Continued Strong Sales Growth and Margin Execution; Expanding
Capacity Investment; Launched Inaugural ESG Report; Raising
Full-Year Fiscal 2021 Outlook
SECOND QUARTER FISCAL 2021 HIGHLIGHTS
- Consolidated net sales increased 19.4% year-over-year to $293.1
million
- Residential segment net sales increased 24.7% year-over-year to
$262.2 million
- Net income increased $18.6 million year-over-year to $22.7
million; Net Margin expanded 600 basis points to 7.7%
- Adjusted EBITDA increased $15.7 million year-over-year to $71.5
million; Adjusted EBITDA Margin expanded 170 basis points to
24.4%1
OUTLOOK HIGHLIGHTS
- Raising Fiscal 2021 Outlook – Expecting consolidated net sales
growth of 23% to 26% year-over-year and Adjusted EBITDA growth of
25% to 29% year-over-year, compared to our previous expectation of
14% to 18% net sales growth and 19% to 23% Adjusted EBITDA
growth
- Increasing Fiscal 2021 Capital Expenditure Outlook – Expecting
capital expenditure of $175 to $185 million, or an additional $50
to $60 million compared to our previous guidance
- Third Quarter Fiscal 2021 Outlook – Expecting consolidated net
sales growth of 29% to 32% year-over-year and Adjusted EBITDA
growth of 15% to 18% year-over-year
1 For a reconciliation of the Adjusted EBITDA and Adjusted
EBITDA Margin metrics, please refer to the reconciliation tables in
the appendix.
The AZEK Company Inc. (the “Company” or “AZEK”) (NYSE: AZEK),
the industry-leading manufacturer of beautiful, low-maintenance and
environmentally sustainable outdoor living products, including
TimberTech® decking and Versatex® and AZEK Trim®, today announced
financial results for the second quarter ended March 31, 2021 of
its fiscal year 2021.
CEO COMMENTS
“Underlying demand across our key outdoor living and exteriors
markets continues to strengthen, and as a result, we are increasing
our guidance as well as investments in capacity and key strategic
initiatives for the balance of the year,” commented Jesse Singh,
AZEK’s Chief Executive Officer. “Within the quarter, the strength
of our customer, supplier and distribution channel partnerships
have enabled us to effectively navigate industry-wide supply chain
disruptions, while continuing to expand capacity and service. We
are seeing significant raw material and other inflation, and we
expect pricing and productivity initiatives to offset inflationary
headwinds by the end of the fiscal year. We are excited by the
momentum of our innovative new products, including our TimberTech
AZEK Landmark decking collection, and continue to see a strong
demand environment. During the second quarter, we also announced
that Boise, Idaho was selected as the location of our new western
U.S. facility, which will enable us to capitalize on future growth
and continued strong demand.”
“As we approach the one-year anniversary of becoming a public
company, I am very proud of the accomplishments of our team – not
only in driving financial performance, but also in their steadfast
dedication to advance AZEK’s goal to revolutionize and lead our
industry towards a more sustainable future. The release of
FULL-CIRCLE, our inaugural ESG Report, is yet another milestone in
our corporate journey. We are excited about the unique opportunity
to have a positive and lasting impact on the world through our
accelerated use of recycled material and look forward to
communicating our progress in the months and years ahead,”
concluded Mr. Singh.
SECOND QUARTER FISCAL 2021 CONSOLIDATED RESULTS
Net sales for the second quarter of fiscal 2021 increased by
$47.5 million, or 19.4%, to $293.1 million from $245.6 million for
the second quarter of fiscal 2020. The increase was attributable to
higher sales growth in our Residential segment. Net sales for the
Residential segment increased by 24.7%, and net sales for the
Commercial segment decreased by 12.5%, in each case as compared to
the prior year period.
Gross profit for the second quarter of fiscal 2021 increased by
$18.5 million, or 23.3%, to $97.9 million from $79.4 million for
the second quarter of fiscal 2020. The increase in gross profit was
primarily driven by the strong sales results in the Residential
segment during the quarter as well as positive pricing and
manufacturing productivity partially offset by higher costs. Gross
margin increased 110 basis points to 33.4%, compared to 32.3% for
the prior year period. Adjusted Gross Profit Margin increased 30
basis points to 39.1%, compared to 38.8% for the prior year
period.
Selling, general and administrative expenses increased by $10.2
million to $59.9 million, or 20.4% of net sales, for the second
quarter of fiscal 2021 from $49.7 million, or 20.2% of net sales,
for the second quarter of fiscal 2020. The increase was primarily
attributable to stock-based compensation expense, ongoing public
company expenses and personnel costs.
Net income increased $18.6 million to $22.7 million, or $0.14
per share, for the second quarter of fiscal 2021 as compared to
$4.1 million, or $0.04 per share, for the second quarter of fiscal
2020, primarily due to sales growth in the Residential segment,
higher gross profit and a decrease in interest expense resulting
from the reduced principal amount outstanding under the Term Loan
Agreement and our formerly outstanding 2021 Senior Notes. Net
margin expanded 600 basis points to 7.7% for the second quarter of
fiscal 2021 as compared to net margin of 1.7% for the second
quarter of fiscal 2020.
Adjusted Net Income increased $20.9 million to $39.3 million, or
Adjusted Diluted EPS of $0.25 per share, for the second quarter of
fiscal 2021 as compared to Adjusted Net Income of $18.4 million, or
Adjusted Diluted EPS of $0.17 per share, for the second quarter of
fiscal 2020.
Adjusted EBITDA increased by $15.7 million to $71.5 million for
the second quarter of fiscal 2021 as compared to Adjusted EBITDA of
$55.8 million for the second quarter of fiscal 2020. The increase
was mainly driven by sales growth in the Residential segment and
higher gross profit. Adjusted EBITDA Margin expanded 170 basis
points to 24.4% from 22.7% for the prior year period.
SECOND QUARTER FISCAL 2021 SEGMENT RESULTS
Residential Segment
Net sales for the second quarter of fiscal 2021 increased by
$52.0 million, or 24.7%, to $262.2 million from $210.2 million for
the second quarter of fiscal 2020. The increase was primarily
attributable to higher sales in our Deck, Rail & Accessories
and Exteriors businesses.
Segment Adjusted EBITDA for the second quarter of fiscal 2021
increased by $18.9 million, or 30.1%, to $81.7 million from $62.8
million for the second quarter of fiscal 2020. The increase was
mainly driven by higher sales and manufacturing productivity,
partially offset by higher costs. Segment Adjusted EBITDA Margin
expanded 130 basis points to 31.2% from 29.9% for the prior year
period.
Commercial Segment
Net sales decreased by $4.4 million, or 12.5% to $30.9 million
for the second quarter of fiscal 2021, compared to $35.3 million
for the second quarter of fiscal 2020. The decrease was primarily
attributable to lower net sales in our Scranton Products and Vycom
businesses as the effects of COVID-19 continued to impact certain
end markets demand during the quarter, partially offset by
increased pricing.
Segment Adjusted EBITDA increased by $0.6 million, or 18.6%, to
$3.7 million for the second quarter of fiscal 2021, compared to
$3.1 million for the second quarter of fiscal 2020. The increase
was primarily driven by manufacturing productivity and lower
selling, general and administrative expenses partially offset by
lower net sales. Segment Adjusted EBITDA Margin expanded 310 basis
points to 12.0% from 8.9% for the prior year period.
SIX MONTHS FISCAL 2021 RESULTS
Net sales for the six months ended March 31, 2021 increased by
$93.8 million, or 22.8%, to $505.4 million from $411.6 million for
the six months ended March 31, 2020. The increase was attributable
to higher sales growth in our Residential segment. Net sales for
the six months ended March 31, 2021 increased for our Residential
segment by 29.5% and decreased for our Commercial segment by 12.4%,
in each case as compared to the prior year.
Net income (loss) increased by $38.6 million to net income of
$32.8 million, or $0.21 per share, for the six months ended March
31, 2021, compared to net loss of ($5.8) million, or ($0.05) per
share, for the six months ended March 31, 2020, primarily driven by
sales growth in the Residential segment, higher gross profit and a
decrease in interest expense resulting from the reduced principal
amount outstanding under the Term Loan Agreement and our formerly
outstanding 2021 Senior Notes. Net margin expanded 790 basis points
to 6.5% for the six months ended March 31, 2021 compared to net
margin of (1.4%) for the six months ended March 31, 2020.
Adjusted Net Income was $62.3 million, or Adjusted Diluted EPS
of $0.40 per share, for the six months ended March 31, 2021,
compared to Adjusted Net Income of $22.0 million, or Adjusted
Diluted EPS of $0.20 per share, for the six months ended March 31,
2020.
Adjusted EBITDA for the first six months ended March 31, 2021
increased by $30.3 million to $120.0 million from $89.6 million for
the six months ended March 31, 2020. The increase was mainly driven
by sales growth in the Residential segment and higher gross profit.
Adjusted EBITDA Margin expanded 190 basis points to 23.7% from
21.8% for the prior year period.
SIX MONTHS FISCAL 2021 SEGMENT RESULTS
Residential Segment
Net sales for the six months ended March 31, 2021 increased by
$101.9 million, or 29.5%, to $447.8 million from $345.9 million for
the six months ended March 31, 2020. The increase was primarily
attributable to higher sales in our Deck, Rail & Accessories
and Exteriors businesses.
Segment Adjusted EBITDA for the six months ended March 31, 2021
increased by $38.8 million, or 38.1%, to $140.5 million from $101.7
million for the six months ended March 31, 2020. The increase was
mainly driven by higher sales and manufacturing productivity,
partially offset by higher selling general and administrative
expenses.
Commercial Segment
Net sales for the six months ended March 31, 2021 decreased by
$8.2 million, or 12.4%, to $57.6 million from $65.7 million for the
six months ended March 31, 2020. The decrease was primarily
attributable to lower sales in our Scranton Products and Vycom
businesses as the effects of COVID-19 continue to impact certain
end markets, partially offset by increased pricing.
Segment Adjusted EBITDA of the Commercial segment increased by
$0.9 million, or 14.2%, to $7.0 million for the six months ended
March 31, 2021, compared to $6.2 million for the six months ended
March 31, 2020. The increase was primarily driven by net
manufacturing productivity and selling, general and administrative
expenses offset by declining sales as described above.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of March 31, 2021, the Company had cash and cash equivalents
of $151.3 million and approximately $145.6 million available for
future borrowings under our Revolving Credit Facility. Total debt
as of March 31, 2021 was $467.7 million.
Net cash provided by operating activities was $7.0 million for
the six months ended March 31, 2021 versus a use of ($68.0) million
in the six months ended March 31, 2020.
OUTLOOK
“We continue to believe that the strength and flexibility of our
business model position us well to deliver long term value and
outperformance in various market environments. As we look ahead to
the remainder of our fiscal 2021, our increased guidance
underscores our conviction in the sustained underlying demand we
are seeing across our Residential segment, while channel inventory
remains below benchmark levels. We remain highly optimistic about
the strong trends in outdoor living and material conversion as well
as our proven ability to deliver growth and margin expansion. We
continue to pursue investments in growth for the long-term, and as
a result, we are upsizing our overall capacity expansion program
and increasing our 2021 capital expenditure guidance to be between
$175 to $185 million, or an additional $50 to $60 million
investment compared to our previous guidance. The upsized capacity
investment is expected to result in both an incremental 15% decking
capacity and expanded recycle capabilities in early 2022, on top of
our prior 70% capacity expansion program,” added Mr. Singh.
AZEK is raising its outlook for the full year fiscal 2021. The
outlook includes increased sales, recent pricing and productivity
actions, strategic investments and inflation. AZEK now expects
consolidated net sales growth of 23% to 26% year-over-year and
Adjusted EBITDA growth in the 25% to 29% range year-over-year. From
a segment perspective, AZEK expects Residential segment net sales
growth of around 30% year-over-year, partially offset by a
mid-single digit decline in Commercial segment net sales, which is
consistent with prior guidance.
For the third quarter fiscal 2021 guidance, AZEK expects
consolidated net sales growth in the 29% to 32% range
year-over-year, driven by strong Residential segment growth in the
mid-30% range, partially offset by expected flat net sales in the
Commercial segment. AZEK is expecting Adjusted EBITDA growth in the
15% to 18% range year-over-year.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today,
Thursday, May 13, 2021 at 9:00 a.m. (CT).
To access the live conference call, please register for the call
in advance by visiting
http://www.directeventreg.com/registration/event/5177557.
Registration will also be available during the call. After
registering, a confirmation e-mail will be sent including dial-in
details and unique conference call codes for entry. To ensure you
are connected for the full call please register at least 10 minutes
before the start of the call.
Interested investors and other parties can also listen to a
webcast of the live conference call by logging onto the Investor
Relations section of the Company's website at
https://investors.azekco.com/events-and-presentations/.
For those unable to listen to the live conference call, a replay
will be available approximately two hours after the call through
the archived webcast on the AZEK website or by dialing (800)
585-8367 or (416) 621-4642. The conference ID for the replay is
5177557. The replay will be available until 10:59 p.m. (CT) on May
27, 2021.
ABOUT THE AZEK® COMPANY
The AZEK Company Inc. (NYSE: AZEK) is the industry-leading
designer and manufacturer of beautiful, low maintenance and
environmentally sustainable outdoor living products, including
TimberTech® decking and Versatex® and AZEK Trim®. Consistently
recognized as a market leader in innovation, quality and
aesthetics, products across AZEK’s portfolio are made from up to
100% recycled material and primarily replace wood on the outside of
homes, providing a long-lasting, eco-friendly and stylish solution
to consumers. Leveraging the talents of its nearly 1,700 employees
and the strength of relationships across its value chain, The AZEK
Company is committed to accelerating the use of recycled material
in the manufacturing of its innovative products, keeping millions
of pounds of waste out of landfills each year, and revolutionizing
the industry to create a more sustainable future. Headquartered in
Chicago, Illinois, the company operates manufacturing facilities in
Ohio, Pennsylvania and Minnesota, and recently announced a new
facility will open in Boise, Idaho.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This earnings release contains forward-looking statements within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical facts contained in this
earnings release, including statements regarding future operations
are forward-looking statements. In some cases, forward looking
statements may be identified by words such as "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "could,"
"would," "expect," "objective," "plan," "potential," "seek,"
"grow," "target," "if," and similar expressions intended to
identify forward-looking statements. Projected financial
information, including our guidance and outlook, are
forward-looking statements. Other forward-looking statements may
include, without limitation, statements about potential new
products and product innovation, statements regarding the potential
impact of the COVID-19 pandemic, statements about future pricing
for our products or our raw materials and our ability to offset
negative price impacts, statements about the markets in which we
operate, including growth of our various markets and growth in the
use of engineered products, and our expectations, beliefs, plans,
strategies, objectives, prospects, assumptions or future events or
performance contained in this earnings release are forward-looking
statements. We have based these forward-looking statements
primarily on our current expectations and projections about future
events and trends that we believe may affect our financial
condition, results of operations, business strategy, short-term and
long-term business operations and objectives and financial needs.
These forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including those described in the
section titled "Risk Factors" set forth in Part II, Item 1A of the
Quarterly Report on Form 10-Q for our second quarter of fiscal 2021
and in our other filings with the U.S. Securities and Exchange
Commission (“SEC”), including our Annual Report on Form 10-K for
fiscal 2020. Moreover, we operate in a very competitive and rapidly
changing environment. New risks emerge from time to time. It is not
possible for our management to predict all risks, nor can we assess
the impact of all factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and
assumptions, the future events and trends discussed in this
earnings release may not occur and actual results may differ
materially and adversely from those anticipated or implied in the
forward-looking statements. You should read this earnings release
with the understanding that our actual future results, levels of
activity, performance and events and circumstances may be
materially different from what we expect.
These statements are based on information available to us as of
the date of this earnings release. While we believe that such
information provides a reasonable basis for these statements, such
information may be limited or incomplete. Our statements should not
be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all relevant information. We disclaim any
intention and undertake no obligation to update or revise any of
our forward-looking statements after the date of this release to
reflect actual results or future events or circumstances whether as
a result of new information, future events or otherwise, except as
required by law. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements.
NON-GAAP FINANCIAL MEASURES
To supplement our earnings release and consolidated financial
statements prepared and presented in accordance with generally
accepted accounting principles in the United States, or (“GAAP”),
we use certain non-GAAP performance financial measures, as
described within this earnings release, to provide investors with
additional useful information about our financial performance, to
enhance the overall understanding of our past performance and
future prospects and to allow for greater transparency with respect
to important metrics used by our management for financial and
operational decision-making. We are presenting these non-GAAP
financial measures to assist investors in seeing our financial
performance from management’s view and because we believe they
provide an additional tool for investors to use in comparing our
core financial performance over multiple periods with other
companies in our industry. Our GAAP financial results include
significant expenses that may not be indicative of our ongoing
operations as detailed within this earnings release.
However, non-GAAP financial measures have limitations in their
usefulness to investors because they have no standardized meaning
prescribed by GAAP and are not prepared under any comprehensive set
of accounting rules or principles. In addition, non-GAAP financial
measures may be calculated differently from, and therefore may not
be directly comparable to, similarly titled measures used by other
companies. As a result, non-GAAP financial measures should be
viewed as supplementing, and not as an alternative or substitute
for, our earnings release and our consolidated financial statements
prepared and presented in accordance with GAAP.
We define Adjusted Gross Profit as gross profit before
depreciation and amortization, business transformation costs and
acquisition costs as described below. Adjusted Gross Profit Margin
is equal to Adjusted Gross Profit divided by net sales.
We define Adjusted Net Income as net income (loss) before
amortization, share-based compensation costs, business
transformation costs, acquisition costs, initial public offering
costs and certain other costs as described below.
We define Adjusted Diluted EPS as Adjusted Net Income divided by
weighted average common shares outstanding – diluted, to reflect
the conversion or exercise, as applicable, of all outstanding
shares of restricted stock awards, restricted stock units and
options to purchase shares of our common stock.
We define Adjusted EBITDA as net income (loss) before interest
expense, net, income tax (benefit) expense and depreciation and
amortization and by adding to or subtracting therefrom items of
expense and income as described above.
Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by
net sales. Net Leverage is equal to gross debt less cash and cash
equivalents, divided by trailing twelve month Adjusted EBITDA. We
believe Adjusted Gross Profit, Adjusted Gross Profit Margin,
Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA,
Adjusted EBITDA Margin and Net Leverage are useful to investors
because they help identify underlying trends in our business that
could otherwise be masked by certain expenses that can vary from
company to company depending on, among other things, its financing,
capital structure and the method by which its assets were acquired,
and can also vary significantly from period to period. We also add
back depreciation and amortization and share-based compensation
because we do not consider them indicative of our core operating
performance. We believe their exclusion facilitates comparisons of
our operating performance on a period-to-period basis. Therefore,
we believe that showing gross profit and net income, as adjusted to
remove the impact of these expenses, is helpful to investors in
assessing our gross profit and net income performance in a way that
is similar to the way management assesses our performance.
Additionally, EBITDA and EBITDA margin are common measures of
operating performance in our industry, and we believe they
facilitate operating comparisons. Our management also uses Adjusted
Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA and
Adjusted EBITDA Margin in conjunction with other GAAP financial
measures for planning purposes, including as a measure of our core
operating results and the effectiveness of our business strategy,
and in evaluating our financial performance. Management considers
Adjusted Gross Profit and Adjusted Net Income as useful measures
because our cost of sales includes the depreciation of property,
plant and equipment used in the production of products and the
amortization of various intangibles related to our manufacturing
processes. Further, management considers Net Leverage as a useful
measure to assess our borrowing capacity.
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted
Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA
Margin and Net Leverage have limitations as analytical tools, and
you should not consider them in isolation or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
- These measures do not reflect our cash expenditures, future
requirements for capital expenditures or contractual
commitments;
- These measures do not reflect changes in, or cash requirements
for, our working capital needs;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the
significant interest expense, or the cash requirements necessary to
service interest or principal payments, on our debt;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our
income tax expense or the cash requirements to pay our taxes;
- Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted
EPS and Adjusted EBITDA exclude the expense of depreciation, in the
case of Adjusted Gross Profit and Adjusted EBITDA, and
amortization, in each case, of our assets, and, although these are
non-cash expenses, the assets being depreciated may have to be
replaced in the future;
- Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA
exclude the expense associated with our equity compensation plan,
although equity compensation has been, and will continue to be, an
important part of our compensation strategy;
- Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted
EPS and Adjusted EBITDA exclude certain business transformation
costs, acquisition costs and other costs, each of which can affect
our current and future cash requirements; and
- Other companies in our industry may calculate Adjusted Gross
Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted
Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Net
Leverage differently than we do, limiting their usefulness as
comparative measures.
Because of these limitations, none of these metrics should be
considered indicative of discretionary cash available to us to
invest in the growth of our business or as measures of cash that
will be available to us to meet our obligations.
Segment Adjusted EBITDA
Depending on certain circumstances, Segment Adjusted EBITDA may
be calculated differently, from time to time, than our Adjusted
EBITDA and Adjusted EBITDA Margin, which are further discussed
under the heading “Non-GAAP Financial Measures.” Segment Adjusted
EBITDA represents a measure of segment profit reported to our chief
operating decision maker for the purpose of making decisions about
allocating resources to a segment and assessing its performance.
For more information regarding how Segment Adjusted EBITDA is
determined, see our Consolidated Financial Statements and related
notes included in our Quarterly Report on Form 10-Q for the second
quarter of fiscal 2021 filed with the SEC.
The AZEK Company Inc.
Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
March 31,
2021
September 30,
2020
ASSETS:
Current assets:
Cash and cash equivalents
$
151,317
$
215,012
Trade receivables, net of allowances
128,463
70,886
Inventories
166,498
130,070
Prepaid expenses
10,975
8,367
Other current assets
527
360
Total current assets
457,780
424,695
Property, plant and equipment - net
311,850
261,774
Goodwill
951,390
951,390
Intangible assets - net
267,191
292,374
Other assets
2,190
1,623
Total assets
$
1,990,401
$
1,931,856
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
51,547
$
42,059
Accrued rebates
22,922
30,362
Accrued interest
3,512
1,103
Current portion of long-term debt
obligations
—
—
Accrued expenses and other liabilities
48,224
50,516
Total current liabilities
126,205
124,040
Deferred income taxes
29,970
21,260
Finance lease obligation—less current
portion
10,731
10,910
Long-term debt—less current portion
464,146
462,982
Other non-current liabilities
9,946
8,776
Total liabilities
640,998
627,968
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized and no shares issued or outstanding at
March 31, 2021 and September 30, 2020, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized,
154,739,238 shares issued and outstanding
at March 31, 2021 and
154,637,240 shares issued and outstanding
at September 30, 2020
155
155
Class B common stock, $0.001 par value;
100,000,000 shares authorized,
100 shares issued and outstanding at March
31, 2021 and at September 30, 2020, respectively
—
—
Additional paid‑in capital
1,599,883
1,587,208
Accumulated deficit
(250,635
)
(283,475
)
Total stockholders' equity
1,349,403
1,303,888
Total liabilities and stockholders'
equity
$
1,990,401
$
1,931,856
The AZEK Company Inc.
Consolidated Statements of
Comprehensive Income (Loss)
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
Three Months Ended March
31,
Six Months Ended March
31,
2021
2020
2021
2020
Net sales
$
293,121
$
245,585
$
505,399
$
411,628
Cost of sales
195,258
166,213
334,560
280,965
Gross profit
97,863
79,372
170,839
130,663
Selling, general and administrative
expenses
59,897
49,693
112,926
93,166
Other general expenses
1,149
3,115
1,149
5,093
Loss (gain) on disposal of property, plant
and equipment
86
101
298
28
Operating income (loss)
36,731
26,463
56,466
32,376
Other expenses:
Interest expense
6,516
19,975
12,712
39,734
Total other expenses
6,516
19,975
12,712
39,734
Income (loss) before income taxes
30,215
6,488
43,754
(7,358)
Income tax expense (benefit)
7,558
2,400
10,914
(1,600)
Net income (loss)
$
22,657
$
4,088
$
32,840
$
(5,758)
Net income (loss) per common share -
basic
$
0.15
$
0.04
$
0.21
$
(0.05)
Net income (loss) per common share -
diluted
0.14
0.04
0.21
(0.05)
Comprehensive income (loss)
$
22,657
$
4,088
$
32,840
$
(5,758)
Weighted-average common shares outstanding
- basic and diluted
Basic
153,509,612
108,162,741
153,366,516
108,162,741
Diluted
156,747,514
108,162,741
156,377,902
108,162,741
The AZEK Company Inc.
Consolidated Statements of
Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Six Months Ended March
31,
2021
2020
Operating activities:
Net income (loss)
$
32,840
$
(5,758
)
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in) operating activities:
Depreciation
24,335
20,891
Amortization of intangibles
25,183
27,737
Non-cash interest expense
1,590
1,993
Deferred income tax (benefit)
provision
8,710
(3,008
)
Non-cash compensation expense
9,931
1,380
Loss (gain) on disposition of property
298
28
Bad debt provision
155
751
Changes in certain assets and
liabilities:
Trade receivables
(57,733
)
(72,030
)
Inventories
(36,428
)
(20,389
)
Prepaid expenses and other currents
assets
(2,774
)
(786
)
Accounts payable
8,239
(9,923
)
Accrued expenses and interest
(8,507
)
(10,362
)
Other assets and liabilities
1,116
1,444
Net cash provided by (used in) operating
activities
6,955
(68,032
)
Investing activities:
Purchases of property, plant and
equipment
(71,995
)
(42,606
)
Proceeds from disposition of fixed
assets
32
231
Acquisition, net of cash acquired
—
(17,865
)
Net cash provided by (used in) investing
activities
(71,963
)
(60,240
)
Financing activities:
Proceeds under revolving credit
facility
—
129,000
Payments on long-term debt obligations
—
(4,283
)
Payment of debt issuance costs
(938
)
—
Proceeds (repayments) of finance lease
obligations
(492
)
(390
)
Exercise of vested stock options
2,953
—
Payments of IPO related costs
(210
)
(5,729
)
Redemption of capital contributions
—
(3,075
)
Capital contribution from members
—
1,500
Net cash provided by (used in) financing
activities
1,313
117,023
Net increase (decrease) in cash and cash
equivalents
(63,695
)
(11,249
)
Cash and cash equivalents – Beginning of
period
215,012
105,947
Cash and cash equivalents – End of
period
$
151,317
$
94,698
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
8,645
$
37,269
Cash paid for income taxes, net
2,341
280
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
4,420
$
2,424
Property, plant and equipment acquired
under finance leases
539
630
Segment Results from Operations
Residential Segment
The following table summarizes certain financial information
relating to the Residential segment results that have been derived
from our unaudited Condensed Consolidated Financial Statements for
the three and six months ended March 31, 2021 and 2020.
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2021
2020
$
Variance
%
Variance
2021
2020
$
Variance
%
Variance
Net sales
$
262,198
$
210,247
$
51,951
24.7
%
$
447,838
$
345,915
$
101,923
29.5
%
Segment Adjusted EBITDA
81,699
62,806
18,893
30.1
%
140,475
101,721
38,754
38.1
%
Segment Adjusted EBITDA Margin
31.2
%
29.9
%
N/A
N/A
31.4
%
29.4
%
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 unaudited Condensed Consolidated Financial Statements for
the three and six months ended March 31, 2021 and 2020.
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2021
2020
$
Variance
%
Variance
2021
2020
$
Variance
%
Variance
Net sales
$
30,923
$
35,338
$
(4,415
)
(12.5
)%
$
57,561
$
65,713
$
(8,152
)
(12.4
)%
Segment Adjusted EBITDA
3,714
3,132
582
18.6
%
7,030
6,155
875
14.2
%
Segment Adjusted EBITDA Margin
12.0
%
8.9
%
N/A
N/A
12.2
%
9.4
%
N/A
N/A
Adjusted EBITDA and Adjusted EBITDA Margin
Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2021
2020
2021
2020
Net income (loss)
$
22,657
$
4,088
$
32,840
$
(5,758
)
Interest expense
6,516
19,975
12,712
39,734
Depreciation and amortization
25,248
24,487
49,518
48,628
Income tax expense (benefit)
7,558
2,400
10,914
(1,600
)
Stock-based compensation
7,156
696
10,136
1,381
Business transformation costs (1)
—
163
—
326
Acquisition costs (2)
—
791
—
1,356
Initial public offering and secondary
offering costs
1,149
3,115
1,149
5,093
Other costs (3)
1,227
103
2,694
464
Total adjustments
48,854
51,730
87,123
95,382
Adjusted EBITDA
$
71,511
$
55,818
$
119,963
$
89,624
Three Months Ended March
31,
Six Months Ended March
31,
2021
2020
2021
2020
Net income (loss)
7.7
%
1.7
%
6.5
%
-1.4
%
Interest expense
2.2
%
8.1
%
2.5
%
9.7
%
Depreciation and amortization
8.6
%
10.0
%
9.8
%
11.9
%
Income tax expense (benefit)
2.6
%
1.0
%
2.2
%
-0.4
%
Stock-based compensation
2.5
%
0.3
%
2.0
%
0.3
%
Business transformation costs
—
0.1
%
—
0.1
%
Acquisition costs
—
0.3
%
—
0.3
%
Initial public offering costs
0.4
%
1.2
%
0.2
%
1.2
%
Other costs
0.4
%
0.0
%
0.5
%
0.0
Total adjustments
16.7
%
21.0
%
17.2
%
23.2
%
Adjusted EBITDA Margin
24.4
%
22.7
%
23.7
%
21.8
%
(1)
Business transformation costs reflect
consulting and other costs related to the transformation of the
senior management team of $0.2 million and $0.3 million for the
three and six months ended March 31, 2020, respectively.
(2)
Acquisition costs reflect costs directly
related to completed acquisitions of $0.2 million and $0.8 million
for the three and six months ended March 31, 2020, respectively,
and inventory step-up adjustments related to recording the
inventory of acquired businesses at fair value on the date of
acquisition of $0.6 million and $0.6 million for the three and six
months ended March 31, 2020, respectively.
(3)
Other costs include costs for legal
expense of $0.5 million and $1.0 million for the three and six
months ended March 31, 2021, respectively, and costs related to an
incentive plan and other ancillary expenses associated with the
initial public offering of $0.7 million and $1.7 million for the
three and six months ended March 31, 2021, respectively, and $0.1
million and $0.5 million for the three and six months ended March
31, 2020, respectively.
Adjusted Gross Profit and Adjusted Gross Profit Margin
Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2021
2020
2021
2020
Gross Profit
$
97,863
$
79,372
$
170,839
$
130,663
Depreciation and amortization (1)
16,802
15,387
32,598
30,538
Acquisitions costs (2)
—
554
—
554
Adjusted Gross Profit
$
114,665
$
95,313
$
203,437
$
161,755
Three Months Ended March
31,
Six Months Ended March
31,
2021
2020
2021
2020
Gross Margin
33.4
%
32.3
%
33.8
%
31.8
%
Depreciation and amortization
5.7
%
6.3
%
6.5
%
7.4
%
Acquisitions costs
—
0.2
%
—
0.1
%
Adjusted Gross Profit Margin
39.1
%
38.8
%
40.3
%
39.3
%
(1)
Depreciation and amortization for the
three months ended March 31, 2021 and 2020 consists of $11.3
million and $9.2 million, respectively, of depreciation and $5.5
million and $6.2 million, respectively, of amortization of
intangible assets relating to our manufacturing process.
Depreciation and amortization for the six months ended March 31,
2021 and 2020 consists of $21.6 million and $18.1 million,
respectively, of depreciation and $11.0 million and $12.4 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.
Adjusted Net Income and Adjusted Diluted EPS
Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2021
2020
2021
2020
Net income (loss)
$
22,657
$
4,088
$
32,840
$
(5,758
)
Amortization (1)
12,540
13,879
25,183
27,737
Stock-based compensation (2)
6,087
696
8,773
1,381
Business transformation costs (3)
—
163
—
326
Acquisition costs (4)
—
791
—
1,356
Initial public offering and secondary
offering costs
1,149
3,115
1,149
5,093
Other costs (5)
1,227
103
2,694
464
Tax impact of adjustments (6)
(4,400
)
(4,423
)
(8,350
)
(8,569
)
Adjusted Net Income
$
39,260
$
18,412
$
62,289
$
22,030
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars per diluted
share)
2021
2020
2021
2020
Net income (loss)
$
0.14
$
0.04
$
0.21
$
(0.05
)
Amortization
0.08
0.13
0.15
0.26
Stock-based compensation
0.04
0.01
0.06
0.01
Initial public offering and secondary
offering costs
0.01
0.03
0.01
0.06
Other costs
0.01
—
0.02
—
Tax impact of adjustments
(0.03
)
(0.04
)
(0.05
)
(0.08
)
Adjusted Diluted EPS (7)
$
0.25
$
0.17
$
0.40
$
0.20
(1)
Effective as of September 30, 2020, we
revised the definition of Adjusted Net Income to remove
depreciation expense from the calculation. The prior periods have
been recast to reflect the change.
(2)
Stock-based compensation costs for the
three and six months ended March 31, 2021 reflect expenses related
to our initial public offering. Expenses related to our recurring
awards granted each fiscal year long-term incentive plan are
excluded from the Adjusted Net Income reconciliation.
(3)
Business transformation costs reflect
consulting and other costs related to the transformation of the
senior management team of $0.2 million and $0.3 million for the
three and six months ended March 31, 2020, respectively.
(4)
Acquisition costs reflect costs directly
related to completed acquisitions of $0.2 million and $0.8 million
for the three and six months ended March 31, 2020, respectively,
and inventory step-up adjustments related to recording the
inventory of acquired businesses at fair value on the date of
acquisition of $0.6 million and $0.6 million for the three and six
months ended March 31, 2020, respectively.
(5)
Other costs include costs for legal
expense of $0.5 million and $1.0 million for the three and six
months ended March 31, 2021, respectively, and costs related to an
incentive plan and other ancillary expenses associated with the
initial public offering of $0.7 million and $1.7 million for the
three and six months ended March 31, 2021, respectively, and $0.1
million and $0.5 million for the three and six months ended March
31, 2020, respectively.
(6)
Tax impact of adjustments are based on
applying a combined U.S. federal and state statutory tax rate of
24.5% for both the three and six months ended March 31, 2021 and
2020.
(7)
Weighted average common shares outstanding
used in computing diluted net income (loss) per common share of
156,747,514 and 108,162,741 for the three months ended March 31,
2021 and 2020, respectively, and 156,377,902 and 108,162,741 for
the six months ended March 31, 2021 and 2020, respectively.
Net Leverage Reconciliation
Six Months Ended March
31,
Twelve Months Ended September
30,
Twelve Months Ended March
31,
2021
2020
2020
2021
Net income (loss)
$
32,840
$
(5,758
)
$
(122,233
)
$
(83,635
)
Interest expense
12,712
39,734
71,179
44,157
Depreciation and amortization
49,518
48,628
99,781
100,671
Income tax expense (benefit)
10,914
(1,600
)
(8,278
)
4,236
Stock-based compensation
10,136
1,381
120,517
129,272
Business transformation costs
-
-
594
594
Acquisition costs
-
326
1,596
1,270
Initial public offering costs
1,149
1,356
8,616
8,409
Other costs
2,694
5,093
4,154
1,755
Capital structure transaction costs
-
464
37,587
37,123
Total adjustments
87,123
95,382
335,746
327,487
Adjusted EBITDA
$
119,963
$
89,624
$
213,513
$
243,852
Long-term debt less current portion
$
464,146
Unamortized deferred financing fees
3,134
Unamortized original issue discount
374
Gross debt
467,654
Cash and cash equivalents
(151,317
)
Net debt
$
316,337
Net Leverage
1.3x
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
variability in the provision for income taxes, the estimates for
warranty and rebate accruals and timing of the gain or loss on
disposal of property, plant and equipment. Such reconciling items
that impact Adjusted EBITDA have not occurred, are outside of our
control or cannot be reasonably predicted. Accordingly, a
reconciliation of Adjusted EBITDA to its most comparable GAAP
measure is not available without unreasonable effort. However, it
is important to note that material changes to these reconciling
items could have a significant effect on our Adjusted EBITDA
guidance and future GAAP results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210513005310/en/
Investor Relations Contact: Amanda Cimaglia 312-809-1093
ir@azekco.com
Media Contact: Amy Widdowson (650) 597-7132
AZEKquestions@zenogroup.com
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