TREX CO INC

Previous wording

The following management discussion should be read in conjunction with the Trex Company, Inc. (Trex, Company, we or our) Annual Report on Form 10-K for the year ended December 31, 2024 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.

Current wording

The following management discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the Trex Company, Inc. (Trex, Company, we or our) Annual Report on Form 10-K for the year ended December 31, 2024 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.

Previous wording

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, 2024 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; increasing inflation and tariffs in the macro-economic environment; 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 warranty claims, 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 current and 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, geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.

Current wording

This MD&A 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, 2024 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; increasing inflation and tariffs in the macro-economic environment; 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 warranty claims, 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 current and 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, geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.

Previous wording

Highlights and Financial Performance Quarter-to-Date and Year-to-Date— a summary of financial performance and highlights for the three months ended March 31, 2025, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.

Current wording

Highlights and Financial Performance Quarter-to-Date and Year-to-Date –a summary of financial performance and highlights for the three months and six months ended June 30, 2025, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.

Previous wording

Results of Operations — an analysis of our consolidated results of operations for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Current wording

Results of Operations — an analysis of our consolidated results of operations for the three months and six months ended June 30, 2025 compared to the three months and six months ended June 30, 2024.

Previous wording

*A reconciliation of Net Income (GAAP) to EBITDA (non-GAAP) is presented on page 19 of this document under “Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).”

Current wording

*A reconciliation of Net Income (GAAP) to EBITDA (non-GAAP) is presented on pages 19 and 21 of this Quarterly Report on Form 10-Q under “Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).”

Previous wording

Capital expenditures. During the three months ended March 31, 2025, our capital expenditures were $79.5 million primarily related to $64.2 million for the Arkansas manufacturing facility, $4.4 million in cost reduction initiatives, and $7.4 million in capacity expansion in our existing facilities and safety, environmental and general support.

Current wording

Capital expenditures. During the six months ended June 30, 2025, our capital expenditures were $126.3 million primarily related to $97.6 million for the Arkansas manufacturing facility, $5.9 million in cost reduction initiatives, and $7.4 million in capacity expansion in our existing facilities and safety, environmental and general support.

Previous wording

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. 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.

Current wording

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.

Previous wording

Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended March 31, 2025 (2025 quarter) compared to the three months ended March 31, 2024 (2024 quarter).

Current wording

Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended June 30, 2025 (2025 quarter) compared to the three months ended June 30, 2024 (2024 quarter), and for the six months ended June 30, 2025 (2025 six-month period) compared to the six months ended June 30, 2024 (2024 six-month period).

Previous wording

The effective tax rate for the 2025 quarter was comparable to the 2024 quarter and was 25.9% and 25.2%, respectively.

Current wording

The effective tax rate for the 2025 quarter was comparable to the 2024 quarter and was 25.9% and 25.6%, respectively.

Previous wording

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. 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. 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. 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.

Current wording

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. 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. 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.

Previous wording

EBITDA decreased 28% to $95.9 million for the 2025 quarter compared to $133.2 million for the 2024 quarter. The decrease in EBITDA was driven primarily by lower net sales and gross profit.

Current wording

EBITDA decreased 9.3% to $118.2 million for the 2025 quarter compared to $130.4 million for the 2024 quarter. The decrease in EBITDA was driven primarily by lower gross profit.

Previous wording

Net sales decreased by $33.6 million, or 9%, in the 2025 quarter compared to the 2024 quarter. The decrease was substantially due to a decrease in volume. The 2024 quarter included $40 million in channel inventory build which did not reoccur in the 2025 quarter as the result of our revised inventory strategy.

Current wording

Total net sales decreased by $22.3 million, or 3%, in the 2025 six-month period compared to the 2024 six-month period. The decrease was substantially all due to a decrease in volume, primarily related to our revised channel inventory strategy which resulted in reduced volume in the first half of the year.

Previous wording

Gross profit as a percentage of net sales, gross margin, was 40.5% in the 2025 quarter compared to 45.4% in the 2024 quarter. The decrease was primarily the result of lower production year over year as we level load our facilities and changes to our production process driven by refinements made to our Enhance® decking.

Current wording

Gross profit as a percentage of net sales, gross margin, was 40.7% in the 2025 six-month period compared to 45.0% in the 2024 six-month period. The decrease in gross margin was primarily the result of lower production year over year as we level load our facilities, inefficiencies associated with start-up costs at our Arkansas facility, and changes to our production process driven by refinements made to our Enhance® decking.

Previous wording

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, 2025, we had $5.0 million of cash and cash equivalents.

Current wording

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 June 30, 2025, we had $5.5 million of cash and cash equivalents.

Previous wording

Cash used in operations was $154 million during the 2025 three-month period compared to cash used in operations of $174 million during the 2024 three-month period. The $20 million decrease in cash used in operating activities was primarily related to a decrease in inventories and reduced profitability.

Current wording

Cash provided by operations was $95.7 million during the 2025 six-month period compared to cash provided by operations of $19.6 million during the 2024 six-month period. The $76.1 million increase in cash provided by operating activities was primarily related to a decrease in inventories in the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease in inventories is the result of lower production in 2025.

Previous wording

Capital expenditures in the 2025 three-month period were $79.5 million primarily related to $64.2 million for the Arkansas manufacturing facility, $4.4 million in cost reduction initiatives, and $7.4 million in capacity expansion in our existing facilities and safety, environmental and general support.

Current wording

Capital expenditures in the 2025 six-month period were $126.3 million primarily related to $97.6 million for the Arkansas manufacturing facility, $5.9 million in cost reduction initiatives, and $7.4 million in capacity expansion in our existing facilities and safety, environmental and general support.

Previous wording

Net cash provided by financing activities in the 2025 three-month period consisted primarily of net borrowings under our line of credit.

Current wording

Net cash provided by financing activities in the 2025 six-month period consisted primarily of net borrowings under our line of credit.

Previous wording

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). The Company repurchased 10.1 million shares under the Stock Repurchase Program. On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. The 2023 Stock Repurchase Program has no set expiration date and during the three months ended March 31, 2025 the Company did not repurchase any shares of its common stock under the 2023 Stock Repurchase Program.

Current wording

Stock Repurchase Program. On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. This repurchase program has no set expiration date. During the six months ended June 30, 2025, the Company did not repurchase any shares of its common stock under the 2023 Stock Repurchase Program.

Previous wording

The Second Amendment provides us with Revolving A Loans in the maximum principal amount of $400,000,000 (Revolving A Loans), Revolving B Loans in the maximum principal amount of $150,000,000 (Revolving B Loans), and Letters of Credit and Swing Line Loans (as defined in the Credit Agreement). The Second Amendment extends the maturity date of the Revolving B Loans from December 22, 2024 to December 22, 2026.

Current wording

The Second Amendment provides us with Revolving A Loans in the maximum principal amount of $400,000,000 (Revolving A Loans), Revolving B Loans in the maximum principal amount of $150,000,000 (Revolving B Loans), and Letters of Credit and Swing

Previous wording

At March 31, 2025, we had $443.9 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of $106.1 million.

Current wording

At June 30, 2025, we had $245.4 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of $304.6 million.

Previous wording

As previously announced, the Company anticipates spending approximately $550 million on the Arkansas facility, of which we have already invested $451 million.

Current wording

As previously announced, the Company anticipates spending approximately $550 million on the Arkansas facility, of which we have already invested $484 million.

Previous wording

Seasonality. The operating results for Trex have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions may reduce the level of home improvement and construction activity and can shift sales of our products to a later period or decrease overall sales in affected locations. As part of its normal business practice and consistent with industry practice, Trex 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.

Current wording

Seasonality. The operating results for Trex have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions in certain geographic regions may 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 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.