Continued Strong Sales Growth and Demand Environment; Phase 2
of Capacity Expansion Program Completed; Raising Full-Year Fiscal
2021 Consolidated Net Sales and Adjusted EBITDA Outlook
THIRD QUARTER FISCAL 2021 HIGHLIGHTS
- Consolidated net sales increased 46.4% year-over-year to $327.5
million
- Residential segment net sales increased 51.2% year-over-year to
$291.2 million
- Net income increased by $73.9 million year-over-year to $21.8
million; Net Margin expanded to 6.6% from (23.3%)
- GAAP earnings per share increased by $0.58 year-over-year to
$0.14 per share; Adjusted Diluted EPS increased by $0.21
year-over-year to $0.26 per share
- Adjusted EBITDA increased $14.9 million year-over-year to $72.7
million
OUTLOOK HIGHLIGHTS
- Raising Fiscal 2021 Net Sales Outlook – Expecting consolidated
net sales growth of 28% to 30% year-over-year, compared to our
previous expectation of 23% to 26%
- Raising Fiscal 2021 Adjusted EBITDA Midpoint Outlook –
Expecting Adjusted EBITDA growth of 27% to 29% year-over-year,
compared to our previous expectation of 25% to 29%
- Fourth Quarter Fiscal 2021 Outlook – Expecting consolidated net
sales growth of 22% to 27% year-over-year, and Adjusted EBITDA
growth of 19% to 25% year-over-year
The AZEK Company Inc. (the “Company” or “AZEK”) (NYSE: AZEK),
the industry-leading manufacturer of beautiful, low-maintenance and
environmentally sustainable outdoor living products, including
TimberTech® decking and Versatex® and AZEK Trim®, today announced
financial results for the third quarter ended June 30, 2021 of its
fiscal year 2021.
CEO COMMENTS
“The AZEK Company once again delivered strong revenue and growth
within the quarter, driven primarily by solid execution and
underlying demand for products across channels in our Residential
businesses, and improving sales trends in our Commercial segment,”
commented Jesse Singh, AZEK’s Chief Executive Officer. “During the
quarter, we completed the second phase of our approximately $230
million multi-phase expansion plan and delivered over 50% growth in
our Residential segment. While we saw increasing inflation and
availability challenges in materials, labor and transportation, we
were able to navigate through these challenges to meet the
exceptional underlying demand and modestly replenish inventory in
the dealer channel. Our focus has and will continue to be on
increasing service levels to our customers and our channel
partners. Although we saw incrementally higher than expected costs
within the quarter, we expect that our pricing and productivity
actions will increasingly offset the impact of these higher costs,
giving us conviction to deliver margin improvement as we look ahead
to 2022.”
“We continue to make progress against our key initiatives,
including growth through innovation, margin expansion through
recycle and continuous improvement, and positively impacting the
world through our commitments to ESG stewardship. In recognition of
our ESG leadership within the vinyl industry, we recently achieved
+Vantage Vinyl verification by the Vinyl Sustainability Council. It
is clear that our broad, branded portfolio is resonating with
customers and gaining momentum, especially with strong sales from
our new product innovations in decking and exteriors over the last
several quarters,” continued Mr. Singh.
“We remain excited about what the future will hold for AZEK and
believe we are well positioned for sustainable growth, fueled by a
strong outdoor living market, ongoing product expansion and
material conversion opportunities. In June, we celebrated an
exciting milestone – our first year as a public company. I am
thankful to our entire team for their unwavering commitment to
advancing our growth initiatives and their dedication to our
customers, especially during such a challenging and unprecedented
year,” concluded Mr. Singh.
THIRD QUARTER FISCAL 2021 CONSOLIDATED RESULTS
Net sales for the three months ended June 30, 2021 increased by
$103.7 million, or 46.4%, to $327.5 million from $223.7 million for
the three months ended June 30, 2020. The increase was attributable
to higher sales growth in both our Residential and Commercial
segments. Net sales for the three months ended June 30, 2021
increased for our Residential segment by 51.2% and increased for
our Commercial segment by 16.5%, in each case as compared to the
prior year.
Gross profit for the three months ended June 30, 2021 increased
by $31.7 million, or 42.3%, to $106.9 million from $75.1 million
for the three months ended June 30, 2020. The increase in gross
profit was primarily driven by the strong sales results in the
Residential and Commercial segment, pricing and manufacturing
productivity, partially offset by higher costs. Gross profit margin
decreased to 32.6% for the three months ended June 30, 2021
compared to 33.6% for the three months ended June 30, 2020,
partially due to the rapid rise in input costs ahead of price
realization. Adjusted Gross Profit Margin decreased 290 basis
points to 37.9%, compared to 40.8% for the prior year period.
Selling, general and administrative expenses increased by $5.1
million, or 7.9%, to $70.3 million, or 21.5% of net sales, for the
three months ended June 30, 2021 from $65.2 million, or 29.1% of
net sales, for the three months ended June 30, 2020. The increase
was primarily attributable to higher personnel costs, public
company costs, professional fees and marketing expenses in the
period as expenses normalized following a pullback in expenses
during the same period last year at the onset of the COVID-19
pandemic. The increase in selling, general and administrative
expenses for the three months ended June 30, 2021 was partially
offset by lower stock-based compensation expense as a result of the
issued shares in our initial public offering in 2020.
Net income increased by $73.9 million to $21.8 million, or $0.14
per share, for the three months ended June 30, 2021 compared to a
net loss of $52.1 million, or ($0.44) per share, for the three
months ended June 30, 2020, primarily due to strong operating
results and a decrease in interest expense resulting from the
reduced principal amount outstanding under our Term Loan Agreement
and an absence of the loss on debt extinguishment of our formerly
outstanding 2025 Senior Notes and 2021 Senior Notes.
Net margin expanded to 6.6% for the three months ended June 30,
2021 as compared to net margin of (23.3%) for the three months
ended June 30, 2020.
Adjusted Net Income increased $34.3 million to $40.5 million, or
Adjusted Diluted EPS of $0.26 per share, for the three months ended
June 30, 2021 as compared to Adjusted Net Income of $6.2 million,
or Adjusted Diluted EPS of $0.05 per share, for the three months
ended June 30, 2020.
Adjusted EBITDA increased by $14.9 million to $72.7 million for
the three months ended June 30, 2021 as compared to Adjusted EBITDA
of $57.8 million for the three months ended June 30, 2020. The
increase was mainly driven by higher sales growth in both our
Residential and Commercial segments and higher gross profit.
Adjusted EBITDA Margin declined 360 basis points to 22.2% from
25.8% for the prior year period.
THIRD QUARTER FISCAL 2021 SEGMENT RESULTS
Residential Segment
Net sales for the three months ended June 30, 2021 increased by
$98.6 million, or 51.2%, to $291.2 million from $192.6 million for
the three months ended June 30, 2020. The increase was primarily
attributable to higher net sales in both our Deck, Rail &
Accessories and Exteriors businesses.
Segment Adjusted EBITDA for the three months ended June 30, 2021
increased by $20.2 million, or 32.4%, to $82.5 million from $62.3
million for the three months ended June 30, 2020. The increase was
mainly driven by higher sales and manufacturing productivity,
partially offset by higher raw material and manufacturing costs and
selling, general and administrative expenses. Segment Adjusted
EBITDA Margin declined 410 basis points to 28.3% from 32.4% for the
prior year period.
Commercial Segment
Net sales for the three months ended June 30, 2021 increased by
$5.1 million, or 16.5%, to $36.2 million from $31.1 million for the
three months ended June 30, 2020. The increase was primarily
attributable to higher net sales in our Vycom business, partially
offset by decreased net sales in our Scranton Products
business.
Segment Adjusted EBITDA of the Commercial segment was $6.3
million for the three months ended June 30, 2021, compared to $5.0
million for the three months ended June 30, 2020. The increase was
primarily driven by higher sales in the Vycom business and net
manufacturing productivity. Segment Adjusted EBITDA Margin expanded
120 basis points to 17.3% from 16.1% for the prior year period.
NINE MONTHS FISCAL 2021 RESULTS
Net sales for the nine months ended June 30, 2021 increased by
$197.5 million, or 31.1%, to $832.9 million from $635.3 million for
the nine months ended June 30, 2020. The increase was primarily
attributable to higher sales growth in our Residential segment
which grew 37.2% partially offset by a 3.1% decline in the
Commercial segment.
Net income increased by $112.5 million to $54.6 million, or
$0.35 per share, for the nine months ended June 30, 2021 compared
to a net loss of $57.9 million, or ($0.51) for the nine months
ended June 30, 2020, primarily driven by strong operating results
and a decrease in interest expense resulting from the reduced
principal amount outstanding under the Term Loan Agreement and an
absence of the loss on debt extinguishment of our formerly
outstanding 2025 Senior Notes and 2021 Senior Notes. Net margin
expanded to 6.6% for the nine months ended June 30, 2021 compared
to net margin of (9.1%) for the nine months ended June 30,
2020.
Adjusted Net Income was $102.8 million, or Adjusted Diluted EPS
of $0.66 per share, for the nine months ended June 30, 2021,
compared to Adjusted Net Income of $28.3 million, or Adjusted
Diluted EPS of $0.25 per share, for the nine months ended June 30,
2020.
Adjusted EBITDA for the first nine months ended June 30, 2021
increased by $45.3 million to $192.7 million from $147.4 million
for the nine months ended June 30, 2020
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of June 30, 2021, the Company had cash and cash equivalents
of $220.5 million and approximately $145.6 million available for
future borrowings under our Revolving Credit Facility. Total debt
as of June 30, 2021 was $467.7 million.
Net cash provided by operating activities was $118.7 million for
the nine months ended June 30, 2021 as compared to $11.3 million in
the nine months ended June 30, 2020.
OUTLOOK
“Given the continued market strength, our recent capacity
additions, pricing actions and our disciplined approach to
execution, we believe we’re well positioned to deliver strong
growth and margin expansion as we look ahead to 2022. We continue
to invest in our brand, our people and our key strategic
initiatives to fuel the long-term, sustainable growth of the
business, while maintaining our focus on meeting customer demand
and delivering a best-in-class consumer experience. Despite higher
costs in the near-term, our long-term growth and margin expansion
goals remain intact. We are reaffirming our positive outlook on the
broader Outdoor Living category and our position as the innovation
leader within it,” continued Mr. Singh.
As a result of the Company’s initiatives and a continued
favorable demand environment, AZEK is raising its consolidated net
sales and Adjusted EBITDA midpoint outlook for the full year fiscal
2021. AZEK now expects consolidated net sales growth of 28% to 30%
year-over-year. From a segment perspective, AZEK now expects
Residential segment net sales growth in the low-to-mid 30% range
year-over-year, partially offset by a low-single digit decline in
Commercial segment net sales. The Company is raising the midpoint
of its Adjusted EBITDA growth outlook to between 27% to 29% range
year-over-year. The outlook includes increased sales, pricing and
productivity actions, strategic investments and higher costs.
For the fourth quarter fiscal 2021 guidance, AZEK expects
consolidated net sales growth in the 22% to 27% range
year-over-year, driven by strong Residential segment growth in the
mid-to-high 20% range, partially offset with low-to-mid single
digits growth in its Commercial segment. AZEK is expecting Adjusted
EBITDA growth in the 19% to 25% range year-over-year.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today,
Thursday, August 12, 2021 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/5847476.
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
5847476. The replay will be available until 10:59 p.m. (CT) on
August 26, 2021.
ABOUT THE AZEK® COMPANY
The AZEK Company Inc. (NYSE: AZEK) is the industry-leading
designer and manufacturer of beautiful, low maintenance and
environmentally sustainable outdoor living products, including
TimberTech® decking and Versatex® and AZEK Trim®. Consistently
recognized as a market leader in innovation, quality and
aesthetics, products across AZEK’s portfolio are made from up to
100% recycled material and primarily replace wood on the outside of
homes, providing a long-lasting, eco-friendly and stylish solution
to consumers. Leveraging the talents of its approximately 1,700
employees and the strength of relationships across its value chain,
The AZEK Company is committed to accelerating the use of recycled
material in the manufacturing of its innovative products, keeping
millions of pounds of waste out of landfills each year, and
revolutionizing the industry to create a more sustainable future.
Headquartered in Chicago, Illinois, the company operates
manufacturing facilities in Ohio, Pennsylvania and Minnesota, and
recently announced a new facility will open in Boise, Idaho.
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. Projected financial
information and performance, including our guidance and outlook as
well as statements about our future growth and margin expansion
goals, are forward-looking statements. Other forward-looking
statements may include, without limitation, other statements with
respect to our ability to meet the future targets and goals we
establish and the ultimate impact of our actions on our business as
well as the expected benefits to the environment, our employees,
and the communities in which we do business, statements about
potential new products and product innovation, statements regarding
the potential impact of the COVID-19 pandemic, statements about
future pricing for our products or our raw materials and our
ability to offset increases to our raw material costs and other
inflationary pressures, statements about the markets in which we
operate, including growth of our various markets and growth in the
use of engineered products, statements about future conversion
opportunities from wood and other materials and our ability to
capture market share from such opportunities, and all other
statements with respect to 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 2021
and in our other filings with the U.S. Securities and Exchange
Commission (“SEC”), including our Annual Report on Form 10-K for
fiscal 2020. 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 may not be 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 circumstances, 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 of fiscal 2021 filed with the SEC.
The AZEK Company Inc.
Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
in thousands
June 30,
2021
September 30,
2020
ASSETS:
Current assets:
Cash and cash equivalents
$
220,464
$
215,012
Trade receivables, net of allowances
90,186
70,886
Inventories
172,791
130,070
Prepaid expenses
10,207
8,367
Other current assets
498
360
Total current assets
494,146
424,695
Property, plant and equipment - net
341,685
261,774
Goodwill
951,390
951,390
Intangible assets - net
254,708
292,374
Other assets
2,046
1,623
Total assets
$
2,043,975
$
1,931,856
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
49,736
$
42,059
Accrued rebates
32,820
30,362
Accrued interest
1,103
1,103
Current portion of long-term debt
obligations
—
—
Accrued expenses and other liabilities
53,910
50,516
Total current liabilities
137,569
124,040
Deferred income taxes
38,645
21,260
Finance lease obligation—less current
portion
10,505
10,910
Long-term debt—less current portion
464,431
462,982
Other non-current liabilities
10,652
8,776
Total liabilities
661,802
627,968
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized and no shares issued
or outstanding at June 30, 2021 and
September 30, 2020, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized,
154,829,153 shares issued and outstanding
at June 30, 2021 and
154,637,240 shares issued and outstanding
at September 30, 2020
155
155
Class B common stock, $0.001 par value;
100,000,000 shares authorized,
100 shares issued and outstanding at June
30, 2021 and at September 30, 2020, respectively
—
—
Additional paid‑in capital
1,610,884
1,587,208
Accumulated deficit
(228,866
)
(283,475
)
Total stockholders' equity
1,382,173
1,303,888
Total liabilities and stockholders'
equity
$
2,043,975
$
1,931,856
The AZEK Company Inc.
Consolidated Statements of
Comprehensive Income (Loss)
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
Three Months Ended June
30,
Nine Months Ended June
30,
in thousands
2021
2020
2021
2020
Net sales
$
327,454
$
223,711
$
832,854
$
635,339
Cost of sales
220,587
148,588
555,147
429,553
Gross profit
106,867
75,123
277,707
205,786
Selling, general and administrative
expenses
70,300
65,164
183,226
158,330
Other general expenses
1,443
1,623
2,592
6,716
Loss (gain) on disposal of property, plant
and equipment
325
366
624
394
Operating income (loss)
34,799
7,970
91,265
40,346
Other expenses:
Interest expense
4,219
25,148
16,931
64,882
Loss on extinguishment of debt
-
37,538
-
37,538
Total other expenses
4,219
62,686
16,931
102,420
Income (loss) before income taxes
30,580
(54,716
)
74,334
(62,074
)
Income tax expense (benefit)
8,811
(2,600
)
19,725
(4,200
)
Net income (loss)
$
21,769
$
(52,116
)
$
54,609
$
(57,874
)
Net income (loss) per common share -
basic
$
0.14
$
(0.44
)
$
0.36
$
(0.51
)
Net income (loss) per common share -
diluted
0.14
(0.44
)
0.35
(0.51
)
Comprehensive income (loss)
$
21,769
$
(52,116
)
$
54,609
$
(57,874
)
Weighted-average common shares outstanding
- basic and diluted
Basic
153,854,313
118,738,357
153,623,579
113,525,537
Diluted
157,022,043
118,738,357
156,658,640
113,525,537
The AZEK Company Inc.
Consolidated Statements of
Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Nine Months Ended June
30,
2021
2020
Operating activities:
Net income (loss)
$
54,609
$
(57,874
)
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in)
operating activities:
Depreciation
37,588
33,603
Amortization of intangibles
37,666
41,622
Non-cash interest expense
1,940
6,527
Deferred income tax (benefit)
provision
17,385
(4,048
)
Non-cash compensation expense
19,272
18,670
Loss (gain) on disposition of property
624
394
Bad debt provision
271
522
Loss on extinguishment of debt
—
37,538
Changes in certain assets and
liabilities:
Trade receivables
(19,571
)
(26,385
)
Inventories
(42,722
)
(12,703
)
Prepaid expenses and other currents
assets
(1,978
)
(4,130
)
Accounts payable
6,911
(12,753
)
Accrued expenses and interest
4,832
(8,592
)
Other assets and liabilities
1,901
(1,105
)
Net cash provided by (used in) operating
activities
118,728
11,286
Investing activities:
Purchases of property, plant and
equipment
(116,037
)
(54,768
)
Proceeds from disposition of fixed
assets
38
223
Acquisition, net of cash acquired
—
(18,453
)
Net cash provided by (used in) investing
activities
(115,999
)
(72,998
)
Financing activities:
Proceeds from initial public offering, net
of related costs
(210
)
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
Payments under revolving credit
facility
—
(85,000
)
Payments on long-term debt obligations
—
(341,958
)
Payment of debt issuance costs
(938
)
(7,704
)
Proceeds (repayments) of finance lease
obligations
(743
)
(601
)
Exercise of vested stock options
4,614
—
Redemption of capital contributions
—
(3,553
)
Capital contribution from members
—
1,500
Net cash provided by (used in) financing
activities
2,723
170,876
Net increase (decrease) in cash and cash
equivalents
5,452
109,164
Cash and cash equivalents – Beginning of
period
215,012
105,947
Cash and cash equivalents – End of
period
$
220,464
$
215,111
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
14,871
$
70,801
Cash paid for income taxes, net
2,458
544
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
3,780
$
5,058
Property, plant and equipment acquired
under finance leases
569
630
Segment Results from Operations
Residential Segment
The following table summarizes certain financial information
relating to the Residential segment results that have been derived
from our unaudited Condensed Consolidated Financial Statements for
the three and nine months ended June 30, 2021 and 2020.
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2021
2020
$
Variance
%
Variance
2021
2020
$
Variance
%
Variance
Net sales
$
291,209
$
192,599
$
98,610
51.2
%
$
739,048
$
538,514
$
200,534
37.2
%
Segment Adjusted EBITDA
82,525
62,326
20,199
32.4
%
222,999
164,047
58,952
35.9
%
Segment Adjusted EBITDA Margin
28.3
%
32.4
%
N/A
N/A
30.2
%
30.5
%
N/A
N/A
Commercial Segment
The following table summarizes certain financial information
relating to the Commercial segment results that have been derived
from our unaudited Condensed Consolidated Financial Statements for
the three and nine months ended June 30, 2021 and 2020.
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2021
2020
$
Variance
%
Variance
2021
2020
$
Variance
%
Variance
Net sales
$
36,245
$
31,112
$
5,133
16.5
%
$
93,806
$
96,825
$
(3,019
)
(3.1
)%
Segment Adjusted EBITDA
6,273
5,024
1,249
24.9
%
13,304
11,179
2,125
19.0
%
Segment Adjusted EBITDA Margin
17.3
%
16.1
%
N/A
N/A
14.2
%
11.5
%
N/A
N/A
Adjusted EBITDA and Adjusted EBITDA Margin
Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2021
2020
2021
2020
Net income (loss)
$
21,769
$
(52,116
)
$
54,609
$
(57,874
)
Interest expense
4,219
25,148
16,931
64,882
Depreciation and amortization
25,736
26,597
75,255
75,225
Income tax expense (benefit)
8,811
(2,600
)
19,725
(4,200
)
Stock-based compensation
9,510
18,788
19,646
20,169
Business transformation costs (1)
—
109
—
435
Acquisition costs (2)
—
182
—
1,538
Initial public offering and secondary
offering costs
1,443
1,623
2,592
6,716
Other costs (3)
1,228
2,551
3,922
3,015
Capital structure transaction costs
(4)
—
37,538
—
37,538
Total adjustments
50,947
109,936
138,071
205,318
Adjusted EBITDA
$
72,716
$
57,820
$
192,680
$
147,444
Three Months Ended June
30,
Nine Months Ended June
30,
2021
2020
2021
2020
Net income (loss)
6.6
%
-23.3
%
6.6
%
-9.1
%
Interest expense
1.3
%
11.2
%
2.0
%
10.2
%
Depreciation and amortization
7.9
%
11.9
%
9.0
%
11.8
%
Income tax expense (benefit)
2.7
%
-1.2
%
2.4
%
-0.7
%
Stock-based compensation
2.9
%
8.4
%
2.3
%
3.2
%
Business transformation costs
—
—
—
0.1
%
Acquisition costs
—
0.1
%
—
0.2
%
Initial public offering costs
0.4
%
0.7
%
0.3
%
1.1
%
Other costs
0.4
%
1.1
%
0.5
%
0.5
%
Capital structure transaction costs
—
16.9
%
—
5.9
%
Total adjustments
15.6
%
49.1
%
16.5
%
32.3
%
Adjusted EBITDA Margin
22.2
%
25.8
%
23.1
%
23.2
%
____________________
(1)
Business transformation costs reflect
consulting and other costs related to the transformation of the
senior management team of $0.1 million and $0.4 million for the
three and nine months ended June 30, 2020, respectively.
(2)
Acquisition costs reflect costs directly
related to completed acquisitions of $0.1 million and $0.9 million
for the three and nine months ended June 30, 2020, 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 $0.6 million for the three and nine
months ended June 30, 2020, respectively.
(3)
Other costs include costs for legal
expense of $0.8 million and $0.4 million for the three months ended
June 30, 2021 and 2020, respectively, and $1.8 million and $0.4
million for the nine months ended June 30, 2021 and 2020,
respectively, reduction in workforce costs of $0.4 million for each
of the three and nine months ended June 30, 2020 and costs related
to an incentive plan and other ancillary expenses associated with
the initial public offering of $0.4 million and $1.8 million for
the three months ended June 30, 2021 and 2020, respectively, and
$2.1 million and $2.2 million for the nine months ended June 30,
2021 and 2020, respectively.
(4)
Capital structure transaction costs
include loss on extinguishment of debt of $1.9 million for the 2021
Senior Notes and $35.7 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,
(U.S. dollars in thousands)
2021
2020
2021
2020
Gross Profit
$
106,867
$
75,123
$
277,707
$
205,786
Depreciation and amortization (1)
17,254
15,925
49,852
46,463
Acquisitions costs (2)
—
111
—
665
Other costs (3)
—
75
—
75
Adjusted Gross Profit
$
124,121
$
91,234
$
327,559
$
252,989
Three Months Ended June
30,
Nine Months Ended June
30,
2021
2020
2021
2020
Gross Margin
32.6
%
33.6
%
33.3
%
32.4
%
Depreciation and amortization
5.3
%
7.1
%
6.0
%
7.3
%
Acquisitions costs
—
0.1
%
—
0.1
%
Other costs
—
—
—
—
Adjusted Gross Profit Margin
37.9
%
40.8
%
39.3
%
39.8
%
____________________
(1)
Depreciation and amortization for the
three months ended June 30, 2021 and 2020 consists of $11.8 million
and $9.7 million, respectively, of depreciation and $5.5 million
and $6.2 million, respectively, of amortization of intangible
assets relating to our manufacturing process. Depreciation and
amortization for the nine months ended June 30, 2021 and 2020
consists of $33.3 million and $27.9 million, respectively, of
depreciation and $16.5 million and $18.6 million, respectively, of
amortization of intangible assets relating to our manufacturing
process.
(2)
Acquisition costs reflect inventory
step-up adjustments related to recording the inventory of acquired
businesses at fair value on the date of acquisition.
(3)
Other costs reflect 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,
(U.S. dollars in thousands)
2021
2020
2021
2020
Net income (loss)
$
21,769
$
(52,116
)
$
54,609
$
(57,874
)
Amortization (1)
12,483
13,885
37,666
41,621
Stock-based compensation (2)
8,167
18,788
16,940
20,169
Business transformation costs
(3)
—
109
—
435
Acquisition costs (4)
—
182
—
1,538
Initial public offering and
secondary offering costs
1,443
1,623
2,592
6,716
Other costs (5)
1,228
2,551
3,922
3,015
Capital structure transaction
costs (6)
—
37,538
—
37,538
Tax impact of adjustments (7)
(4,557
)
(16,311
)
(12,907
)
(24,880
)
Adjusted Net Income
$
40,533
$
6,249
$
102,822
$
28,278
Three Months Ended June
30,
Nine Months Ended June
30,
2021
2020
2021
2020
Net income (loss)
$
0.14
$
(0.44
)
$
0.35
$
(0.51
)
Amortization
0.08
0.12
0.23
0.37
Stock-based compensation
0.05
0.16
0.11
0.18
Business transformation costs
—
—
—
—
Acquisition costs
—
—
—
0.01
Initial public offering and secondary
offering costs
0.01
0.01
0.02
0.06
Other costs
0.01
0.02
0.03
0.03
Capital structure transaction costs
—
0.32
—
0.33
Tax impact of adjustments
(0.03
)
(0.14
)
(0.08
)
(0.22
)
Adjusted Diluted EPS (8)
$
0.26
$
0.05
$
0.66
$
0.25
____________________
(1)
Effective as of September 30, 2020, we
revised the definition of Adjusted Net Income to remove
depreciation expense from the calculation. The prior periods have
been recast to reflect the change.
(2)
Stock-based compensation costs for the
three and nine months ended June 30, 2021 reflect expenses related
to our initial public offering. Expenses related to our recurring
awards granted each fiscal year are excluded from the Adjusted Net
Income reconciliation.
(3)
Business transformation costs reflect
consulting and other costs related to the transformation of the
senior management team of $0.1 million and $0.4 million for the
three and nine months ended June 30, 2020, respectively.
(4)
Acquisition costs reflect costs directly
related to completed acquisitions of $0.1 million and $0.9 million
for the three and nine months ended June 30, 2020, 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 $0.6 million for the three and nine
months ended June 30, 2020, respectively.
(5)
Other costs include costs for legal
expense of $0.8 million and $0.4 million for the three months ended
June 30, 2021 and 2020, respectively, and $1.8 million and $0.4
million for the nine months ended June 30, 2021 and 2020,
respectively, reduction in workforce costs of $0.4 million for each
of the three and nine months ended June 30, 2020 and costs related
to an incentive plan and other ancillary expenses associated with
the initial public offering of $0.4 million and $1.8 million for
the three months ended June 30, 2021 and 2020, respectively, and
$2.1 million and $2.2 million for the nine months ended June 30,
2021 and 2020, respectively.
(6)
Capital structure transaction costs
include loss on extinguishment of debt of $1.9 million for the 2021
Senior
Notes and $35.7 million for the 2025
Senior Notes for the three and nine months ended June 30, 2020.
(7)
Tax impact of adjustments are based on
applying a combined U.S. federal and state statutory tax rate of
24.5% for both the three and nine months ended June 30, 2021 and
2020.
(8)
Weighted average common shares outstanding
used in computing diluted net income (loss) per common share of
157,022,043 and 119,067,790 for the three months ended June 30,
2021 and 2020, respectively, and 156,658,640 and 113,635,347 for
the nine months ended June 30, 2021 and 2020, respectively.
Net Leverage Reconciliation
Nine Months Ended June
30,
Twelve Months Ended September
30,
Twelve Months Ended June
30,
2021
2020
2020
2021
Net income (loss)
$
54,609
$
(57,874
)
$
(122,233
)
$
(9,750
)
Interest expense
16,931
64,882
71,179
23,228
Depreciation and amortization
75,255
75,225
99,781
99,811
Income tax expense (benefit)
19,725
(4,200
)
(8,278
)
15,647
Stock-based compensation
19,646
20,169
120,517
119,994
Business transformation costs
—
435
594
159
Acquisition costs
—
1,538
1,596
58
Initial public offering and secondary
costs
2,592
6,716
8,616
4,492
Other costs
3,922
3,015
4,154
5,061
Capital structure transaction costs
—
37,538
37,587
49
Total adjustments
138,071
205,318
335,746
268,499
Adjusted EBITDA
192,680
147,444
$
213,513
$
258,749
Long-term debt less current portion
$
464,431
Unamortized deferred financing fees
2,879
Unamortized original issue discount
344
Gross debt
467,654
Cash and cash equivalents
(220,464
)
Net debt
$
247,190
Net Leverage
1.0x
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/20210812005253/en/
Investor Relations Contact: Amanda Cimaglia 312-809-1093
ir@azekco.com
Media Contact: Amy Widdowson (650) 597-7132
AZEKquestions@zenogroup.com
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