387,078 shares of common stock (92.16%), constituting a quorum, were represented in person or by valid proxies at the Annual Meeting.

The stockholders voted on four proposals at the Annual Meeting. The proposals are described in detail in the Company’s definitive proxy statement dated March 22, 2022. The final results for the votes regarding each proposal are set forth below.

Proposal 1: Trex stockholders elected three directors to the Board to serve for a three-year term until the 2025 annual meeting of stockholders and until their successors are duly elected and qualified. The votes regarding this proposal were as follows:

	For		Against		Abstain		Broker Non-Votes
Bryan H. Fairbanks		95,942,124		1,342,879		104,216	7,997,859
Michael F. Golden		83,140,317		13,529,839		719,063	7,997,859
Kristine L. Juster		85,531,183		11,140,712		717,324	7,997,859

24

Proposal 2: Trex stockholders approved, on an advisory basis, the compensation of the Company’s executive officers named in the Company’s definitive proxy statement dated March 22, 2022. The votes regarding this proposal were as follows:

For	Against	Abstain	Broker Non-Votes
90,874,721	6,240,934	273,564	7,997,859

Proposal 3: Trex stockholders approved the First Certificate of Amendment to the Trex Company, Inc. Restated Certificate of Incorporation to increase the number of authorized shares of common stock, $0.01 par value per share, from 180,000,000 to 360,000,000.

For	Against	Abstain	Broker Non-Votes
102,250,689	3,084,380	52,009	—

Proposal 4: Trex stockholders ratified the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2022. The votes regarding this proposal were as follows:

For	Against	Abstain	Broker Non-Votes
101,654,456	3,672,119	60,503	—

First Certificate of Amendment to the Restated Certificate of Incorporation

At the annual meeting of stockholders of Trex held on May 5, 2022, its stockholders approved an amendment of the Trex Restated Certificate of Incorporation (Amendment), effective as of May 5, 2022. The Trex Board of Directors unanimously approved the Amendment on February 23, 2022, subject to stockholder approval. The Amendment increases the number of shares of common stock, par value $.01 per share, that Trex is authorized to issue from 180 million shares to 360 million shares. The Amendment was filed with the Delaware Secretary of State on May 5, 2022.

The foregoing description of certain terms and conditions in the Amendment is qualified in its entirety by reference to the full text of the Restated Certificate of Incorporation of Trex, which is filed as Exhibit 3.1 to this Form 10-Q and the First Amendment of the Restated Certificate of Incorporation of Trex, which is filed as Exhibit 3.2, both of which are incorporated herein by reference in their entirety.

Item 6. Exhibits

See Exhibit Index at the end of the Quarterly Report on Form 10-Q for the information required by this Item which is incorporated by reference.

25

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TREX COMPANY, INC.
Date: May 9, 2022	By:	/s/ Dennis C. Schemm
		Dennis C. Schemm
		Senior Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

EXHIBIT INDEX

		Incorporated by reference
Exhibit Number	Description	Form		Exhibit		Filing Date		File No.
3.1	Restated Certificate of Incorporation of Trex Company, Inc. dated July 28, 2021.		10-Q		3.6		August 2, 2021		001-14649
3.2*	First Certificate of Amendment to the Restated Certificate of Incorporation of Trex Company, Inc. dated May 5, 2022
3.3	Amended and Restated By-Laws of the Company.		8-K		3.2		May 1, 2019		001-14649
31.1*	Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2*	Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
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. § 1350).
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.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104.1	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.

* Filed herewith.

*** Furnished herewith.

EX-3.2

Exhibit 3.2

FIRST 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 three hundred sixty three million (363,000,000) shares of capital stock, each with a par value of $0.01, consisting of three hundred sixty million (360,000,000) 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 5th day of May, 2022.

By:	/s/ William R. Gupp
Name:	William R. Gupp
Title:	Senior Vice President, Chief Legal Officer and Secretary

EX-31.1

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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: May 9, 2022

/s/ Bryan H. Fairbanks

Bryan H. Fairbanks

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Dennis C. Schemm, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: May 9, 2022

/s/ Dennis C. Schemm

Dennis C. Schemm

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32

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 Vice President and 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, 2022 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 9, 2022	/s/ Bryan H. Fairbanks
	Bryan H. Fairbanks
	President and Chief Executive Officer
Date: May 9, 2022	/s/ Dennis C. Schemm
	Dennis C. Schemm
	Senior Vice President and Chief Financial Officer

XML

Cover Page - shares	3 Months Ended
	Mar. 31, 2022	Apr. 26, 2022
Cover [Abstract]
Amendment Flag	false
Document Fiscal Year Focus	2022
Document Type	10-Q
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001069878
Current Fiscal Year End Date	--12-31
Document Transition Report	false
Entity Registrant Name	TREX CO INC
Document Period End Date	Mar. 31, 2022
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Trading Symbol	TREX
Entity Shell Company	false
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		113,199,234
Entity File Number	001-14649
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	54-1910453
Entity Address, Address Line One	160 Exeter Drive
Entity Address, City or Town	Winchester
Entity Address, Postal Zip Code	22603-8605
Entity Address, State or Province	VA
City Area Code	540
Local Phone Number	542-6300
Title of 12(b) Security	Common stock
Security Exchange Name	NYSE
Document Quarterly Report	true

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Statement [Abstract]
Net sales	$ 339,228	$ 245,524
Cost of sales	204,316	149,723
Gross profit	134,912	95,801
Selling, general and administrative expenses	39,960	32,049
Gain on insurance proceeds		(737)
Income from operations	94,952	64,489
Interest expense (income), net	14	(3)
Income before income taxes	94,938	64,492
Provision for income taxes	23,727	15,947
Net income	$ 71,211	$ 48,545
Basic earnings per common share	$ 0.62	$ 0.42
Basic weighted average common shares outstanding	114,638,424	115,663,366
Diluted earnings per common share	$ 0.62	$ 0.42
Diluted weighted average common shares outstanding	114,853,881	116,017,400
Comprehensive income	$ 71,211	$ 48,545

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 115,188	$ 141,053
Accounts receivable, net	200,920	151,096
Inventories	98,176	83,753
Prepaid expenses and other assets	22,878	25,152
Total current assets	437,162	401,054
Property, plant and equipment, net	472,525	460,365
Operating lease assets	37,479	34,571
Goodwill and other intangible assets, net	18,896	19,001
Other assets	6,334	5,330
Total assets	972,396	920,321
Current liabilities:
Accounts payable	61,707	24,861
Accrued expenses and other liabilities	75,013	58,041
Accrued warranty	6,300	5,800
Total current liabilities	143,020	88,702
Deferred income taxes	43,967	43,967
Operating lease liabilities	30,672	28,263
Non-current accrued warranty	22,112	22,795
Other long-term liabilities	11,560	11,560
Total liabilities	251,331	195,287
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding		0
Common stock, $0.01 par value, 180,000,000 shares authorized; 140,787,904 and 140,734,753 shares issued and 114,367,340 and 115,148,152 shares outstanding at March 31, 2022 and December 31, 2021, respectively	1,408	1,407
Additional paid-in capital	127,623	127,787
Retained earnings	1,017,259	946,048
Treasury stock, at cost, 26,420,564 and 25,586,601 shares at March 31, 2022 and December 31, 2021, respectively	(425,225)	(350,208)
Total stockholders' equity	721,065	725,034
Total liabilities and stockholders' equity	$ 972,396	$ 920,321

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	3,000,000	3,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	180,000,000	180,000,000
Common stock, shares issued	140,787,904	140,734,753
Common stock, shares outstanding	114,367,340	115,148,152
Treasury stock, shares	26,420,564	25,586,601

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Condensed Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings (Deficit) [Member]	Treasury Stock [Member]
Beginning Balance at Dec. 31, 2020	$ 588,531	$ 1,406	$ 126,087	$ 737,311	$ (276,273)
Beginning Balance, Shares at Dec. 31, 2020		115,799,503			24,777,502
Net income	48,545			48,545
Employee stock plans	460		460
Employee stock plans, Shares		28,286
Shares withheld for taxes on awards	(4,045)		(4,045)
Shares withheld for taxes on awards, Shares		(38,212)
Stock-based compensation	2,176		2,176
Stock-based compensation, Shares		76,094
Repurchases of common stock	(45,523)				$ (45,523)
Repurchases of common stock, Shares		(504,275)			504,275
Ending Balance at Mar. 31, 2021	590,144	$ 1,406	124,678	785,856	$ (321,796)
Ending Balance, Shares at Mar. 31, 2021		115,361,396			25,281,777
Beginning Balance at Dec. 31, 2021	725,034	$ 1,407	127,787	946,048	$ (350,208)
Beginning Balance, Shares at Dec. 31, 2021		115,148,152			25,586,601
Net income	71,211			71,211
Employee stock plans	523		523
Employee stock plans, Shares		9,081
Shares withheld for taxes on awards	(2,912)		(2,912)
Shares withheld for taxes on awards, Shares		(35,856)
Stock-based compensation	2,226	$ 1	2,225
Stock-based compensation, Shares		79,926
Repurchases of common stock	(75,017)				$ (75,017)
Repurchases of common stock, Shares		(833,963)			833,963
Ending Balance at Mar. 31, 2022	$ 721,065	$ 1,408	$ 127,623	$ 1,017,259	$ (425,225)
Ending Balance, Shares at Mar. 31, 2022		114,367,340			26,420,564

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Operating Activities
Net income	$ 71,211	$ 48,545
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	10,473	6,423
Stock-based compensation	2,226	2,176
Gain on disposal of property, plant and equipment		(98)
Other non-cash adjustments	77	77
Changes in operating assets and liabilities:
Accounts receivable	(49,825)	(202,781)
Inventories	(14,423)	(6,774)
Prepaid expenses and other assets	1,560	(809)
Accounts payable	36,605	10,494
Accrued expenses and other liabilities	(6,149)	(14,453)
Income taxes receivable/payable	22,124	14,626
Net cash provided by (used in) operating activities	73,879	(142,574)
Investing Activities
Expenditures for property, plant and equipment	(22,288)	(58,093)
Proceeds from sales of property, plant and equipment		293
Net cash used in investing activities	(22,288)	(57,800)
Financing Activities
Borrowings under line of credit		142,000
Principal payments under line of credit		(6,000)
Repurchases of common stock	(77,929)	(49,566)
Proceeds from employee stock purchase and option plans	523	460
Financing costs	(50)
Net cash (used in) provided by financing activities	(77,456)	86,894
Net decrease in cash and cash equivalents	(25,865)	(113,480)
Cash and cash equivalents, beginning of period	141,053	121,701
Cash and cash equivalents, end of period	115,188	8,221
Supplemental Disclosure:
Cash paid for interest, net of capitalized interest	0	0
Cash paid for income taxes, net	$ 1,604	$ 1,319

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Business and Organization

3 Months Ended

Mar. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Business and Organization

1. BUSINESS AND ORGANIZATION

Trex Company, Inc. (Trex), a Delaware corporation, was incorporated on September 4, 1998. Together, Trex and its wholly-owned subsidiary, Trex Commercial Products, Inc., are referred to as the Company. The Company operates in two reportable segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). Trex Residential, the Company’s principal business based on net sales, is the world’s largest manufacturer of high-performance, low-maintenance wood-alternative decking and residential railing and outdoor living products and accessories, marketed under the brand name Trex®, with more 30 years of product experience. A majority of its products are manufactured in a proprietary process that combines reclaimed wood fibers and scrap polyethylene. Also, the Company is a leading national provider of custom-engineered railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The principal executive offices are located at 160 Exeter Drive, Winchester, Virginia 22603, and the telephone number at that address is (540) 542-6300.

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Basis of Presentation

3 Months Ended

Mar. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments, except as otherwise described herein) considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company for all periods presented. Intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. The Company’s results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from the COVID-19 pandemic and geopolitical conflicts.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2021 and 2020 and for each of the three years in the period ended December 31, 2021 included in the Annual Report of Trex Company, Inc. on Form 10-K, as filed with the U.S. Securities and Exchange Commission.

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Recently Adopted Accounting Standards

3 Months Ended

Mar. 31, 2022

Accounting Changes and Error Corrections [Abstract]

Recently Adopted Accounting Standards

3. RECENTLY ADOPTED ACCOUNTING STANDARDS

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”. The guidance requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model, such as IAS 20, ASC 958-605. The annual disclosure requirements include: the nature of the transactions, the entities related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item, and significant terms and conditions of the transactions. The disclosure requirements could be applied either prospectively to all transactions in the scope of the amendments that are reflected in the financial statements at the date of initial application and new transactions that are entered into after the date of initial application, or retrospectively. The guidance was effective for fiscal years beginning after December 15, 2021, with early application permitted. The adoption of the guidance did not have a material effect on the Company’s consolidated financial statements.

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New Accounting Standards Not Yet Adopted

3 Months Ended

Mar. 31, 2022

Accounting Changes and Error Corrections [Abstract]

New Accounting Standards Not Yet Adopted

4. NEW ACCOUNTING STANDARDS NOT YET ADOPTED

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The guidance provides temporary optional expedients and exceptions

related to contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The new guidance allows entities to elect not to apply certain modification accounting requirements, if certain criteria are met, to contracts affected by what the guidance calls reference rate reform. An entity that makes this election would consider changes in reference rates and other contract modifications related to reference rate reform to be events that do not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The guidance is effective upon issuance and generally can be applied as of March 12, 2020 through December 31, 2022. The Company does not expect adoption of the guidance to have a material effect on its consolidated financial statements.

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Inventories

3 Months Ended

Mar. 31, 2022

Inventory Disclosure [Abstract]

Inventories

5. INVENTORIES

Inventories valued at LIFO (last-in, first-out), consist of the following (in thousands):

	March 31, 2022			December 31, 2021
Finished goods	$	64,382		$	58,401
Raw materials		63,175			56,441
Total FIFO (first-in, first-out) inventories		127,557			114,842
Reserve to adjust inventories to LIFO value		(36,467	)		(36,467	)
Total LIFO inventories	$	91,090		$	78,375

The Company utilizes the LIFO method of accounting related to its Trex Residential wood-alternative decking and residential railing products, which generally provides for the matching of current costs with current revenues. However, under the LIFO method, reductions in annual inventory balances cause a portion of the Company’s cost of sales to be based on historical costs rather than current year costs (LIFO liquidation). Reductions in interim inventory balances expected to be replenished by year-end do not result in a LIFO liquidation. Accordingly, interim LIFO calculations are based, in part, on management’s estimates of expected year-end inventory levels and costs, which may differ from actual results. Since inventory levels and costs are subject to factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation. There were no LIFO inventory liquidations or related impact on cost of sales in the three months ended March 31, 2022.

Inventories valued at lower of cost (FIFO method) and net realizable value were $7.1 million at March 31, 2022 and $5.4 million at December 31, 2021, consisting primarily of raw materials. The Company utilizes the FIFO method of accounting related to its Trex Commercial products.

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Prepaid Expenses and Other Assets

3 Months Ended

Mar. 31, 2022

Text Block [Abstract]

Prepaid Expenses and Other Assets

6. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consist of the following (in thousands):

	March 31, 2022		December 31, 2021
Prepaid expenses	$	12,599	$	15,061
Revenues in excess of billings		8,897		9,109
Income tax receivable		723		406
Other		659		576
Total prepaid expenses and other assets	$	22,878	$	25,152

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Goodwill and Other Intangible Assets, Net

3 Months Ended

Mar. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets, Net

7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The carrying amount of goodwill by reportable segment at March 31, 2022 and December 31, 2021 was $14.2 million for Trex Residential. The Company’s intangible assets consist of domain names. At March 31, 2022 and December 31, 2021, intangible assets were $6.3 million and accumulated amortization was $1.6 million and $1.5 million, respectively. Intangible asset amounts were determined based on the estimated economics of the asset and are amortized over the estimated useful lives on a straight-line basis over 15 years, which approximates the pattern in which the economic benefits are expected to be received. The Company evaluates the recoverability of intangible assets periodically and considers events or circumstances that may warrant revised estimates of useful lives or that may indicate an impairment. Intangible asset amortization expense for the three months ended March 31, 2022 and March 31, 2021 was $0.1 million and $0.1 million, respectively.

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Accrued Expenses and Other Liabilities

3 Months Ended

Mar. 31, 2022

Payables and Accruals [Abstract]

Accrued Expenses and Other Liabilities

8. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):

	March 31, 2022		December 31, 2021
Income taxes	$	22,441	$	—
Sales and marketing		21,948		16,439
Compensation and benefits		12,719		25,450
Operating lease liabilities		7,504		7,066
Manufacturing costs		4,060		4,110
Billings in excess of revenues		2,151		1,436
Other		4,190		3,540
Total accrued expenses and other liabilities	$	75,013	$	58,041

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Debt

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

Debt

9. DEBT

Revolving Credit Facility

On November 5, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (Fourth Amended Credit Agreement) as borrower, Trex Commercial Products, Inc., as guarantor; Bank of America, N.A. as a Lender, Administrative Agent, Swing Line Lender and L/C Issuer; and certain other lenders including Wells Fargo Bank, N.A., who is also Syndication Agent, and Truist Bank, arranged by BOA Securities, Inc., as Sole Lead Arranger and Sole Bookrunner, to amend and restate the Third Amended and Restated Credit Agreement (Third Amended Credit Agreement), dated as of January 12, 2016, as amended. The Fourth Amended Credit Agreement provides the Company with one or more Revolving Loans in a collective maximum principal amount of $250 million from January 1 through June 30 of each year and a maximum principal amount of $200 million from July 1 through December 31 of each year throughout the term, which ends November 5, 2024.

On May 26, 2020, the Company entered into a First Amendment to the Original Credit Agreement (the First Amendment) to provide for an additional $100 million line of credit through May 26, 2022. As a matter of convenience, the parties incorporated the amendments to the Original Credit Agreement made by the First Amendment into a new Fourth Amended and Restated Credit Agreement (New Credit Agreement). In the New Credit Agreement, the revolving commitments under the Original Credit Agreement are referred to as Revolving A Commitments and the new $100 million line of credit is referred to as Revolving B Commitments. In the New Credit Agreement, all of the material terms and conditions related to the original line of credit (Revolving A Commitments) remain unchanged from the Original Credit Agreement.

The Company had no outstanding borrowings under its revolving credit facility and available borrowing capacity of $350 million at March 31, 2022.

Compliance with Debt Covenants and Restrictions

Pursuant to the terms of the Fourth Amended Credit Agreement, the Company is subject to certain loan compliance covenants. The Company was in compliance with all covenants as of March 31, 2022. Failure to comply with the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding.

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Leases

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leases

10. LEASES

The Company leases office space, storage warehouses and certain plant equipment under various operating leases. The Company’s operating leases have remaining lease terms of less than 1 year to 8 years. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

For the three months ended March 31, 2022 and March 31, 2021, total operating lease expense was $2.1 million and $2.0 million, respectively. The weighted average remaining lease term at March 31, 2022 and December 31, 2021 was 5.9 years and 5.8 years, respectively. The weighted average discount rate at March 31, 2022 and December 31, 2021 was 2.20% and 2.47%, respectively.

The following table includes supplemental cash flow information for the three months ended March 31, 2022 and March 31, 2021 and supplemental balance sheet information at March 31, 2022 and December 31, 2021 related to operating leases (in thousands):

	Three Months Ended March 31,
Supplemental cash flow information	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,174	$	2,056
Operating ROU assets obtained in exchange for lease liabilities	$	6,053	$	1,038
Supplemental balance sheet information	March 31, 2022		December 31, 2021
Operating lease ROU assets	$	37,479	$	34,571
Operating lease liabilities:
Accrued expenses and other current liabilities	$	7,504	$	7,066
Operating lease liabilities		30,672		28,263
Total operating lease liabilities	$	38,176	$	35,329

The following table summarizes maturities of operating lease liabilities at March 31, 2022 (in thousands):

Maturities of operating lease liabilities
2022	$	6,276
2023		7,377
2024		6,653
2025		5,362
2026		4,852
Thereafter		10,156
Total lease payments		40,676
Less imputed interest		(2,500	)
Total operating lease liabilities	$	38,176

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Financial Instruments

3 Months Ended

Mar. 31, 2022

Investments, All Other Investments [Abstract]

Financial Instruments

11. FINANCIAL INSTRUMENTS

The Company considers the recorded value of its financial assets and liabilities, consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, other current liabilities, and debt to approximate the fair value of the respective assets and liabilities on the Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2022

Equity [Abstract]

Stockholders' Equity

12. STOCKHOLDERS’ EQUITY

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2022		2021
Numerator:
Net income available to common shareholders	$	71,211	$	48,545
Denominator:
Basic weighted average shares outstanding		114,638,424		115,663,366
Effect of dilutive securities:
Stock appreciation rights and options		124,327		207,060
Restricted stock		91,130		146,974
Diluted weighted average shares outstanding		114,853,881		116,017,400
Basic earnings per share	$	0.62	$	0.42
Diluted earnings per share	$	0.62	$	0.42

Diluted earnings per share is computed using the weighted average number of shares determined for the basic earnings per share computation plus the dilutive effect of common stock equivalents using the treasury stock method. The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive:

	Three Months Ended March 31,
	2022		2021
Stock appreciation rights		31,006		7,181
Restricted stock		52,278		23,079

Stock Repurchase Program

On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). As of March 31, 2022, Trex has repurchased 4.4 million shares of its outstanding common stock under the Stock Repurchase Program.

First Certificate of Amendment to the Restated Certificate of Incorporation

At the annual meeting of stockholders of Trex held on May 5, 2022, its stockholders approved an amendment of the Trex Restated Certificate of Incorporation (Amendment), effective as of May 5, 2022. The Board of Directors of Trex unanimously approved the Amendment on February 23, 2022, subject to stockholder approval. The Amendment increases the number of shares of common stock, par value $.01 per share, that Trex is authorized to issue from 180 million shares to 360 million shares. The Amendment was filed with the Delaware Secretary of State on May 5, 2022.

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Revenue From Contracts With Customers

3 Months Ended

Mar. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue From Contracts With Customers

13. REVENUE FROM CONTRACTS WITH CUSTOMERS

Trex Residential Products

Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly wood-alternative composite decking and residential railing products and accessories. Substantially all of its revenues are from contracts with customers, which are purchase orders of short-term duration of less than one year. Its customers, in turn, sell primarily to the residential market, which includes replacement, remodeling and new construction related to outdoor living products. Trex Residential satisfies its performance obligations at a point in time. The shipment of each product is a separate performance obligation as the customer is able to derive benefit from each product shipped and no performance obligation remains after shipment. Upon shipment of the product, the customer obtains control over the distinct product and Trex Residential satisfies its performance obligation. Any performance obligation that remains unsatisfied at the end of a reporting period is part of a contract that has an original expected duration of one year or less. Any variable consideration related to the unsatisfied performance obligation is allocated wholly to the unsatisfied performance obligation, is recognized when the product ships and the performance obligation is satisfied and is included in “Accrued expenses and other liabilities, Sales and marketing” in Note 8 to the Condensed Consolidated Financial Statements.

Trex Commercial Products

Trex Commercial generates revenue from the manufacture and sale of its modular and architectural railing and staging systems. All of its revenues are from fixed-price contracts with customers. Trex Commercial contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and is, therefore, not distinct. The transaction price allocated to remaining performance obligations on contracts with an original duration greater than one year was $26.0 million as of March 31, 2022. The Company will recognize this revenue as contracts are completed, which is expected to occur within the next 26 months.

For the three months ended March 31, 2022 and March 31, 2021, net sales were disaggregated in the following tables by (1) market, (2) timing of revenue recognition, and (3) type of contract. The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands).

Three Months Ended March 31, 2022	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	$	327,194	$	—	$	327,194
Products transferred over time and fixed price contracts		—		12,034		12,034
	$	327,194	$	12,034	$	339,228

Three Months Ended March 31, 2021	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	$	233,070	$	—	$	233,070
Products transferred over time and fixed price contracts		—		12,454		12,454
	$	233,070	$	12,454	$	245,524

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2022

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

14. STOCK-BASED COMPENSATION

The Company has one stock-based compensation plan, the 2014 Stock Incentive Plan (Plan), approved by Trex stockholders in April 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan. The Plan is administered by the Compensation Committee of the Trex Board of Directors. Stock-based compensation is granted to officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and unrestricted stock. The total aggregate number of shares of Trex common stock that may be issued under the Plan is 25,680,000 and as of March 31, 2022, the total number of shares available for future issuance is 11,072,584.

The following table summarizes the Company’s stock-based compensation grants for the three months ended March 31, 2022:

	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		38,164	$	82.27
Performance-based restricted stock units (a)		71,731	$	76.24
Stock appreciation rights		32,971	$	82.01

(a) Includes 46,651 of target performance-based restricted stock unit awards granted during the three months ended March 31, 2022, and adjustments of 8,160, 11,684, and 5,236 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2021, 2020, and 2019, respectively.

The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing formula. For SARs issued in the three months ended March 31, 2021 and March 31, 2020 the data and assumptions shown in the following table were used:

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Weighted-average fair value of grants	$	33.90		$	51.84
Dividend yield		0	%		0	%
Average risk-free interest rate		1.9	%		0.6	%
Expected term (years)		5			5
Expected volatility		44.9	%		58.7	%

The Company recognizes stock-based compensation expense ratably over the period from the grant date to the earlier of: (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is likely to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expense is recognized related to the discount on purchases. Stock-based compensation expense is included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Comprehensive Income. The following table summarizes the Company’s stock-based compensation expense (in thousands):

	Three Months Ended March 31
	2022		2021
Stock appreciation rights	$	154	$	114
Time-based restricted stock and restricted stock units		847		687
Performance-based restricted stock and restricted stock units		1,158		1,275
Employee stock purchase plan		67		100
Total stock-based compensation	$	2,226	$	2,176

Total unrecognized compensation cost related to unvested awards as of March 31, 2022 was $15.9 million. The cost of these unvested awards is being recognized over the requisite vesting period of each award.

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Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

15. INCOME TAXES

The Company’s effective tax rate for the three months ended March 31, 2022 and March 31, 2021 was 25.0% and 24.7%, respectively, which resulted in expense of $23.7 million and $15.9 million, respectively. The increase of 0.3% in the effective tax rate was primarily due to a current year decrease in excess tax benefits from the exercise of share-based payments.

During the three months ended March 31, 2022 and March 31, 2021, the Company realized $0.1million and $0.8 million, respectively, of excess tax benefits from stock-based awards and recorded a corresponding benefit to income tax expense.

The Company analyzes its deferred tax assets each reporting period, considering all available positive and negative evidence in determining the expected realization of those deferred tax assets. As of March 31, 2022, the Company maintains a valuation allowance of $2.2 million against deferred tax assets primarily related to state tax credits it estimates will expire before they are realized.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company accrues a liability when it believes that it is more likely than not that benefits of tax positions will not be realized. The Company believes that adequate provisions have been made for all tax returns subject to examination. As of March 31, 2022, for certain tax jurisdictions tax years 2018 through 2021 remain subject to examination. The Company believes that adequate provisions have been made for all tax returns subject to examination. Sales made to foreign distributors are not taxable in any foreign jurisdiction as the Company does not have a taxable presence in any foreign jurisdiction.

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Segment Information

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Segment Information

16. SEGMENT INFORMATION

The Company operates in two reportable segments:

• 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.

The Company’s reportable segments have been determined in accordance with its internal management structure, which is organized based on residential and commercial sales activities. The Company evaluates performance of each segment primarily based on net sales and earnings before interest, income taxes, depreciation and amortization (EBITDA). The Company uses net sales to assess performance and allocate resources as this measure represents the amount of business the segment engaged in during a given period of time, is an indicator of market growth and acceptance of segment products, and represents the segment’s customers’ spending habits along with the amount of product the segment sells relative to its competitors. The Company uses EBITDA to assess performance and allocate resources because it believes that EBITDA facilitates performance comparison between the segments by eliminating interest, income taxes, and depreciation and amortization charges to income. The below segment data for the three months ended March 31, 2022 and March 31, 2021 includes data for Trex Residential and Trex Commercial (in thousands):

Segment Data:

	Three Months Ended March 31, 2022							Three Months Ended March 31, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential		Trex Commercial			Total
Net sales	$	327,194	$	12,034		$	339,228	$	233,070	$	12,454		$	245,524
Net income (loss)	$	72,215	$	(1,004	)	$	71,211	$	48,745	$	(200	)	$	48,545
EBITDA	$	106,483	$	(1,058	)	$	105,425	$	70,964	$	(52	)	$	70,912
Depreciation and amortization	$	10,191	$	282		$	10,473	$	6,210	$	213		$	6,423
Income tax expense (benefit)	$	24,063	$	(336	)	$	23,727	$	16,012	$	(65	)	$	15,947
Capital expenditures	$	22,283	$	5		$	22,288	$	56,563	$	1,530		$	58,093
Total assets	$	929,737	$	42,659		$	972,396	$	808,864	$	91,426		$	900,290

Reconciliation of Net Income to EBITDA:

	Three Months Ended March 31, 2022							Three Months Ended March 31, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential			Trex Commercial			Total
Net income (loss)	$	72,215	$	(1,004	)	$	71,211	$	48,745		$	(200	)	$	48,545
Interest expense (income), net		14		—			14		(3	)		—			(3	)
Income tax expense (benefit)		24,063		(336	)		23,727		16,012			(65	)		15,947
Depreciation and amortization		10,191		282			10,473		6,210			213			6,423
EBITDA	$	106,483	$	(1,058	)	$	105,425	$	70,964		$	(52	)	$	70,912

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Seasonality

3 Months Ended

Mar. 31, 2022

Text Block [Abstract]

Seasonality

17. SEASONALITY

The operating results for Trex Residential have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions reduce the level of home improvement and construction activity and can shift demand for its products to a later period. As part of its normal business practice and consistent with industry practice, Trex Residential has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season in order to ensure adequate availability of its product to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs. The operating results for Trex Commercial have not historically varied from quarter to quarter as a result of seasonality. However, they are driven by the timing of individual projects, which may vary each quarterly period.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

18. COMMITMENTS AND CONTINGENCIES

Product Warranty

The Company warrants that its decking and residential railing products will be free from material defects in workmanship and materials for warranty periods ranging from 10 years to 25 years, depending on the product and its use. If there is a breach of such warranties, the Company has an obligation either to replace the defective product or refund the purchase price. Depending on the product and its use, the Company also warrants its Trex Commercial products will be free of manufacturing defects for one to three years.

The Company continues to receive and settle claims for products manufactured at its Nevada facility prior to 2007 that exhibit surface flaking and maintains a warranty reserve to provide for the settlement of these claims. Estimating the warranty reserve for surface flaking claims requires management to estimate (1) the number of claims to be settled with payment and (2) the average cost to settle each claim.

To estimate the number of claims to be settled with payment, the Company utilizes actuarial techniques to quantify both the expected number of claims to be received and the percentage of those claims that will ultimately require payment (collectively, elements). Estimates for these elements are quantified using a range of assumptions derived from claim count history and the identification of factors influencing the claim counts. The cost per claim varies due to a number of factors, including the size of affected decks, the availability and type of replacement material used, the cost of production of replacement material and the method of claim settlement.

The Company monitors surface flaking claims activity each quarter for indications that its estimates require revision. Typically, a majority of surface flaking claims received in a year are received during the summer outdoor season, which spans the second and third quarters. It has been the Company’s practice to utilize the actuarial techniques discussed above during the third quarter, after a significant portion of all claims has been received for the fiscal year and variances to annual claims expectations are more meaningful.

The number of incoming claims received in the three months ended March 31, 2022, was lower than the number of claims received in the three months ended March 31, 2021 and lower than the Company’s expectations for the first quarter of 2022. Average cost per claim experienced in the three months ended March 31, 2022 was significantly higher than that experienced in the three months ended March 31, 2021 and higher than the Company’s expectations for the current year. The elevated average cost per claim experienced in the three months ended March 31, 2022, was primarily the result of the closure of two large claims, which were considered in the Company’s estimation of its surface flaking warranty reserve. The Company believes its reserve at March 31, 2022 is sufficient to cover future surface flaking obligations.

The Company’s analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause actual warranty liabilities to be higher or lower than those projected, which could materially affect the Company’s consolidated financial condition, results of operations or cash flows. The Company estimates that the annual number of claims received will decline over time and that the average cost per claim will increase. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or an increase in earnings and cash flows in future periods. The Company estimates that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $1.8 million change in the surface flaking warranty reserve.

The following is a reconciliation of the Company’s residential product warranty reserve (in thousands):

	Three Months Ended March 31, 2022
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	18,542		$	10,053		$	28,595
Provisions and changes in estimates		—			1,090			1,090
Settlements made during the period		(745	)		(528	)		(1,273	)
Ending balance, March 31	$	17,797		$	10,615		$	28,412

	Three Months Ended March 31, 2021
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	21,325		$	8,148		$	29,473
Provisions and changes in estimates		—			1,092			1,092
Settlements made during the period		(604	)		(416	)		(1,020	)
Ending balance, March 31	$	20,721		$	8,824		$	29,545

Legal Matters

The Company has lawsuits, as well as other claims, pending against it which are ordinary routine litigation and claims incidental to the business. Management has evaluated the merits of these lawsuits and claims and believes that their ultimate resolution will not have a material effect on the Company’s consolidated financial condition, results of operations, liquidity or competitive position.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

Stock-Based Compensation

The Company has one stock-based compensation plan, the 2014 Stock Incentive Plan (Plan), approved by Trex stockholders in April 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan. The Plan is administered by the Compensation Committee of the Trex Board of Directors. Stock-based compensation is granted to officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and unrestricted stock. The total aggregate number of shares of Trex common stock that may be issued under the Plan is 25,680,000 and as of March 31, 2022, the total number of shares available for future issuance is 11,072,584.

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Inventories (Tables)

3 Months Ended

Mar. 31, 2022

Inventory Disclosure [Abstract]

Summary of Inventories

Inventories valued at LIFO (last-in, first-out), consist of the following (in thousands):

	March 31, 2022			December 31, 2021
Finished goods	$	64,382		$	58,401
Raw materials		63,175			56,441
Total FIFO (first-in, first-out) inventories		127,557			114,842
Reserve to adjust inventories to LIFO value		(36,467	)		(36,467	)
Total LIFO inventories	$	91,090		$	78,375

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Prepaid Expenses and Other Assets (Tables)

3 Months Ended

Mar. 31, 2022

Text Block [Abstract]

Summary of Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following (in thousands):

	March 31, 2022		December 31, 2021
Prepaid expenses	$	12,599	$	15,061
Revenues in excess of billings		8,897		9,109
Income tax receivable		723		406
Other		659		576
Total prepaid expenses and other assets	$	22,878	$	25,152

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Accrued Expenses and Other Liabilities (Tables)

3 Months Ended

Mar. 31, 2022

Payables and Accruals [Abstract]

Summary of Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

	March 31, 2022		December 31, 2021
Income taxes	$	22,441	$	—
Sales and marketing		21,948		16,439
Compensation and benefits		12,719		25,450
Operating lease liabilities		7,504		7,066
Manufacturing costs		4,060		4,110
Billings in excess of revenues		2,151		1,436
Other		4,190		3,540
Total accrued expenses and other liabilities	$	75,013	$	58,041

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Leases (Tables)

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Supplemental Cash Flow information and Supplemental balance sheet information related to operating leases

The following table includes supplemental cash flow information for the three months ended March 31, 2022 and March 31, 2021 and supplemental balance sheet information at March 31, 2022 and December 31, 2021 related to operating leases (in thousands):

	Three Months Ended March 31,
Supplemental cash flow information	2022		2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,174	$	2,056
Operating ROU assets obtained in exchange for lease liabilities	$	6,053	$	1,038
Supplemental balance sheet information	March 31, 2022		December 31, 2021
Operating lease ROU assets	$	37,479	$	34,571
Operating lease liabilities:
Accrued expenses and other current liabilities	$	7,504	$	7,066
Operating lease liabilities		30,672		28,263
Total operating lease liabilities	$	38,176	$	35,329

Maturities of operating lease liabilities

The following table summarizes maturities of operating lease liabilities at March 31, 2022 (in thousands):

Maturities of operating lease liabilities
2022	$	6,276
2023		7,377
2024		6,653
2025		5,362
2026		4,852
Thereafter		10,156
Total lease payments		40,676
Less imputed interest		(2,500	)
Total operating lease liabilities	$	38,176

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2022

Equity [Abstract]

Computation of Basic and Diluted Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2022		2021
Numerator:
Net income available to common shareholders	$	71,211	$	48,545
Denominator:
Basic weighted average shares outstanding		114,638,424		115,663,366
Effect of dilutive securities:
Stock appreciation rights and options		124,327		207,060
Restricted stock		91,130		146,974
Diluted weighted average shares outstanding		114,853,881		116,017,400
Basic earnings per share	$	0.62	$	0.42
Diluted earnings per share	$	0.62	$	0.42

Antidilutive Securities Excluded from Computation of Earnings Per Share

The computation of diluted earnings per share excludes the following potentially dilutive securities because the effect would be anti-dilutive:

	Three Months Ended March 31,
	2022		2021
Stock appreciation rights		31,006		7,181
Restricted stock		52,278		23,079

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Revenue From Contracts With Customers (Tables)

3 Months Ended

Mar. 31, 2022

Revenue from Contract with Customer [Abstract]

Summary of Disaggregated Net Sales

The tables also include a reconciliation of the respective disaggregated net sales with the Company’s reportable segments (in thousands).

Three Months Ended March 31, 2022	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	$	327,194	$	—	$	327,194
Products transferred over time and fixed price contracts		—		12,034		12,034
	$	327,194	$	12,034	$	339,228

Three Months Ended March 31, 2021	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	$	233,070	$	—	$	233,070
Products transferred over time and fixed price contracts		—		12,454		12,454
	$	233,070	$	12,454	$	245,524

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2022

Summary of Stock-Based Compensation Grants

The following table summarizes the Company’s stock-based compensation grants for the three months ended March 31, 2022:

	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		38,164	$	82.27
Performance-based restricted stock units (a)		71,731	$	76.24
Stock appreciation rights		32,971	$	82.01

(a) Includes 46,651 of target performance-based restricted stock unit awards granted during the three months ended March 31, 2022, and adjustments of 8,160, 11,684, and 5,236 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2021, 2020, and 2019, respectively.

Summary of Assumptions Used to Estimate Fair Value of Each SAR

For SARs issued in the three months ended March 31, 2021 and March 31, 2020 the data and assumptions shown in the following table were used:

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Weighted-average fair value of grants	$	33.90		$	51.84
Dividend yield		0	%		0	%
Average risk-free interest rate		1.9	%		0.6	%
Expected term (years)		5			5
Expected volatility		44.9	%		58.7	%

Summary of Stock-Based Compensation Expense

The following table summarizes the Company’s stock-based compensation expense (in thousands):

	Three Months Ended March 31
	2022		2021
Stock appreciation rights	$	154	$	114
Time-based restricted stock and restricted stock units		847		687
Performance-based restricted stock and restricted stock units		1,158		1,275
Employee stock purchase plan		67		100
Total stock-based compensation	$	2,226	$	2,176

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Details of Segment Information

The below segment data for the three months ended March 31, 2022 and March 31, 2021 includes data for Trex Residential and Trex Commercial (in thousands):

Segment Data:

	Three Months Ended March 31, 2022							Three Months Ended March 31, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential		Trex Commercial			Total
Net sales	$	327,194	$	12,034		$	339,228	$	233,070	$	12,454		$	245,524
Net income (loss)	$	72,215	$	(1,004	)	$	71,211	$	48,745	$	(200	)	$	48,545
EBITDA	$	106,483	$	(1,058	)	$	105,425	$	70,964	$	(52	)	$	70,912
Depreciation and amortization	$	10,191	$	282		$	10,473	$	6,210	$	213		$	6,423
Income tax expense (benefit)	$	24,063	$	(336	)	$	23,727	$	16,012	$	(65	)	$	15,947
Capital expenditures	$	22,283	$	5		$	22,288	$	56,563	$	1,530		$	58,093
Total assets	$	929,737	$	42,659		$	972,396	$	808,864	$	91,426		$	900,290

Schedule of Reconciliation of Net Income to EBITDA

Reconciliation of Net Income to EBITDA:

	Three Months Ended March 31, 2022							Three Months Ended March 31, 2021
	Trex Residential		Trex Commercial			Total		Trex Residential			Trex Commercial			Total
Net income (loss)	$	72,215	$	(1,004	)	$	71,211	$	48,745		$	(200	)	$	48,545
Interest expense (income), net		14		—			14		(3	)		—			(3	)
Income tax expense (benefit)		24,063		(336	)		23,727		16,012			(65	)		15,947
Depreciation and amortization		10,191		282			10,473		6,210			213			6,423
EBITDA	$	106,483	$	(1,058	)	$	105,425	$	70,964		$	(52	)	$	70,912

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Summary of Reconciliation of Company's Residential Product Warranty Reserve

The following is a reconciliation of the Company’s residential product warranty reserve (in thousands):

	Three Months Ended March 31, 2022
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	18,542		$	10,053		$	28,595
Provisions and changes in estimates		—			1,090			1,090
Settlements made during the period		(745	)		(528	)		(1,273	)
Ending balance, March 31	$	17,797		$	10,615		$	28,412

	Three Months Ended March 31, 2021
	Surface Flaking			Other Residential			Total
Beginning balance, January 1	$	21,325		$	8,148		$	29,473
Provisions and changes in estimates		—			1,092			1,092
Settlements made during the period		(604	)		(416	)		(1,020	)
Ending balance, March 31	$	20,721		$	8,824		$	29,545

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Business and Organization - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2022 Segment
Accounting Policies [Abstract]
Number of reportable segments	2

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Inventories - Summary of Inventories (Detail) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Inventory Disclosure [Abstract]
Finished goods	$ 64,382	$ 58,401
Raw materials	63,175	56,441
Total FIFO (first-in, first-out) inventories	127,557	114,842
Reserve to adjust inventories to LIFO value	(36,467)	(36,467)
Total LIFO inventories	$ 91,090	$ 78,375

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Inventories - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Inventory Disclosure [Abstract]
LIFO inventory liquidations	$ 0
Raw materials	$ 7,100,000	$ 5,400,000

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Prepaid Expenses and Other Assets - Summary of Prepaid Expenses and Other Assets (Detail) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Prepaid Expense and Other Assets [Abstract]
Prepaid expenses	$ 12,599	$ 15,061
Revenues in excess of billings	8,897	9,109
Income tax receivable	723	406
Other	659	576
Total prepaid expenses and other assets	$ 22,878	$ 25,152

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Goodwill and Other Intangible Assets, Net - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Goodwill [Line Items]
Amortization of intangible asset	$ 0.1	$ 0.1
Intangible Assets	6.3		$ 6.3
Accumulated Amortization	1.6		1.5
Residential [Member]
Goodwill [Line Items]
Goodwill	$ 14.2		$ 14.2
Domain Names [Member]
Goodwill [Line Items]
Amortization period	15 years

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Accrued Expenses and Other Liabilities - Summary of Accrued Expenses and Other Liabilities (Detail) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Payables and Accruals [Abstract]
Income taxes	$ 22,441	$ 0
Sales and marketing	21,948	16,439
Compensation and benefits	12,719	25,450
Operating lease liabilities	$ 7,504	7,066
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	Total accrued expenses and other liabilities
Manufacturing costs	$ 4,060	4,110
Billings in excess of revenues	2,151	1,436
Other	4,190	3,540
Total accrued expenses and other liabilities	$ 75,013	$ 58,041

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Debt - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2022	May 26, 2020
Line of Credit Facility [Line Items]
Outstanding borrowing capacity	$ 0
Remaining available borrowing capacity	$ 350,000,000
Termination date of the Credit Agreement	Nov. 05, 2024
Revolver Loans Portion Effective January 1 through June 30 [Member] | Fourth Amended And Restated Credit Agreement [Member]
Line of Credit Facility [Line Items]
Revolving loans in a collective maximum principal amount	$ 250,000,000
Revolver Loans Portion Effective July 1 through December 31 [Member] | Fourth Amended And Restated Credit Agreement [Member]
Line of Credit Facility [Line Items]
Revolving loans in a collective maximum principal amount	$ 200,000,000
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Line of Credit Facility, Additional Borrowing Capacity		$ 100,000,000

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Leases - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Weighted average discount rate	2.20%		2.47%
Operating lease cost	$ 2.1	$ 2.0
Weighted average remaining lease term	5 years 10 months 24 days		5 years 9 months 18 days
Minimum [Member]
Operating Lease terms	1 year
Maximum [Member]
Operating Lease terms	8 years

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Leases - Supplemental Cash flow Information to operating leases (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$ 2,174	$ 2,056
Operating ROU assets obtained in exchange for lease liabilities	6,053	$ 1,038
Supplemental balance sheet information
Operating lease ROU assets	37,479		$ 34,571
Operating lease liabilities:
Accrued expenses and other current liabilities	7,504		7,066
Operating lease liabilities	30,672		28,263
Total operating lease liabilities	$ 38,176		$ 35,329

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Leases - Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Operating Lease Liabilities, Payments Due [Abstract]
2022	$ 6,276
2023	7,377
2024	6,653
2025	5,362
2026	4,852
Thereafter	10,156
Total lease payments	40,676
Less imputed interest	(2,500)
Total operating lease liabilities	$ 38,176	$ 35,329

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Stockholders' Equity - Additional Information (Detail) - $ / shares	3 Months Ended
	Mar. 31, 2022	May 05, 2022	Dec. 31, 2021	Mar. 31, 2021
Equity, Class of Treasury Stock [Line Items]
Common stock, shares authorized	180,000,000		180,000,000	180,000,000
Common stock, par value	$ 0.01		$ 0.01
Subsequent Event [Member]
Equity, Class of Treasury Stock [Line Items]
Common stock, shares authorized		360,000,000
Common stock, par value		$ 0.01
Stock Repurchase Programs [Member]
Equity, Class of Treasury Stock [Line Items]
Common stock repurchase program, authorized shares	11,600,000
Number of shares repurchased by the Company	4,400,000

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Stockholders' Equity - Computation of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Numerator:
Net income	$ 71,211	$ 48,545
Denominator:
Basic weighted average shares outstanding	114,638,424	115,663,366
Effect of dilutive securities:
Diluted weighted average shares outstanding	114,853,881	116,017,400
Basic earnings per share	$ 0.62	$ 0.42
Diluted earnings per share	$ 0.62	$ 0.42
Stock appreciation rights [Member]
Effect of dilutive securities:
Dilutive securities	124,327	207,060
Restricted stock [Member]
Effect of dilutive securities:
Dilutive securities	91,130	146,974

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Stockholders' Equity - Antidilutive Securities Excluded from Computation of Earnings Per Share (Detail) - shares	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Restricted stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the computation of diluted earnings per share	52,278	23,079
Stock appreciation rights [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from the computation of diluted earnings per share	31,006	7,181

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Revenue From Contracts With Customers - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2022 USD ($)
Revenue from Contract with Customer [Abstract]
Revenue remaining performance obligation	$ 26.0
Revenue remaining performance obligation description	greater than one year

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Revenue From Contracts With Customers - Summary of Disaggregated Net Sales (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 339,228	$ 245,524
Products Transferred at a Point in Time and Variable Consideration Contracts [Member]
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	327,194	233,070
Products Transferred Over Time and Fixed Price Contracts [Member]
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	12,034	12,454
Residential [Member]
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	327,194	233,070
Residential [Member] | Products Transferred at a Point in Time and Variable Consideration Contracts [Member]
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	327,194	233,070
Commercial [Member]
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	12,034	12,454
Commercial [Member] | Products Transferred Over Time and Fixed Price Contracts [Member]
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 12,034	$ 12,454

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Stock-Based Compensation - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2022 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost related to unvested awards | $	$ 15.9
2014 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total aggregate number of shares of common stock that may be issued	25,680,000
Number of common stock available for future issuance	11,072,584
Stock Appreciation Rights [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value assumptions method used	Black-Scholes option-pricing formula

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Stock-Based Compensation - Summary of Stock-Based Compensation Grants (Detail)	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Time Based Restricted Stock Units [Member]
Stock Awards Granted | shares	38,164
Weighted-Average Grant Price Per Share | $ / shares	$ 82.27
Performance Based Restricted Stock Units [Member]
Stock Awards Granted | shares	71,731	[1]
Weighted-Average Grant Price Per Share | $ / shares	$ 76.24	[1]
Stock Appreciation Rights [Member]
Stock Awards Granted | shares	32,971
Weighted-Average Grant Price Per Share | $ / shares	$ 82.01

[1] Includes 46,651 of target performance-based restricted stock unit awards granted during the three months ended March 31, 2022, and adjustments of 8,160, 11,684, and 5,236 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2021, 2020, and 2019, respectively.

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Stock-Based Compensation - Summary of Stock-Based Compensation Grants (Parenthetical) (Detail) - shares	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Performance Based Restricted Stock Unit Target [Member]
Stock Awards Granted	46,651
Performance Based Restricted Stock Unit Adjustment [Member]
Stock Awards Granted		8,160	11,684	5,236

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Stock-Based Compensation - Summary of Assumptions Used to Estimate Fair Value of Each SAR (Detail) - Stock Appreciation Rights [Member] - $ / shares	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share Based Compensation Arrangement by Share Based Payment Award Fair Value Assumptions and Methodology [Line Items]
Weighted-average fair value of grants	$ 33.90	$ 51.84
Dividend yield	0.00%	0.00%
Average risk-free interest rate	1.90%	0.60%
Expected term (years)	5 years	5 years
Expected volatility	44.90%	58.70%

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Stock-Based Compensation - Summary of Stock-Based Compensation Expenses (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2,226	$ 2,176
Stock Appreciation Rights [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	154	114
Time-Based Restricted Stock and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	847	687
Performance-Based Restricted Stock and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,158	1,275
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 67	$ 100

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Tax Contingency [Line Items]
Valuation allowance	$ 2,200
Income tax expense (benefit)	$ 23,727	$ 15,947
Effective tax rate	25.00%	24.70%
Excess tax benefits from stock based awards	$ 100	$ 800
Effective income tax rate reconciliation nondeductible expense share-based payment arrangement percent	0.30%
Earliest Tax Year [Member] | Federal Tax Jurisdiction [Member]
Income Tax Contingency [Line Items]
Tax years subject to examination	2018
Latest Tax Year [Member] | Federal Tax Jurisdiction [Member]
Income Tax Contingency [Line Items]
Tax years subject to examination	2021

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Segment Information - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2022 Segment
Segment Reporting Information [Line Items]
Number of reportable segment	2

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Segment Information - Details of Segment Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Segment Reporting Information [Line Items]
Net sales	$ 339,228	$ 245,524
Net income (loss)	71,211	48,545
Depreciation and amortization	10,473	6,423
Income tax expense (benefit)	23,727	15,947
Total assets	972,396		$ 920,321
Residential [Member]
Segment Reporting Information [Line Items]
Net sales	327,194	233,070
Net income (loss)		48,745
EBITDA		70,964
Depreciation and amortization		6,210
Income tax expense (benefit)		16,012
Commercial [Member]
Segment Reporting Information [Line Items]
Net sales	12,034	12,454
Net income (loss)		(200)
EBITDA		(52)
Depreciation and amortization		213
Income tax expense (benefit)		(65)
Operating Segments [Member]
Segment Reporting Information [Line Items]
Net sales	339,228	245,524
Net income (loss)	71,211	48,545
EBITDA	105,425	70,912
Depreciation and amortization	10,473	6,423
Income tax expense (benefit)	23,727	15,947
Capital expenditures	22,288	58,093
Total assets	972,396	900,290
Operating Segments [Member] | Residential [Member]
Segment Reporting Information [Line Items]
Net sales	327,194	233,070
Net income (loss)	72,215	48,745
EBITDA	106,483	70,964
Depreciation and amortization	10,191	6,210
Income tax expense (benefit)	24,063	16,012
Capital expenditures	22,283	56,563
Total assets	929,737	808,864
Operating Segments [Member] | Commercial [Member]
Segment Reporting Information [Line Items]
Net sales	12,034	12,454
Net income (loss)	(1,004)	(200)
EBITDA	(1,058)	(52)
Depreciation and amortization	282	213
Income tax expense (benefit)	(336)	(65)
Capital expenditures	5	1,530
Total assets	$ 42,659	$ 91,426

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Segment Information - Schedule of Reconciliation of Net Income to EBITDA (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Segment Reporting Information [Line Items]
Net income (loss)	$ 71,211	$ 48,545
Interest expense (income), net	(14)	3
Income tax expense (benefit)	23,727	15,947
Depreciation and amortization	10,473	6,423
Residential [Member]
Segment Reporting Information [Line Items]
Net income (loss)		48,745
Interest expense (income), net		(3)
Income tax expense (benefit)		16,012
Depreciation and amortization		6,210
EBITDA		70,964
Commercial [Member]
Segment Reporting Information [Line Items]
Net income (loss)		(200)
Income tax expense (benefit)		(65)
Depreciation and amortization		213
EBITDA		(52)
Operating Segments [Member]
Segment Reporting Information [Line Items]
Net income (loss)	71,211	48,545
Interest expense (income), net	14	(3)
Income tax expense (benefit)	23,727	15,947
Depreciation and amortization	10,473	6,423
EBITDA	105,425	70,912
Operating Segments [Member] | Residential [Member]
Segment Reporting Information [Line Items]
Net income (loss)	72,215	48,745
Interest expense (income), net	14
Income tax expense (benefit)	24,063	16,012
Depreciation and amortization	10,191	6,210
EBITDA	106,483	70,964
Operating Segments [Member] | Commercial [Member]
Segment Reporting Information [Line Items]
Net income (loss)	(1,004)	(200)
Income tax expense (benefit)	(336)	(65)
Depreciation and amortization	282	213
EBITDA	$ (1,058)	$ (52)

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Commitments and Contingencies - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2022 USD ($)
Schedule Of Commitments And Contingencies [Line Items]
Change in warranty reserve for disclosure purposes only	$ 1.8
Minimum [Member]
Schedule Of Commitments And Contingencies [Line Items]
Warranty period	10 years
Maximum [Member]
Schedule Of Commitments And Contingencies [Line Items]
Warranty period	25 years
Surface Flaking Warranty Reserve [Member]
Schedule Of Commitments And Contingencies [Line Items]
Percentage change in warranty claims used as a threshold for disclosure	10.00%
Commercial Railing And Staging Systems [Member] | Commercial Use [Member] | Minimum [Member]
Schedule Of Commitments And Contingencies [Line Items]
Warranty period	1 year
Commercial Railing And Staging Systems [Member] | Commercial Use [Member] | Maximum [Member]
Schedule Of Commitments And Contingencies [Line Items]
Warranty period	3 years

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Commitments and Contingencies - Summary of Reconciliation of Company's Residential Product Warranty Reserve (Detail) - Surface Flaking Warranty Reserve [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Product Warranty Liability [Line Items]
Beginning balance	$ 28,595	$ 29,473
Provisions and changes in estimates	1,090	1,092
Settlements made during the period	(1,273)	(1,020)
Ending balance	28,412	29,545
Surface Flaking [Member]
Product Warranty Liability [Line Items]
Beginning balance	18,542	21,325
Settlements made during the period	(745)	(604)
Ending balance	17,797	20,721
Other Residential [Member]
Product Warranty Liability [Line Items]
Beginning balance	10,053	8,148
Provisions and changes in estimates	1,090	1,092
Settlements made during the period	(528)	(416)
Ending balance	$ 10,615	$ 8,824