Delivered Fiscal Second Quarter Financial Performance Ahead
of Expectations; Strong Cash Conversion; Company Well Positioned
Heading Into Building Season
SECOND QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS
- Consolidated Net Sales of $377.7 million
- Net Income of $16.3 million; Adjusted Net Income of $27.0
million
- EPS of $0.11 per share; Adjusted Diluted EPS of $0.18 per
share
- Adjusted EBITDA of $72.8 million
- Net Cash Provided by Operating Activities of $56.7 million,
improving $93.7 million year over year driven primarily by working
capital improvements
- Improved Free Cash Flow by $125.4 million year over year,
driven by operational discipline, working capital reductions, and
measured capital investments
RECENT COMPANY HIGHLIGHTS
- Solid execution in a dynamic market environment reaffirms our
confidence in ability to deliver against full year 2023 planning
assumptions and margin expansion in the second half of fiscal
2023
- Continued progress against strategic initiatives, including
channel expansion and higher recycled material content in our
sustainable outdoor living products
- Recognized by Green Builder for two 2023 Sustainable Products
of the Year Awards and by Good Housekeeping’s 2023 Sustainable
Innovation 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
second quarter ended March 31, 2023.
CEO COMMENTS
“The AZEK team delivered results ahead of expectations driven by
steady Residential end market demand and disciplined operational
execution. We are on track to deliver against our strategic
initiatives and our team remains focused on driving accelerated
material conversion away from wood. We have executed well in the
first two quarters of the fiscal year, and while we are still early
in the traditional building season, we are confident in our ability
to deliver against the financial targets outlined in our fiscal
2023 planning assumptions,” said Jesse Singh, AZEK’s CEO. “During
the quarter, specific and targeted efforts on working capital
improvements drove an approximately $90 million improvement in
year-over-year net cash provided by operating activities and
another approximately $30 million year-over-year improvement
generated from disciplined capital expenditure deployment,”
continued Mr. Singh.
“We are proud to be recognized with several product awards this
quarter. First, The AZEK Company received two Sustainable Product
of the Year awards in the 2023 Green Builder survey, namely for
TimberTech Advanced PVC Decking and AZEK Captivate Pre-Finished
Siding & Trim. These awards validate our consistent and ongoing
investment in R&D to launch new product innovations that
provide unique and environmentally sustainable benefits to our
customers,” said Mr. Singh. “In addition, TimberTech Advanced PVC
Decking was named a winner in the prestigious 2023 Sustainable
Innovation Awards by Good Housekeeping. We are excited to be
recognized by Good Housekeeping’s panel of lab professionals and
sustainability experts who evaluated our product on rigorous
criteria, including energy and water reduction, recycled content,
and recyclability. The judges were also impressed by TimberTech
Advanced PVC Decking's exceptional durability, stunning aesthetics,
and remarkable sustainability features,” noted Mr. Singh. “Finally,
we were also named the #1 brand in Composite Decking by House
Beautiful. These awards and recognitions reflect our unparalleled
focus on developing the best aesthetics in decking, which will help
drive material conversion over time,” continued Mr. Singh.
“New products launched in fiscal 2023, including new on-trend
colors in our premium decking line and new solutions in our
composite and aluminum railing collections, have all been
well-received by our customers, and we are excited about the uptake
we have seen to date. Innovation and new product development
complement the strong characteristics of our business and the
markets we serve. We operate in large and attractive categories
that are driven by repair and remodel projects and material
conversion to higher-quality, lower-maintenance solutions. We are
still in the early stages of expansion and conversion, as wood
continues to represent approximately 40% to 75% of our core
markets. We are excited about the compelling long-term growth and
margin expansion opportunity in front of us,” concluded Mr.
Singh.
SECOND QUARTER FISCAL 2023 CONSOLIDATED RESULTS
Net sales for the three months ended March 31, 2023 decreased by
$18.6 million, or 4.7%, to $377.7 million from $396.3 million for
the three months ended March 31, 2022. As expected, the decrease
was primarily due to a decline in volume, partially offset by
positive pricing and contribution from a recent acquisition. Net
sales for the three months ended March 31, 2023 decreased for the
Residential segment by 2.4% and our Commercial segment by 22.5%, in
each case as compared to the prior year period.
Net income decreased by $19.5 million to $16.3 million, or $0.11
per share, for the three months ended March 31, 2023, compared to
$35.8 million, or $0.23 per share, for the three months ended March
31, 2022.
Adjusted EBITDA decreased by $18.1 million to $72.8 million for
the three months ended March 31, 2023, compared to Adjusted EBITDA
of $90.9 million for the three months ended March 31, 2022.
Adjusted Net Income decreased by $23.8 million to $27.0 million,
or Adjusted Diluted EPS of $0.18 per share, for the three months
ended March 31, 2023, compared to Adjusted Net Income of $50.8
million, or Adjusted Diluted EPS of $0.33 per share, for the three
months ended March 31, 2022.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of March 31, 2023, the Company had cash and cash equivalents
of $126.3 million and approximately $147.2 million available for
future borrowings under our Revolving Credit Facility. Total gross
debt, including finance leases, as of March 31, 2023 was $675.8
million.
OUTLOOK
“Through the first two quarters of the fiscal year, our
Residential segment sell-through has trended modestly better than
our planning assumptions, partially offset by our Commercial
segment which has been more challenged. While we see incrementally
better results in our Residential business, we are early in the
building season and remain cautious given the macro uncertainty.
With our strong operational focus and initiatives, combined with
incrementally better Residential performance, we remain confident
in our ability to deliver against the financial targets outlined in
our fiscal 2023 planning assumptions. As we progress through this
year and into fiscal 2024, we will continue to focus on growth
opportunities, margin expansion and free cash flow generation
through working capital initiatives and a disciplined approach to
capital expenditures,” 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 expect Adjusted
EBITDA to be in a range between $250 to $265 million. Capital
expenditures for fiscal 2023 are expected to be in the range of $70
to $80 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.
For the fiscal third quarter of 2023, AZEK expects consolidated
net sales in the range of $358 to $378 million, and Adjusted EBITDA
in the range of $81 to $89 million.
“We remain incredibly excited about the opportunity to address
the large and fast-growing markets that we play in as a company. I
would like to thank the AZEK team who have worked tirelessly to
position the Company as the innovation leader in outdoor living,
with leading positions across decking, railing and exteriors. Our
strengths and relative position in each of these markets provide
confidence that we will achieve our long-term strategic objectives
for shareholders,” concluded Mr. Singh.
CONFERENCE CALL AND WEBSITE INFORMATION
AZEK will hold a conference call to discuss the results today,
Thursday, May 4, 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 May 18, 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 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. The AZEK Company has recently been named
a Gamechanger in ESG by CohnReznick, 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.
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, 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
March 31, 2023
September 30, 2022
ASSETS:
Current assets:
Cash and cash equivalents
$
126,259
$
120,817
Trade receivables, net of allowances
152,745
90,159
Inventories
251,025
299,905
Prepaid expenses
16,747
17,212
Other current assets
21,822
2,501
Total current assets
568,598
530,594
Property, plant and equipment - net
507,198
517,913
Goodwill
994,155
993,995
Intangible assets - net
222,378
245,835
Other assets
91,649
94,754
Total assets
$
2,383,978
$
2,383,091
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
51,921
$
48,987
Accrued rebates
65,074
50,479
Accrued interest
58
4,436
Current portion of long-term debt
obligations
6,000
6,000
Accrued expenses and other liabilities
69,452
72,589
Total current liabilities
192,505
182,491
Deferred income taxes
64,423
65,195
Long-term debt—less current portion
582,572
584,879
Other non-current liabilities
109,405
106,083
Total liabilities
948,905
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
March 31, 2023 and September 30, 2022, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized, 155,303,433 shares issued at March
31, 2023 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
March 31, 2023 and at September 30, 2022, respectively
—
—
Additional paid‑in capital
1,641,321
1,630,378
Accumulated deficit
(122,565
)
(113,002
)
Accumulated other comprehensive income
(loss)
(3,262
)
—
Treasury stock, at cost, 4,469,330 and
4,116,570 shares at March 31, 2023 and September 30, 2022,
respectively
(80,576
)
(73,088
)
Total stockholders' equity
1,435,073
1,444,443
Total liabilities and stockholders'
equity
$
2,383,978
$
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 March
31,
Six Months Ended March
31,
in thousands
2023
2022
2023
2022
Net sales
$
377,692
$
396,255
$
593,951
$
655,963
Cost of sales
269,519
273,795
438,199
444,894
Gross profit
108,173
122,460
155,752
211,069
Selling, general and administrative
expenses
74,460
70,822
147,904
133,991
Operating income (loss)
33,713
51,638
7,848
77,078
Other expenses:
Interest expense
10,774
4,010
20,073
8,158
Total other expenses
10,774
4,010
20,073
8,158
Income (loss) before income taxes
22,939
47,628
(12,225
)
68,920
Income tax expense (benefit)
6,666
11,810
(2,662
)
16,395
Net income (loss)
$
16,273
$
35,818
$
(9,563
)
$
52,525
Other comprehensive income (loss):
Unrealized gain (loss) due to change in
fair value of derivatives, net of tax
$
(1,466
)
$
—
$
(3,262
)
$
—
Total other comprehensive income
(loss)
(1,466
)
—
(3,262
)
—
Comprehensive income (loss)
$
14,807
$
35,818
$
(12,825
)
$
52,525
Net income (loss) per common share:
Basic
$
0.11
$
0.23
$
(0.06
)
$
0.34
Diluted
0.11
0.23
(0.06
)
0.34
Weighted-average common shares
outstanding:
Basic
150,713,075
154,661,277
150,812,859
154,551,589
Diluted
151,268,535
156,121,476
150,812,859
156,560,502
The AZEK Company Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Six Months Ended March
31,
2023
2022
Operating activities:
Net income (loss)
$
(9,563
)
$
52,525
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in) operating activities:
Depreciation
42,018
31,680
Amortization of intangibles
23,457
25,444
Non-cash interest expense
824
2,373
Non-cash lease expense
(122
)
(68
)
Deferred income tax (benefit)
provision
465
15,132
Non-cash compensation expense
12,678
11,773
Fair value adjustment for contingent
consideration
400
—
Loss (gain) on disposition of property,
plant and equipment
183
425
Changes in certain assets and
liabilities:
Trade receivables
(62,586
)
(90,571
)
Inventories
48,880
(98,616
)
Prepaid expenses and other currents
assets
(18,310
)
(8,677
)
Accounts payable
15,702
12,213
Accrued expenses and interest
7,530
(22,294
)
Other assets and liabilities
1,586
1,118
Net cash provided by (used in) operating
activities
63,142
(67,543
)
Investing activities:
Purchases of property, plant and
equipment
(47,284
)
(113,995
)
Proceeds from disposition of fixed
assets
99
497
Acquisitions, net of cash acquired
(161
)
(86,935
)
Net cash provided by (used in) investing
activities
(47,346
)
(200,433
)
Financing activities:
Payments on 2022 Term Loan Agreement
(3,000
)
—
Proceeds under revolving credit
facility
25,000
40,000
Payments under revolving credit
facility
(25,000
)
—
Repayments of finance lease
obligations
(1,307
)
(1,242
)
Exercise of vested stock options
1,901
4,923
Cash paid for shares withheld for
taxes
(460
)
(429
)
Purchases of treasury stock
(7,488
)
—
Net cash provided by (used in) financing
activities
(10,354
)
43,252
Net increase (decrease) in cash and cash
equivalents
5,442
(224,724
)
Cash and cash equivalents – Beginning of
period
120,817
250,536
Cash and cash equivalents – End of
period
$
126,259
$
25,812
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
23,611
$
5,792
Cash paid for income taxes, net
14,959
5,484
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
12,984
$
11,976
Right-of-use operating and finance lease
assets obtained in exchange for lease liabilities
2,439
10,208
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, 2023 and 2022.
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2023
2022
$ Variance
% Variance
2023
2022
$ Variance
% Variance
Net sales
$
342,116
$
350,358
$
(8,242
)
(2.4
)%
$
521,600
$
571,491
$
(49,891
)
(8.7
)%
Segment Adjusted EBITDA
80,375
98,350
(17,975
)
(18.3
)%
106,382
167,781
(61,399
)
(36.6
)%
Segment Adjusted EBITDA Margin
23.5
%
28.1
%
N/A
N/A
20.4
%
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, 2023 and 2022.
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2023
2022
$ Variance
% Variance
2023
2022
$ Variance
% Variance
Net sales
$
35,576
$
45,897
$
(10,321
)
(22.5
)%
$
72,351
$
84,472
$
(12,121
)
(14.3
)%
Segment Adjusted EBITDA
7,829
8,675
(846
)
(9.8
)%
12,983
13,423
(440
)
(3.3
)%
Segment Adjusted EBITDA Margin
22.0
%
18.9
%
N/A
N/A
17.9
%
15.9
%
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)
2023
2022
2023
2022
Net income (loss)
$
16,273
$
35,818
$
(9,563
)
$
52,525
Interest expense
10,774
4,010
20,073
8,158
Depreciation and amortization
31,635
29,042
65,475
57,124
Income tax expense (benefit)
6,666
11,810
(2,662
)
16,395
Stock-based compensation
5,626
4,928
9,583
8,944
Acquisition costs (1)
1,421
5,136
3,856
5,633
Other costs (2)
415
177
1,148
662
Total adjustments
56,537
55,103
97,473
96,916
Adjusted EBITDA
$
72,810
$
90,921
$
87,910
$
149,441
Three Months Ended March
31,
Six Months Ended March
31,
2023
2022
2023
2022
Net income (loss)
4.3
%
9.0
%
(1.6
)%
8.0
%
Interest expense
2.8
%
1.0
%
3.4
%
1.2
%
Depreciation and amortization
8.4
%
7.3
%
11.0
%
8.7
%
Income tax expense (benefit)
1.8
%
3.0
%
(0.4
)%
2.5
%
Stock-based compensation
1.5
%
1.2
%
1.6
%
1.4
%
Acquisition costs
0.4
%
1.3
%
0.6
%
0.9
%
Other costs
0.1
%
0.1
%
0.2
%
0.1
%
Total adjustments
15.0
%
13.9
%
16.4
%
14.8
%
Adjusted EBITDA Margin
19.3
%
22.9
%
14.8
%
22.8
%
(1)
Acquisition costs reflect costs
directly related to completed acquisitions of $1.4 million and $3.9
million in the three months ended March 31, 2023 and 2022,
respectively, and $3.9 million and $4.4 million in the six months
ended March 31, 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
three and six months ended March 31, 2022.
(2)
Other costs include costs related
to a reduction in workforce of $0.2 million in the three and six
months ended March 31, 2023, respectively, costs for legal expense
of $0.1 million in the three months ended March 31, 2022, and $0.2
million and $0.4 million in the six months ended March 31, 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 six months ended March 31, 2022, and other
costs of $0.2 million and $0.1 million for the three months ended
March 31, 2023 and 2022, respectively, and $0.7 million and $0.2
million for the six months ended March 31, 2023 and 2022,
respectively.
Adjusted Gross Profit Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2023
2022
2023
2022
Gross Profit
$
108,173
$
122,460
$
155,752
$
211,069
Depreciation and amortization (1)
22,413
20,086
46,733
38,567
Acquisitions costs (2)
—
1,208
—
1,208
Other costs (3)
116
—
116
—
Adjusted Gross Profit
$
130,702
$
143,754
$
202,601
$
250,844
Three Months Ended March
31,
Six Months Ended March
31,
2023
2022
2023
2022
Gross Margin
28.6
%
30.9
%
26.2
%
32.2
%
Depreciation and amortization
5.9
%
5.1
%
7.9
%
5.8
%
Acquisitions costs
0.0
%
0.3
%
0.0
%
0.2
%
Other costs
0.1
%
0.0
%
0.0
%
0.0
%
Adjusted Gross Profit Margin
34.6
%
36.3
%
34.1
%
38.2
%
(1)
Depreciation and amortization for
the three months ended March 31, 2023 and 2022 consists of $17.8
million and $14.8 million, respectively, of depreciation and $4.6
million and $5.3 million, respectively, of amortization of
intangible assets relating to our manufacturing process.
Depreciation and amortization for the six months ended March 31,
2023 and 2022 consists of $37.5 million and $28.5 million,
respectively, of depreciation and $9.2 million and $10.1 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 three and six
months ended March 31, 2023.
Adjusted Net Income and Adjusted Diluted EPS
Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands, except per
share amounts)
2023
2022
2023
2022
Net income (loss)
$
16,273
$
35,818
$
(9,563
)
$
52,525
Amortization
11,620
12,564
23,457
25,444
Stock-based compensation (1)
1,101
1,804
2,360
3,765
Acquisition costs (2)
1,421
5,136
3,856
5,633
Other costs (3)
415
177
1,148
662
Tax impact of adjustments (4)
(3,838
)
(4,716
)
(8,118
)
(8,488
)
Adjusted Net Income
$
26,992
$
50,783
$
13,140
$
79,541
Three Months Ended March
31,
Six Months Ended March
31,
2023
2022
2023
2022
Net income (loss)
$
0.11
$
0.23
$
(0.06
)
$
0.34
Amortization
0.08
0.08
0.15
0.15
Stock-based compensation
0.01
0.01
0.01
0.02
Acquisition costs
0.01
0.03
0.03
0.04
Other costs
—
0.01
0.01
0.01
Tax impact of adjustments
(0.03
)
(0.03
)
(0.05
)
(0.05
)
Adjusted Diluted EPS (5)
$
0.18
$
0.33
$
0.09
$
0.51
(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 $1.4 million and $3.9
million in the three months ended March 31, 2023 and 2022,
respectively, and $3.9 million and $4.4 million in the six months
ended March 31, 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
three and six months ended March 31, 2022.
(3)
Other costs include costs related
to a reduction in workforce of $0.2 million in the three and six
months ended March 31, 2023, respectively, costs for legal expense
of $0.1 million in the three months ended March 31, 2022, and $0.2
million and $0.4 million in the six months ended March 31, 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 six months ended March 31, 2022, and other
costs of $0.2 million and $0.1 million for the three months ended
March 31, 2023 and 2022, respectively, and $0.7 million and $0.2
million for the six months ended March 31, 2023 and 2022,
respectively.
(4)
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 six months ended March 31, 2023,
respectively, and 24.5% for the three and six months ended March
31, 2022, respectively.
(5)
Weighted average common shares
outstanding used in computing diluted net income per common share
of 151,268,535 and 156,121,476 for the three months ended March 31,
2023 and 2022, respectively, and 151,185,650 and 156,560,502 for
the six months ended March 31, 2023 and 2022, respectively.
Free Cash Flow Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2023
2022
2023
2022
Net cash provided by (used in) operating
activities
$
56,733
$
(36,923
)
$
63,142
$
(67,543
)
Less: Purchases of property, plant and
equipment
(16,956
)
(48,662
)
(47,284
)
(113,995
)
Free Cash Flow
$
39,777
$
(85,585
)
$
15,858
$
(181,538
)
Net Leverage Reconciliation
Twelve Months Ended March
31,
(In thousands)
2023
Net income
$
13,137
Interest expense
36,871
Depreciation and amortization
126,884
Tax expense (benefit)
9,697
Stock-based compensation costs
18,744
Acquisition costs
11,074
Inventories
19,297
Other costs
3,805
Total adjustments
226,372
Adjusted EBITDA
$
239,509
Long-term debt — less current portion
$
582,572
Current portion
6,000
Unamortized deferred financing fees
4,354
Unamortized original issue discount
4,074
Finance leases
78,824
Gross debt
$
675,824
Cash and cash equivalents
(126,259
)
Net debt
$
549,565
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/20230504005238/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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