Item 1A. Risk Factors
Our business operates in one reportable segment, Trex, and is subject to a number of risks, including the following.
Risks Related to the Distribution and Sale of Our Product
Risk
Discussion
Description
We may not be able to grow unless we increase market acceptance of our products, compete effectively and develop new products and applications.
Impact
Our failure to compete successfully could have a material adverse effect on our ability to replace wood products or increase our market share amongst wood-alternative products.
If our products do not meet emerging demands and preferences, we could lose market share, which could have a material adverse effect on our business.
In addition, substantially all of our revenues are derived from sales of our proprietary wood/polyethylene composite material. Although we have developed, and continue to develop, new products made from other materials, if we should experience significant problems, real or perceived, with acceptance of the Trex wood/polyethylene composite material, our lack of product diversification could have a significant adverse impact on our net sales levels.
Our primary competition consists of wood products, which constitute a substantial majority of decking, railing, fencing, and deck framing sales. Since composite products were introduced to the market in the late 1980s, their market acceptance has increased. Our ability to grow depends, in part, on our success in continuing to convert demand for wood products into demand for our composite products. Many of the conventional lumber suppliers with which we compete have established ties to the building and construction industry and have well-accepted products.
Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of competitors to develop new alternatives that are more competitive with Trex products. Our ability to identify and respond to emerging consumer demands and preferences for our products depends, in part, on how successfully we develop, manufacture and market new products.
To increase our market share, we must overcome:
Lack of awareness of the enhanced value of composite products in general and our products in particular;
Resistance of many consumers and contractors to change from well-established wood products;
Consumer lack of awareness that the greater initial expense of our products compared to wood is a one-time cost that is reduced over time as our products have lower maintenance costs and a longer life span than wood;
Established relationships existing between suppliers of wood products and contractors and homebuilders;
Actual and perceived quality issues with first generation composite products; and
Competition from other wood-alternative manufacturers.
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Risk
Discussion
Description
The demand for our products is influenced by the home improvement market and could be adversely affected by conditions that negatively impact this market.
Impact
We cannot predict conditions that may negatively impact the home remodeling and new home construction environment. Any economic downturn or adverse changes in the home improvement market could reduce consumer income or equity capital available for spending on discretionary items, which could adversely affect the demand for our products.
The demand for our composite decking and railing products is influenced by the general health of the economy, the level of home improvement activity and, to a much lesser extent, new home construction. These factors are affected by home equity values, credit availability and interest rates, consumer confidence, income and spending habits, employment, inflation, and general economic conditions.
Risk
Discussion
Description
We may not be able to fully maintain or expand our wholesaler and dealer channels.
Impact
If we fail to compete successfully for wholesale distributors and dealers, our business could experience material adverse effects, which could negatively impact profitability and cash flows.
We sell most of our composite decking and railing products through our network of wholesale distributors who, in turn, sell to retail lumber outlets. Our growth strategy depends on maintaining and expanding this network and on our ability to compete with other entities for these channels. In order to successfully compete for wholesaler distributors, dealers and retail lumber outlets, we must accurately assess their customers’ needs and preferences.
Risk
Discussion
Description
Certain of our customers account for a significant portion of our sales, and the loss of one or more of these customers could have an adverse effect on our business.
Impact
The loss of a significant customer could have a significant negative impact on our business, results of operations and financial condition.
A limited number of our customers account for a significant percentage of our sales. For the years ended December 31, 2025, 2024, and 2023, three customers of Trex represented approximately 73%, 81%, and 72%, respectively, of the Company’s total net sales. We expect that a significant portion of our sales will continue to be sold through a small number of customers, and certain customers will continue to account for a significant portion of our sales.
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Risk
Discussion
Description
Our operating results may vary quarter to quarter due to the level of inventory maintained in our distribution channel.
Impact
We have limited visibility to project inventory levels in our two-step distribution channel. Any sudden fluctuation in demand from our distribution partners may require us to quickly increase or decrease our manufacturing inputs and outputs. If we are unable to effectively respond in a timely manner our short-term results of operations may be negatively impacted.
We sell our composite decking and railing products through our distribution channel who, in turn, sell to end-use consumers. Our distribution partners manage their inventory levels by forecasting demand for our products, placing orders for the products, and maintaining product inventories in order to meet consumer demand. Inventory levels respond to a number of factors, including, without limitation, changes in product price, the number of competitors, product innovation, and the level of discretionary spending by consumers. Therefore, our operating results are subject to inventory stocking decisions made by our distribution partners and may vary quarter to quarter. Past performance will not necessarily indicate future performance.
Risk
Discussion
Description
The demand for our outdoor living products may be negatively affected by erratic, or prolonged adverse weather conditions, and our operating results may vary quarter to quarter due to seasonality.
Impact
Seasonal, erratic, or prolonged adverse weather conditions 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, which could have a negative impact on our results of operations and liquidity.
Our products are generally purchased shortly before installation and used in outdoor environments. As a result, there is a correlation between the amount of product we sell and weather conditions during the time they are to be installed. Erratic or prolonged adverse weather conditions may interfere with home improvement or ordinary construction, delay projects, or lead to cessation of construction involving our products.
In addition, our operating results have historically varied from quarter to quarter due to seasonality. As part of normal business practice and consistent with industry practice, we have historically offered incentive programs to our distributors and dealers to build inventory before the start of the prime deck-building season in order to ensure adequate availability of our products to meet anticipated seasonal consumer demand. The seasonal effects are often offset by the positive effect of the incentive programs.
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Risk
Discussion
Description
We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially adversely affect our business and operations.
Impact
If the required supply of third-party transportation services is unavailable when needed, we may be unable to deliver our products in a timely manner and, therefore, unable to sell our products at full value, or at all. Similarly, if any of these providers were unavailable to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. This could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial condition and results of operations. In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our profitability.
Our business depends on the transportation by third parties of both raw materials to us and finished goods to our customers. In particular, a significant portion of our finished goods are transported by flatbed trucks, which are occasionally in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations based on market conditions and the price of fuel.
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Risks Related to the Manufacture of Our Product
Risk
Discussion
Description
Our business is dependent on consistently producing a product which is available when needed to meet the demands of our customers. As our business grows, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity.
Impact
Our sales growth and profitability could suffer from our failure to effectively pair supply and demand for our products. Our customers’ demands for varying quantities of products and delivery items throughout the year, and increased demand year to year, require monitoring and the ability to adjust production in accordance with these demands. Failure to do so can lead to lost or reduced sales and have a negative effect on earnings.
In order to meet customer demand in a timely manner, we must adjust capacity to meet customer needs and provide increased throughput on our existing capacity. Our sourcing team must obtain raw materials on a timely basis at an appropriate volume.
Risk
Discussion
Description
We have made and may continue to make significant capital investments in new and existing manufacturing facilities, that may become impaired or obsolete and result in a charge to our earnings. In addition, underutilization of any such investments may result in reduced profitability through reduced gross profit and lower gross margins.
Impact
Our ability to achieve the expected benefits and returns from our capital investments, such as increased production, improved efficiency, cost savings, or diversification into new product markets, is subject to estimates, assumptions, and market risks. If the actual results differ from our estimates and assumptions, we may not achieve the benefits from the investments within the estimated time frame, if at all, which could adversely affect our financial condition and results of operations.
We have made and may continue to make significant investments in new manufacturing facilities, upgrading our existing facilities and acquiring businesses or operations. These investments sometimes involve the implementation of new technologies and replacement of existing equipment. While we anticipate that these investments will increase production, improve efficiency, achieve cost savings, or allow us to diversify into new product markets, we cannot be certain we will realize the benefits of these initiatives when anticipated or at all. Failure to achieve the expected benefits from our investments may result in reduced cash flows in future periods, obsolete or impaired assets, and charges to our earnings.
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Risk
Discussion
Description
Our prospects for sales growth and profitability may be adversely affected if we fail to maintain product quality and product performance at an acceptable cost.
Impact
If we are unable to produce high-quality products at standard manufacturing rates and yields, unit costs may be higher. A lack of product performance could impede acceptance of our products in the marketplace and negatively affect our profitability.
Future material increases to our warranty reserve could have a significant adverse effect on our profitability and cash flows.
In the event lawsuits relating to alleged product quality issues are brought against us in the future, such lawsuits may be costly and could cause adverse publicity, which in turn could result in a loss of consumer confidence in our products and reduce our sales. Product quality claims could increase our expenses, have a material adverse effect on demand for our products and decrease net sales, net income and liquidity.
In order to expand our net sales and sustain profitable operations we must maintain the quality and performance of our products.
We continue to receive and settle claims and maintain a warranty reserve related to decking, railing, and accessory products sold, including decking products produced at our Nevada facility prior to 2007 that exhibits surface flaking. We have limited our financial exposure for surface flaking by settling a nationwide class action lawsuit that provides that a consumer’s remedy is limited to the replacement of product and a partial labor reimbursement.
The establishment of reserves is an inherently uncertain process involving estimates of the number of future claims and the average cost of claims, our ultimate losses may differ from our warranty reserve. Increases to the warranty reserve and payments for related claims could have a material adverse effect on our future profitability and cash flows.
Risk
Discussion
Description
Our business is subject to risks in obtaining the raw materials we use. In addition, to the extent we source raw materials internationally, changes in trade policies, including the imposition of tariffs, have and could continue to negatively impact our business, financial condition, and results of operations.
Impact
Our business could suffer from the termination of significant sources of raw materials, the payment of higher prices for raw materials, the quality of available raw materials, or from the failure to obtain sufficient additional raw materials to meet planned increases in production.
The manufacture of our composite decking and railing products requires substantial amounts of wood fiber and scrap polyethylene. Our business strategy is to create a substantial cost advantage over our competitors by using scrap polyethylene. Our ability to obtain adequate supplies of wood fiber and scrap polyethylene depends on our success in developing new sources that meet our quality requirements, maintaining favorable relationships with suppliers and managing the collection of supplies from geographically dispersed locations. In addition to wood fiber and scrap polyethylene, we also use a small percentage of other materials in making our products, which are sometimes subject to volatility in supply and could negatively affect our profitability.
We procure certain of the raw materials we use in the manufacturing of our products from suppliers located outside of the United States. The imposition of tariffs and other potential changes in U.S. trade policy have increased the cost and/or limited the availability of raw materials, which has adversely impacted our business, financial condition and results of operations and could hurt our competitive position.
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Risk
Discussion
Description
Periods of significant or prolonged inflation could affect our ability to obtain manufacturing inputs at acceptable prices and may negatively impact our profitability.
Impact
In a competitive environment, we may be unable to increase prices of our products to offset higher costs resulting from significant or prolonged inflationary pressures, which could have a material adverse effect on our business, financial condition, and operating results. In addition, periods of sustained or rapidly increasing inflation may result in decreased spending in the residential and commercial markets and reduce demand for our products, which could further adversely impact our business.
Our business may be directly affected by significant or prolonged inflationary pressures on raw materials and transportation. We will look to offset increased input costs through cost reduction projects, purchasing strategies, and increased production efficiencies and improvement opportunities to enhance our margins. Specifically, our efforts would primarily center on increased automation, modernization, enhanced energy efficiency and improvements to raw material processing. To the extent that these actions would not offset the impact of inflation we would seek to increase the price of our products to our customers.
At the same time, we would expand our marketing campaigns, including campaigns to highlight the advantages of our decking over wood, as well as campaigns focused on innovation and new product development that further strengthens our consumer brand and distribution advantages.
In general, we believe that an effect of inflation would be a short-term disruption and that, over time, we would offset increased input costs through cost reduction projects, purchasing strategies, and increased production efficiencies and improvement opportunities to enhance our margins. In addition, we would be able to increase prices to counteract the majority of any inflationary effects of increasing costs and to generate sufficient cash flows to maintain our productive capability.
Risk
Discussion
Description
Labor shortages or increases in labor costs could adversely impact our business and results of operations.
Impact
We rely heavily on our employees and any shortage of qualified labor could adversely affect our business. If we are not successful in our recruiting and retention efforts, we could encounter a shortage of qualified employees in future periods. Any such shortage would decrease our ability to produce sufficient quantities of our product to serve our customers effectively. Such a shortage may also require us to pay higher wages for employees and incur a corresponding reduction in our profitability.
Labor is one of the primary components of our production process. Our success is dependent upon recruiting qualified employees to manufacture our product. Our future success depends on, among other things, our ability to identify, attract, hire, train, retain and motivate operational personnel on a timely basis as we continue our pace of growth. If we fail to do so, our ability to maintain and grow our business could be adversely impacted. Further, improvements in the economy and labor markets could impact our ability to attract and retain key personnel.
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Risks Related to the Availability of Capital
Risk
Discussion
Description
Our ability to continue to obtain financing on favorable terms, and the level of any outstanding indebtedness, could adversely affect our financial condition and ability to compete.
Impact
Our ability to make future principal and interest payments, borrow and repay amounts under our senior credit facility and continue to comply with our loan covenants will depend primarily on our ability to generate sufficient cash flow from operations. Our failure to comply with our loan covenants might cause our lenders to accelerate our repayment obligations under our senior credit facility, which may be declared payable immediately based on a default.
Our ability to continue to obtain financing on favorable terms may limit our discretion on some business matters, which could make it more difficult for us to expand, finance our operations and engage in other business activities that may be in our interest. In addition, our senior credit facility may impose operating and financial restrictions.
At certain periods during the year, we may borrow significant amounts on our senior credit facility for working capital purposes. In addition, we may borrow on the senior credit facility to pursue strategic opportunities or other general business matters. Accordingly, our future level of indebtedness and the terms of our borrowings could have important consequences.
Risks Related to Other Matters
Risk
Discussion
Description
Our business, results of operations and financial condition may be disrupted and adversely affected by global public health pandemics or geopolitical conflicts.
Impact
If our employees or the employees of our suppliers or transportation providers are unable to work because of illness related to a global public health pandemic, or if we or our suppliers or transportation providers are forced to temporarily cease operations, either on a voluntary or mandatory basis, then we may have a period of reduced operations and be unable to supply our customers in a timely manner, which could have a material negative impact on our business.
If geopolitical conflicts disrupt the operations of our distributors and retail outlets or negatively impacts economies in the United States, Canada and the rest of the world, our business, results of operations and financial condition may be adversely affected.
Our business, results of operations and financial condition may be adversely affected if a global public health pandemic interferes with the ability of our employees, suppliers and other business partners to perform their respective responsibilities and obligations relative to the conduct of our business.
We monitor the outbreak of any global public health pandemic or global political conflicts and evaluate the impact on our business as information emerges. The extent to which the impact of a global public health pandemic or a continuing global political conflict may have on our business, supply chains, commodity and fuel prices, and prices of raw materials will depend on future developments, which may be highly uncertain and cannot be predicted.
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Risk
Discussion
Description
Climate change and legal or regulatory responses thereto may have a long-term adverse impact on our business and results of operations.
Impact
There is concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere could cause significant changes in weather patterns and an increase in the frequency, duration, and severity of natural disasters.
In addition, the concern over climate change may result in additional laws or regulations designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment. Compliance with newly enacted laws and regulations could impose operational and compliance burdens which may negatively impact our financial condition and results of operations.
We continue to strive to minimize the environmental impact of Trex operations, remain one of the largest recyclers of polyethylene in the U.S. and continue to benefit from increasing consumer interest in our environmentally friendly composite product offerings that leverage recycled and reclaimed materials.
Any significant changes in weather patterns or increases in the frequency, duration and severity of natural disasters are beyond our control and could disrupt our supply chain, increase our product costs, impact demand for our product, or impair our ability to deliver product to our customers.
In addition, we cannot predict what environmental legislation or regulations will be enacted in the future related to climate issues, or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures. Any increased energy or compliance costs and expenses may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products.
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Risk
Discussion
Description
Cyberattacks and other security breaches could compromise our proprietary and confidential information which could harm our business and reputation.
Impact
While we have certain safeguards in place to reduce the risk of and detect cyber-attacks, our information technology networks and infrastructure may be vulnerable to unpermitted access by hackers or other breaches, or employee error or malfeasance. Any such compromise of our data security and access to, or public disclosure or loss of, confidential business or proprietary information could disrupt our operations, damage our reputation, provide our competitors with valuable information and subject us to additional costs, which could adversely affect our business.
In the ordinary course of our business, we generate, collect and store confidential and proprietary information, including intellectual property, business information and employee data. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails and other electronic communications.
In addition, an employee, contractor, competitor, or other third party with whom we do business may attempt to obtain such information and may purposefully or inadvertently cause a breach involving such information.
We also collect limited information on consumers. Although we do not collect any highly sensitive information, there is a risk that a cybersecurity attack could compromise consumer’s names, addresses and other personal information.
Proactive measures that reduce our risk of a cybersecurity incident include:
Maintaining cybersecurity insurance to protect against risks related to cyber-attacks and other security breaches.
Partnering with an enterprise grade security solutions integrator (SSI) that leverages deep industry expertise to help us build and run holistic cybersecurity programs designed to reduce our overall risk profile. The SSI performs regular audits to evaluate our current security posture and prioritize our improvement plans.
Implementing an information security training and compliance program for employees. We test our employees monthly with simulated “phishing” attacks. Additionally, we run annual security awareness video training programs and occasional ad hoc awareness sessions as needed.
Despite these proactive measures, there is no guarantee that these measures will prevent a cybersecurity incident that could have a material adverse effect on the Company.
Risk
Discussion
Description
Technical and regulatory limitations may impact our ability to effectively and timely adopt Artificial Intelligence (AI) and machine learning solutions.
Impact
We have made and may continue to make advancements in adopting AI and machine learning throughout our business. We anticipate that the continued implementation of this technology will improve efficiency and create cost savings across the organization.
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While we are currently using AI and machine learning in various areas of our business, technical and regulatory limitations may impact our ability to utilize AI and machine learning across other areas of our business. Failure to adopt AI and machine learning in other areas could cause advancements in our business and production process to fall behind our competitors, impacting our ability to compete effectively.
Our ability to continue to adopt AI and machine learning depends, in part, on the resources available to develop, deploy, and monitor these systems. Accordingly, our organization has adopted guiding principles, as well as a governance policy for AI and machine learning. Our guiding principles focus on the risks and consideration associated with AI and machine learning and help support the Company's responsible use of these technologies. Our AI governance policy provides a structured approach to identifying, assessing, and prioritizing use cases anticipated to yield optimal business value while simultaneously minimizing business risks.
Our Information Technology department, in partnership with our Legal department, and other business leaders, are responsible for monitoring the use of AI and machine learning within the organization, along with the regulatory environment in which AI and machine learning operate.
While the Company has adopted the use of AI and machine learning in various areas of the organization and intends to adopt AI and machine learning in other areas, adoption does not guarantee efficiencies, optimizations, or innovations are made throughout the organization.
Item 1B. Unr esolved Staff Comments
None.
Item 1C . Cybersecurity
Cybersecurity Risk Management
The Company has systems and processes for identification, assessment, and management of material risks from cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. The Company’s multi-faceted approach includes deploying applications and control activities to actively monitor and mitigate potential threats to the Company’s IT environment.
These activities include, but are not limited to, engaging an external third-party to monitor information systems security events, conducting annual security training of employees, testing employees via periodic phishing campaigns, conducting system vulnerability scanning, utilizing a patching program to remediate critical patches, and utilizing an external third-party to perform testing to identify gaps in the Company’s security program. The Company also performs third-party risk management to identify and mitigate risks from third parties such as vendors, suppliers, and other business partners. Additionally, for providers of software-as-a-service and other services that hold Company data, the Company reviews and assesses industry standard certifications such as System and Organization Controls (SOC) 1 or SOC 2 reports and cybersecurity preparedness questionnaires. Mitigation of risk efforts are coordinated by the Company’s Director of Information Security, utilizing internal resources and third-party providers.
The Company has not had any cybersecurity risks that have materially affected, or are reasonably likely to affect, the Company, including its business strategy, results of operations, or financial condition. Cybersecurity risks are disclosed in Part I Item 1A. Risk Factors, incorporated herein by reference.
Cybersecurity Governance
Our cybersecurity programs, including the cross-functional management committees responsible for identifying, assessing, and mitigating cybersecurity risks and incidents, are overseen by our Vice President and Chief Information Officer. Day-to-day administration of the cybersecurity programs are led by our Director of Information Security, a direct report to the Vice President and Chief Information Officer. Our Vice President and Chief Information Officer has 28 years of technology leadership experience and a Doctor of Business Administration. Our Director of Information Security has 28 years of experience in infrastructure and security operations and a degree in Information Technology Management. Our Vice President and Chief Information Officer escalates emerging cybersecurity risks and threats, provides updates on the status of projects to strengthen the Company’s information security systems, and provides updates on any cybersecurity incidents to members of our senior leadership team, including our Senior Vice
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President, Chief Financial Officer, Senior Vice President, Chief Legal Officer and Secretary, and Senior Vice President, Chief Human Resources Officer. These leaders facilitate notification to the Audit Committee of the Board of Directors.
The Audit Committee of the Board of Directors oversees cybersecurity related risks. Members of the Audit Committee receive the above referenced notifications and updates on a quarterly basis from the Company’s Chief Information Officer as the designated representative of the Executive Information Security Oversight Committee .
Additionally, the Company has a written Information Security Policy and a Cybersecurity Incident Response Plan that provides the above-referenced processes by which such committees are informed of and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents and material risks from cybersecurity threats.
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Item 2. P roperties
We own and lease certain properties, as noted in the below table:
Description
Square
Footage/
Acres
Leased /
Owned
Lease
Expiration
Dates
Location
Corporate Headquarters Office
Owned
Virginia
Corporate Headquarters Land
8 Acres
Owned
Virginia
Trex Warehouse, Research and
Development, Storage,
Training and
Manufacturing Facilities
Leased
Virginia / West Virginia /
Nevada/
Arkansas
Trex Manufacturing Facilities,
Storage and Office Space
475 Acres
Owned
Virginia /
Nevada /
Arkansas
We regularly evaluate our various facilities and equipment and make capital investments where necessary. In 2025, we spent a total of $233.6 million on capital expenditures and intangibles, including $167.8 million related to construction of our Arkansas facility, $21.2 million in safety, environmental, and general support, $10.0 million investment in our Enterprise Resource Planning (ERP) tool and other platforms, and $22.0 million in all other including cost reduction initiatives and capacity expansion at our existing facilities.
In October 2021, the Company announced plans to add a third manufacturing facility located in Little Rock, Arkansas (Little Rock). Construction on the new facility began in the second quarter of 2022. In connection with the construction of the new facility, during 2024 the Company and Little Rock entered into an agreement in which Little Rock agreed to issue up to $450 million of its industrial revenue bonds (IRBs) for the purpose of constructing a manufacturing facility. Under the agreement, the Company transferred ownership of the facility to Little Rock and simultaneously leased the related asset from Little Rock. The Company is also the purchaser of the IRBs and, therefore, is the bondholder as well as the lessee of the Little Rock facility purchased with the IRB proceeds.
As a result of the agreement, the Company was able to reduce the cost of certain state and local tax expenditures for twenty years. The Company has a purchase option included in the lease agreement for below the fair value of the asset, which prevents the transfer of the asset to Little Rock from being recognized as a sale. Furthermore, the Company has not derecognized the transferred asset and continues to recognize it in property, plant and equipment in the Consolidated Balance Sheets. The Company has the right and intends to set-off any obligations to make payments under the finance liability, with proceeds due from the IRBs. The liability and IRB asset are equal and are reported net in the Consolidated Balance Sheets.
For information about our leases, see Note 10 to our Consolidated Financial Statements appearing elsewhere in this report. The equipment and machinery we use in our operations consist principally of plastic and wood conveying and processing equipment. We own all of our manufacturing equipment. We lease some equipment, primarily forklifts, at our facilities under operating leases.
Item 3. Leg al 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 4. Mine S afety Disclosures.
Not applicable.
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PART II
Item 5. Mark et for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Stock
Our common stock has been listed on the New York Stock Exchange (NYSE) since April 8, 1999. Effective November 23, 2009, our common stock is listed under the symbol “TREX”.
Dividend Policy
We have never paid cash dividends on our common stock and our credit agreement places limitations on our ability to pay cash dividends. We intend to retain future earnings to finance the development and expansion of our business or the repurchase of our common shares and, therefore, have no current intention to pay cash dividends. However, we reconsider our dividend policy on a regular basis and may determine to pay dividends in the future.
Issuer Purchases of Equity Securities
The following table provides information relating to the purchases of our common stock during the three months ended December 31, 2025 in accordance with Item 703 of Regulation S-K:
Period
Total Number of
Shares (or Units)
Purchased (1)
Average Price Paid
per Share (or Unit)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs (2)
Maximum number of
Shares (or Units) that
May Yet Be
Purchased Under the
Plan or Program
October 1, 2025 – October 31, 2025
November 1, 2025 – November 30, 2025
December 1, 2025 – December 31, 2025
Quarter ended December 31, 2025
During the three months ended December 31, 2025, 32 shares of common stock were withheld by, or delivered to, the Company pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s 2014 and 2023 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 the tax withholding due.
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 the Company's outstanding common stock. The 2023 Stock Repurchase Program has no set expiration date and 1,526,927 shares were repurchased under the program during the three months ended December 31, 2025.
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Stockholder Return Performance Graph
The following graph and table show the cumulative total stockholder return on the Company’s common stock for the last five fiscal years compared to the Russell 2000 Index and the Standard and Poor’s 600 Building Products Index (S&P 600 Building Products). The graph assumes $100 was invested on December 31, 2020, in (1) the Company’s common stock, (2) the Russell 2000 Index and (3) the S&P 600 Building Products and assumes reinvestment of dividends and market capitalization weighting as of December 31, 2021, 2022, 2023, 2024 and 2025.
Comparison of Cumulative Total Return
Among Trex Company, Inc., Russell 2000 Index, and S&P 600 Building Products Index
Trex Company, Inc.
Russell 2000 Index
S&P 600 Building Products
Other Stockholder Matters
As of February 5, 2026, there were approximately 125 holders of record of our common stock, although we believe that there are a significantly larger number of beneficial owners of our common stock.
In 2025, we submitted to the NYSE in a timely manner the annual certification that our Chief Executive Officer was not aware of any violation by us of the NYSE corporate governance listing standards.
Item 6. [R eserved]
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Item 7. Managem ent’s Discussion and Analysis of Financial Condition and Results of Operations
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 match supply with demand; the level of expenses associated with warranty , product replacement and consumer relations expenses related to product quality; the highly competitive markets in which the Company operates; cyber-attacks, security or other security ; 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 impacts from global public health pandemics and geopolitical ; and material impacts related to labor or increases in labor costs.
OVERVIEW
The following MD&A is intended to help the reader understand the operations and current business environment of the Company. The MD&A is provided as a supplement to — and should be read in conjunction with — our Consolidated Financial Statements and the accompanying notes thereto contained in “ Item 8. Financial Statements and Supplementary Data ” of this report. MD&A includes the following sections:
Our Business — a general description of our business, a brief overview of our products, and highlights for the twelve months ended December 31, 2025.
Critical Accounting Estimates — a discussion of accounting policies that require critical judgments and estimates.
Results of Operations — an analysis of our consolidated results of operations for 2025 and 2024 and year-to-year comparisons. An analysis of our consolidated results of operations for 2024 and 2023 and year-to-year comparisons between 2024 and 2023 can be found in MD&A in Part II, Item 7 of the Company’s Form 10-K for the year ended December 31, 2024.
Liquidity and Capital Resources — an analysis of cash flows, contractual obligations, and a discussion of our capital and other cash requirements.
New Accounting Standards — a general description of new accounting standards applicable to our business and a discussion of their expected impact.
OUR BUSINESS
General. The Company is the world’s largest manufacturer of high-performance, low-maintenance wood-alternative decking and 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.
Outdoor living remains one of the fastest growing categories within the repair and remodel sector, and the strength of the Trex 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
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improvements to raw material processing. At the same time, we intend to expand our marketing campaigns, continue highlighting the advantages of Trex 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 is the world’s largest manufacturer of wood-alternative composite decking and railing products 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:
Decking and Accessories
Trex Signature ® decking
Trex Transcend ® Lineage decking
Trex Transcend ® decking
Trex Select ® decking
Trex Enhance ® decking
Trex Hideaway ® Fastener Collection
Trex DeckLighting outdoor lighting system
Railing
Trex Signature ® X-Series railing
Trex Signature ® Aluminum railing
Trex Transcend railing
Trex Select ® railing
Trex Select ® T-Rail
Trex Enhance railing
Fencing
Trex Seclusions ® fencing
Highlights:
Trex Named America's Most Trusted ® Outdoor Decking for fifth consecutive year, according to a nationwide study by Lifestory Research.
Trex Expands Mid-Tier Composite Decking Options with New Performance Engineered Boards . Additions to the Trex Select ® decking line include brightened colors, updated design aesthetics, and Trex's proprietary SunComfortable technology.
Trex Ranked Among Barron's 100 Most Sustainable Companies for 2025. Trex moved up 20 spots in its 2nd appearance on the Barron's List of 100 Most Sustainable Companies for 2025.
Trex Releases 2025 Outdoor Living Forecast. In February 2025, Trex released its 2025 Outdoor Living Forecast highlighting five outdoor trends it expects to shape backyards in the coming year.
Trex Earned Top Honors at Environment + Energy Leader Awards. Trex ® Composite Decking was named Product of the Year and Judge's Choice Award as the top-scoring entry in the Consumer + Residential category.
Trex named Green Builder Media's Sustainable Brand Leader in the decking category. Trex Select ® was also selected by Green Builder editors as one of the 50 most sustainable products of the year.
Trex Takes On Real Life In New "Trex Vs" AD Campaign. This new series of commercial spots and digital concepts showcases how the brand's Performance-Engineered decking and railing enhance and stand up to everyday life.
Trex's 2024 Sustainability Report highlights how circular innovation is adding value to the business. The comprehensive report details the Company's continued leadership in materials circularity, environmental stewardship, and social responsibility.
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Trex Simplifies Railing Specification with Interactive Design Tool. The Trex ® Deck Railing Designer was launched in an effort to simplify the railing selection process with speed, accuracy, and efficiency in mind. This new tool delivers 3D visualization and instant material estimates which simplifies the planning process for both homeowners and contractors.
Trex Broadens Western U.S. Reach Through Expansion with International Wood Products, LLC (IWP). IWP will exclusively stock Trex ® decking and railing products at its newly opened facility in Salt Lake City, Utah strengthening Trex's presence in Utah and across the Intermountain West.
Trex Celebrates Completion of 2025 Sunset Idea House in Palm Springs. Featuring performance engineered products and modeled for eco-conscious design, Trex decking and railing have been featured in the Sunset Idea House creating durable, functional, and sleek outdoor living spaces.
Trex Grows Distribution Footprint with Weekes Forest Products. This expanded relationship will increase channel support and product accessibility. Weekes' distribution centers in St. Paul and Moorhead, MN will service territories in Minnesota, Wisconsin, Iowa, and North Dakota.
Trex Expands Distribution Collaboration with Specialty Building Products (SBP). Longtime Trex-exclusive decking distributor SBP will now provide statewide distribution coverage in Michigan.
Trex Name "The Coolest Thing Made in Virginia" by Virginia Manufacturing Association. Trex earned top honors in the 2025 Virginia Manufacturing Cup, earning the title of "The Coolest Thing Made in Virginia" in the Rubber and Plastics Category.
Financial Performance Highlights for the Twelve Months Ended December 31, 2025:
Year Ended
December 31,
$ Change
% Change
(000s omitted, except per share data)
Net sales
Gross profit
Net income
EBITDA*
Diluted earnings per share
*A reconciliation of Net Income to EBITDA is presented on page 31 of this document under “Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).”
Capital expenditures and intangibles . In 2025, we spent a total of $233.6 million on capital expenditures, including $167.8 million related to construction of our Arkansas facility, $21.2 million in safety, 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 existing facilities.
Repurchase of common shares . We repurchased 1,526,927 shares of our outstanding common stock in 2025 under our stock repurchase programs.
CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 3 to our Consolidated Financial Statements appearing elsewhere in this report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with accounting principles generally accepted in the United States. As a result, we are required to make estimates, judgments, and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates.
Product Warranty. We warrant that for the applicable warranty period our 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.
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Products sold on or after January 1, 2023: The warranty period for residential use is 50 years for Transcend ® decking, 35 years for Select ® decking and Universal Fascia, and 25 years for Enhance ® decking and Transcend, Select, Enhance and Signature ® railing. The warranty period for commercial use is 10 years, excluding Signature railing and Transcend cladding, which each have a warranty period of 25 years. We further warrant that Trex Transcend, Trex Enhance and Trex Select decking and cladding and Universal Fascia products will not fade in color from light and weathering exposure more than a certain amount and will be resistant to permanent staining from food and beverage substances or mold and mildew, 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.
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 projections. To estimate our future product warranty reserves, the Company utilizes actuarial techniques to determine a reasonable possible range of amounts to be paid related to defects covered by our product warranty. The actuarial techniques consider claims received, claims closed, and the corresponding amounts paid. Estimates for these elements are quantified using a range of assumptions derived from claim history and consideration of additional factors influencing claim counts or costs incurred to settle claims in order determine the best estimate of future claims for which to record a related liability. We review and adjust these estimates, if necessary, based on the differences between actual experience and historical estimates.
The Company uses the best and most complete underlying information available and a rational methodology to determine its warranty obligations. The Company considers all available evidence to assess the reasonableness of all key assumptions underlying its estimated warranty obligations. During the fourth quarter of 2025, the Company utilized an actuary for the first time to review data on its product warranty. This resulted in a change to the methodology in which the Company estimated its product warranty liability. The reserve increased during the period, largely due to the refined methodology, which decreased the Company’s income before income taxes by $6.0 million, decreased net income by $4.4 million, and reduced diluted earnings per share by $0.04.
For additional information about product warranties, see Notes 3 and 19 to the Consolidated Financial Statements appearing elsewhere in this report.
Revenue Recognition. Trex 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 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 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 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 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 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.
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RESULTS OF OPERATIONS
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, interest rates, tariffs, consumer spending and preferences, the impact of any supply chain disruptions, economic conditions, and any adverse effects from global health pandemics and geopolitical conflicts.
Net Sales. Net sales consist of sales, net of discounts. The level of net sales is principally affected by sales volume and the prices paid for Trex products. The operating results for Trex have historically varied from quarter to quarter, often due to seasonal trends in the demand for outdoor living products. 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 practices, Trex has historically offered incentive programs to its distributors and dealers to build inventory levels before the start of the prime deck-building season to ensure adequate availability of its product to meet anticipated seasonal consumer demand and to enable production planning. These incentives include prompt payment discounts and favorable payment terms. In addition, we offer 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 sales incentive programs can impact sales, receivables and inventory levels during the offering period.
Gross Profit. Gross profit represents the difference between net sales and cost of sales. Cost of sales consists of raw materials costs, direct labor costs, manufacturing costs, warranty costs, and freight. Raw materials costs generally include the costs to purchase and transport reclaimed wood fiber, scrap polyethylene and pigmentation for coloring Trex products. 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 less than 5% of our cost of sales. The majority of the 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 supplier negotiations and pricing actions.
Selling, General and Administrative Expenses. The largest component of selling, general and administrative expenses is personnel related costs, which include 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 of Trex. 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 have varied from quarter to quarter due, in part, to the seasonality of our business.
Below we have included a discussion of our operating results and material changes in our operating results for the year ended December 31, 2025, compared to the year ended December 31, 2024.
Year Ended December 31, 2025 Compared To Year Ended December 31, 2024
Net Sales
Year Ended December 31,
$ Change
% Change
(dollars in thousands)
Total net sales
Total net sales in 2025 increased $22.8 million, or 2.0%, compared to total net sales in 2024. The increase was substantially all driven by price, as the result of a mid-single digit price increase on many of our decking products in 2025. Additionally, 2024 had the benefit of customers purchasing ahead of the price increase announced for January 1, 2025.
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Gross Profit
Year Ended December 31,
$ Change
% Change
(dollars in thousands)
Cost of sales
% of total net sales
Gross profit
Gross margin
Gross profit as a percentage of net sales, gross margin, was 39.2% in 2025 compared to 43.6% in 2024. The decrease was primarily the result of higher raw material costs on aluminum and steel, tariffs, changes to production process driven by refinements made to our Enhance ® decking product line, and inefficiencies associated with start-up costs at our Arkansas facility, partially offset by higher pricing.
Selling, General and Administrative Expenses
Year Ended December 31,
$ Change
% Change
(dollars in thousands)
Selling, general and administrative expenses
% of total net sales
Selling, general and administrative expenses increased $22.0 million to $202.0 million, or 17.2% of net sales in 2025. The increase primarily related to increases of $9.6 million in personnel expenses primarily for increased self-insured medical costs and incentive programs, $7.5 million in branding, $3.5 million in digital transformation, and $2.5 million in Arkansas start-up costs, partially offset by lower miscellaneous expenses year over year.
Provision for Income Taxes
Year Ended December 31,
$ Change
% Change
(dollars in thousands)
Provision for income taxes
Effective tax rate
The effective tax rate for 2025 was 26.2% compared to 25.9% for 2024. The increase in the effective rate was primarily due to excess tax expense from stock-based awards in 2025 and excess tax benefit from stock-based awards in 2024, as well as reduction in the allowable deduction for foreign derived intangible income.
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Net Income and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 1 (dollars in thousands)
Reconciliation of net income (GAAP) to EBITDA (non-GAAP):
Year Ended
December 31, 2025
Net income
Interest expense, net
Income tax expense
Depreciation and amortization
EBITDA
Year Ended December 31, 2024
Net income
Interest income, net
Income tax expense
Depreciation and amortization
EBITDA
Year Ended December 31,
$ Change
% Change
(dollars in thousands)
EBITDA
Total EBITDA decreased 14.8% to $320.9 million for 2025 compared to $376.6 million for 2024. The decrease was driven by lower gross profit and higher selling, general, and administrative expenses.
Year Ended December 31, 2024 Compared To Year Ended December 31, 2023
The Company hereby incorporates by reference the financial results from fiscal year 2023 and the comparison of financial results from fiscal year 2024 to fiscal year 2023 as set forth in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operation in the Annual Report on Form 10-K for the year ended December 31, 2024 and filed with the U.S. Securities and Exchange Commission on February 24, 2025.
LIQUIDITY AND CAPITAL RESOURCES
We finance operations and growth primarily with cash flow from operations, borrowings, operating leases, and normal trade credit terms from operating activities.
S ources and Uses of Cash. The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2025, 2024, and 2023 (in thousands):
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 the measures facilitate performance comparison between the Company and its competitors. Management considers EBITDA to be important supplemental indicators of our core operating performance because the measures eliminate interest, income taxes, and depreciation and amortization charges to net income. In relation to its competitors, EBITDA eliminates differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets, especially when comparing financial results to prior periods. For these reasons, management believes that EBITDA provides important information regarding the operating performance of the Company. Non-GAAP measures are not meant to be considered superior to or a substitute for our GAAP results.
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Year Ended December 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
Cash provided by operating activities in 2025 was $358.1 million compared to cash provided by operating activities of $143.9 million in 2024. The $214.2 million increase in cash provided by operating activities was primarily a result of a decrease in inventories and decreases in accounts receivable. The decrease in inventories is the result of decreased production in 2025 compared to 2024, while the decrease in accounts receivable was related to the non-recurrence of distributors buying ahead of the January 2025 price increase.
Investing Activities
In 2025, cash used in investing activities for capital expenditures and intangibles was $233.6 million, including $167.8 million related to construction of our Arkansas facility, $21.2 million in safety, environmental, and general support, $10.0 million for our ERP tool and other platforms, and $22.0 million in all other including cost reduction initiatives and capacity expansion at our existing facilities.
Financing Activities
Net cash used in financing activities in 2025 consisted primarily of borrowings under our revolving credit facility used to fund our capital expenditures and to a lesser extent share repurchases.
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 2025 the Company repurchased 1,526,927 shares of its common stock under the 2023 Stock Repurchase Program.
Inventory in Distribution Channels . We sell our Trex 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 have historically varied from quarter to quarter. Seasonal, erratic or prolonged adverse weather conditions 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.
Indebtedness prior to October 10, 2024. On May 18, 2022, the Company entered into a Credit Agreement (Credit Agreement) with certain lending parties thereto (Lenders) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019. Under the Credit Agreement, the Lenders agreed to provide the Company with one or more Revolving Loans in a collective maximum principal amount of $400,000,000 (Loan Limit) throughout the term, which ends May 18, 2027 (Term). Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans are for the purpose of raising working capital and supporting general business operations.
On December 22, 2022, the Company entered into a First Amendment to the Credit Agreement (First Amendment). As a part of the First Amendment, the Credit Agreement was amended and restated to provide for an additional Revolving B Loan (as hereinafter defined). Under the First Amendment, the Lenders agreed to provide the Company with a Revolving B Loan consisting of one or more revolving loans in a collective maximum principal amount of $150,000,000 (Revolving B Loan Limit) throughout the term, which
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ended December 22, 2024 (Revolving B Loan Term). Previously, under the Credit Agreement, there was no Revolving B Loan. The First Amendment also provided that TD Bank, N.A. would serve as Syndication Agent.
In conjunction with the First Amendment, on December 22, 2022, the Credit Agreement was amended and restated to refer to the original loan as the Revolving A Loan. The amended and restated Credit Agreement was made an Exhibit A to the First Amendment. All of the terms of the Credit Agreement apply to the Revolving B Loan.
The amended Credit Agreement provides the Company, in the aggregate, the ability to borrow an amount up to the Revolving A Loan Limit during the Revolving A Loan Term (which ends May 18, 2027) and Revolving B Loan Limit during the Revolving B Loan Term. The Company is not obligated to borrow any amount under the revolving loans. Within the respective loan limit, the Company may borrow, repay and reborrow at any time or from time to time while the notes issued pursuant to the Credit Agreement are in effect.
Base Rate Loans (as defined in the Credit Agreement) under the Revolving A Loan and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America (BOA) as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors. Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term.
With respect to Revolving B Loans (as defined in the First Amendment), for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio. The applicable rate for Revolving B Loans that are Base Rate Loans range between 1.20% and 2.15% and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 0.20% and 1.15%.
Under the terms of the Security and Pledge Agreement, the Company, subject to certain permitted encumbrances, as collateral security for the above-stated loans and all other present and future indebtedness of the Company owing to the Lenders grants a continuing security interest in certain collateral described and defined in the Security and Pledge Agreement but excluding the Excluded Property (as defined in the Security and Pledge Agreement).
Indebtedness on and after October 10, 2024. On October 10, 2024, Trex entered into a Second Amendment to the Credit Agreement (Second Amendment) with certain lending parties thereto (Lenders) to amend that Credit Agreement dated as of May 18, 2022, as amended by that certain First Amendment dated as of December 22, 2022.
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.
Base Rate Loans (as defined in the Credit Agreement) under the Revolving A Loan and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors. Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term (as defined in the Credit Agreement).
With respect to Revolving B Loans (as defined in the Credit Agreement), for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio. The applicable rate for Revolving B Loans that are Base Rate Loans range between 0.20% and 1.15%. and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 1.20% and 2.15%.
At December 31, 2025, we had $133.5 million in outstanding borrowings under the revolving credit facility. The total availability under the revolving credit facility was $413.4 million as of December 31, 2025, which reflects a reduction for outstanding letters of credit totaling $3.1 million.
Compliance with Debt Covenants and Restrictions. Pursuant to the terms of the Credit Agreement, the Company, is subject to certain loan compliance covenants. The Company was in compliance with all covenants at December 31, 2025. Failure to comply with
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the financial covenants could be considered a default of repayment obligations and, among other remedies, could accelerate payment of any amounts outstanding.
Industrial Revenue Bonds. In October 2021, the Company announced plans to add a third manufacturing facility located in Little Rock, Arkansas (Little Rock). Construction on the new facility began in the second quarter of 2022. In connection with the construction of the new facility, during 2024 the Company and Little Rock entered into an agreement in which Little Rock agreed to issue up to $450 million of its industrial revenue bonds (IRBs) for the purpose of constructing a manufacturing facility. Under the agreement, the Company transferred ownership of the facility to Little Rock and simultaneously leased the related asset from Little Rock. The Company is also the purchaser of the IRBs and, therefore, is the bondholder as well as the borrower/lessee of the Little Rock facility purchased with the IRB proceeds.
As a result of the agreement, the Company was able to reduce the cost of certain state and local tax expenditures for twenty years. The Company has a purchase option included in the lease agreement for below the fair value of the asset, which prevents the transfer of the asset to Little Rock from being recognized as a sale. Furthermore, the Company has not derecognized the transferred asset and continues to recognize it in property, plant and equipment in the Consolidated Balance Sheets. The Company has the right and intends to set-off any obligations to make payments under the finance liability, with proceeds due from the IRBs. The liability and IRB asset are equal and are reported net in the Consolidated Balance Sheets. As of December 31, 2025, the gross asset and liability associated with the IRBs was $450 million.
Contractual Obligations. Our contractual obligations consist primarily of purchase commitments and operating leases.
Purchase obligations represent supply contracts with raw material vendors and service contracts for hauling raw materials. Open purchase orders written in the normal course of business for goods or services that are provided on demand have been excluded as the timing of which is not certain. As of December 31, 2025, we have purchase obligations under material supply contracts of $25.9 million for the year ending December 31, 2026, $24.6 million in 2027, and $9.7 million in 2028. Our purchase obligations do not currently extend beyond 2028. Please refer to Note 19 to the Consolidated Financial Statements in this filing for additional information on our purchase commitments.
Operating leases represent office space, storage warehouses, manufacturing facilities and certain office and plant equipment under various operating leases, and include operating leases accounted for under Financial Accounting Standards Board Accounting Standards Codification Topic 842 and short-term leases. As of December 31, 2025, we have operating lease liabilities of $12.4 million for the year ending December 31, 2026, $32.2 million for the years 2027 through 2030 and $19.8 million thereafter. Please refer to Note 10 to the Consolidated Financial Statements in this filing for additional information on our operating leases.
The Company believes that its cash on hand and cash generated through operating activities, both over the next 12 months and beyond the next 12 months, should be sufficient to cover purchase obligations and operating leases.
Off-Balance Sheet Arrangements. We do not have off-balance sheet financing arrangements.
Capital and Other Cash Requirements. Our capital expenditure guidance for 2026 is $100 million to $120 million. Our capital allocation priorities for 2026 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.
We believe that cash on hand, cash flows from operations and borrowings expected to be available under our revolving credit facility will provide sufficient funds to enable us to fund planned capital expenditures, make scheduled principal and interest payments, fund the warranty reserve, meet other cash requirements, and maintain compliance with terms of our debt agreements for at least the next 12 months. We currently expect to fund future capital expenditures from operations and borrowings under the revolving credit facility. 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. Our ability to meet our cash needs during the next 12 months and thereafter could be adversely affected by various circumstances, including increases in the cost of raw materials and product replacement costs, quality control problems, higher than expected product warranty claims, service disruptions and lower than expected collections of accounts receivable. In addition, any failure to negotiate amendments to our existing debt agreements to resolve any future with financial covenants could affect our liquidity by reducing access to revolving credit borrowings needed primarily to fund seasonal borrowing needs. We may determine that it is necessary or to obtain financing through bank borrowings or the issuance of debt or equity securities to address such contingencies or changes to our business plan. Debt financing would increase our level of indebtedness, while equity financing would dilute the ownership of our stockholders. There can be no assurance as to whether, or as to the terms on which, we would be to obtain such financing, which would be restricted by covenants contained in our existing debt agreements.
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NEW ACCOUNTING STANDARDS
New Accounting Standards Recently Adopted.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The guidance requires public entities to disclose additional categories of information related to federal, state, and foreign income taxes and additional details related to reconciling items should they meet a quantitative threshold. The guidance requires disclosure of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and to disaggregate the information by jurisdiction based on quantitative thresholds. The guidance is effective for fiscal year beginning after December 15, 2024. Early adoption was permitted. The Company adopted the standard in the quarterly period ended December 31, 2025. The Company applied the standard retrospectively and accordingly prior periods were adjusted. Adoption of this guidance did not impact consolidated results of operations and financial position.
New Accounting Standards Not Yet Adopted.
In September 2025, the FASB issued ASU No. 2025-06, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)." This guidance clarifies and modernizes when an entity is required to begin capitalizing software costs. Specifically, it requires capitalization when both of the following are met (i) management has authorized and committed to funding the software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. The amendments to this update are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption of this update is permitted. The amendments to this update may be applied prospectively, retrospectively, or on a modified transition approach. The Company is evaluating this guidance and the impact it may have on its Consolidated Financial Statements upon adoption.
In July 2025, the FASB issued ASU No. 2025-05, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets." This guidance provides an optional practical expedient related to the estimation of expected credit losses for current accounts receivable and contract assets that arise from transactions accounted for under FASB Accounting Standards Codification 606. Specifically, this optional practical expedient allows an entity to assume that current conditions as of the balance sheet date will not change for the remaining life of the asset. The amendments to this update are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption of this update is permitted. The amendments to this update should be applied prospectively. The Company continues to evaluate the guidance and does not believe adoption will have a material impact on its consolidated results of operations or financial position.
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement – Reporting Comprehensive Income – Disaggregation Disclosures.” This guidance requires more detailed disclosure about the types of expenses presented within the expense captions of the financial statements. Specifically, disclosure of purchases of inventory, employee compensation, depreciation, and intangible asset amortization are required on both an interim and annual basis. In addition, a qualitative description of remaining amounts in relevant expense captions which have not separately been disaggregated will be required on an interim and annual basis. On an annual basis, disclosure of an entity’s definition of selling expenses and the amount of selling expenses is required. The amendments to this update are effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption of this update is permitted. The amendments to this update should be applied prospectively to financial statements issued for reporting periods after the effective date of the update or retrospectively to any or all prior periods presented in the financial statements. The Company believes adoption will result in expanded financial statement footnote disclosure but does not believe adoption of this update will have a material impact on its consolidated results of operations. The Company is continuing to evaluate the impacts of the pending adoption. As such, the Company’s preliminary assessments are subject to change.
