Reports Results For First Time As A Public Company;
Increasing Demand Drives Strong Q4 Outlook; Accelerating And
Increasing Capacity Investments
THIRD QUARTER FISCAL 2020 HIGHLIGHTS
- Residential segment net sales increased 5.5% year-over-year to
$192.6 million; June net sales increased over 15%
year-over-year
- Deck, Rail & Accessories net sales increased over 9%
year-over-year
- Net loss of ($52.1) million, driven by $59.7 million of
IPO-related and debt extinguishment expenses; Net Margin of
(23.3%)
- Adjusted EBITDA increased 9.6% year-over-year to $57.8 million;
Adjusted EBITDA Margin expanded 200 basis points to 25.8%
- Balance sheet significantly strengthened as IPO net proceeds
were primarily used to pay down debt
- Q4 Outlook – Expecting net sales growth of 12% to 17%
year-over-year and Adjusted EBITDA growth of 14% to 19%
year-over-year
The AZEK Company Inc. (the “Company” or “AZEK”) (NYSE: AZEK), an
industry-leading manufacturer of beautiful, low-maintenance
residential and commercial building products, today announced
financial results for the third quarter ended June 30, 2020 of its
fiscal year 2020.
CEO COMMENTS
“We are very pleased to be announcing our earnings results for
the first time as a public company,” commented Jesse Singh, AZEK’s
Chief Executive Officer. “Despite the difficult environment, our
growth initiatives and margin expansion programs such as recycling
remain on track. Our dedicated team delivered sales and Adjusted
EBITDA growth in the quarter and expanded Adjusted EBITDA Margin by
200 basis points compared to very strong performance in the same
quarter last year. We achieved these results through our focus on
customer service, disciplined execution and prudent cost
management, while continuing to drive our strategic initiatives and
long-term growth potential.”
“At the beginning of the third quarter, we experienced an
industry-wide slowdown and interruption due to the negative impact
from the COVID-19 pandemic, with certain geographies more severely
affected by stay-at-home and shutdown orders than others.
Consistent with our core values, our priority was to ensure the
health and safety of our employees, channel partners and
customers.”
“As the quarter progressed, we saw momentum improve within our
Residential segment as channels re-opened, new construction
re-started, stay-at-home orders were eased in certain regions and
homeowners continued to invest in home improvement and their
outdoor living spaces. Our strong focus on the customer has led to
an increase in multiple customer engagement metrics that we track
including digital interaction, sample orders and new dealers, as
well as contractor and architect conversions. Demand accelerated in
June driving significant sell-through growth across both Deck, Rail
& Accessories and Exteriors in the month, and our ability to
meet demand in decking and railing product lines was somewhat
limited by capacity and timing. We continued to experience robust
demand trends through July.”
“We continue to execute on our strategic initiatives that
position our business for future success, and we remain optimistic
about our long-term growth opportunity. We used the proceeds from
our recent IPO to reduce our debt and are announcing an expanded
capacity plan from an original $100 million investment to
approximately $180 million to support the significant market demand
and wood conversion opportunity. The strategic capacity expansion
plan includes an incremental 70% decking production capacity and a
new manufacturing facility over the next 18 to 24 months.”
“I would like to thank all of our employees for their hard work,
dedication and adaptability that are enabling us to effectively
manage through the adversity associated with COVID-19 and quickly
respond to a sharp increase in market demand,” concluded Mr.
Singh.
INITIAL PUBLIC OFFERING
On June 16, The AZEK Company announced the completion of its
initial public offering of 38,237,500 shares of its Class A common
stock, including the exercise in full by the underwriters of their
option to purchase up to 4,987,500 additional shares of Class A
common stock, at a price to the public of $23.00 per share. The
aggregate net proceeds to AZEK from the offering were approximately
$819.4 million, after deducting underwriting discounts and
commissions and estimated offering expenses. During the quarter,
the Company used approximately $783 million of the net proceeds
from the IPO to retire debt.
THIRD QUARTER FISCAL 2020 CONSOLIDATED RESULTS
Net sales for the third quarter of fiscal 2020 increased by $2.4
million, or 1.1%, to $223.7 million from $221.3 million for the
third quarter of fiscal 2019. The increase was primarily
attributable to higher sales growth in our Residential segment. Net
sales for the Residential segment increased by 5.5%, partially
offset by a decrease in the Commercial segment of 19.7%, in each
case, as compared to the prior year period.
Gross profit for the third quarter of fiscal 2020 decreased by
$0.3 million, or 0.4%, to $75.1 million from $75.4 million for the
third quarter of fiscal 2019. Gross profit as a percent of net
sales decreased to 33.6%, compared to 34.1% for prior year period.
The decrease in gross profit as a percent of net sales was
primarily driven by higher depreciation expense and the impact of
COVID-19 related production costs.
Adjusted Gross Profit for the third quarter of fiscal 2020
increased by $0.7 million, or 0.9%, to $91.2 million from $90.5
million for the third quarter of fiscal 2019. Adjusted Gross Profit
Margin was 40.8%, inclusive of an approximately 90 basis points
negative impact from COVID-19 related production costs.
Selling, general and administrative expenses increased by $15.0
million, or 29.8%, to $65.2 million, or 29.1% of net sales, for the
third quarter of fiscal 2020 from $50.2 million, or 22.7% of net
sales, for the third quarter of fiscal 2019. The increase was
primarily attributable to IPO-related expenses of $22.1 million,
including the recognition of stock-based compensation expense,
partially offset by lower marketing-related expenses during the
initial COVID-19 disruption early in the quarter.
Net loss was ($52.1) million, or ($0.44) per share, for the
third quarter of fiscal 2020 as compared to net income of $1.5
million for the third quarter of fiscal 2019, primarily due to the
expenses related to the extinguishment of debt and an increase in
selling, general and administrative expenses due to recognition of
additional stock-based compensation expense as a result of our
IPO.
Adjusted EBITDA for the third quarter of fiscal 2020 increased
by $5.0 million, or 9.6%, to $57.8 million from $52.8 million for
the third quarter of fiscal 2019. The increase was mainly driven by
higher sales as well as lower selling, general and administrative
expenses, partially offset by higher COVID-19 related production
costs. Adjusted EBITDA Margin expanded 200 basis points to 25.8%
from 23.8% for the prior year period.
THIRD QUARTER FISCAL 2020 SEGMENT RESULTS
Residential Segment
Net sales for the third quarter of fiscal 2020 increased by
$10.0 million, or 5.5%, to $192.6 million from $182.6 million for
the third quarter of fiscal 2019. The increase was primarily
attributable to higher sales in our Deck, Rail & Accessories
business while our Exteriors business rebounded in June as key
geographies and channels re-started new construction and remodeling
activity later in the quarter.
Segment Adjusted EBITDA for the third quarter of fiscal 2020
increased by $8.2 million, or 15.2% to $62.3 million from $54.1
million for the third quarter of fiscal 2019. The increase was
mainly driven by higher sales and net manufacturing productivity
improvements, as well as lower selling, general and administrative
expenses as a result of lower marketing and travel expenses,
partially offset by higher COVID-19 related production costs.
Commercial Segment
Net sales were $31.1 million for the third quarter of fiscal
2020 compared to $38.7 million for the third quarter of fiscal
2019, a decrease of $7.6 million, or 19.7%. The Commercial segment
has greater exposure to the broader economy, and the business saw
net sales decline as the effects of COVID-19 impacted certain end
market demand during the quarter. The decrease in sales was due in
part to geographic shutdowns for our Scranton Products bathroom
partition business and a significant contraction in retail and
tradeshow segments for our Vycom sheet business.
Segment Adjusted EBITDA was $5.0 million for the third quarter
of fiscal 2020, compared to $6.9 million for the third quarter of
fiscal 2019. The decrease was primarily driven by lower sales and
higher manufacturing costs, partially offset by reductions in
selling, general and administrative expenses.
NINE MONTHS FISCAL 2020 RESULTS
Consolidated net sales for the nine months ended June 30, 2020
increased by $56.6 million, or 9.8%, to $635.3 million from $578.7
million for the comparable period of fiscal 2019. Residential
segment net sales were up 13.0% to $538.5 million, partially offset
by Commercial segment net sales, which decreased by 5.3% to $96.8
million, in each case as compared to the prior year.
Net loss was ($57.9) million, or ($0.52) per share, for the nine
months ended June 30, 2020. The net loss is primarily due to $66.6
million of expenses related to the extinguishment of debt and an
increase in selling, general and administrative expenses due to
recognition of additional stock-based compensation expense as a
result of our IPO. Net Margin was (9.1%) for the nine months ended
June 30, 2020.
Adjusted EBITDA for the nine months ended June 30, 2020
increased by $20.4 million, or 16.0%, to $147.4 million from $127.1
million for the nine months ended June 30, 2019. Adjusted EBITDA
Margin expanded 120 basis points to 23.2% from 22.0% a year
ago.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of June 30, 2020, the Company had cash and cash equivalents
of $215.1 million and approximately $97.0 million available under
the borrowing base for future borrowings under our Revolving Credit
Facility. Total debt as of June 30, 2020 was $506.7 million,
including $467.1 million under our Term Loan Credit Agreement and
$44.0 million outstanding under our Revolving Credit Agreement.
Net cash provided by operating activities was $11.3 million and
$20.3 million for the nine months ended June 30, 2020 and 2019,
respectively.
OUTLOOK
“As we enter our fourth quarter, our outlook is based on current
strong demand within our Residential segment end markets, balanced
by the economic uncertainty caused by the pandemic, including high
unemployment. Over the next quarter, we expect continued robust
demand within our Residential segment across both our Deck, Rail
& Accessories and Exteriors businesses, partially offset by
continued weakness in our Commercial segment. Strong demand has
resulted in certain temporary shortages in our decking and railing
product lines. While we added capacity during the third quarter, we
have accelerated the deployment of our previously announced
expansion and expect additional capacity to come online during the
fourth quarter as well as the second and third quarters of our
fiscal year 2021, with the completion of the program expected in
the first half of fiscal year 2022,” added Mr. Singh.
AZEK is introducing guidance for the fourth quarter fiscal 2020
for net sales growth in the range of 12% to 17% year-over-year
following 13% growth in the comparable period last year and
Adjusted EBITDA growth in the range of 14% to 19% year-over-year
following 16% growth in the comparable period last year.
CONFERENCE CALL INFORMATION
To access the live conference call, please register for the call
in advance by visiting
http://www.directeventreg.com/registration/event/6685168.
Registration will also be available during the call. After
registering, a confirmation e-mail will be sent including dial-in
details and unique conference call codes for entry. To ensure you
are connected for the full call please register at least 10 minutes
before the start of the call.
Interested investors and other parties can also listen to a
webcast of the live conference call by logging onto the Investor
Relations section of the Company's website at
https://investors.azekco.com/events-and-presentations/.
For those unable to listen to the live conference call, a replay
will be available approximately two hours after the call through
the archived webcast on the AZEK website or by dialing (855)
859-2056 or (404) 537-3406. The conference ID for the replay is
6685168. The replay will be available until 10:59 p.m. (CT) on
August 27, 2020.
ABOUT THE AZEK® COMPANY
The AZEK® Company Inc. is an industry-leading designer and
manufacturer of beautiful, low-maintenance residential and
commercial building products and is committed to innovation,
sustainability and research & development. Headquartered in
Chicago, Illinois, the company operates manufacturing facilities in
Ohio, Pennsylvania and Minnesota. For additional information,
please visit azekco.com.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This earnings release contains forward-looking statements within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical facts contained in this
earnings release, including statements regarding future operations
are forward-looking statements. In some cases, forward looking
statements may be identified by words such as "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "could,"
"would," "expect," "objective," "plan," "potential," "seek,"
"grow," "target," "if," and similar expressions intended to
identify forward-looking statements. In particular, statements
about potential new products and product innovation, statements
regarding the potential impact of the COVID-19 pandemic, statements
about the markets in which we operate, including growth of our
various markets and growth in the use of engineered products, and
our expectations, beliefs, plans, strategies, objectives,
prospects, assumptions or future events or performance contained in
this earnings release are forward-looking statements. We have based
these forward-looking statements primarily on our current
expectations and projections about future events and trends that we
believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions,
including those described in the section titled "Risk Factors" set
forth in Part II, Item 1A of the Quarterly Report on Form 10-Q for
our third quarter of fiscal 2020 and in our other SEC filings,
including the Prospectus filed pursuant to Rule 424(b) under the
Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (“SEC”) on June 15, 2020 (the
"Prospectus"). Moreover, we operate in a very competitive and
rapidly changing environment. New risks emerge from time to time.
It is not possible for our management to predict all risks, nor can
we assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements we may make. In light of these risks,
uncertainties and assumptions, the future events and trends
discussed in this earnings release may not occur and actual results
may differ materially and adversely from those anticipated or
implied in the forward-looking statements. You should read this
earnings release with the understanding that our actual future
results, levels of activity, performance and events and
circumstances may be materially different from what we expect.
These statements are based on information available to us as of
the date of this earnings release. While we believe that such
information provides a reasonable basis for these statements, such
information may be limited or incomplete. Our statements should not
be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all relevant information. We disclaim any
intention and undertake no obligation to update or revise any of
our forward-looking statements after the date of this release to
reflect actual results or future events or circumstances whether as
a result of new information, future events or otherwise, except as
required by law. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements.
NON-GAAP FINANCIAL MEASURES
To supplement our earnings release and consolidated financial
statements prepared and presented in accordance with generally
accepted accounting principles in the United States, or (“GAAP”),
we use certain non-GAAP performance financial measures, as
described within this earnings release, to provide investors with
additional useful information about our financial performance, to
enhance the overall understanding of our past performance and
future prospects and to allow for greater transparency with respect
to important metrics used by our management for financial and
operational decision-making. We are presenting these non-GAAP
financial measures to assist investors in seeing our financial
performance from management’s view and because we believe they
provide an additional tool for investors to use in comparing our
core financial performance over multiple periods with other
companies in our industry. Our GAAP financial results include
significant expenses that are not indicative of our ongoing
operations as detailed within this earnings release.
However, non-GAAP financial measures have limitations in their
usefulness to investors because they have no standardized meaning
prescribed by GAAP and are not prepared under any comprehensive set
of accounting rules or principles. In addition, non-GAAP financial
measures may be calculated differently from, and therefore may not
be directly comparable to, similarly titled measures used by other
companies. As a result, non-GAAP financial measures should be
viewed as supplementing, and not as an alternative or substitute
for, our earnings release and our consolidated financial statements
prepared and presented in accordance with GAAP.
We define Adjusted Gross Profit as gross profit before
depreciation and amortization, business transformation costs and
acquisition costs as described below. Adjusted Gross Profit Margin
is equal to Adjusted Gross Profit divided by net sales.
We define Adjusted Net Income as net income (loss) before
depreciation and amortization, share-based compensation costs,
business transformation costs, acquisition costs, initial public
offering costs and certain other costs as described below.
We define Adjusted Diluted EPS as Adjusted Net Income divided by
weighted average common shares outstanding – diluted, to reflect
the conversion or exercise, as applicable, of all outstanding
shares of restricted stock awards, restricted stock units and
options to purchase shares of our common stock.
We define Adjusted EBITDA as net income (loss) before interest
expense, net, income tax (benefit) expense and depreciation and
amortization and by adding to or subtracting therefrom items of
expense and income as described above.
Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by
net sales. Net Leverage is equal to gross debt less cash and cash
equivalents, divided by trailing twelve month Adjusted EBITDA. We
believe Adjusted Gross Profit, Adjusted Gross Profit Margin,
Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA,
Adjusted EBITDA Margin and Net Leverage are useful to investors
because they help identify underlying trends in our business that
could otherwise be masked by certain expenses that can vary from
company to company depending on, among other things, its financing,
capital structure and the method by which its assets were acquired,
and can also vary significantly from period to period. We
also add back depreciation and amortization and share-based
compensation because we do not consider them indicative of our core
operating performance. We believe their exclusion facilitates
comparisons of our operating performance on a period-to-period
basis. Therefore, we believe that showing gross profit and net
income, as adjusted to remove the impact of these expenses, is
helpful to investors in assessing our gross profit and net income
performance in a way that is similar to the way management assesses
our performance. Additionally, EBITDA and EBITDA margin are common
measures of operating performance in our industry, and we believe
they facilitate operating comparisons. Our management also uses
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted
EBITDA and Adjusted EBITDA Margin in conjunction with other GAAP
financial measures for planning purposes, including as a measure of
our core operating results and the effectiveness of our business
strategy, and in evaluating our financial performance. Management
considers Adjusted Gross Profit and Adjusted Net Income as useful
measures because our cost of sales includes the depreciation of
property, plant and equipment used in the production of products
and the amortization of various intangibles related to our
manufacturing processes. Further, management considers Net Leverage
as a useful measure to assess our borrowing capacity
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted
Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA
Margin and Net Leverage have limitations as analytical tools, and
you should not consider them in isolation or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
- These measures do not reflect our cash expenditures, future
requirements for capital expenditures or contractual
commitments;
- These measures do not reflect changes in, or cash requirements
for, our working capital needs;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the
significant interest expense, or the cash requirements necessary to
service interest or principal payments, on our debt;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our
income tax expense or the cash requirements to pay our taxes;
- Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted
EPS and Adjusted EBITDA exclude the expense of depreciation and
amortization of our assets, and, although these are non-cash
expenses, the assets being depreciated may have to be replaced in
the future;
- Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA
exclude the expense associated with our equity compensation plan,
although equity compensation has been, and will continue to be, an
important part of our compensation strategy;
- Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted
EPS and Adjusted EBITDA exclude certain business transformation
costs, acquisition costs and other costs, each of which can affect
our current and future cash requirements; and
- Other companies in our industry may calculate Adjusted Gross
Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted
Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Net
Leverage differently than we do, limiting their usefulness as
comparative measures.
Because of these limitations, none of these metrics should be
considered indicative of discretionary cash available to us to
invest in the growth of our business or as measures of cash that
will be available to us to meet our obligations.
Segment Adjusted EBITDA
Depending on certain circumstance, Segment Adjusted EBITDA may
be calculated differently, from time to time, than our Adjusted
EBITDA and Adjusted EBITDA Margin, which are further discussed
under the heading “Non-GAAP Financial Measures.” Segment Adjusted
EBITDA represents a measure of segment profit reported to our chief
operating decision maker for the purpose of making decisions about
allocating resources to a segment and assessing its performance.
For more information regarding how Segment Adjusted EBITDA is
determined, see our Consolidated Financial Statements and related
notes included in our Quarterly Report on Form 10-Q for the third
quarter fiscal 2020 filed with the SEC and the Prospectus (as
defined above).
The AZEK Company Inc.
Condensed Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amount)
(Unaudited)
June 30, 2020
September 30, 2019
ASSETS:
Current assets:
Cash and cash equivalents
$
215,111
$
105,947
Trade receivables, net of allowances
79,605
52,623
Inventories
130,626
115,391
Prepaid expenses
10,323
6,037
Other current assets
875
10,592
Total current assets
436,540
290,590
Property, plant and equipment, net
235,229
208,694
Goodwill
951,190
944,298
Intangible assets, net
306,095
342,418
Other assets
1,268
2,262
Total assets
$
1,930,322
$
1,788,263
LIABILITIES AND STOCKHOLDERS’
EQUITY:
Current liabilities:
Accounts payable
$
36,414
$
47,479
Accrued rebates
22,770
22,733
Accrued interest
1,185
13,578
Current portion of long-term debt
obligations
─
8,304
Accrued expenses and other liabilities
47,222
47,903
Total current liabilities
107,591
139,997
Deferred income taxes
26,732
34,003
Finance lease obligations—less current
portion
10,901
11,181
Long-term debt—less current portion
506,656
1,103,313
Other non-current liabilities
8,929
9,746
Total liabilities
660,809
1,298,240
Commitments and contingencies (See Note
16)
Stockholders’ equity:
Preferred stock, $0.001 par value;
1,000,000 shares
authorized and no shares issued and
outstanding at
June 30, 2020 and September 30, 2019,
respectively
─
─
Class A common stock, $0.001 par value;
1,100,000,000
shares authorized, 121,566,577 shares
issued and
outstanding at June 30, 2020, and
75,093,778 issued
and outstanding at September 30, 2019
122
75
Class B common stock, $0.001 par value;
100,000,000
shares authorized, 33,068,963 shares
issued and
outstanding at June 30, 2020 and at
September 30, 2019
33
33
Additional paid-in capital
1,488,474
652,493
Accumulated deficit
(219,116)
(162,578)
Total stockholders’ equity
1,269,513
490,023
Total liabilities and stockholders’
equity
$
1,930,322
$
1,788,263
The AZEK Company Inc.
Condensed Consolidated Statements
of Comprehensive Income (Loss)
(In thousands of U.S. dollars,
except for share and per share amount)
(Unaudited)
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
Net sales
$
223,711
$
221,307
$
635,339
$
578,669
Cost of sales
148,588
145,897
429,553
394,948
Gross margin
75,123
75,410
205,786
183,721
Selling, general and administrative
expenses
65,164
50,185
158,330
136,988
Other general expenses
1,623
1,997
6,716
6,155
Loss on disposal of plant, property and
equipment
366
36
394
1,472
Operating income (loss)
7,970
23,192
40,346
39,106
Other expenses:
Interest expense
25,148
21,440
64,882
63,213
Loss on extinguishment of debt
37,538
─
37,538
─
Total other expenses
62,686
21,440
102,420
63,213
Income (loss) before income taxes
(54,716)
1,752
(62,074)
(24,107)
Income tax expense (benefit)
(2,600)
241
(4,200)
(4,831)
Net income (loss)
$
(52,116)
$
1,511
$
(57,874)
$
(19,276)
Net income (loss) per common share:
Basic and Diluted
$
(0.44)
$
0.01
$
(0.52)
$
(0.18)
Comprehensive income (loss)
$
(52,116)
$
1,511
$
(57,874)
$
(19,276)
Weighted average shares used in
calculating net income (loss) per common share:
Basic and Diluted
118,738,357
108,162,741
113,525,537
108,162,741
The AZEK Company Inc.
Condensed Consolidated Statements
of Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Nine Months Ended June
30,
2020
2019
Operating activities:
Net income (loss)
$
(57,874)
$
(19,276)
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in) operating activities:
Depreciation
33,603
24,155
Amortization of intangibles
41,622
45,479
Non-cash interest expense
6,527
2,990
Deferred income tax benefit
(4,048)
(5,565)
Non-cash compensation expense
18,670
3,530
Fair value adjustment for contingent
consideration
─
53
Loss on disposition of property, plant and
equipment
394
1,472
Bad debt provision
522
284
Loss on extinguishment of debt
37,538
─
Changes in certain assets and
liabilities:
Trade receivables
(26,385)
(33,739)
Inventories
(12,703)
(612)
Prepaid expenses and other current
assets
(4,130)
(3,111)
Accounts payable
(12,753)
(869)
Accrued expenses and interest
(8,592)
1,616
Other assets and liabilities
(1,105)
3,850
Net cash provided by (used in) operating
activities
11,286
20,257
Investing activities:
Purchases of property, plant and
equipment
(54,768)
(46,440)
Proceeds from sale of property, plant and
equipment
223
49
Acquisition, net of cash acquired
(18,453)
─
Net cash provided by (used in) investing
activities
(72,998)
(46,391)
Financing activities:
Proceeds from initial public offering, net
of related costs
822,630
─
Proceeds from 2025 Senior Notes
346,500
─
Redemption of Senior Notes
(665,000)
─
Payments of debt extinguishment costs
(24,938)
─
Proceeds under revolving credit
facility
129,000
40,000
Payments under revolving credit
facility
(85,000)
(40,000)
Payments on long-term debt obligations
(341,958)
(6,228)
Payment of debt issuance costs
(7,704)
─
Proceeds (repayments) of finance lease
obligations
(601)
1,592
Payments of contingent consideration
─
(2,000)
Redemption of capital contributions
(3,553)
(26)
Capital contributions
1,500
1,311
Net cash provided by (used in) financing
activities
170,876
(5,351)
Net increase (decrease) in cash and cash
equivalents
109,164
(31,485)
Cash and cash equivalents – Beginning of
period
105,947
82,283
Cash and cash equivalents – End of
period
$
215,111
$
50,798
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
70,801
$
66,086
Cash paid for income taxes, net
544
803
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
5,058
$
4,142
Property, plant and equipment acquired
under finance leases
630
1,549
Adjusted EBITDA and Adjusted EBITDA
Margin Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
(In thousands)
Net income (loss)
$
(52,116)
$
1,511
$
(57,874)
$
(19,276)
Interest expense
25,148
21,440
64,882
63,213
Depreciation and amortization
26,597
23,243
75,225
69,634
Tax expense (benefit)
(2,600)
241
(4,200)
(4,831)
Stock-based compensation costs
18,788
737
20,169
2,600
Business transformation costs (1)
109
2,831
435
12,608
Acquisition costs (2)
182
521
1,538
3,656
Initial public offering costs
1,623
1,997
6,716
6,155
Other costs (3)
2,551
250
3,015
(6,693)
Capital structure transaction costs
(4)
37,538
─
37,538
─
Total adjustments
109,936
51,260
205,318
146,342
Adjusted EBITDA
$
57,820
$
52,771
$
147,444
$
127,066
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
Net income (loss)
(23.3)%
0.7%
(9.1)%
(3.3)%
Interest expense
11.3%
9.7%
10.2%
10.9%
Depreciation and amortization
11.9%
10.5%
11.8%
12.0%
Tax expense (benefit)
(1.2)%
0.1%
(0.7)%
(0.8)%
Stock-based compensation costs
8.4%
0.3%
3.2%
0.4%
Business transformation costs
0.0%
1.3%
0.1%
2.2%
Acquisition costs
0.1%
0.2%
0.2%
0.6%
Initial public offering costs
0.7%
0.9%
1.1%
1.1%
Other costs
1.1%
0.1%
0.5%
(1.1)%
Capital structure transaction costs
16.8%
0.0%
5.9%
0.0%
Total adjustments
49.1%
23.1%
32.3%
25.3%
Adjusted EBITDA Margin
25.8%
23.8%
23.2%
22.0%
(1)
Business transformation costs
include consulting and other costs related to repositioning of our
brands of $0.0 million and $0.7 for the three months ended June 30,
2020 and 2019, respectively, and $0.0 million and $3.9 million for
the nine months ended June 30, 2020 and 2019, respectively,
compensation costs related to the transformation of the senior
management team of $0.1 million and $0.2 million for the three
months ended June 30, 2020 and 2019, respectively, and $0.4 million
and $1.9 million for the nine months ended June 30, 2020 and 2019,
respectively, costs related to the relocation of our corporate
headquarters of $0.0 million and $1.8 million for the nine months
ended June 30, 2020 and 2019, respectively, startup costs of our
new recycling facility of $0.0 million and $1.4 million for the
three months ended June 30, 2020 and 2019, respectively and $0.0
million and $2.9 million for the nine months ended June 30, 2020
and 2019, respectively, and other integration-related costs of $0.0
million and $0.5 million for the three months ended June 30, 2020
and 2019, respectively, and $0.0 million and $2.1 million for the
nine months ended June 30, 2020 and 2019, respectively.
(2)
Acquisition costs reflect costs
directly related to completed acquisitions $0.1 million and $0.5
million for the three months ended June 30, 2020 and 2019,
respectively, and $0.9 million and $3.7 million for the nine months
ended June 30, 2020 and 2019, respectively, and inventory step-up
adjustments related to recording the inventory of acquired
businesses at fair value on the date of acquisition of $0.1 million
and $0.0 million for the three months ended June 30, 2020 and 2019,
respectively, and $0.6 million and $0.0 million for the nine months
ended June 30, 2020 and 2019, respectively.
(3)
Other costs include costs for
legal expenses of $0.4 million and $0.2 million for the three
months ended June 30, 2020 and 2019, respectively, and $0.4 million
and $0.8 million for the nine months ended June 30, 2020 and 2019,
respectively, reduction in workforce costs of $0.4 million for the
three and nine months ended June 30, 2020, income from an insurance
recovery of legal loss of $0.0 million and $7.7 million for the
nine months ended June 30, 2020 and 2019, respectively, and costs
related to an incentive plan associated with our IPO of $1.8
million and $0.1 million for the three months ended June 30, 2020
and 2019, respectively, and $2.2 million and $0.2 million for the
nine months ended June 30, 2020 and 2019, respectively.
(4)
Capital structure transaction
costs include loss on extinguishment of debt of $1.9 million for
the 2021 Senior Notes and $35.6 million for the 2025 Senior Notes
for the three and nine months ended June 30, 2020.
Adjusted Gross Profit and Adjusted
Gross Profit Margin Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
(In thousands)
Gross Profit
$
75,123
$
75,410
$
205,786
$
183,721
Depreciation and amortization (1)
15,925
13,653
46,463
41,514
Business transformation costs (2)
─
1,399
─
2,908
Acquisition costs (3)
111
─
665
─
Other costs (4)
75
─
75
─
Adjusted Gross Profit
$
91,234
$
90,462
$
252,989
$
228,143
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
Gross Profit
33.6%
34.1%
32.4%
31.7%
Depreciation and amortization
7.1%
6.2%
7.3%
7.2%
Business transformation costs
─
0.6%
─
0.5%
Acquisition costs
0.1%
─
0.1%
─
Other costs
─
─
─
─
Adjusted Gross Profit Margin
40.8%
40.9%
39.8%
39.4%
(1)
Depreciation and amortization for
the three and nine months ended June 30, 2020 and 2019 consists of
$9.7 million, $6.8 million, $27.9 million and $20.8 million,
respectively, of depreciation and $6.2 million, $6.9 million, $18.6
million and $20.7 million, respectively, of amortization of
intangibles relating to our manufacturing process.
(2)
Business transformation costs
include start-up costs of our new recycling facility for the three
and nine months ended June 30, 2019.
(3)
Acquisition costs include $0.1
million and $0.7 million for inventory step-up adjustments related
to recording the inventory of acquired businesses at fair value on
the date of acquisition, for the three and nine months ended June
30, 2020, respectively.
(4)
Other costs include reduction in
workforce costs of $0.1 million for the three and nine months ended
June 30, 2020.
Adjusted Net Income and Adjusted
Diluted EPS Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
(In thousands)
Net income (loss)
$
(52,116)
$
1,511
$
(57,874)
$
(19,276)
Depreciation and amortization (1)
26,597
23,243
75,225
69,634
Stock-based compensation costs
18,788
737
20,169
2,600
Business transformation costs (2)
109
2,831
435
12,608
Acquisition costs (3)
182
521
1,538
3,656
Initial public offering costs
1,623
1,997
6,716
6,155
Other costs (4)
2,551
250
3,015
(6,693)
Capital structure transaction costs
(5)
37,538
─
37,538
─
Tax impact of adjustments (6)
(19,425)
(6,922)
(33,112)
(20,486)
Adjusted Net Income
$
15,847
$
24,168
$
53,650
$
48,198
Three Months Ended June
30,
Nine Months Ended June
30,
2020
2019
2020
2019
Net income (loss) per common share -
diluted
$
(0.44)
$
0.01
$
(0.51)
$
(0.18)
Depreciation and amortization
0.22
0.21
0.66
0.64
Stock-based compensation costs
0.16
0.01
0.18
0.03
Business transformation costs
0.00
0.03
0.00
0.12
Acquisition costs
0.00
0.00
0.01
0.03
Initial public offering costs
0.01
0.02
0.06
0.06
Other costs
0.02
0.00
0.03
(0.06)
Capital structure transaction costs
0.32
─
0.33
─
Tax impact of adjustments
(0.16)
(0.06)
(0.29)
(0.19)
Adjusted Diluted EPS (7)
$
0.13
$
0.22
$
0.47
$
0.45
(1)
Depreciation and amortization for
the three and nine months ended June 30, 2020 and 2019 consists of
$12.7 million, $8.2 million, $33.6 million and $24.2 million,
respectively, of depreciation and $13.9 million, $15.1 million,
$41.6 million and $45.5 million, respectively, of amortization of
intangibles.
(2)
Business transformation costs
include consulting and other costs related to repositioning of our
brands of $0.0 million and $0.7 for the three months ended June 30,
2020 and 2019, respectively, and $0.0 million and $3.9 million for
the nine months ended June 30, 2020 and 2019, respectively,
compensation costs related to the transformation of the senior
management team of $0.1 million and $0.2 million for the three
months ended June 30, 2020 and 2019, respectively, and $0.4 million
and $1.9 million for the nine months ended June 30, 2020 and 2019,
respectively, costs related to the relocation of our corporate
headquarters of $0.0 million and $1.8 million for the nine months
ended June 30, 2020 and 2019, respectively, startup costs of our
new recycling facility of $0.0 million and $1.4 million for the
three months ended June 30, 2020 and 2019, respectively and $0.0
million and $2.9 million for the nine months ended June 30, 2020
and 2019, respectively, and other integration-related costs of $0.0
million and $0.5 million for the three months ended June 30, 2020
and 2019, respectively, and $0.0 million and $2.1 million for the
nine months ended June 30, 2020 and 2019, respectively.
(3)
Acquisition costs reflect costs
directly related to completed acquisitions $0.1 million and $0.5
million for the three months ended June 30, 2020 and 2019,
respectively, and $0.9 million and $3.7 million for the nine months
ended June 30, 2020 and 2019, respectively, and inventory step-up
adjustments related to recording the inventory of acquired
businesses at fair value on the date of acquisition of $0.1 million
and $0.0 million for the three months ended June 30, 2020 and 2019,
respectively, and $0.6 million and $0.0 million for the nine months
ended June 30, 2020 and 2019, respectively.
(4)
Other costs include costs for
legal expenses of $0.4 million and $0.2 million for the three
months ended June 30, 2020 and 2019, respectively, and $0.4 million
and $0.8 million for the nine months ended June 30, 2020 and 2019,
respectively, reduction in workforce costs of $0.4 million for the
three and nine months ended June 30, 2020, income from an insurance
recovery of legal loss of $0.0 million and $7.7 million for the
nine months ended June 30, 2020 and 2019, respectively, and costs
related to an incentive plan associated with our IPO of $1.8
million and $0.1 million for the three months ended June 30, 2020
and 2019, respectively, and $2.2 million and $0.2 million for the
nine months ended June 30, 2020 and 2019, respectively.
(5)
Capital structure transaction
costs include loss on extinguishment of debt of $1.9 million for
the 2021 Senior Notes and $35.6 million for the 2025 Senior Notes
for the three and nine months ended June 30, 2020.
(6)
Tax impact of adjustments are
based on applying a combined U.S. federal and state statutory tax
rate of 24.5% and 24.0% for the three and nine months ended June
30, 2020 and 2019, respectively.
(7)
Weighted average common shares
outstanding used in computing diluted net income (loss) per common
share of 119,067,790 and 108,162,741, for the three months ended
June 30, 2020 and 2019, respectively, and 113,635,347 and
108,162,741 for the nine months ended June 30, 2020 and 2019,
respectively.
Net Leverage Reconciliation
Twelve
Months
Ended
September 30,
Nine
Months
Ended
June 30,
Nine
Months
Ended
June 30,
Twelve
Months
Ended
June 30,
2019
2019
2020
2020
(In thousands)
Net income (loss)
$
(20,196)
$
(19,276)
$
(57,874)
$
(58,794)
Interest expense
83,205
63,213
64,882
84,874
Depreciation and amortization
93,929
69,634
75,225
99,520
Tax expense (benefit)
(3,955)
(4,831)
(4,200)
(3,324)
Stock-based compensation costs
3,682
2,600
20,169
21,251
Business transformation costs
16,560
12,608
435
4,387
Acquisition costs
4,110
3,656
1,538
1,992
Initial public offering costs
9,076
6,155
6,716
9,637
Other costs
(6,845)
(6,693)
3,015
2,863
Capital structure transaction costs
─
─
37,538
37,538
Total adjustments
199,762
146,342
205,318
258,738
Adjusted EBITDA
$
179,566
$
127,066
$
147,444
$
199,944
Long-term debt—less current portion
$
506,656
Unamortized deferred financing fees
4,456
Unamortized original issue discount
542
Gross debt
511,654
Cash and cash equivalents
(215,111)
Net debt
296,543
Net Leverage
1.5x
Outlook
We have not reconciled Adjusted EBITDA guidance to its most
comparable GAAP measure as a result of the uncertainty regarding,
and the potential variability of, reconciling items such as the
variability in the provision for income taxes, the estimates for
warranty and rebate accruals and timing of the gain or loss on
disposal of property, plant and equipment. Such reconciling items
that impact Adjusted EBITDA have not occurred, are outside of our
control or cannot be reasonably predicted. Accordingly, a
reconciliation of Adjusted EBITDA to its most comparable GAAP
measure is not available without unreasonable effort. However, it
is important to note that material changes to these reconciling
items could have a significant effect on our Adjusted EBITDA
guidance and future GAAP results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200813005253/en/
Investor Relations Contact: Solebury Trout 312-809-1093
ir@azekco.com
Media Contact: Lisa Wolford 917-846-0881
lwolford@soleburytrout.com
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