TREX 10-K & 10-Q changes, risk factors and insider trading

Our business operates in one reportable segment, Trex Residential,Trex, and is subject to a number of risks, including the following.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (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.” 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 and geopolitical conflicts; and material adverse impacts related to labor shortages or increases in labor costs.

General. The Company 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 than 30 years of product experience. A majority of our products are manufactured in a proprietary process that combines reclaimed wood fibers and recycled polyethylene. The Company is focused on using renewable resources within our Trex Residential segment. Also, through December 30, 2022, the Company provided custom-engineered commercial railing and staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. During the year ended December 31, 2022, the Company operated in two reportable segments: Trex Residential Products (Trex Residential), the Company’s principal business based on net sales, and Trex Commercial Products (Trex Commercial). On December 30, 2022, we completed the sale of substantially all of the assets of our wholly-owned subsidiary and reportable segment, Trex Commercial. Subsequent to the sale of Trex Commercial, the Company operates in one reportable segment, Trex Residential.resources.

Outdoor living remains one of the fastest growing categories within the repair and remodel sector, and the strength of the Trex Residential brand coupled with our expanded manufacturing capacity, our key competitive advantages, help us to effectively unlock potential market share and drive long term growth. We continue to benefit from increasing consumer interest in our environmentally friendly, low maintenance product portfolio that transforms and enhances the outdoor living experience.

We continue to focus on cost reduction projects and identifying continuous improvement opportunities to enhance our margins. Specifically, our efforts are primarily centered on increased automation, modernization, enhanced energy efficiency and improvements to raw material processing. At the same time, we intend to expand our marketing campaigns, continue highlighting the advantages of Trex Residential decking over wood, as well as focusing on innovation and new product development to further strengthen our consumer brand and distribution advantages. These initiatives should help drive continued topline and profit growth and accelerated market share conversion.

Trex Residential is the world’s largest manufacturer of wood-alternative composite decking and railing products marketed under the brand name Trex® and manufactured in the United States. We offer a comprehensive set of aesthetically pleasing, high-performance, low maintenance, eco-friendly products in the decking, railing, fencing, cladding and outdoor lighting categories. We believe that the range and variety of our products allow consumers to design much of their outdoor living space using Trex brand products.

We offer the following composite decking and railing products through Trex Residential:

Trex Ranked Among Barron’sBarron's 100 Most Sustainable Companies for 2024.2025. Trex wasmoved honoredup by20 Baron’sspots in its 2nd appearance on the Barron's List of 100 Most Sustainable Companies for outstanding leadership in environmental, social, and governance practices and was the only decking brand to be included on this year’s list.2025.

*A reconciliation of Net Income to EBITDA is presented on pagespage 31 of this document under “Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).”

Capital expenditures.expenditures and intangibles. In 2024,2025, we spent a total of $232.3$233.6 million on capital expenditures, primarily at our Trex Residential facilities, including $174.8$167.8 million related to construction of our Arkansas facility, $14.7$21.2 million relatedin tosafety, environmental, and general support, $10.0 million investment in our ERP tool and other platforms, and $22.0 million in all other including cost reduction initiatives and capacity expansion at our Virginiaexisting facilities, $14.5 million related to general plant cost reduction initiatives at our Virginia and Nevada facilities, and $17.0 million for general support, safety and environmental initiatives.facilities.

Product Warranty. We warrant that for the applicable warranty period our Trex Residential products, when properly installed, used and maintained, will be free from material defects in workmanship and materials and our decking, cladding, fascia and railing products will not split, splinter, rot or suffer structural damage from termites or fungal decay.

Products sold prior to January 1, 2023: The warranty period is 25 years for residential use and 10 years for commercial use. With respect to Trex Signature railing, the warranty period is 25 years for both residential and commercial use. We further warrant that Trex Transcend, Trex Enhance, Trex Select and Universal Fascia products will not fade in color more than a certain amount and will be resistant to permanent staining from food substances or mold, provided the stain is cleaned within seven days of appearance, for the warranty period referred to above. If there is a breach of such warranties, we have an obligation either to replace the defective product or refund the purchase price. We maintain a warranty reserve for the settlement of our product warranty claims. We accrue for the estimated cost of product warranty claims at the time revenue is recognized based on such factors as historical claims experience and future claims experience. We review and adjust these estimates, if necessary, based on the differences between actual experience and historical estimates. Additionally, we accrue for warranty costs associated with occasional or unanticipated product quality issues if a loss is probable and can be reasonably estimated.

Revenue Recognition. Trex Residential principally generates revenue from the manufacture and sale of its high-performance, low-maintenance, eco-friendly outdoor living products, consisting of composite decking and railing products, hidden fasteners, and a broad offering of outdoor living accessories. Substantially all of its revenues are from contracts with customers, which are individual customer purchase orders of short-term duration of less than one year. 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 and 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 Consolidated Financial Statements presented in this Form 10-K.

Trex Residential may offer various sales incentive programs throughout the year. It estimates the amount of sales incentive to allocate to each performance obligation, or product shipped, based on direct sales to the customer. The estimate is updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception. Changes in estimate allocated to a previously satisfied performance obligation are recognized as a reduction of revenue in the period in which the change occurs under the cumulative catch-up method. Should estimates change or prove to have been incorrect, it could negatively affect our results of operations and financial condition. In addition to sales incentive programs, Trex Residential may offer payment discounts. It estimates the payment discount that it believes will be taken by the customer based on prior history using the most-likely-amount method of estimation.

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, 2025 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.

This management’s discussion and analysisMD&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, 2025 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.

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 MarchJune 31,30, 2026, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.

Results of Operations — an analysis of our consolidated results of operations for the three months and six months ended MarchJune 31,30, 2026 compared to the three months and six months ended MarchJune 31,30, 2025.

Trex is the world’s largest manufacturer of high-performance wood alternativecomposite decking and railing products and a leader in outdoor living products, which are marketed under the brand name Trex® and manufactured in the United States. With more than 30 years of product experience, we offer a comprehensive set of aesthetically appealing and durable, low-maintenance product offerings in the decking, railing, fencing and outdoor lighting categories. A majority of the products are eco-friendly and leverage recycled and reclaimed materials to the extent possible. Trex decking is made in a proprietary process that combines reclaimed wood fibers and recycled polyethylene film, making Trex one of the largest recyclers of plastic film in North America. In addition to resisting fading and surface staining, Trex 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 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 products are sold to distributors and home centers for final resale primarily to the residential market.

*A reconciliation of Net Income (GAAP) to EBITDA (non-GAAP) is presented on pagepages 20 and 21 of this documentQuarterly Report on Form 10-Q under “Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).”

Capital expenditures and intangibles.expenditures. During the threesix months ended MarchJune 31,30, 2026, we spent a total of $25.0 million onour capital expenditures andwere intangibles,$57.3 includingmillion $13.0primarily related to $20.0 million for the Arkansas manufacturing facility, $2.6$6.5 million in cost reduction initiatives, $1.9$4.5 million for our ERP tool and other platforms, and $7.5$26.3 million in all other including capacity expansion in our existing facilities.

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.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.

Tariffs account for lessLess than 5% of our cost of sales.sales is projected to be impacted by tariffs. The majority of tariffs are related to purchases of aluminum and steel used in our railing and fastening products. We have and will further mitigate some of the impact on our cost of sales through supplierhigher negotiationslevels of existing pre-tariff inventory and pricingsupplier actions.negotiations.

Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended MarchJune 31,30, 2026 (2026 quarter) compared to the three months ended MarchJune 31,30, 2025 (2025 quarter), and for the six months ended June 30, 2026 (2026 six-month period) compared to the six months ended June 30, 2025 (2025 six-month period).

Three Months Ended MarchJune 31,30, 2026 Compared To The Three Months Ended MarchJune 31,30, 2025

Gross profit as a percentage of net sales, gross margin, was 40.5%37.9% in the 2026 quarter andcompared to 40.8% in the 2025 quarter. GrossThe decrease in gross margin inwas primarily the 2026result quarterof washigher favorably impacted by pricinginput and absorptionmaterial due to higher production compared to the 2025 quarter, offset bycosts, increased incentives.depreciation, lower production, and unfavorable mix.

Selling, general and administrative expenses decreasedincreased $0.5$11.7 million to $55.5$67.5 million, or 16.2%16.1% of net sales, in the 2026 quarter. The decreaseincrease wasprimarily related to aincreases $3.0of $4.1 million reduction in personnel expensesrelated primarilyexpenses, for decreased self-insured medical costs and incentive compensation partially offset by increases of $1.4$3.7 million in branding, and $0.8$2.8 million in research and development costs.services.

EBITDA increaseddecreased 6.2%10.7% to $101.9$105.6 million for the 2026 quarter compared to $95.9$118.2 million for the 2025 quarter. The increasedecrease in EBITDA was driven primarily driven by anlower increasegross in net salesprofit and grossthe profit.write down of assets.

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 MarchJune 31,30, 2026, we had $4.5$6.5 million of cash and cash equivalents.

Cash usedprovided inby operations was $118.4$95.7 million during the 2026 quartersix-month period compared to cash usedprovided inby operations of $154.0$95.7 million during the 2025 quarter.six-month Theperiod. $35.6Accounts millionreceivable decreaseincreased inmore cashduring usedthe insix operatingmonths activitiesended wasJune 30, 2026 than during the comparable prior-year period, primarily relateddue to higher accountssales payablevolume. andThis aunfavorable lowerimpact increaseon inoperating accountscash receivableflow in the 2026 period relative to the prior year period. These favorable impacts werewas partially offset by inventorylower changes,tax as the 2026 period reflected smaller reduction in inventorypayments compared to the prior2025 yearsix-month period.

Cash used in investing activities for capitalCapital expenditures and intangibles in the 2026 quartersix-month wasperiod $25.0were $57.3 million primarily related to $13.0$20.0 million for the Arkansas manufacturing facility, $2.6$6.5 million in cost reduction initiatives, $1.9$4.5 million for our ERP tool and other platforms, and $7.5$26.3 million in all other including capacity expansion,expansion andin maintenanceour upgrades.existing facilities.

Net cash providedused byin financing activities in the 2026 quartersix-month period consisted primarily of repurchases of common stock, partially offset by net borrowings underon ourthe linerevolving ofcredit credit.facility.

Stock Repurchase Program. On May 4, 2023, the Trex Board of Directors adopted a stock repurchase program (2023 Stock Repurchase Program) of up to 10.8 million shares of its outstanding common stock. The 2023 Stock Repurchase Program has no set expiration date. On February 26, 2026, Trex entered into an Accelerated Stock Repurchase program ("ASR") under the 2023 Stock Repurchase Program. AsOn such,April we28, made2026, athe prepaymentTrex Board of $100Directors million to Wells Fargo and receivedauthorized an initialadditional delivery of 1.910 million shares valuedto atbe approximatelyrepurchased 80% ofunder the prepayment2023 amount.Stock Repurchase Program. During the threesix months ended, MarchJune 31,30, 20262026, wethe Company repurchased 1.9an aggregate of 3.9 million shares of its common stock, consisting of 2.6 million shares by the ASR program and 1.3 million shares under the ASR2023 basedRepurchase onProgram. As of June 30, 2026 the initial delivery described in the preceding sentence. The totalremaining number of shares weavailable will ultimatelyfor repurchase andunder the average2023 priceStock perRepurchase share will be based on the average of the daily volume-weighted average prices of our common stock during the term of the ASR Agreement, less a negotiated discount and subject to customary adjustments, andProgram is expected to occur no later than the second quarter of 2026.13,470,185.

Indebtedness on and after March 26, 2026. On March 26, 2026 Trex entered into a Credit Agreement with certain lending parties thereto (Lenders) to amend and restate the Credit Agreement dated as of May 18,2022,18, 2022, as amended (the Prior Credit Agreement).

Compliance with Debt Covenants and Restrictions. Pursuant to the terms of the Credit Agreement, the Company,Company is subject to certain loan compliance covenants. The Credit Agreement requires the Company to maintain (a) a Consolidated Interest Coverage Ratio of not less than 2.50 to 1.0 and (b) a Consolidated Debt to Consolidated EBITDA Ratio of not more than 3.75 to 1.0, each measured as of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ended June 30, 2026. The maximum Consolidated Debt to Consolidated EBITDA Ratio is automatically increased to 4.25 to 1.0 for the Fiscal Quarter in which a qualifying Acquisition with cash consideration (including assumed or acquired Debt) of $75,000,000 or more occurs and each of the following four Fiscal Quarters (an "Adjustment Period"), subject to a limit of two Adjustment Periods during the term of the Credit Agreement.