Delivered Fiscal First Quarter 2023 Results Modestly Ahead of
Expectations, Driven by Favorable Sales and Operational Execution;
Residential Channel Inventory Normalization Completed; Reaffirming
2023 Planning Assumptions
FIRST QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS
- Consolidated Net Sales of $216.3 million
- Net Income (Loss) of ($25.8) million; Adjusted Net Income
(Loss) of ($13.9) million
- EPS of ($0.17) per share; Adjusted Diluted EPS of ($0.09) per
share
- Adjusted EBITDA of $15.1 million
RECENT COMPANY HIGHLIGHTS
- Continued progress on strategic initiatives, including 2023 new
product launches, channel expansion, and lower cost recycle
programs
- Launched brand refresh for TimberTech, AZEK Exteriors and
StruXure, connecting these brands together under consistent
messaging to better serve our customers
- Announced recycle partnerships with thredUP and Trusscore,
expanding our direct supply of post-consumer and post-industrial
polyethylene and PVC plastic to re-purpose into AZEK’s outdoor
living products
- Named a Real Leaders® 2023 Impact Company in recognition of
AZEK’s business growth and purpose-driven strategy; Ranked in the
top 25% of America's Most Just Companies by JUST Capital
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 first quarter
ended December 31, 2022.
CEO COMMENTS
“In the fiscal first quarter of 2023, we delivered financial
results modestly ahead of expectations, driven by favorable sales
combined with solid operational execution,” said Jesse Singh, CEO
of The AZEK Company. “We also concluded the Residential channel
inventory normalization – a key focus of the past two quarters –
which we believe will strengthen AZEK’s position ahead of the
primary selling season later in the fiscal year,” continued Mr.
Singh.
“We executed against our stated growth initiatives in the
quarter, with the successful launch of several new products and
shelf space gains across both the Pro and Retail channels, building
on our momentum from prior quarters and solidifying our position as
the innovation leader in outdoor living. For 2023, we launched new
TimberTech® decking colors, including Boardwalk®, an on-trend grey
weathered wood color option within our Advanced PVC Landmark
CollectionTM, and Reclaimed ChestnutTM, a light tan-blonde
weathered wood color option within our Composite Reserve
Collection. We also announced two new high-performance PVC rail
options, Statement RailTM and Pinnacle RailTM, adding a high-end
PVC railing option to our expansive portfolio of aluminum and
composite offerings. With positive customer receptivity to our new
products and expanded share in the channel, these wins position
AZEK well for the upcoming season and help advance our long-term
goal of market expansion and conversion away from traditional
materials to our types of low-maintenance, long-lasting, and
sustainable materials,” stated Mr. Singh.
“We continue to progress against our recycle goals, including
the recent announcement of recycling partnerships with thredUP and
Trusscore. These new AZEK recycle partners will be supplying us
with their post-consumer and post-industrial polyethylene or PVC
scrap and waste, which we will re-purpose into products across our
outdoor living portfolio,” said Mr. Singh.
“We have a clear strategy and AZEK-specific initiatives to drive
above-market growth and margin expansion. With traditional
materials such as wood continuing to represent approximately 40% to
75% of our core markets, we are confident that we are in the early
stages of market conversion and remain excited about the compelling
long-term opportunities in front of AZEK,” said Mr. Singh.
FIRST QUARTER FISCAL 2023 CONSOLIDATED RESULTS
Net sales for the three months ended December 31, 2022 decreased
by $43.4 million, or 16.7%, to $216.3 million from $259.7 million
for the three months ended December 31, 2021. The decrease was
primarily due to an approximately 33% decline in volume, primarily
as a result of the channel inventory reductions to better calibrate
inventory to historical average levels, partially offset by
positive pricing and a $20.9 million net sales contribution from
recent acquisitions. Net sales for the three months ended December
31, 2022 decreased for the Residential segment by 18.8% and our
Commercial segment by 4.7%, in each case as compared to the prior
year period.
Net income (loss) decreased by $42.5 million to ($25.8) million,
or ($0.17) per share, for the three months ended December 31, 2022
compared to $16.7 million, or $0.11 per share, for the three months
ended December 31, 2021.
Adjusted EBITDA decreased by $43.4 million to $15.1 million for
the three months ended December 31, 2022, as compared to Adjusted
EBITDA of $58.5 million for the three months ended December 31,
2021.
Adjusted Net Income (Loss) decreased $42.6 million to ($13.9)
million, or Adjusted Diluted EPS of ($0.09) per share, for the
three months ended December 31, 2022, as compared to Adjusted Net
Income of $28.8 million, or Adjusted Diluted EPS of $0.18 per
share, for the three months ended December 31, 2021.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of December 31, 2022, the Company had cash and cash
equivalents of $86.9 million and approximately $147.2 million
available for future borrowings under our Revolving Credit
Facility. Total gross debt, including finance leases, as of
December 31, 2022 was $677.7 million. During the fiscal first
quarter, the Company repurchased approximately 0.4 million shares
of its Class A common stock for an aggregate purchase price of
approximately $7.5 million.
OUTLOOK
“Demand and sell-through trends were consistent with our
expectations for the fiscal first quarter of 2023, with dollar
value growth driven by positive pricing carryover partially offset
by volumes down roughly mid-single digits year-over-year. With the
fiscal first quarter and Residential channel inventory
normalization behind us, we are focused on delivering against our
plan in the balance of the fiscal year. Sell-through demand trends
for our Residential business have been modestly better than the
planning assumptions outlined in our last update, and we remain
cautiously optimistic as we move into our traditional selling
season. Our execution during the fiscal first quarter against our
strategic initiatives gives us increased confidence in our plan for
the year and we are reaffirming our fiscal 2023 planning
assumptions. We expect our growth and margin expansion initiatives
will enable us to deliver against our planning assumptions and
generate meaningful free cash flow (operating cash flows minus
capital expenditures) after several years of elevated capital
investments,” said Mr. Singh.
AZEK provides certain of its outlook on a non-GAAP basis, as the
Company cannot predict some elements that are included in reported
GAAP results, including the impact of acquisition costs and other
costs. Refer to the Outlook section in the discussion of non-GAAP
financial measures below for more details.
For full-year fiscal 2023, AZEK continues to assume an
approximately 10% year-over-year decline in volume and expects
Adjusted EBITDA for fiscal 2023 to be in the range between $250 to
$265 million. Capital expenditures for fiscal 2023 are expected to
be in the range of $70 to $80 million.
“The fiscal second quarter is historically a channel
replenishment period for our industry ahead of the traditional
building season, and we were once again able to secure additional
shelf space and product placement as an outcome of our winter
negotiations. Given our improved lead times and the current
environment, we are working with our channel partners in a
disciplined manner to establish lower inventory levels coming into
the season and expect channel inventory build to be meaningfully
lower than fiscal Q2 2022,” continued Mr. Singh.
For the fiscal second quarter of 2023, taking the factors above
into consideration, AZEK expects consolidated net sales in the
range of $340 to $365 million, and Adjusted EBITDA in the range of
$57 to $63 million.
AZEK continues to expect Adjusted Gross Profit Margin and
Adjusted EBITDA Margin improvement through the balance of fiscal
2023, including year-over-year Adjusted EBITDA Margin expansion
during the second half of fiscal 2023, as lower cost inventory is
consumed, production volumes improve, and fiscal 2022 cost-down and
recycle programs are realized within the Company’s results.
“Over the years, we have leveraged our premium positions in
Decking, Railing, and Exteriors to position AZEK as the innovation
leader in outdoor living. We play in large and fast-growing markets
and consistently deliver the best and most expansive outdoor living
product portfolio in the industry. Our attractive positioning,
focus on strategic growth initiatives, and disciplined operational
execution provides us confidence in our ability to achieve our
long-term strategic objectives, namely, to drive double-digit net
sales growth, 500 basis points of margin improvement as compared to
our fiscal 2019 baseline, and outperform in all economic
environments,” concluded Mr. Singh.
CONFERENCE CALL AND WEBSITE INFORMATION
AZEK will hold a conference call to discuss the results today,
Wednesday, February 8, 2023, 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 investor relations 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 February 22, 2023. In addition, an earnings presentation
will be posted and available on the AZEK investor relations website
prior to the conference call.
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,
supply and demand balance, 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)
in thousands
December 31,
2022
September 30,
2022
ASSETS:
Current assets:
Cash and cash equivalents
$
86,865
$
120,817
Trade receivables, net of allowances
68,290
90,159
Inventories
320,883
299,905
Prepaid expenses
22,526
17,212
Other current assets
14,946
2,501
Total current assets
513,510
530,594
Property, plant and equipment - net
513,130
517,913
Goodwill
993,995
993,995
Intangible assets - net
233,998
245,835
Other assets
94,068
94,754
Total assets
$
2,348,701
$
2,383,091
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
48,563
$
48,987
Accrued rebates
54,556
50,479
Accrued interest
140
4,436
Current portion of long-term debt
obligations
6,000
6,000
Accrued expenses and other liabilities
67,488
72,589
Total current liabilities
176,747
182,491
Deferred income taxes
66,052
65,195
Long-term debt—less current portion
583,726
584,879
Other non-current liabilities
109,404
106,083
Total liabilities
935,929
938,648
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized and no shares issued or outstanding at
December 31, 2022 and September 30, 2022, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized, 155,196,865 shares issued at
December 31, 2022 and 155,157,220 shares issued at September 30,
2022
155
155
Class B common stock, $0.001 par value;
100,000,000 shares authorized, 100 shares issued and outstanding at
December 31, 2022 and at September 30, 2022, respectively
—
—
Additional paid‑in capital
1,633,827
1,630,378
Accumulated deficit
(138,838
)
(113,002
)
Accumulated other comprehensive income
(loss)
(1,796
)
—
Treasury stock, at cost, 4,469,330 and
4,116,570 shares at December 31, 2022 and September 30, 2022,
respectively
(80,576
)
(73,088
)
Total stockholders' equity
1,412,772
1,444,443
Total liabilities and stockholders'
equity
$
2,348,701
$
2,383,091
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 December
31,
in thousands
2022
2021
Net sales
$
216,259
$
259,708
Cost of sales
168,680
171,099
Gross profit
47,579
88,609
Selling, general and administrative
expenses
73,444
63,169
Operating income (loss)
(25,865
)
25,440
Other expenses:
Interest expense
9,299
4,148
Total other expenses
9,299
4,148
Income (loss) before income taxes
(35,164
)
21,292
Income tax expense (benefit)
(9,328
)
4,585
Net income (loss)
$
(25,836
)
$
16,707
Other comprehensive income (loss):
Unrealized gain (loss) due to change in
fair value of derivatives, net of tax
$
(1,796
)
$
—
Total other comprehensive income
(loss)
(1,796
)
—
Comprehensive income (loss)
$
(27,632
)
$
16,707
Net income (loss) per common share:
Basic
$
(0.17
)
$
0.11
Diluted
(0.17
)
0.11
Weighted-average common shares
outstanding:
Basic
150,877,635
154,407,244
Diluted
150,877,635
156,854,925
The AZEK Company Inc.
Consolidated Statements of
Cash Flows
(In thousands of U.S.
dollars)
Three Months Ended December
31,
2022
2021
Operating activities:
Net income (loss)
$
(25,836
)
$
16,707
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in) operating activities:
Depreciation
22,002
15,202
Amortization of intangibles
11,837
12,880
Non-cash interest expense
412
1,154
Non-cash lease expense
(56
)
(39
)
Deferred income tax (benefit)
provision
1,504
4,381
Non-cash compensation expense
5,801
3,970
Fair value adjustment for contingent
consideration
400
—
Loss (gain) on disposition of property,
plant and equipment
(66
)
18
Changes in certain assets and
liabilities:
Trade receivables
21,869
18,057
Inventories
(20,978
)
(88,515
)
Prepaid expenses and other currents
assets
(16,711
)
(3,330
)
Accounts payable
13,029
606
Accrued expenses and interest
(7,831
)
(11,626
)
Other assets and liabilities
1,033
(85
)
Net cash provided by (used in) operating
activities
6,409
(30,620
)
Investing activities:
Purchases of property, plant and
equipment
(30,328
)
(65,333
)
Proceeds from disposition of fixed
assets
65
32
Acquisitions, net of cash acquired
—
(91,310
)
Net cash provided by (used in) investing
activities
(30,263
)
(156,611
)
Financing activities:
Payments on 2022 Term Loan Agreement
(1,500
)
—
Repayments of finance lease
obligations
(650
)
(559
)
Exercise of vested stock options
—
3,310
Cash paid for shares withheld for
taxes
(460
)
—
Purchases of treasury stock
(7,488
)
—
Net cash provided by (used in) financing
activities
(10,098
)
2,751
Net increase (decrease) in cash and cash
equivalents
(33,952
)
(184,480
)
Cash and cash equivalents – Beginning of
period
120,817
250,536
Cash and cash equivalents – End of
period
$
86,865
$
66,056
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
13,020
$
2,782
Cash paid for income taxes, net
112
(129
)
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
16,275
$
5,748
Right-of-use operating and finance lease
assets obtained in exchange for lease liabilities
1,968
8,915
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 months ended December 31, 2022 and
2021.
Three Months Ended December
31,
(U.S. dollars in thousands)
2022
2021
$
Variance
%
Variance
Net sales
$
179,484
$
221,133
$
(41,649
)
(18.8
)%
Segment Adjusted EBITDA
26,007
69,431
(43,424
)
(62.5
)%
Segment Adjusted EBITDA Margin
14.5
%
31.4
%
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 months ended December 31, 2022 and
2021.
Three Months Ended December
31,
(U.S. dollars in thousands)
2022
2021
$
Variance
%
Variance
Net sales
$
36,775
$
38,575
$
(1,800
)
(4.7
)%
Segment Adjusted EBITDA
5,154
4,748
406
8.6
%
Segment Adjusted EBITDA Margin
14.0
%
12.3
%
N/A
N/A
Adjusted EBITDA and Adjusted EBITDA
Margin Reconciliation
Three Months Ended December
31,
(U.S. dollars in thousands)
2022
2021
Net income (loss)
$
(25,836
)
$
16,707
Interest expense
9,299
4,148
Depreciation and amortization
33,840
28,082
Income tax expense (benefit)
(9,328
)
4,585
Stock-based compensation
3,957
4,016
Acquisition costs (1)
2,435
497
Other costs (2)
733
485
Total adjustments
40,936
41,813
Adjusted EBITDA
$
15,100
$
58,520
Three Months Ended December
31,
2022
2021
Net income (loss)
(11.9
)%
6.4
%
Interest expense
4.3
%
1.6
%
Depreciation and amortization
15.7
%
10.8
%
Income tax expense (benefit)
(4.3
)%
1.8
%
Stock-based compensation
1.8
%
1.5
%
Acquisition costs
1.1
%
0.2
%
Other costs
0.3
%
0.2
%
Total adjustments
18.9
%
16.1
%
Adjusted EBITDA Margin
7.0
%
22.5
%
__________________________
(1)
Acquisition costs reflect costs directly
related to completed acquisitions of $2.4 million and $0.5 million
in the three months ended December 31, 2022 and 2021,
respectively.
(2)
Other costs include costs for legal
expense of $0.2 million and $0.3 million in the three months ended
December 31, 2022 and 2021, respectively, costs related to an
incentive plan and other ancillary expenses associated with the
initial public offering of $0.1 million for the three months ended
December 31, 2021, and other costs of $0.5 million and $0.1 million
for the three months ended December 31, 2022 and 2021,
respectively.
Adjusted Gross Profit
Reconciliation
Three Months Ended December
31,
(U.S. dollars in thousands)
2022
2021
Gross Profit
$
47,579
$
88,609
Depreciation and amortization (1)
24,319
18,481
Adjusted Gross Profit
$
71,898
$
107,090
Three Months Ended December
31,
2022
2021
Gross Margin
22.0
%
34.1
%
Depreciation and amortization
11.2
%
7.1
%
Adjusted Gross Profit Margin
33.2
%
41.2
%
__________________________
(1)
Depreciation and amortization for the
three months ended December 31, 2022 and 2021 consists of $19.7
million and $13.6 million, respectively, of depreciation and $4.6
million and $4.9 million, respectively, of amortization of
intangible assets relating to our manufacturing process.
Adjusted Net Income and Adjusted
Diluted EPS Reconciliation
Three Months Ended December
31,
(U.S. dollars in thousands, except per
share amounts)
2022
2021
Net income (loss)
$
(25,836
)
$
16,707
Amortization
11,837
12,880
Stock-based compensation (1)
1,259
1,960
Acquisition costs (2)
2,435
497
Other costs (3)
733
485
Tax impact of adjustments (4)
(4,280
)
(3,772
)
Adjusted Net Income (Loss)
$
(13,852
)
$
28,757
Three Months Ended December
31,
2022
2021
Net income (loss)
$
(0.17
)
$
0.11
Amortization
0.08
0.08
Stock-based compensation
0.01
0.01
Acquisition costs
0.02
—
Other costs
—
—
Tax impact of adjustments
(0.03
)
(0.02
)
Adjusted Diluted EPS (5)
$
(0.09
)
$
0.18
__________________________
(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 $2.4 million and $0.5 million
in the three months ended December 31, 2022 and 2021,
respectively.
(3)
Other costs include costs for legal
expense of $0.2 million and $0.3 million in the three months ended
December 31, 2022 and 2021, respectively, costs related to an
incentive plan and other ancillary expenses associated with the
initial public offering of $0.1 million for the three months ended
December 31, 2021, and other costs of $0.5 million and $0.1 million
for the three months ended December 31, 2022 and 2021,
respectively.
(4)
Tax impact of adjustments are based on
applying a combined U.S. federal and state statutory tax rate of
26.5% and 24.5% for the three months ended December 31, 2022 and
2021, respectively.
(5)
Weighted average common shares outstanding
used in computing diluted net income per common share of
150,877,635 and 156,854,925 for the three months ended December 31,
2022 and 2021, respectively.
Net Leverage Reconciliation
Twelve Months Ended December
31,
(In thousands)
2022
Net income
$
32,682
Interest expense
30,107
Depreciation and amortization
124,291
Tax expense (benefit)
14,841
Stock-based compensation costs
18,046
Acquisition costs
14,789
Inventories
19,297
Other costs
3,567
Total adjustments
224,938
Adjusted EBITDA
$
257,620
Long-term debt — less current portion
$
583,726
Current portion
6,000
Unamortized deferred financing fees
4,533
Unamortized original issue discount
4,241
Finance leases
79,163
Gross debt
$
677,663
Cash and cash equivalents
(86,865
)
Net debt
$
590,798
Net leverage
2.3x
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/20230208005326/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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