10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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, 2021

☐	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.:

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 23, 2021 was 115,361,970 shares.

Table of Contents

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, 2021 and March 31, 2020 (unaudited)		2

	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)		3

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)		4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and March 31, 2020 (unaudited)		5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1 6

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24

Item 4.	Controls and Procedures		24

PART II OTHER INFORMATION			25

Item 1.	Legal Proceedings		25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25

Item 5.	Other Information		25

Item 6.	Exhibits		26

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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,
	2021			2020
Net sales	$	245,524		$	200,395
Cost of sales		149,723			110,699

Gross profit		95,801			89,696
Selling, general and administrative expenses		31,312			34,561

Income from operations		64,489			55,135
Interest income, net		(3	)		(522	)

Income before income taxes		64,492			55,657
Provision for income taxes		15,947			13,255

Net income	$	48,545		$	42,402

Basic earnings per common share	$	0.42		$	0.37

Basic weighted average common shares outstanding		115,663,366			116,259,058

Diluted earnings per common share	$	0.42		$	0.36

Diluted weighted average common shares outstanding		116,017,400			116,647,442

Comprehensive income	$	48,545		$	42,402

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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TREX COMPANY, INC.

Condensed Consolidated Balance Sheets

(In thousands)


	March 31, 2021			December 31, 2020

	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	8,221		$	121,701
Accounts receivable, net		309,527			106,748
Inventories		75,012			68,238
Prepaid expenses and other assets		17,322			25,310

Total current assets		410,082			321,997
Property, plant and equipment, net		378,167			336,537
Goodwill and other intangible assets, net		73,560			73,665
Operating lease assets		33,672			34,382
Other assets		4,809			3,911

Total assets	$	900,290		$	770,492

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	39,167		$	38,622
Accrued expenses and other liabilities		55,058			62,331
Accrued warranty		5,400			5,400
Line of credit		136,000			—

Total current liabilities		235,625			106,353
Operating lease liabilities		27,420			28,579
Non-current accrued warranty		24,145			24,073
Deferred income taxes		22,956			22,956

Total liabilities		310,146			181,961

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; 140,643,173 and140,577,005 shares issued and 115,361,396 and 115,799,503 shares outstanding at March 31, 2021 and December 31, 2020, respectively		1,406			1,406
Additional paid-in capital		124,678			126,087
Retained earnings		785,856			737,311
Treasury stock, at cost, 25,281,777 and 24,777,502 shares at March 31, 2021 and December 31, 2020, respectively		(321,796	)		(276,273	)

Total stockholders’ equity		590,144			588,531

Total liabilities and stockholders’ equity	$	900,290		$	770,492

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		Additional Paid-In Capital			Retained Earnings		Shares		Amount			Total
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 award s		(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, 202 1		115,361,396		$	1,406	$	124,678		$	785,856		25,281,777	$	(321,796	)	$	590,144


	Common Stock					Additional Paid-In Capital			Retained Earnings		Treasury Stock					Total
	Shares			Amount		Additional Paid-In Capital			Retained Earnings		Shares		Amount			Total
Balance, December 31, 2019		116,481,442		$	1,404	$	123,294		$	561,680		23,893,484	$	(237,203	)	$	449,175
Net incom e		—			—		—			42,402		—		—			42,402
Employee stock plans		32,772			—		299			—		—		—			299
Shares withheld for taxes on awards		(76,284	)		—		(3,856	)		—		—		—			(3,856	)
Stock-based compensation		152,408			—		2,775			—		—		—			2,775
Repurchases of common stock		(884,018	)		—		—			—		884,018		(39,072	)		(39,072	)

Balance, March 31, 2020		115,706,320		$	1,404	$	122,512		$	604,082		24,777,502	$	(276,275	)	$	451,723

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,

	2021			2020
Operating Activities
Net incom e	$	48,545		$	42,402
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		6,423			3,851
Stock-based compensation		2,176			2,775
Gain on disposal of property, plant and equipment		(98	)		(123	)
Other non-cash adjustments		77			32
Changes in operating assets and liabilities:
Accounts receivable		(202,781	)		(162,780	)
Inventories		(6,774	)		(2,610	)
Prepaid expenses and other assets		(809	)		1,059
Accounts payable		10,494			8,865
Accrued expenses and other liabilities		(14,453	)		(14,089	)
Income taxes receivable/payable		14,626			11,850

Net cash used in operating activities		(142,574	)		(108,768	)

Investing Activities
Expenditures for property, plant and equipment		(58,093	)		(22,733	)
Proceeds from sales of property, plant and equipment		293			2,136

Net cash used in investing activities		(57,800	)		(20,597	)

Financing Activities
Borrowings under line of credit		142,000			36,500
Principal payments under line of credit		(6,000	)		(8,000	)
Repurchases of common stock		(49,566	)		(42,929	)
Proceeds from employee stock purchase and option plans		460			300

Net cash provided by (used in) financing activities		86,894			(14,129	)

Net decrease in cash and cash equivalents		(113,480	)		(143,494	)
Cash and cash equivalents, beginning of period		121,701			148,833

Cash and cash equivalents, end of period	$	8,221		$	5,339

Supplemental Disclosure:
Cash paid for interest	$	92		$	1
Cash paid for income taxes, net	$	1,319		$	1,405

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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TREX COMPANY, INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020 and 2019

(Unaudited)

1.	BUSINESS AND ORGANIZATION

Trex Company, Inc. (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 25 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 a

d staging systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The Company operates in two reportable segments, Trex Residential Products (Trex Residential) and Trex Commercial Products (Trex Commercial). The Company is incorporated in Delaware. 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 and its wholly-owned subsidiary, Trex Commercial Products, Inc., for all periods presented.

The unaudited consolidated results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. As of the date of this report, the Company has not experienced any material disruptions to its operations, production or its supply chain and has not experienced any material reduction in demand for its products due to the

COVID-19

pandemic. However, even though a vaccine has been approved, the pandemic remains an evolving situation due to the continuation of the outbreak and any future measures that may be taken to contain the spread of the virus. The Company is actively managing its business to respond to the impact and continuing to ensure the safety of its employees.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 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 December 2019, the FASB issued ASU

No. 2019-12,

“

Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes

”. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a

step-up

in the tax basis of goodwill. The Company adopted the standard on a prospective basis on January 1, 2021. Adoption did not have a material effect on its consolidated financial statements.

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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.

5.	INVENTORIES

Inventories valued at LIFO

(last-in,

first-out),

consist of the following (in thousands):


	March 31, 2021			December 31, 2020
Finished goods	$	45,688		$	39,048
Raw materials		44,407			44,475

Total FIFO (first-in, first-out) inventories		90,095			83,523
Reserve to adjust inventories to LIFO value		(16,821	)		(16,821	)

Total LIFO inventories	$	73,274		$	66,702

The Company utilizes the LIFO method of accounting 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. As of March 31, 2021, there were no LIFO inventory liquidations or related impact on cost of sales in the three months ended March 31, 2021.

Inventories valued at lower of cost (FIFO method) and net realizable value were $1.7 million at March 31, 2021 and $1.5 million at December 31, 2020, consisting primarily of raw materials. The Company utilizes the FIFO method of accounting to its Trex Commercial products.

6.	PREPAID EXPENSES AND OTHER ASSETS

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


	March 31, 2021		December 31, 2020
Prepaid expenses	$	7,640	$	7,285
Revenues in excess of billings		6,499		6,612
Contract retainage		2,896		2,267
Income tax receivable		—		7,823
Other		287		1,323

Total prepaid expenses and other assets	$	17,322	$	25,310

7.	GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill by reportable segment at March 31, 2021 and December 31, 2020 was $14.2 million for Trex Residential and $54.3 million for Trex Commercial.

The Company’s intangible assets consist of domain names. At March 31, 2021 and December 31, 2020, intangible assets were $6.3 million and accumulated amortization was $1.2 million and $1.1 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, 2021 and March 31, 2020 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, 2021		December 31, 2020
Sales and marketing	$	19,861	$	22,938
Compensation and benefits		10,902		21,156
Income taxes		7,193		389
Operating lease liabilities		7,130		6,708
Manufacturing costs		2,813		3,641
Billings in excess of revenues		1,189		1,244
Customer deposits		1,086		1,174
Other		4,884		5,081

Total accrued expenses and other liabilities	$	55,058	$	62,331

DEBT

The Company’s outstanding debt consists of a revolving credit facility. The Company

had

$136 million in outstanding borrowings under its revolving credit facility and remaining available borrowing capacity of $214 million at March 31, 2021.

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. The purpose of the additional $100 million line of credit is primarily to reduce risk associated with the

COVID-19

pandemic should the Company need to secure additional capital to continue its strategy of accelerating the conversion of wood decking to Trex composite decking and expanding its addressable market. 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.

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, 2021. 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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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, 2021 and March 31, 2020, total operating lease expense was $2.0 million and $2.1 million, respectively. The weighted average remaining lease term at March 31, 2021 and December 31, 2020 was 5.4 years and 5.6 years, respectively. The weighted average discount rate at March 31, 2021 and December 31, 2020 was 3.42% and 3.47%, respectively.

The following table includes supplemental cash flow information for the three months ended March 31, 2021 and March 31, 2020 and supplemental balance sheet information at March 31, 2021 and December 31, 2020 related to operating leases (in thousands):


	Three Months Ended March 31,
Supplemental cash flow information	2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,056	$	2,143
Operating ROU assets obtained in exchange for lease liabilities	$	1,038	$	—

Supplemental balance sheet information	March 31, 2021		December 31, 2020

Operating lease ROU assets	$	33,672	$	34,382

Operating lease liabilities:
Accrued expenses and other current liabilities	$	7,130	$	6,708
Operating lease liabilities		27,420		28,579

Total operating lease liabilities	$	34,550	$	35,287

The following table summarizes maturities of operating lease liabilities at March 31, 2021 (in thousands):


Maturities of operating lease liabilities
2021	$	6,163
2022		7,723
2023		6,748
2024		6,390
2025		4,483
Thereafter		6,599

Total lease payments		38,106
Less imputed interest		(3,556	)

Total operating lease liabilities	$	34,550

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, 2021 and December 31, 2020.

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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,

	2021		2020
Numerator:
Net income available to common shareholders	$	48,545	$	42,402

Denominator:
Basic weighted average shares outstanding		115,663,366		116,259,058
Effect of dilutive securities:
Stock appreciation rights and options		207,060		181,446
Restricted stock		146,974		206,938

Diluted weighted average shares outstanding		116,017,400		116,647,442

Basic earnings per share	$	0.42	$	0.37

Diluted earnings per share	$	0.42	$	0.36

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,
	2021		2020
Stock appreciation rights		7,181		18,270
Restricted stock		23,079		—

Stock Repurchase Program

On February 16, 2018, the Board of Directors adopted a stock repurchase program of up to 11.6 million shares of the Company’s outstanding common stock (Stock Repurchase Program). On March 12, 2020, the Company suspended repurchases of its common stock under the Stock Repurchase Program due to the volatility and uncertainty in the stock market associated with the

COVID-19

pandemic. On October 30, 2020, the Company lifted the suspension of repurchases of its common stock under the Stock Repurchase Program. As of March 31, 2021, the Company has repurchased 3.3 million shares of the Company’s outstanding common stock under the Stock Repurchase Program.

Stock Split

On July 29, 2020, the Company’s Board of Directors approved a

two-for-one stock split of the Company’s common stock, par value, $

0.01. The stock split was in the form of a stock dividend distributed on September 14, 2020, to stockholders of record at the close of business on August 19, 2020. The stock split entitled each stockholder to receive one additional share of common stock for each share they held as of the record date. All common stock share and per share data for all periods presented in the accompanying unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.

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 $59.1 million as of March 31, 2021. The Company will recognize this revenue as contracts are completed, which is expected to occur within the next 24 months.

For the three months ended March 31, 2021 and March 31, 2020, 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, 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


Three Months Ended March 31, 2020	Reportable Segment

	Trex Residential		Trex Commercial		Total
Timing of Revenue Recognition and Type of Contract
Products transferred at a point in time and variable consideration contracts	$	186,874	$	—	$	186,874
Products transferred over time and fixed price contracts		—		13,521		13,521

	$	186,874	$	13,521	$	200,395

14.	STOCK-BASED COMPENSATION

The Company has one stock-based compensation plan, the 2014 Stock Incentive Plan (Plan), approved by the Company’s stockholders in April 2014. The Plan amended and restated in its entirety the Trex Company, Inc. 2005 Stock Incentive Plan. The Plan was subsequently amended and restated by the Company’s Board of Directors in May 2014 and May 2018. The Plan is administered by the Compensation Committee of the Company’s 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 the Company’s common stock that may be issued under the Plan is 25,680,000 and as of March 31, 2021, the total number of shares available for future issuance is 11,193,906.

Table of Contents

The following table summarizes the Company’s stock-based compensation grants for the three months ended March 31, 2021:


	Stock Awards Granted		Weighted-Average Grant Price Per Share
Time-based restricted stock units		23,330	$	103.89
Performance-based restricted stock units (a)		36,522	$	86.26
Stock appreciation rights		15,029	$	104.56

(a)

Includes 26,511 of target performance-based restricted stock unit awards granted during the three months ended March 31, 2021, and adjustments of 4,813, (887), and 6,085 to grants due to the actual performance level achieved for restricted stock and restricted stock units awarded in 2020, 2019, and 2018, 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, 2021			Three Months Ended March 31, 2020
Weighted-average fair value of grants	$	51.84		$	17.83
Dividend yield		0	%		0	%
Average risk-free interest rate		0.6	%		1.4	%
Expected term (years)		5			5
Expected volatility		58.7	%		37.8	%

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
		2021				2020

SEC Form 10-Q filed by Trex Company, Inc.