Solid Results Delivering 15% Net Sales Growth in Fiscal 2022;
Channel Inventory Recalibration On-Track; Executing Against
Strategy to Deliver Margin Expansion; Returned $23 Million to
Shareholders Through Share Repurchases in the Fourth
Quarter
The AZEK Company Inc. (NYSE: AZEK):
FOURTH QUARTER FISCAL 2022 FINANCIAL HIGHLIGHTS
- Consolidated Net Sales of $304.6 million
- Net Loss of ($4.8) million; Adjusted Net Income of $24.5
million
- EPS of ($0.03) per share; Adjusted Diluted EPS of $0.16 per
share
- Adjusted EBITDA of $65.1 million
RECENT COMPANY HIGHLIGHTS
- Diverted approximately 500 million pounds of waste and scrap in
fiscal 2022, halfway to the Company’s goal to recycle one billion
pounds of waste and scrap annually by the end of 2026
- Debuted the TimberTech® Invite Collection™, low-maintenance
outdoor furniture with an emphasis on beauty, longevity, comfort
and sustainability
- Introduced Cabana X® by StruXure Outdoor®, a non-permanent,
high-quality, high-tech cabana
- Continued recognition for innovation and culture – HBSDealer
Golden Hammer Award for AZEK Exteriors' Captivate™ Prefinished
Siding and Trim; Architizer A+Product Award for TimberTech's
Landmark Collection™ of decking, the popular choice winner in the
sustainable design category; CohnReznick’s Inaugural Gamechangers
in ESG award
The AZEK Company Inc. (NYSE: AZEK) ("AZEK" or the “Company”),
the industry-leading manufacturer of beautiful, low-maintenance and
environmentally sustainable outdoor living products, including
TimberTech® decking, Versatex® and AZEK® Trim and StruXure™
pergolas, today announced financial results for its fourth quarter
and fiscal year ended September 30, 2022.
CEO COMMENTS
“Our fiscal 2022 results reflect the key strategic investments
we have made to sustainably grow our business, our ability to
execute with agility and our team’s steadfast focus on our
customers,” said Jesse Singh, CEO of The AZEK Company. “We
delivered $1.36 billion in net sales – representing an increase of
15% year-over-year – and generated $75 million of net income and
$301 million in Adjusted EBITDA, despite persistently higher costs
and a dynamic and complex economic environment. Since fiscal 2019,
we have grown our annual net sales from $794 million to $1.36
billion, or by approximately 71%. During that same period, our net
income (loss) grew from ($20) million to $75 million, and our
Adjusted EBITDA grew from $180 million to $301 million, or by
approximately 68%, and we continue to be confident and excited by
the opportunity that is ahead of us,” said Mr. Singh.
“During the fiscal year, we launched several award-winning new
product innovations and completed three tuck-in acquisitions,
expanding and strengthening our already industry-leading portfolio.
We also announced our first share repurchase authorization and
returned $81 million to shareholders during the year. Consistent
with both our business and sustainability goals, we diverted
approximately 500 million pounds of scrap and waste materials from
landfills through our recycling programs and utilized approximately
56% of recycled inputs in our extruded products, despite the volume
headwinds experienced in the fourth quarter of fiscal 2022. During
the year, we made meaningful progress against our target of
increasing the use of lower cost recycled materials in our
products, including increasing our Advanced PVC decking technology
to an important milestone of 60% recycled content. I am incredibly
proud of the hard work of our employees as they continue to drive
market conversion away from traditional materials and toward our
types of low-maintenance, long-lasting, sustainable materials and
position AZEK for long-term success,” continued Mr. Singh.
“In our fiscal fourth quarter, we experienced steady end-market
demand while reducing inventory in the channel consistent with our
expectations. We expect to complete the previously highlighted
channel inventory recalibration by the end of the fiscal first
quarter 2023,” added Mr. Singh. “Our strategic priorities remain
unchanged. We believe our legacy of performance, combined with our
demonstrated resilience and margin expansion opportunity, positions
us well as we enter what could be a challenging macroeconomic
market in 2023,” concluded Mr. Singh.
FOURTH QUARTER FISCAL 2022 CONSOLIDATED RESULTS
Net sales for the three months ended September 30, 2022
decreased by $41.5 million, or 12.0%, to $304.6 million from $346.1
million for the three months ended September 30, 2021. Net sales
for the three months ended September 30, 2022 decreased for our
Residential segment by 16.7% and increased for our Commercial
segment by 22.9%, in each case as compared to the prior year
period.
During the quarter, we updated the process by which we estimate
the value of our inventory which resulted in a charge of $19.3
million. This included updating the assumptions that are used in
determining and treating certain capitalized costs, primarily by
incorporating the impacts of changes in the amount of recycled
content introduced into our products.
Net income decreased by $43.4 million to ($4.8) million, or
($0.03) per share, for the three months ended September 30, 2022
compared to $38.6 million, or $0.25 per share, for the three months
ended September 30, 2021. Net margin decreased to (1.6%) for the
three months ended September 30, 2022, as compared to net margin of
11.2% for the three months ended September 30, 2021.
Adjusted EBITDA decreased by $16.4 million to $65.1 million for
the three months ended September 30, 2022, as compared to Adjusted
EBITDA of $81.5 million for the three months ended September 30,
2021. Adjusted EBITDA Margin declined 210 basis points to 21.4%
from 23.5% for the prior year period. As previously guided,
Adjusted EBITDA Margin included approximately 70 basis points of
dilution due to recent capacity startup costs and the impact from
recent acquisitions.
Adjusted Net Income decreased $25.3 million to $24.5 million, or
Adjusted Diluted EPS of $0.16 per share, for the three months ended
September 30, 2022, as compared to Adjusted Net Income of $49.8
million, or Adjusted Diluted EPS of $0.32 per share, for the three
months ended September 30, 2021.
TWELVE MONTHS ENDED SEPTEMBER 30, 2022 RESULTS
Net sales for the year ended September 30, 2022 increased by
$176.6 million, or 15.0%, to $1,355.6 million from $1,179.0 million
for the year ended September 30, 2021. The increase was primarily
attributable to higher sales in both our Residential and Commercial
segments, which grew by 11.9% and 38.6% respectively, in each case
as compared to the prior year.
Net income decreased by $17.9 million to $75.2 million, or $0.49
per share, for the year ended September 30, 2022 compared to net
income of $93.2 million, or $0.59 per share, for the year ended
September 30, 2021. This was primarily driven by increases in cost
of sales and selling, general and administrative expenses as well
as an increase in interest expense due to refinancing fees related
to our term loan agreement entered into during fiscal year 2022 and
higher finance lease interest, partially offset by higher
capitalized interest during the year ended September 30, 2022. Net
margin was 5.5% for the twelve months ended September 30, 2022,
compared to net margin of 7.9% for the twelve months ended
September 30, 2021.
Adjusted Net Income was $149.3 million, or Adjusted Diluted EPS
of $0.97 per share, for the twelve months ended September 30, 2022,
compared to Adjusted Net Income of $152.9 million, or Adjusted
Diluted EPS of $0.98 per share, for the twelve months ended
September 30, 2021.
Adjusted EBITDA for the twelve months ended September 30, 2022
increased by $26.9 million to $301.0 million from $274.2 million
for the twelve months ended September 30, 2021. Adjusted EBITDA
Margin declined 110 basis points to 22.2% from 23.3% for the prior
year period. As previously guided, Adjusted EBITDA Margin included
approximately 100 basis points of dilution due to recent capacity
startup costs and the impact from recent acquisitions.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of September 30, 2022, the Company had cash and cash
equivalents of $120.8 million and approximately $147.2 million
available for future borrowings under our Revolving Credit
Facility. Total gross debt, including finance leases, as of
September 30, 2022 was $678.1 million. During the fiscal fourth
quarter, the Company repurchased approximately 1.1 million shares
of its Class A common stock for an aggregate purchase price of
approximately $23 million.
OUTLOOK
“Demand for outdoor living products continued at a steady pace
through the fiscal fourth quarter and into the current quarter. We
are confident in our strategy, yet we recognize the potential for a
slowdown in our markets in 2023. Our added capacity positions us
well to pursue new market opportunities, expand our share, drive
wood conversion and execute our cost reduction programs – all while
providing best-in-class service to our customers. Given the
successful startup of our new manufacturing facility in Boise, the
period of elevated capital investments is moderating, which we
believe will position AZEK to generate meaningful free cash flow
(operating cash flows minus capital expenditures) in fiscal 2023.
Consistent with recent history, we expect to continue to return
capital to shareholders with share repurchases while maintaining a
conservative balance sheet and capital structure,” said Mr.
Singh.
For full-year fiscal 2023, AZEK is assuming new construction and
repair and remodel market declines and as a result, an
approximately 10.0% year over year decline in volume. Under this
demand planning assumption, AZEK would expect Adjusted EBITDA to be
in a range between $250 to $265 million in fiscal 2023. AZEK
expects capital expenditures to be in the range of $70 to $80
million for the full year. Due to an update in the process by which
we estimate the value of our inventory, AZEK expects an estimated
negative impact of approximately $8 million in cost of sales, with
the majority impacting the fiscal first quarter.
For the fiscal first quarter 2023, AZEK’s channel inventory
reduction remains on track, and as previously noted, AZEK expects
to exit the fiscal first quarter with normalized channel inventory
levels. Taking these factors into consideration, AZEK expects
consolidated net sales in the range of $200 to $215 million, and
Adjusted EBITDA in the range between $8 to $12 million, inclusive
of the change in process by which we estimate the value of our
inventory and lower production levels to facilitate the channel
inventory recalibration.
Following the first quarter, AZEK expects Adjusted Gross Profit
Margin and Adjusted EBITDA Margin improvement through the balance
of fiscal 2023, including year-over-year expansion during the
second half of fiscal 2023, as lower cost inventory flows through,
production volumes improve, and fiscal 2022 cost-down and recycle
programs are realized within our results.
“As the innovation leader in the industry, we will continue to
invest in new product expansions that drive material conversion and
exceed customer expectations. We are excited about the
opportunities ahead of us as we invest for the future and continue
to position the company to achieve our long-term growth and margin
expansion objectives,” concluded Mr. Singh.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today,
Monday, November 28, 2022, at 4:00 p.m. (CT).
To access the live conference call, please register for the call
in advance by visiting
https://conferencingportals.com/event/kqzNUoaC. 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/. AZEK uses
its investor relations website at investors.azekco.com as a means
of disclosing material non-public information and for complying
with its disclosure obligations under Regulation FD.
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) 770-
2030 or (647) 362- 9199. The conference ID for the replay is 63923.
The replay will be available until 10:59 p.m. (CT) on December 12,
2022.
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, Versatex® and AZEK Trim® and StruXure™
pergolas. Consistently recognized as a market leader in innovation,
quality and aesthetics, products across AZEK’s portfolio are made
from up to 90% 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 2,000 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 and recycling facilities in Ohio,
Pennsylvania, Idaho, Georgia, Nevada, New Jersey, Michigan and
Minnesota.
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," or the negative of these terms 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 and factors, assumptions and variables
underlying these projections and goals, are forward-looking
statements. In particular and unless specifically provided herein,
no financial information for fiscal year 2023, including net sales
guidance, operating results or otherwise, should be inferred or
extrapolated from the guidance provided in this earnings release.
Other forward-looking statements may include, without limitation,
statements with respect to our ability to meet the future targets
and goals we establish, including our environmental, social and
governance targets, 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 our future expansion plans, capital investments, capacity
targets and other future strategic initiatives; statements about
any stock repurchase plans; statements about potential new products
and product innovation; statements regarding the potential impact
of the COVID-19 pandemic or geopolitical conflicts, such as the
conflict between Russia and Ukraine; 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 and the
economy more generally, including inflation and interest rates,
growth of our various markets and growth in the use of engineered
products as well as our ability to share in such growth; 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 I,
Item 1A of the Annual Report on Form 10-K for fiscal 2022 (our
“2022 Annual Report”) and in our other filings with the U.S.
Securities and Exchange Commission. 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,
acquisition costs and certain other 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
and secondary 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 Gross Profit Margin, Adjusted
Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted
EBITDA Margin exclude the expense of amortization of our assets,
and Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted
EBITDA and Adjusted EBITDA Margin also exclude the expense of
depreciation of our assets, and, although these are non-cash
expenses, the assets being depreciated or amortized 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 and
Segment Adjusted EBITDA Margin 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 and Segment Adjusted EBITDA
Margin represent measures 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 and
Segment Adjusted EBITDA Margin are 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 Annual Report on Form 10-K for fiscal
2022 and our Consolidated Financial Statements and related notes
included therein.
The AZEK Company Inc.
Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
As of September 30,
2022
2021
ASSETS:
Current assets:
Cash and cash equivalents
$
120,817
$
250,536
Trade receivables, net of allowances
90,159
77,316
Inventories
299,905
188,888
Prepaid expenses
17,212
14,212
Other current assets
2,501
1,446
Total current assets
530,594
532,398
Property, plant and equipment, net
517,913
391,012
Goodwill
993,995
951,390
Intangible assets, net
245,835
242,572
Other assets
94,754
70,462
Total assets
$
2,383,091
$
2,187,834
LIABILITIES AND STOCKHOLDERS’
EQUITY:
Current liabilities:
Accounts payable
$
48,987
$
69,474
Accrued rebates
50,479
44,339
Accrued interest
4,436
72
Current portion of long-term debt
obligations
6,000
—
Accrued expenses and other liabilities
72,589
56,522
Total current liabilities
182,491
170,407
Deferred income taxes
65,195
46,371
Long-term debt — less current portion
584,879
464,715
Other non-current liabilities
106,083
79,177
Total liabilities
$
938,648
$
760,670
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized and no shares issued and outstanding at
September 30, 2022 and September 30, 2021, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized, 155,157,220 shares issued at
September 30, 2022, and 154,866,313 issued at September 30,
2021
155
155
Class B common stock, $0.001 par value;
100,000,000 shares authorized, 100 shares issued and outstanding at
September 30, 2022 and September 30, 2021
—
—
Additional paid-in capital
1,630,378
1,615,236
Accumulated deficit
(113,002
)
(188,227
)
Treasury stock, at cost, 4,116,570 shares
at September 30, 2022 and 0 shares at September 30, 2021
(73,088
)
—
Total stockholders’ equity
1,444,443
1,427,164
Total liabilities and stockholders’
equity
$
2,383,091
$
2,187,834
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,
2022
2021
2022
2021
Net sales
$
304,632
$
346,120
$
1,355,586
$
1,178,974
Cost of sales
232,768
233,833
946,266
789,023
Gross profit
71,864
112,287
409,320
389,951
Selling, general and administrative
expenses
67,478
60,467
279,889
244,205
Other general expenses
—
—
—
2,592
Loss on disposal of plant, property and
equipment
179
401
496
1,025
Operating income
4,207
51,419
128,935
142,129
Other expenses:
Interest expense
6,180
3,883
24,956
20,311
Loss on extinguishment of debt
—
—
—
—
Total other expenses
6,180
3,883
24,956
20,311
Income (loss) before income taxes
(1,973
)
47,536
103,979
121,818
Income tax expense
2,803
8,943
28,754
28,668
Net income (loss)
$
(4,776
)
$
38,593
$
75,225
$
93,150
Net income (loss) per common share:
Basic
$
(0.03
)
$
0.25
$
0.49
$
0.61
Diluted
$
(0.03
)
$
0.25
$
0.49
$
0.59
Comprehensive income (loss)
$
(4,776
)
$
38,593
$
75,225
$
93,150
Weighted average shares used in
calculating net income (loss) per common share:
Basic
151,459,182
154,232,718
153,510,110
153,777,859
Diluted
151,459,182
156,686,478
154,517,843
156,666,394
The AZEK Company Inc.
Consolidated Statements of
Cash Flows
(In thousands of U.S.
dollars)
Years Ended September
30,
2022
2021
Operating activities:
Net income
$
75,225
$
93,150
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in) operating activities:
Depreciation expense
67,996
51,802
Amortization expense
50,537
49,802
Non-cash interest expense
5,638
3,110
Non-cash lease expense
(275
)
(88
)
Deferred income tax expense (benefit)
19,684
25,529
Non-cash compensation expense
27,512
22,250
Loss on disposition of property, plant and
equipment
496
1,025
Bad debt provision
290
342
Changes in operating assets and
liabilities:
Trade receivables
(8,545
)
(6,772
)
Inventories
(97,459
)
(58,819
)
Prepaid expenses and other current
assets
(4,300
)
(5,892
)
Accounts payable
(32,146
)
16,071
Accrued expenses and interest
(1,345
)
14,910
Other assets and liabilities
2,527
1,259
Net cash provided by (used in) operating
activities
105,835
207,679
Investing activities:
Purchases of property, plant and
equipment
(170,938
)
(175,119
)
Proceeds from sale of property, plant and
equipment
649
46
Purchases of intangible assets
(1,500
)
—
Acquisitions, net of cash acquired
(108,387
)
—
Net cash provided by (used in) investing
activities
(280,176
)
(175,073
)
Financing activities:
Proceeds under Revolving Credit
Facility
40,000
—
Payments under Revolving Credit
Facility
(40,000
)
—
Payments of financing fees related to Term
Loan Agreement
—
(939
)
Payments of Term Loan Agreement
(467,654
)
—
Proceeds from 2022 Term Loan Agreement
595,500
—
Payments of debt issuance costs related to
2022 Term Loan Agreement
(3,442
)
—
Repayments of finance lease
obligations
(3,865
)
(1,921
)
Payments of initial public offering
related costs
—
(210
)
Exercise of vested stock options
5,995
5,988
Cash paid for shares withheld for
taxes
(429
)
—
Purchases of treasury stock
(81,483
)
—
Net cash provided by (used in) financing
activities
44,622
2,918
Net increase (decrease) in cash and cash
equivalents
(129,719
)
35,524
Cash and cash equivalents at beginning of
period
250,536
215,012
Cash and cash equivalents at end of
period
$
120,817
$
250,536
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
14,899
$
17,119
Cash paid for income taxes, net
10,549
4,620
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
29,562
$
16,177
Property, plant and equipment acquired
under finance lease obligations
—
—
Right-of-use operating and finance lease
assets obtained in exchange for lease liabilities
33,400
57,817
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 audited Consolidated Financial
Statements for the three and twelve months ended September 30, 2022
and 2021.
Three Months Ended September
30,
Twelve Months Ended September
30,
(U.S. dollars in thousands)
2022
2021
$ Variance
% Variance
2022
2021
$ Variance
% Variance
Net sales
$
254,196
$
305,078
$
(50,882
)
(16.7
)%
$
1,168,751
$
1,044,126
$
124,625
11.9
%
Segment Adjusted EBITDA
64,503
91,564
(27,061
)
(29.6
)%
323,377
314,563
8,814
2.8
%
Segment Adjusted EBITDA Margin
25.4
%
30.0
%
N/A
N/A
27.7
%
30.1
%
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 audited Consolidated Financial
Statements for the three and twelve months ended September 30, 2022
and 2021.
Three Months Ended September
30,
Twelve Months Ended September
30,
(U.S. dollars in thousands)
2022
2021
$ Variance
% Variance
2022
2021
$ Variance
% Variance
Net sales
$
50,436
$
41,042
$
9,394
22.9
%
$
186,835
$
134,848
$
51,987
38.6
%
Segment Adjusted EBITDA
14,562
6,019
8,543
141.9
%
40,255
19,323
20,932
108.3
%
Segment Adjusted EBITDA Margin
28.9
%
14.7
%
N/A
N/A
21.5
%
14.3
%
N/A
N/A
Adjusted EBITDA and Adjusted EBITDA
Margin Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2022
2021
2022
2021
Net income (loss)
$
(4,776
)
$
38,593
$
75,225
$
93,150
Interest expense
6,180
3,883
24,956
20,311
Depreciation and amortization
31,803
26,284
118,533
101,604
Tax expense (benefit)
2,803
8,943
28,754
28,668
Stock-based compensation costs
4,259
3,024
18,105
22,670
Acquisition costs (1)
3,990
—
12,851
—
Initial public offering and secondary
offering costs
—
—
—
2,592
Inventories (2)
19,297
—
19,297
—
Other costs (3)
1,520
780
3,319
5,192
Total adjustments
69,852
42,914
225,815
181,037
Adjusted EBITDA
$
65,076
$
81,507
$
301,040
$
274,187
Three Months Ended September
30,
Years Ended September
30,
2022
2021
2022
2021
Net margin
(1.6
)%
11.2
%
5.5
%
7.9
%
Interest expense
2.0
%
1.1
%
1.8
%
1.7
%
Depreciation and amortization
10.5
%
7.6
%
8.8
%
8.6
%
Tax expense (benefit)
1.0
%
2.6
%
2.2
%
2.5
%
Stock-based compensation costs
1.4
%
0.8
%
1.4
%
1.9
%
Acquisition costs
1.3
%
0.0
%
0.9
%
0.0
%
Initial public offering and secondary
offering costs
0.0
%
0.0
%
0.0
%
0.2
%
Inventories
6.3
%
0.0
%
1.4
%
0.0
%
Other costs
0.5
%
0.2
%
0.2
%
0.5
%
Total adjustments
23.0
%
12.3
%
16.7
%
15.4
%
Adjusted EBITDA Margin
21.4
%
23.5
%
22.2
%
23.3
%
______________________________
(1)
Acquisition costs reflect costs directly
related to completed acquisitions of $3.8 million and $11.5 million
for fourth quarter 2022 and fiscal year 2022, respectively, and
inventory step-up adjustments related to recording the inventory of
acquired businesses at fair value on the date of acquisition of
$0.2 million and $1.4 million for fourth quarter 2022 and fiscal
year 2022, respectively.
(2)
During the fourth quarter of fiscal year
2022, we updated the process by which we estimate the value of our
inventory. This included updating the assumptions that are used in
determining and treating certain capitalized costs, primarily by
incorporating the impacts of changes in the amount of recycled
content introduced into our products.
(3)
Other costs reflect costs for legal
expenses of $0.2 million, $0.5 million, $0.9 million and $2.3
million for fourth quarters 2022 and 2021 and fiscal years 2022 and
2021, respectively, reduction in workforce costs of $0.9 million
and $1.6 million for fourth quarter fiscal 2022 and fiscal year
2022, respectively, the impact of the retroactive adoption of ASC
842 leases of $0.5 million for fiscal year 2021, costs related to
an incentive plan and other ancillary expenses associated with the
initial public offering of $0.3 million, $0.1 million and $2.4
million for fourth quarter 2021 and fiscal years 2022 and 2021,
respectively, and other costs of $0.4 million and $0.7 million for
fourth quarter 2022 and fiscal year 2022, respectively.
Adjusted Gross Profit
Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2022
2021
2022
2021
Gross profit
$
71,864
$
112,287
$
409,320
$
389,951
Depreciation and amortization (1)
22,689
18,012
82,099
67,903
Inventories (2)
19,297
—
19,297
—
Acquisition costs (3)
165
—
1,373
—
Other costs (4)
185
72
509
72
Adjusted Gross Profit
$
114,200
$
130,371
$
512,598
$
457,926
Three Months Ended September
30,
Years Ended September
30,
2022
2021
2022
2021
Gross margin
23.6
%
32.4
%
30.2
%
33.1
%
Depreciation and amortization
7.4
%
5.3
%
6.1
%
5.7
%
Inventories
6.3
%
0.0
%
1.4
%
0.0
%
Acquisition costs
0.1
%
0.0
%
0.1
%
0.0
%
Other costs
0.1
%
0.0
%
0.0
%
0.0
%
Adjusted Gross Profit Margin
37.5
%
37.7
%
37.8
%
38.8
%
______________________________
(1)
Depreciation and amortization for fourth
quarters 2022 and 2021, and for fiscal years 2022 and 2021,
consists of $17.5 million, $12.6 million, $61.6 million and $46.0
million, respectively, of depreciation, and $5.2 million, $5.4
million, $20.5 million and $21.9 million, respectively, of
amortization of intangible assets, comprised of intangibles
relating to our manufacturing processes.
(2)
During the fourth quarter of fiscal year
2022, we updated the process by which we estimate the value of our
inventory. This included updating the assumptions that are used in
determining and treating certain capitalized costs, primarily by
incorporating the impacts of changes in the amount of recycled
content introduced into our products.
(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 $0.2 million and $0.5 million for fourth quarter 2022 and
fiscal year 2022, respectively, and the impact of retroactive
adoption of ASC 842 leases of $0.1 million for each of fourth
quarter 2021 and fiscal year 2021.
Adjusted Net Income and Adjusted Diluted EPS Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands, except per
share amounts)
2022
2021
2022
2021
Net income (loss)
$
(4,776
)
$
38,593
$
75,225
$
93,150
Amortization
12,571
12,136
50,537
49,802
Stock-based compensation costs (1)
1,330
1,806
6,554
18,746
Acquisition costs (2)
3,990
—
12,851
—
Initial public offering and secondary
offering costs
—
—
—
2,592
Inventories (3)
19,297
—
19,297
—
Other costs (4)
1,520
780
3,319
5,192
Capital structure transaction costs
(5)
—
—
5,112
—
Tax impact of adjustments (6)
(9,445
)
(3,522
)
(23,627
)
(16,549
)
Adjusted Net Income
$
24,487
$
49,793
$
149,268
$
152,933
Three Months Ended September
30,
Years Ended September
30,
2022
2021
2022
2021
Net income (loss) per common share —
diluted
$
(0.03
)
$
0.25
$
0.49
$
0.59
Amortization
0.08
0.08
0.33
0.32
Stock-based compensation costs
0.01
0.01
0.05
0.12
Acquisition costs
0.02
—
0.08
—
Initial public offering and secondary
offering costs
—
—
—
0.02
Inventories
0.13
—
0.12
—
Other costs
0.01
0.01
0.02
0.03
Capital structure transaction costs
—
—
0.03
—
Tax impact of adjustments
(0.06
)
(0.03
)
(0.15
)
(0.10
)
Adjusted Diluted EPS (7)
$
0.16
$
0.32
$
0.97
$
0.98
______________________________
(1)
Stock-based compensation costs 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.
(2)
Acquisition costs reflect costs directly
related to completed acquisitions of $3.8 million and $11.5 million
for fourth quarter 2022 and fiscal year 2022, respectively, and
inventory step-up adjustments related to recording the inventory of
acquired businesses at fair value on the date of acquisition of
$0.2 million and $1.4 million for fourth quarter 2022 and fiscal
year 2022, respectively.
(3)
During the fourth quarter of fiscal year
2022, we updated the process by which we estimate the value of our
inventory. This included updating the assumptions that are used in
determining and treating certain capitalized costs, primarily by
incorporating the impacts of changes in the amount of recycled
content introduced into our products.
(4)
Other costs reflect costs for legal
expenses of $0.2 million, $0.5 million, $0.9 million and $2.3
million for fourth quarters 2022 and 2021 and fiscal years 2022 and
2021, respectively, reduction in workforce costs of $0.9 million
and $1.6 million for fourth quarter fiscal 2022 and fiscal year
2022, respectively, the impact of the retroactive adoption of ASC
842 leases of $0.5 million for fiscal year 2021, costs related to
an incentive plan and other ancillary expenses associated with the
initial public offering of $0.3 million, $0.1 million and $2.4
million for fourth quarter 2021 and fiscal years 2022 and 2021,
respectively, and other costs of $0.4 million and $0.7 million for
fourth quarter 2022 and fiscal year 2022, respectively.
(5)
Capital structure transaction costs
include third party costs related to our refinancing of our term
loan agreement of $5.1 million for fiscal year 2022.
(6)
Tax impact of adjustments is based on
applying a combined U.S. federal and state statutory tax rate of
24.5% for fourth quarters 2022 and 2021, and for fiscal years 2022
and 2021.
(7)
Weighted average common shares outstanding
used in computing diluted net income (loss) per common share is
151,759,572 shares for fourth quarter 2022, 156,686,478 shares for
fourth quarter 2021, 154,517,843 shares for fiscal year 2022, and
156,666,394 shares for fiscal year 2021.
Net Leverage Reconciliation
Twelve Months Ended
September
(In thousands)
2022
Net income
$
75,225
Interest expense
24,956
Depreciation and amortization
118,533
Tax expense (benefit)
28,754
Stock-based compensation costs
18,105
Acquisition costs
12,851
Inventories
19,297
Other costs
3,319
Total adjustments
225,815
Adjusted EBITDA
$
301,040
Long-term debt — less current portion
$
584,879
Current portion
6,000
Unamortized deferred financing fees
4,712
Unamortized original issue discount
4,409
Finance leases
78,072
Gross debt
$
678,072
Cash and cash equivalents
(120,817
)
Net debt
$
557,255
Net Leverage
1.9
x
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
costs of acquisitions, which are a core part of our ongoing
business strategy, and other costs. 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/20221128005042/en/
Investor Relations Contact: Eric Robinson 312-809-1093
ir@azekco.com
Media Contact: Amanda Cimaglia 312-809-1093 media@azekco.com
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