Third Quarter Financial Performance Accelerates; Strong
Execution Against Margin Expansion Initiatives & Cash Flow
Generation THIRD QUARTER FISCAL 2023 FINANCIAL
HIGHLIGHTS
- Consolidated Net Sales of $387.6 million
- Residential segment net sales increased 2.5% year-over-year to
$351.6 million
- Net Income increased 26.9% year-over-year to $34.9 million; Net
profit margin expanded 200 basis points to 9.0%
- Adjusted EBITDA increased 12.1% year-over-year to $97.0
million; Adjusted EBITDA Margin expanded 310 basis points to
25.0%
- EPS of $0.23 per share; Adjusted Diluted EPS of $0.30 per
share
- Net Cash Provided by Operating Activities increased $33.7
million year-over-year to $166.9 million
- Free Cash Flow increased $52.4 million year-over-year to $160.1
million
RECENT COMPANY HIGHLIGHTS
- Raising fiscal year 2023 Adjusted EBITDA outlook range to $275
to $280 million
- Returned $48 million to shareholders through share repurchases
in the fiscal third quarter
- Zonda’s JLC 2023 Brand Use Study ranked TimberTech decking,
TimberTech railing and AZEK Exteriors trim as the #1 most used
brands by residential contractors in the last two years; TimberTech
composite/PVC decking also ranked #1 in quality
- Issued 2022 FULL-CIRCLETM ESG Report
- Recognized by USA TODAY’s first ever list of America’s Climate
Leaders; TimberTech Advanced PVC Decking Wins Environment + Energy
Leader 2023 Product of the Year 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 and railing, Versatex® and AZEK® Trim and
StruXure™ pergolas, today announced financial results for its third
quarter ended June 30, 2023.
CEO COMMENTS
“The AZEK team delivered financial results ahead of expectations
driven by continued execution of our growth and productivity
initiatives, operational performance and double-digit Residential
sell-through growth. During the quarter, we continued our focus on
growth through new products, material conversion and customer
expansion, and drove significant margin expansion through
operational excellence, sourcing savings and recycling initiatives.
Year-over-year, we delivered double-digit net income and Adjusted
EBITDA growth, and expanded net profit margin and Adjusted EBITDA
Margin by 200 basis points and 310 basis points, respectively. We
also continued to see benefits from our increased focus on cash
conversion and generated significant operating cash flow of $166.9
million and Free Cash Flow of $160.1 million, each growing $33.7
million and $52.4 million year-over-year, respectively. I would
once again like to thank the entire AZEK team and our partners that
support The AZEK Company,” said Jesse Singh, AZEK’s CEO. “AZEK’s
results this quarter demonstrate the strength and resiliency of our
business model and our team’s focus on operational execution to
drive above-market growth and margin expansion across any market
conditions,” continued Mr. Singh.
“Our growth and cost saving initiatives are on-track, we’re
experiencing positive results in our Residential segment and we
have increased visibility for the 2023 season. As a result, we are
raising our full-year fiscal 2023 outlook for net sales and
Adjusted EBITDA,” said Mr. Singh.
“We are once again proud to receive several recognitions this
quarter. First, TimberTech decking, TimberTech railing, and AZEK
Exteriors trim were ranked as the #1 most used brands by
contractors in the last two years in the JLC 2023 Brand Use Study
published by Zonda, reflecting the strong momentum for both our
TimberTech brand and our AZEK brands,” said Mr. Singh. “In
addition, AZEK was included in USA TODAY’s first-ever list of
America’s Climate Leaders. The list highlights leading companies
that have evidenced meaningful reductions in their greenhouse gas
emissions intensity as measured by greenhouse gases relative to
revenue. AZEK has reduced its Scope 1 and Scope 2 carbon intensity
by approximately 15% between 2019 to 2021. This recognition,
combined with our recently published 2022 FULL-CIRCLE ESG Report,
reflect our commitment to positively impacting our products, our
people and the planet. Our focus on innovation and manufacturing
sustainable outdoor living products with the best aesthetics and
performance are inspiring homeowners and enabling our above market
growth. These strengths, combined with our focused strategy, will
continue to drive material conversion away from wood over time
across our attractive markets,” continued Mr. Singh.
THIRD QUARTER FISCAL 2023 CONSOLIDATED RESULTS
Net sales for the three months ended June 30, 2023 decreased by
$7.4 million, or 1.9%, to $387.6 million from $395.0 million for
the three months ended June 30, 2022. As expected, the decrease was
primarily due to a decline in volume, largely in our Commercial
segment, partially offset by positive pricing and the contribution
of a recent acquisition. Net sales for the three months ended June
30, 2023 increased for our Residential segment by $8.5 million, or
2.5%, and decreased for our Commercial segment by $16.0 million, or
30.8%, in each case as compared to the prior year period.
Net income increased by $7.4 million to $34.9 million, or $0.23
per share, for the three months ended June 30, 2023, compared to
$27.5 million, or $0.18 per share, for the three months ended June
30, 2022. Net profit margin expanded to 9.0% for the three months
ended June 30, 2023, as compared to net profit margin of 7.0% for
the three months ended June 30, 2022.
Adjusted EBITDA increased by $10.5 million to $97.0 million for
the three months ended June 30, 2023, compared to Adjusted EBITDA
of $86.5 million for the three months ended June 30, 2022. Adjusted
EBITDA Margin expanded 310 basis points to 25.0% from 21.9% for the
prior year period.
Adjusted Net Income decreased by $0.2 million to $45.0 million,
or Adjusted Diluted EPS of $0.30 per share, for the three months
ended June 30, 2023, compared to Adjusted Net Income of $45.2
million, or Adjusted Diluted EPS of $0.29 per share, for the three
months ended June 30, 2022.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of June 30, 2023, the Company had cash and cash equivalents
of $244.6 million and approximately $147.2 million available for
future borrowings under our Revolving Credit Facility. Total gross
debt, including finance leases, as of June 30, 2023, was $673.9
million.
Net Cash Provided by Operating Activities for the three months
ended June 30, 2023, increased by $33.7 million year-over-year to
$166.9 million. Free Cash Flow for the three months ended June 30,
2023, increased by $52.4 million year-over-year to $160.1
million.
During the quarter, the Company repurchased approximately 1.9
million shares of its Class A common stock for an aggregate
purchase price of approximately $48.5 million.
OUTLOOK
“The demand environment in the fiscal third quarter continued to
improve, with Residential segment sell-through growth improving
versus the prior quarter. Demand signals, including our digital
marketing metrics and feedback from our contractor and dealer
surveys, as well as our shelf space gains across professional and
retail channels, provide a positive backdrop for the remainder of
the building season and our fiscal year. Our improved Residential
segment visibility and cost-saving initiatives give us confidence
to raise our outlook for fiscal year 2023. As we progress through
the balance of the year and into fiscal 2024, we will continue to
focus on growth opportunities, margin expansion and cash flow
generation,” 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.
AZEK is raising its outlook for full-year fiscal 2023. For
full-year fiscal 2023, AZEK expects consolidated net sales in the
range of $1,338 to $1,358 million and Adjusted EBITDA in the range
of $275 to $280 million. Capital expenditures for fiscal year 2023
are expected to be approximately $85 million.
For the fourth quarter of fiscal 2023, AZEK expects consolidated
net sales in the range of $356 to $376 million and Adjusted EBITDA
in the range of $90 to $95 million. AZEK expects year-over-year
Adjusted EBITDA Margin expansion in the fourth quarter that is
accretive versus the prior quarter and year-over-year.
“We remain incredibly excited about the long-term material
conversion opportunity ahead of us in the large and fast-growing
outdoor living and home exteriors markets that AZEK plays in. Our
fiscal third quarter results reflect the strength of our
industry-leading positioning, our focus on strategic growth
initiatives and the significant margin expansion opportunities
ahead of us. These results reaffirm our confidence in our long-term
financial targets of driving double-digit annual net sales growth
and expanding our Adjusted EBITDA Margin to the targeted
approximately 27.5% by the end of fiscal year 2027,” concluded Mr.
Singh.
CONFERENCE CALL AND WEBSITE INFORMATION
AZEK will hold a conference call to discuss the results today,
Tuesday, August 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 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 August 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 and railing, Versatex® and AZEK® Trim, and
StruXure™ pergolas. Consistently awarded and recognized as the
market leader in innovation, quality, aesthetics and
sustainability, products across AZEK’s portfolio are made from up
to approximately 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 hundreds of millions of pounds of
waste and scrap out of landfills each year, and revolutionizing the
industry to create a more sustainable future. The AZEK Company has
recently been named one of America’s Climate Leaders by USA Today,
a Top Workplace by the Chicago Tribune and a winner of the 2023
Real Leaders® Impact Awards. Headquartered in Chicago, Illinois,
the company operates manufacturing and recycling facilities in
Ohio, Pennsylvania, Idaho, Georgia, Nevada, New Jersey, Michigan
and Minnesota. For additional information, please visit
azekco.com.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This earnings release contains forward-looking statements within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical facts contained in this
earnings release, including statements regarding future operations
are forward-looking statements. In some cases, forward looking
statements may be identified by words such as "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "could,"
"would," "expect," "objective," "plan," "potential," "seek,"
"grow," "target," "if," 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 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 global
health pandemics 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, such as our ability to effectively manage inventory
in our distribution channels, 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; statements about our
production levels and our ability to successfully manage such
levels; 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 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
and liquidity from management’s view and because we believe they
provide an additional tool for investors to use in comparing our
core financial performance and liquidity 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. For example,
we 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.
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, Adjusted EBITDA and
Adjusted EBITDA Margin 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, Adjusted EBITDA and Adjusted EBITDA Margin 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.
In addition, we provide Free Cash Flow, which is a non-GAAP
financial measure that we define as net cash provided by (used in)
operating activities less purchases of property, plant and
equipment. We believe Free Cash Flow is useful to investors as an
important liquidity measure of the cash that is available to us
after capital expenditures. Free Cash Flow is used by our
management as a measure of our ability to generate and use cash,
including in order to invest in future growth, fund acquisitions,
return capital to our stockholders and repay indebtedness. Our use
of Free Cash Flow has limitations as an analytical tool and should
not be considered in isolation or as a substitute for an analysis
of our results under GAAP. Some of these limitations are:
- Free Cash Flow is not a substitute for net cash provided by
(used in) operating activities, including because our capital
expenditures as a manufacturing company can be significant and can
vary from period to period;
- Free Cash Flow does not reflect our future contractual
commitments or mandatory debt repayments and accordingly does not
represent residual cash flow available for discretionary
expenditures or the total increase or decrease in our cash balance
for a given period; and
- Other companies in our industry may calculate Free Cash Flow
differently than we do, limiting its usefulness as a comparative
measure.
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.
Condensed Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
in thousands
June 30, 2023
September 30, 2022
ASSETS:
Current assets:
Cash and cash equivalents
$
244,597
$
120,817
Trade receivables, net of allowances
72,918
90,159
Inventories
221,281
299,905
Prepaid expenses
13,668
17,212
Other current assets
17,183
2,501
Total current assets
569,647
530,594
Property, plant and equipment - net
494,895
517,913
Goodwill
994,155
993,995
Intangible assets - net
210,800
245,835
Other assets
89,369
94,754
Total assets
$
2,358,866
$
2,383,091
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
53,010
$
48,987
Accrued rebates
49,371
50,479
Accrued interest
130
4,436
Current portion of long-term debt
obligations
6,000
6,000
Accrued expenses and other liabilities
58,581
72,589
Total current liabilities
167,092
182,491
Deferred income taxes
67,056
65,195
Long-term debt—less current portion
581,418
584,879
Other non-current liabilities
105,485
106,083
Total liabilities
921,051
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
June 30, 2023 and September 30, 2022, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized, 155,769,041 shares issued at June
30, 2023 and 155,157,220 shares issued at September 30, 2022
156
155
Class B common stock, $0.001 par value;
100,000,000 shares authorized, 100 shares issued and outstanding at
June 30, 2023 and at September 30, 2022, respectively
—
—
Additional paid‑in capital
1,653,714
1,630,378
Accumulated deficit
(87,690
)
(113,002
)
Accumulated other comprehensive income
(loss)
691
—
Treasury stock, at cost, 6,416,077 and
4,116,570 shares at June 30, 2023 and September 30, 2022,
respectively
(129,056
)
(73,088
)
Total stockholders' equity
1,437,815
1,444,443
Total liabilities and stockholders'
equity
$
2,358,866
$
2,383,091
The AZEK Company Inc.
Condensed Consolidated
Statements of Comprehensive Income
(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
2023
2022
2023
2022
Net sales
$
387,553
$
394,991
$
981,504
$
1,050,954
Cost of sales
255,353
268,604
693,552
713,498
Gross profit
132,200
126,387
287,952
337,456
Selling, general and administrative
expenses
73,650
78,737
221,554
212,728
Operating income
58,550
47,650
66,398
124,728
Other expenses:
Interest expense, net
10,408
10,618
30,481
18,776
Total other expenses
10,408
10,618
30,481
18,776
Income before income taxes
48,142
37,032
35,917
105,952
Income tax expense
13,267
9,556
10,605
25,951
Net income
$
34,875
$
27,476
$
25,312
$
80,001
Other comprehensive income:
Unrealized gain due to change in fair
value of derivatives, net of tax
$
3,953
$
—
$
691
$
—
Total other comprehensive income
3,953
—
691
—
Comprehensive income
$
38,828
$
27,476
$
26,003
$
80,001
Net income per common share:
Basic
$
0.23
$
0.18
$
0.17
$
0.52
Diluted
0.23
0.18
0.17
0.51
Weighted-average common shares
outstanding:
Basic
150,140,392
153,493,355
150,610,890
154,199,158
Diluted
151,069,954
153,891,090
151,056,199
155,631,884
The AZEK Company Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Nine Months Ended June
30,
2023
2022
Operating activities:
Net income
$
25,312
$
80,001
Adjustments to reconcile net income to net
cash flows provided by (used in) operating activities:
Depreciation
63,504
48,764
Amortization of intangibles
35,035
37,966
Non-cash interest expense
1,236
4,194
Non-cash lease expense
(188
)
(218
)
Deferred income tax provision
1,599
21,520
Non-cash compensation expense
13,608
19,550
Fair value adjustment for contingent
consideration
400
—
Loss on disposition of property, plant and
equipment
278
317
Changes in certain assets and
liabilities:
Trade receivables
17,241
(20,399
)
Inventories
78,624
(121,574
)
Prepaid expenses and other currents
assets
(8,795
)
(7,732
)
Accounts payable
11,308
4,512
Accrued expenses and interest
(11,803
)
(3,733
)
Other assets and liabilities
2,684
2,532
Net cash provided by operating
activities
230,043
65,700
Investing activities:
Purchases of property, plant and
equipment
(54,059
)
(139,491
)
Proceeds from disposition of fixed
assets
173
617
Acquisitions, net of cash acquired
(161
)
(86,935
)
Net cash used in investing activities
(54,047
)
(225,809
)
Financing activities:
Proceeds from 2022 Term Loan Agreement
—
595,500
Payments on 2022 Term Loan Agreement
(4,500
)
—
Payment of debt issuance costs
—
(3,442
)
Repayments of Term Loan Agreement
—
(467,654
)
Proceeds under revolving credit
facility
25,000
40,000
Payments under revolving credit
facility
(25,000
)
(40,000
)
Repayments of finance lease
obligations
(1,958
)
(2,308
)
Exercise of vested stock options
11,111
5,995
Cash paid for shares withheld for
taxes
(1,381
)
(429
)
Purchases of treasury stock
(55,488
)
(58,468
)
Net cash provided by (used in) financing
activities
(52,216
)
69,194
Net increase (decrease) in cash and cash
equivalents
123,780
(90,915
)
Cash and cash equivalents – Beginning of
period
120,817
250,536
Cash and cash equivalents – End of
period
$
244,597
$
159,621
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
33,516
$
10,269
Cash paid for income taxes, net
21,003
5,608
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
14,299
$
24,321
Right-of-use operating and finance lease
assets obtained in exchange for lease liabilities
2,828
18,705
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, 2023 and 2022.
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2023
2022
$ Variance
% Variance
2023
2022
$ Variance
% Variance
Net sales
$
351,608
$
343,064
$
8,544
2.5
%
$
873,208
$
914,555
$
(41,347
)
(4.5
)%
Segment Adjusted EBITDA
105,503
91,093
14,410
15.8
%
211,885
258,874
(46,989
)
(18.2
)%
Segment Adjusted EBITDA Margin
30.0
%
26.6
%
N/A
N/A
24.3
%
28.3
%
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 six months ended June 30, 2023 and 2022.
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2023
2022
$ Variance
% Variance
2023
2022
$ Variance
% Variance
Net sales
$
35,945
$
51,927
$
(15,982
)
(30.8
)%
$
108,296
$
136,399
$
(28,103
)
(20.6
)%
Segment Adjusted EBITDA
8,780
12,271
(3,491
)
(28.4
)%
21,763
25,693
(3,930
)
(15.3
)%
Segment Adjusted EBITDA Margin
24.4
%
23.6
%
N/A
N/A
20.1
%
18.8
%
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)
2023
2022
2023
2022
Net income
$
34,875
$
27,476
$
25,312
$
80,001
Interest expense
10,408
10,618
30,481
18,776
Depreciation and amortization
33,064
29,606
98,539
86,730
Income tax expense (benefit)
13,267
9,556
10,605
25,951
Stock-based compensation costs
4,164
4,903
13,747
13,846
Acquisition costs (1)
—
3,227
3,856
8,861
Secondary offering costs
1,065
—
1,065
—
Other costs (2)
112
1,138
1,260
1,799
Total adjustments
62,080
59,048
159,553
155,963
Adjusted EBITDA
$
96,955
$
86,524
$
184,865
$
235,964
Three Months Ended June
30,
Nine Months Ended June
30,
2023
2022
2023
2022
Net income
9.0
%
7.0
%
2.6
%
7.6
%
Interest expense
2.7
%
2.7
%
3.1
%
1.8
%
Depreciation and amortization
8.5
%
7.5
%
10.0
%
8.3
%
Income tax expense (benefit)
3.4
%
2.4
%
1.1
%
2.5
%
Stock-based compensation costs
1.1
%
1.2
%
1.4
%
1.3
%
Acquisition costs
0.0
%
0.8
%
0.4
%
0.8
%
Secondary offering costs
0.3
%
0.0
%
0.1
%
0.0
%
Other costs
0.0
%
0.3
%
0.1
%
0.2
%
Total adjustments
16.0
%
14.9
%
16.2
%
14.9
%
Adjusted EBITDA Margin
25.0
%
21.9
%
18.8
%
22.5
%
(1)
Acquisition costs reflect costs directly
related to completed acquisitions of $3.2 million in the three
months ended June 30, 2022, and $3.9 million and $7.7 million in
the nine months ended June 30, 2023 and 2022, respectively, and
inventory step-up adjustments related to recording inventory of
acquired businesses at fair value on the date of acquisition of
$1.2 million for the nine months ended June 30, 2022.
(2)
Other costs include costs related to a
reduction in workforce of $0.1 million and $0.8 million in the
three months ended June 30, 2023 and 2022, respectively, and $0.3
million and $0.8 million in the nine months ended June 30, 2023 and
2022, respectively, costs for legal expense of $0.2 million
in the three months ended June 30, 2022, and $0.2 million and $0.6
million in the nine months ended June 30, 2023 and 2022,
respectively, costs related to an incentive plan and other
ancillary expenses associated with the initial public offering of
$0.1 million for the nine months ended June 30, 2022, and other
costs of $0.1 million for the three months ended June 30, 2022, and
$0.8 million and $0.3 million for the nine months ended June 30,
2023 and 2022, respectively.
Adjusted Gross Profit Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2023
2022
2023
2022
Gross Profit
$
132,200
$
126,387
$
287,952
$
337,456
Depreciation and amortization (1)
23,983
20,843
70,716
59,410
Acquisitions costs (2)
—
—
—
1,208
Other costs (3)
—
324
116
324
Adjusted Gross Profit
$
156,183
$
147,554
$
358,784
$
398,398
Three Months Ended June
30,
Nine Months Ended June
30,
2023
2022
2023
2022
Gross Margin
34.1
%
32.0
%
29.3
%
32.1
%
Depreciation and amortization
6.2
%
5.3
%
7.2
%
5.7
%
Acquisitions costs
0.0
%
0.0
%
0.0
%
0.1
%
Other costs
0.0
%
0.1
%
0.0
%
0.0
%
Adjusted Gross Profit Margin
40.3
%
37.4
%
36.5
%
37.9
%
(1)
Depreciation and amortization for the
three months ended June 30, 2023 and 2022 consists of $19.5 million
and $15.6 million, respectively, of depreciation and $4.5 million
and $5.2 million, respectively, of amortization of intangible
assets relating to our manufacturing process. Depreciation and
amortization for the nine months ended June 30, 2023 and 2022
consists of $57.0 million and $44.0 million, respectively, of
depreciation and $13.7 million and $15.4 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 include costs related to a
reduction in workforce of $0.1 million in the nine months ended
June 30, 2023 and $0.3 million in the three and nine months
ended June 30, 2022.
Adjusted Net Income and Adjusted Diluted EPS
Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands, except per
share amounts)
2023
2022
2023
2022
Net income
$
34,875
$
27,476
$
25,312
$
80,001
Amortization
11,578
12,522
35,035
37,966
Stock-based compensation costs (1)
1,062
1,460
3,423
5,224
Acquisition costs (2)
—
3,227
3,856
8,861
Capital structure transaction costs
(3)
—
5,112
—
5,112
Secondary offering costs
1,065
—
1,065
—
Other costs (4)
112
1,138
1,260
1,799
Tax impact of adjustments (5)
(3,646
)
(5,694
)
(11,764
)
(14,182
)
Adjusted Net Income
$
45,046
$
45,241
$
58,187
$
124,781
Three Months Ended June
30,
Nine Months Ended June
30,
2023
2022
2023
2022
Net income
$
0.23
$
0.18
$
0.17
$
0.51
Amortization
0.07
0.08
0.23
0.24
Stock-based compensation costs
0.01
0.01
0.02
0.04
Acquisition costs
—
0.02
0.03
0.06
Capital structure transaction costs
—
0.03
—
0.03
Secondary offering costs
0.01
—
0.01
—
Other costs
—
0.01
0.01
0.01
Tax impact of adjustments
(0.02
)
(0.04
)
(0.08
)
(0.09
)
Adjusted Diluted EPS (6)
$
0.30
$
0.29
$
0.39
$
0.80
(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 $3.2 million in the three
months ended June 30, 2022, and $3.9 million and $7.7 million in
the nine months ended June 30, 2023 and 2022, respectively, and
inventory step-up adjustments related to recording inventory of
acquired businesses at fair value on the date of acquisition of
$1.2 million for the nine months ended June 30, 2022.
(3)
Capital structure transaction costs
include third party costs related to the 2022 Term Loan
Agreement.
(4)
Other costs include costs related to a
reduction in workforce of $0.1 million and $0.8 million in the
three months ended June 30, 2023 and 2022, respectively, and $0.3
million and $0.8 million in the nine months ended June 30, 2023 and
2022, respectively, costs for legal expense of $0.2 million in the
three months ended June 30, 2022, and $0.2 million and $0.6 million
in the nine months ended June 30, 2023 and 2022, respectively,
costs related to an incentive plan and other ancillary expenses
associated with the initial public offering of $0.1 million for the
nine months ended June 30, 2022, and other costs of $0.1 million
for the three months ended June 30, 2022, and $0.8 million and $0.3
million for the nine months ended June 30, 2023 and 2022,
respectively.
(5)
Tax impact of adjustments are based on
applying a combined U.S. federal and state statutory tax rate of
26.5% for the three and nine months ended June 30, 2023 and 24.5%
for the three and nine months ended June 30, 2022.
(6)
Weighted average common shares outstanding
used in computing diluted net income per common share of
151,069,954 and 153,891,090 for the three months ended June 30,
2023 and 2022, respectively, and 151,056,199 and 155,631,884 for
the nine months ended June 30, 2023 and 2022, respectively.
Free Cash Flow Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2023
2022
2023
2022
Net cash provided by operating
activities
$
166,901
133,243
$
230,043
$
65,700
Less: Purchases of property, plant and
equipment
(6,775
)
(25,496
)
(54,059
)
(139,491
)
Free Cash Flow
$
160,126
$
107,747
$
175,984
$
(73,791
)
Net Leverage Reconciliation
Twelve Months Ended June
30,
(In thousands)
2023
Net income
$
20,536
Interest expense
36,661
Depreciation and amortization
130,342
Tax expense (benefit)
13,408
Stock-based compensation costs
18,006
Acquisition costs
7,846
Secondary offering costs
1,065
Inventories
19,297
Other costs
2,780
Total adjustments
229,405
Adjusted EBITDA
$
249,941
Long-term debt — less current portion
$
581,418
Current portion
6,000
Unamortized deferred financing fees
4,176
Unamortized original issue discount
3,906
Finance leases
78,440
Gross debt
$
673,940
Cash and cash equivalents
(244,597
)
Net debt
$
429,343
Net leverage
1.7x
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/20230808404820/en/
Investor Relations Contact: Eric Robinson 312-809-1093
ir@azekco.com Media Contact: Amanda Cimaglia 312-809-1093
media@azekco.com
Grafico Azioni AZEK (NYSE:AZEK)
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