Reports Strong Sales Growth and Margin Expansion; Key
Initiatives On-Track; Expects Double Digit Sales Growth in Fiscal
2021
FOURTH QUARTER FISCAL 2020 HIGHLIGHTS
- Consolidated net sales increased 22.4% year-over-year to $263.9
million
- Residential segment net sales increased 30.0% year-over-year to
$232.7 million
- Net loss of ($64.4) million, largely driven by $102.2 million
of IPO and secondary offering related expenses; Net Margin of
(24.4%)
- Adjusted EBITDA increased 25.9% year-over-year to $66.1
million; Adjusted EBITDA Margin expanded 60 basis points to
25.0%
OUTLOOK HIGHLIGHTS
- First Quarter Fiscal 2021 Outlook – Expecting consolidated net
sales growth in the low 20% range year-over-year and Adjusted
EBITDA growth in the high 20% range year-over-year
- Fiscal 2021 Outlook – Expecting consolidated net sales growth
of 10% to 14% year-over-year and Adjusted EBITDA growth of
mid-teens year-over-year
The AZEK Company Inc. (the “Company” or “AZEK”) (NYSE: AZEK), an
industry-leading manufacturer of beautiful, low-maintenance and
sustainable residential and commercial building products, today
announced financial results for the fourth quarter and fiscal year
ended September 30, 2020 (“Fiscal Year 2020”).
CEO COMMENTS
“I am very proud of our accomplishments in fiscal 2020 as we
completed a very important year for AZEK and achieved several key
milestones,” commented Jesse Singh, AZEK’s Chief Executive Officer.
“During the year, we became a public company, successfully managed
through an environment impacted by COVID-19 and delivered strong
financial results. Our team has done an outstanding job of
executing and we ended the year with strong momentum as our fourth
quarter Residential segment growth accelerated and our margins
expanded. Importantly, we remain on track with our capacity
expansion program and key strategic initiatives of growth through
innovation, margin expansion via recycling and AIMS, commitment to
ESG, and building on our core strengths of brand, manufacturing,
R&D and customer connection. We expect these investments will
drive benefits for years to come. Additionally, as part of our
ongoing commitment to strong corporate governance and diversity, we
recently welcomed three new Board members, including Fumbi Chima,
Howard Heckes and Romeo Leemrijse, each of whom brings strong
leadership, unique experience and diverse perspectives to help AZEK
achieve its long-term objectives.”
“We have made great progress with our recycling initiatives.
Through AZEK’s recycling programs, approximately 400 million pounds
of scrap and waste were diverted from landfills in fiscal year
2020, an increase from approximately 290 million pounds in fiscal
year 2019. During the fourth quarter of fiscal 2020, we implemented
a strategic material supply relationship with Berry Plastics and
established our FULL-CIRCLE PVC Recycling Program where we are
sourcing scrap materials direct from fabrication shops,
construction sites and remodeling projects. Additionally, we are
proud to have received the 2020 Vinyl Recycling Award from the
Vinyl Sustainability Council in recognition of recent recycling
innovations in our TimberTech AZEK decking product line.”
“While we continue to operate in an uncertain environment, we
remain focused on the health and well-being of our employees,
channel partners and customers. Our team continues to execute well
against our key strategic initiatives, and we remain optimistic
about our long-term growth and margin potential,” concluded Mr.
Singh.
FOURTH QUARTER FISCAL 2020 CONSOLIDATED RESULTS
Net sales for the fourth quarter of fiscal 2020 increased by
$48.4 million, or 22.4%, to $263.9 million from $215.5 million for
the fourth quarter of fiscal 2019. The increase was driven by
higher sales growth in our Residential segment. Net sales for the
Residential segment increased by 30.0%, partially offset by a
decrease in the Commercial segment of 14.4%, in each case as
compared to the prior year period.
Gross profit for the fourth quarter of fiscal 2020 increased by
$20.8 million, or 29.9%, to $90.3 million from $69.5 million for
the fourth quarter of fiscal 2019. Gross margin increased 200 basis
points to 34.2%, compared to 32.2% for prior year period. The
increase in gross margin was primarily driven by the strong results
in the Residential segment during the quarter.
Selling, general and administrative expenses increased by $103.4
million to $149.9 million, or 56.8% of net sales, for the fourth
quarter of fiscal 2020 from $46.6 million, or 21.6% of net sales,
for the fourth quarter of fiscal 2019. The increase was primarily
attributable to stock-based compensation costs of $100.3 million
related to our IPO and secondary offering and ongoing public
company expenses.
Net loss was ($64.4) million, or ($0.43) per share, for the
fourth quarter of fiscal 2020 as compared to net loss of ($0.9)
million, or ($0.01) per share, for the fourth quarter of fiscal
2019, primarily due to an increase in selling, general and
administrative expenses related to additional stock-based
compensation expense as a result of our recent public offerings.
Net margin was (24.4%) for the fourth quarter of fiscal 2020 as
compared to net margin of (0.4%) for the fourth quarter of fiscal
2019.
Adjusted Net Income was $44.4 million, or $0.29 per diluted
share, for the fourth quarter of fiscal 2020 as compared to
Adjusted Net Income of $16.8 million, or $0.16 per diluted share,
for the fourth quarter of fiscal 2019.
Adjusted EBITDA for the fourth quarter of fiscal 2020 increased
by $13.6 million, or 25.9%, to $66.1 million from $52.5 million for
the fourth quarter of fiscal 2019. The increase was mainly driven
by higher sales in the Residential segment, partially offset by
higher COVID-19 related production costs and ongoing public company
expenses. Adjusted EBITDA Margin expanded 60 basis points to 25.0%
from 24.4% for the prior year period.
FOURTH QUARTER FISCAL 2020 SEGMENT RESULTS
Residential Segment
Net sales for the fourth quarter of fiscal 2020 increased by
$53.6 million, or 30.0%, to $232.7 million from $179.0 million for
the fourth quarter of fiscal 2019. The increase was primarily
attributable to higher sales in our Deck, Rail & Accessories
business as well as in our Exteriors business as construction and
remodeling activity across geographies and channels were strong.
Deck, Rail & Accessories net sales increased approximately
35.0% year-over-year.
Segment Adjusted EBITDA for the fourth quarter of fiscal 2020
increased by $20.1 million, or 37.3% to $74.0 million from $53.9
million for the fourth quarter of fiscal 2019. The increase was
mainly driven by higher sales, partially offset by additional
expenses related to our capacity expansion, higher COVID-19 related
production costs and selling, general and administrative expenses.
Segment Adjusted EBITDA Margin expanded 170 basis points to 31.8%
from 30.1% for the prior year period.
Commercial Segment
Net sales were $31.3 million for the fourth quarter of fiscal
2020 compared to $36.5 million for the fourth quarter of fiscal
2019, a decrease of $5.3 million, or 14.4%. 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.
Segment Adjusted EBITDA was $3.9 million for the fourth quarter
of fiscal 2020, compared to $7.1 million for the fourth quarter of
fiscal 2019. The decrease was primarily driven by lower sales,
partially offset by reductions in selling, general and
administrative expenses. Segment Adjusted EBITDA Margin was 12.4%
for the fourth quarter of fiscal 2020 as compared to 19.5% for the
prior year period.
FULL YEAR FISCAL 2020 RESULTS
Net sales for the year ended September 30, 2020 increased by
$105.1 million, or 13.2%, to $899.3 million from $794.2 million for
the year ended September 30, 2019. The increase was primarily
attributable to higher sales in our Residential segment. Net sales
for the year ended September 30, 2020 increased for our Residential
segment by 17.7% and decreased for our Commercial segment by 7.7%,
in each case as compared to the prior year.
Net loss increased by $102.0 million to a net loss of $122.2
million for the year ended September 30, 2020 compared to net loss
of $20.2 million for the year ended September 30, 2019, primarily
due to $120.5 million of increased selling, general and
administrative expenses related to the recognition of additional
stock-based compensation expense as a result of our initial public
offering and secondary offering, as well as $37.6 million of
expenses related to the extinguishment of debt. Net margin was
(13.6%) for the year ended September 30, 2020 as compared to net
margin of (2.5%) for the year ended September 30, 2019.
Adjusted Net Income was $72.6 million, or $0.59 per diluted
share, for the fiscal year ended September 30, 2020 as compared to
Adjusted Net Income of $46.7 million, or $0.43 per diluted share,
for the fiscal year ended September 30, 2019.
Adjusted EBITDA for the fiscal year ended September 2020
increased by $33.9 million, or 18.9%, to $213.5 million from $179.6
million for the fiscal year ended September 30, 2019. Adjusted
EBITDA Margin expanded 110 basis points to 23.7% from 22.6% a year
ago.
FULL YEAR FISCAL 2020 SEGMENT RESULTS
Residential Segment
Net sales of the Residential segment for the year ended
September 30, 2020 increased by $115.7 million, or 17.7%, to $771.2
million from $655.4 million for the year ended September 30, 2019.
The increase was primarily attributable to higher sales in both our
Deck, Rail and Accessories and Exteriors businesses driven by
continued market growth, success of new products across the
portfolio, as well as the benefit from investments in downstream
selling capabilities, retail expansion and pricing.
Segment Adjusted EBITDA of the Residential segment for the year
ended September 30, 2020 increased by $49.3 million, or 26.1% to
$238.1 million from $188.7 million for the year ended September 30,
2019. The increase was mainly driven by higher sales and net
manufacturing productivity improvements, partially offset by
COVID-19 related production costs. Segment Adjusted EBITDA Margin
expanded 210 basis points to 30.9% from 28.8% for the prior year
period.
Commercial Segment
Net sales of the Commercial segment decreased by $10.7 million,
or 7.7%, to $128.1 million for the year ended September 30, 2020
from $138.8 million for the year ended September 30, 2019. The
decrease was primarily driven by lower sales in our Vycom business,
as the effects of COVID-19 impacted certain end market demands.
Segment Adjusted EBITDA of the Commercial segment was $15.1
million for the year ended September 30, 2020, compared to $21.5
million for the year ended September 30, 2019. The decrease was
primarily driven by lower sales in the Vycom business, partially
offset by lower manufacturing costs and reductions in selling,
general and administrative expenses. Segment Adjusted EBITDA Margin
was 11.8% for the fourth quarter of fiscal 2020 as compared to
15.5% for the prior year period.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of September 30, 2020, the Company had cash and cash
equivalents of $215.0 million and approximately $129.4 million
available for future borrowings under our Revolving Credit
Facility. Total debt as of September 30, 2020 was $467.7
million.
Net cash provided by operating activities was $98.4 million and
$94.9 million for the fiscal years ended September 30, 2020 and
2019, respectively.
OUTLOOK
“As we look ahead to our fiscal 2021, our outlook is based on
current strong demand within our Residential segment end markets,
balanced by the uncertain macro-economic environment. 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.
We remain encouraged by the favorable demand environment driven by
secular trends such as material conversion and outdoor living and
our ability to expand capacity as we move through the year” added
Mr. Singh.
For the first quarter fiscal 2021 guidance, AZEK expects
consolidated net sales growth in the low 20% range year-over-year,
driven by strong Residential segment growth partially offset by an
expected high-teens decline in the Commercial segment. AZEK is
expecting Adjusted EBITDA growth in the high 20% range
year-over-year.
For the full year fiscal 2021 guidance, AZEK expects
consolidated net sales growth of 10% to 14% year-over-year and
Adjusted EBITDA growth in the mid-teens range year-over-year
following 19% growth in fiscal 2020. From a segment perspective,
AZEK expects Residential segment net sales growth in the range of
low to mid-teens year-over-year and Commercial segment net sales
declining at a mid-single digit rate year-over-year.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today,
Thursday, December 3, 2020 at 9:00 a.m. (CT).
To access the live conference call, please register for the call
in advance by visiting
http://www.directeventreg.com/registration/event/5657999.
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 (800)
585-8367 or (416) 621-4642. The conference ID for the replay is
5657999. The replay will be available until 10:59 p.m. (CT) on
December 17, 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 I, Item 1A of the Annual Report on Form 10-K for our
fiscal year 2020 (our “2020 Annual Report”) and in our other SEC
filings. 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
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, in the
case of Adjusted Gross Profit and Adjusted EBITDA, and
amortization, in each case, 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 the section titled "Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Segment
Results of Operations" set forth in Part II, Item 7 of our 2020
Annual Report and our Consolidated Financial Statements and related
notes included in our 2020 Annual Report.
The AZEK Company Inc.
Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
As of September 30,
2020
2019
ASSETS:
Current assets:
Cash and cash equivalents
$
215,012
$
105,947
Trade receivables, net of allowances
70,886
52,623
Inventories
130,070
115,391
Prepaid expenses
8,367
6,037
Other current assets
360
10,592
Total current assets
424,695
290,590
Property, plant and equipment, net
261,774
208,694
Goodwill
951,390
944,298
Intangible assets, net
292,374
342,418
Other assets
1,623
2,263
Total assets
$
1,931,856
$
1,788,263
LIABILITIES AND STOCKHOLDERS’
EQUITY:
Current liabilities:
Accounts payable
$
42,059
$ 47,479
Accrued rebates
30,362
22,733
Accrued interest
1,103
13,578
Current portion of long-term debt
obligations
─
8,304
Accrued expenses and other liabilities
50,516
47,903
Total current liabilities
124,040
139,997
Deferred income taxes
21,260
34,003
Finance lease obligations ─ less current
portion
10,910
11,181
Long-term debt ─ less current portion
462,982
1,103,313
Other non-current liabilities
8,776
9,746
Total liabilities
$
627,968
$
1,298,240
Commitments and contingencies (Note
17)
Stockholders' equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized and no shares
issued and outstanding at September 30,
2020 and September 30, 2019, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized,
154,637,240 shares issued and outstanding
at September 30, 2020, and 75,093,778
issued and outstanding at September 30,
2019
155
75
Class B common stock, $0.001 par value;
100,000,000 shares authorized, 100 shares
issued and outstanding at September 30,
2020, and 33,068,963 issued and
outstanding at September 30, 2019
—
33
Additional paid-in capital
1,587,208
652,493
Accumulated deficit
(283,475)
(162,578)
Total stockholders' equity
1,303,888
490,023
Total liabilities and stockholders'
equity
$
1,931,856
$
1,788,263
The AZEK Company Inc.
Consolidated Statements of
Comprehensive Income (Loss)
(In thousands of U.S. dollars,
except for share and per share amounts)
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
Net sales
$
263,920
$
215,534
$
899,259
$
794,203
Cost of sales
173,656
146,058
603,209
541,006
Gross profit
90,264
69,476
296,050
253,197
Selling, general and administrative
expenses
149,945
46,584
308,275
183,572
Other general expenses
1,900
2,921
8,616
9,076
Loss on disposal of plant, property and
equipment
510
23
904
1,495
Operating income (loss)
(62,091)
19,948
(21,745)
59,054
Other expenses:
Interest expense
6,297
19,992
71,179
83,205
Loss on extinguishment of debt
49
─
37,587
─
Total other expenses
6,346
19,992
108,766
83,205
Income (loss) before income taxes
(68,437)
(44)
(130,511)
(24,151)
Income tax expense (benefit)
(4,078)
876
(8,278)
(3,955)
Net income (loss)
$
(64,359)
$
(920)
$
(122,233)
$
(20,196)
Net income (loss) per common share:
Basic and Diluted
$
(0.43)
$
(0.01)
$
(1.01)
$
(0.19)
Comprehensive income (loss)
$
(64,359)
$
(920)
$
(122,233)
$
(20,196)
Weighted average shares used in
calculating net income (loss) per
common share:
Basic and Diluted
150,040,704
108,162,741
120,775,717
108,162,741
The AZEK Company Inc.
Consolidated Statements of
Cash Flows
(In thousands of U.S.
dollars)
Years Ended September
30,
2020
2019
2018
Operating activities:
Net income (loss)
$
(122,233)
$
(20,196)
$
6,745
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in) operating activities:
Depreciation expense
44,637
33,703
26,293
Amortization expense
55,144
60,226
51,372
Non-cash interest expense
6,994
3,986
3,339
Deferred income tax benefit
(10,110)
(5,321)
(24,125)
Non-cash compensation expense
117,084
4,564
3,542
Fair value adjustment for contingent
consideration
─
53
(1,810)
Loss on disposition of property, plant and
equipment
904
1,495
791
Bad debt provision
512
383
176
Loss on extinguishment of debt
37,587
─
─
Changes in operating assets and
liabilities:
Trade receivables
(17,656)
(9,015)
2,211
Inventories
(12,146)
(4,492)
953
Prepaid expenses and other current
assets
1,035
(4,550)
3,460
Accounts payable
(4,361)
11,679
4,398
Accrued expenses and interest
2,664
20,376
(12,839)
Other assets and liabilities
(1,694)
1,981
2,796
Net cash provided by (used in) operating
activities
98,361
94,872
67,302
Investing activities:
Purchases of property, plant and
equipment
(95,594)
(63,006)
(42,758)
Proceeds from sale of property, plant and
equipment
253
71
60
Acquisitions, net of cash acquired
(18,453)
—
(292,984)
Net cash provided by (used in) investing
activities
(113,794)
(62,935)
(335,682)
Financing activities:
Proceeds from initial public offering, net
of related costs
820,467
—
—
Proceeds from 2025 Senior Notes
346,500
—
—
Redemption of 2021 and 2025 Senior
Notes
(665,000)
—
—
Payments of debt extinguishment costs
related to 2021 and 2025 Senior Notes
(24,938)
—
—
Proceeds under Revolving Credit
Facility
129,000
40,000
30,000
Payments under Revolving Credit
Facility
(129,000)
(40,000)
(30,000)
Proceeds from long-term debt
─
─
224,438
Payments on long-term debt obligations
(341,958)
(8,304)
(7,167)
Payments of financing fees related to Term
Loan Agreement
─
─
(5,179)
Payments of debt issuance costs related to
2025 Senior Notes
(7,754)
─
─
Proceeds (repayments) of finance lease
obligations
(807)
1,405
(656)
Payments of Ultralox contingent
consideration
─
(2,000)
─
Payments of initial public offering
related costs
─
(584)
─
Redemption of capital contributions prior
to initial public offering
(3,553)
(101)
(2,694)
Capital contributions prior to initial
public offering
1,500
1,311
40,000
Exercise of vested stock options
41
─
─
Net cash provided by (used in) financing
activities
124,498
(8,273)
248,742
Net increase (decrease) in cash and cash
equivalents
109,065
23,664
(19,638)
Cash and cash equivalents at beginning of
period
105,947
82,283
101,921
Cash and cash equivalents at end of
period
$
215,012
$
105,947
$
82,283
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
76,670
$
78,807
$
65,050
Cash paid for income taxes, net
1,376
1,252
622
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
2,089
$
3,674
$
4,983
Property, plant and equipment acquired
under finance lease obligations
966
1,637
7,045
Non-cash equity contribution
—
—
2,475
Adjusted EBITDA and Adjusted EBITDA Margin
Reconciliation
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
(In thousands)
Net income (loss)
$
(64,359)
$
(920)
$
(122,233)
$
(20,196)
Interest expense
6,297
19,992
71,179
83,205
Depreciation and amortization
24,556
24,295
99,781
93,929
Tax expense (benefit)
(4,078)
876
(8,278)
(3,955)
Stock-based compensation costs
100,348
845
120,517
3,682
Business transformation costs (1)
159
3,952
594
16,560
Acquisition costs (2)
58
454
1,596
4,110
Initial public offering and Secondary
offering costs (3)
1,900
2,921
8,616
9,076
Other costs (4)
1,139
85
4,154
(6,845)
Capital structure transaction costs
(5)
49
─
37,587
─
Total adjustments
130,428
53,420
335,746
199,762
Adjusted EBITDA
$
66,069
$
52,500
$
213,513
$
179,566
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
Net income (loss)
(24.4)%
(0.4)%
(13.6)%
(2.5)%
Interest expense
2.4
9.3
7.9
10.5
Depreciation and amortization
9.3
11.3
11.1
11.8
Tax expense (benefit)
(1.5)
0.4
(0.09)
(0.5)
Stock-based compensation costs
38.0
0.4
13.4
0.5
Business transformation costs
0.1
1.8
0.1
2.1
Acquisition costs
─
0.2
0.2
0.5
Initial public offering and Secondary
offering costs
0.7
1.4
0.9
1.1
Other costs
0.4
─
0.4
(0.9)
Capital structure transaction costs
─
─
4.2
─
Total adjustments
49.4%
24.8%
37.3%
25.1%
Adjusted EBITDA Margin
25.0%
24.4%
23.7%
22.6%
(1)
Business transformation costs reflect
consulting and other costs related to repositioning of our brands
of $0.3 million and $4.3 million for fourth quarter 2019, and for
fiscal year 2019, respectively, compensation costs related to the
transformation of the senior management team of $0.2 million, $0.4
million, $0.4 million, $2.3 million for fourth quarters 2020 and
2019, and for fiscal years 2020 and 2019, respectively, costs
related to the relocation of our corporate headquarters of $0.2
million and $2.0 million for fourth quarter 2019 and for fiscal
year 2019, respectively, start-up costs of our new recycling
facility of $2.4 million and $5.3 million for fourth quarter 2019
and for fiscal year 2019, respectively, and other
integration-related costs of $0.7 million and $2.7 million for
fourth quarter 2019 and for the fiscal year 2019, respectively.
(2)
Acquisition costs reflect costs directly
related to completed acquisitions of $0.1 million and $0.5 million,
$0.9 million and $4.1 million for fourth quarters 2020 and 2019,
and for fiscal years 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 $0.7 million
for fiscal year 2020.
(3)
Initial public offering costs includes
$1.4 million in fees related to the Secondary offering of our Class
A common stock completed in fiscal year 2020.
(4)
Other costs reflect costs for legal
expenses of $0.5 million, $0.2 million, $0.9 million and $0.9
million for fourth quarters 2020 and 2019, and for fiscal years
2020 and 2019, respectively, reduction in workforce costs of $0.4
million for fiscal year 2020, income from an insurance recovery of
legal loss of $7.7 million for fiscal year 2019, and costs related
to an incentive plan associated with the initial public offering of
$0.6 million and $2.9 million for fourth quarter 2020 and for
fiscal year 2020, respectively.
(5)
Capital structure transaction costs
include loss on extinguishment of debt of $0.1 million for 2025
Senior Notes for fourth quarter 2020 and $1.9 million for the 2021
Senior Notes and $35.7 million for the 2025 Senior Notes for fiscal
year 2020.
Adjusted Gross Profit and Adjusted Gross Profit Margin
Reconciliation
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
(In thousands)
Gross Profit
$
90,264
$
69,476
$
296,050
$
253,197
Depreciation and amortization (1)
15,813
14,884
62,276
56,398
Business transformation costs (2)
─
2,355
─
5,263
Acquisition costs (3)
─
─
665
─
Other costs (4)
─
─
75
─
Adjusted Gross Profit
$
106,077
$
86,715
$
359,066
$
314,858
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
Gross Profit
34.2%
32.2%
32.9%
31.9%
Depreciation and amortization
6.0
6.9
6.9
7.1
Business transformation costs
─
1.1
─
0.6
Acquisition costs
─
─
0.1
─
Other costs
─
─
─
─
Adjusted Gross Profit Margin
40.2%
40.2%
39.9%
39.6%
(1)
Depreciation and amortization for the
fourth quarters 2020 and 2019, and for fiscal years 2020 and 2019
consists of $9.7 million, $8.1 million, $37.6 million and $28.9
million, respectively, of depreciation and $6.1 million, $6.8
million, $24.7 million and $27.5 million, respectively, of
amortization of intangible assets, comprised of intangibles
relating to our manufacturing processes.
(2)
Business transformation costs reflect
startup costs of our new recycling facility of $2.3 million for the
fourth quarter 2019 and $5.3 million for fiscal year 2019.
(3)
Acquisition costs reflect inventory
step-up adjustments related to recording the inventory of acquired
businesses at fair value on the date of acquisition.
(4)
Other costs include reduction in workforce
costs of $0.1 million for fiscal year 2020.
Adjusted Net Income and Adjusted Diluted EPS
Reconciliation
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
(In thousands)
Net income (loss)
$
(64,359)
$
(920)
$
(122,233)
$
(20,196)
Amortization (1)
13,522
14,747
55,144
60,226
Stock-based compensation costs
100,348
845
120,517
3,682
Business transformation costs (2)
159
3,952
594
16,560
Acquisition costs (3)
58
454
1,596
4,110
Initial public offering and Secondary
offering costs (4)
1,900
2,921
8,616
9,076
Other costs (5)
1,139
85
4,154
(6,845)
Capital structure transaction costs
(6)
49
─
37,587
─
Tax impact of adjustments (7)
(8,463)
(5,261)
(33,343)
(19,950)
Adjusted Net Income
$
44,353
$
16,823
$
72,632
$
46,663
Three Months Ended September
30,
Years Ended September
30,
2020
2019
2020
2019
Net income (loss) per common share -
diluted
$
(0.42)
$
(0.01)
$
(1.00)
$
(0.19)
Amortization
0.09
0.14
0.45
0.56
Stock-based compensation costs
0.65
0.01
0.99
0.04
Business transformation costs
─
0.04
─
0.15
Acquisition costs
─
─
0.01
0.04
Initial public offering and Secondary
offering costs
0.01
0.03
0.07
0.08
Other costs
0.01
─
0.03
(0.06)
Capital structure transaction costs
─
─
0.31
─
Tax impact of adjustments
(0.05)
(0.05)
(0.27)
(0.19)
Adjusted Diluted EPS (8)
$
0.29
$
0.16
$
0.59
$
0.43
(1)
Effective as of September 30, 2020, we
revised the definition of Adjusted Net Income to remove
depreciation expense. The prior periods have been recast to reflect
the change.
(2)
Business transformation costs reflect
consulting and other costs related to repositioning of our brands
of $0.3 million and $4.3 million for fourth quarter 2019 and for
fiscal year 2019, respectively, compensation costs related to the
transformation of the senior management team of $0.2 million, $0.4
million, $0.4 million, $2.3 million for fourth quarters 2020 and
2019, and for fiscal years 2020 and 2019, respectively, costs
related to the relocation of our corporate headquarters of $0.2
million and $2.0 million for fourth quarter 2019 and for fiscal
year 2019, respectively, start-up costs of our new recycling
facility of $2.4 million and $5.3 million for fourth quarter 2019
and for fiscal year 2019, respectively, and other
integration-related costs of $0.7 million and $2.7 million for
fourth quarter 2019 and for the fiscal year 2019, respectively.
(3)
Acquisition costs reflect costs directly
related to completed acquisitions of $0.1 million and $0.5 million,
$0.9 million and $4.1 million for fourth quarters 2020 and 2019,
and for fiscal years 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 $0.7 million
for fiscal year 2020.
(4)
Initial public offering costs includes
$1.4 million in fees related to the Secondary offering of our Class
A common stock completed in fiscal year 2020.
(5)
Other costs reflect costs for legal
expenses of $0.5 million, $0.2 million, $0.9 million and $0.9
million for fourth quarters 2020 and 2019, and for fiscal years
2020 and 2019, respectively, reduction in workforce costs of $0.4
million for fiscal year 2020, income from an insurance recovery of
legal loss of $7.7 million for fiscal year 2019, and costs related
to an incentive plan associated with the initial public offering of
$0.6 million and $2.9 million for fourth quarter 2020 and for
fiscal year 2020, respectively.
(6)
Capital structure transaction costs
include loss on extinguishment of debt of $0.1 million for 2025
Senior Notes for fourth quarter 2020 and $1.9 million for the 2021
Senior Notes and $35.7 million for the 2025 Senior Notes for fiscal
year 2020.
(7)
Tax impact of adjustments is based on
applying a combined U.S. federal and state statutory tax rate of
24.5%, 24.0%, 24.5% and 24.0% for fourth quarters 2020 and 2019,
and for fiscal years 2020 and 2019, respectively.
(8)
Weighted average common shares outstanding
used in computing diluted net income (loss) per common share is
154,812,555 shares for fourth quarter 2020, 108,162,741 shares for
fourth quarter 2019, 122,128,515 shares for fiscal year 2020, and
108,162,741 shares for fiscal year 2019.
Net Leverage Reconciliation
Year Ended September
30,
(In thousands)
2020
Net income (loss)
$
(122,233)
Interest expense
71,179
Depreciation and amortization
99,781
Tax expense (benefit)
(8,278)
Stock-based compensation costs
120,517
Asset impairment costs
─
Business transformation costs
594
Acquisition costs
1,596
Initial public offering and Secondary
offering costs
8,616
Other costs
4,154
Capital structure transaction costs
37,587
Total adjustments
335,746
Adjusted EBITDA
$
213,513
Long-term debt ─ less current portion
$
462,982
Unamortized deferred financing fees
4,165
Unamortized original issue discount
507
Gross debt
$
467,654
Cash and cash equivalents
(215,012)
Net debt
$
252,642
Net Leverage
1.2x
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/20201203005294/en/
Investor Relations: Solebury Trout 312-809-1093
ir@azekco.com
Media: Lisa Wolford 917-846-0881 lwolford@soleburytrout.com
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