Strong Fourth Quarter Financial Performance Driven by
Residential Sales and Margin Execution; Significantly Improved
Quarterly Net Profit Margin and Delivered Record Adjusted EBITDA
Margin; Record Full-Year Operating Cash Flow and Free Cash
Flow
FOURTH QUARTER FISCAL 2023 FINANCIAL HIGHLIGHTS
- Consolidated Net Sales increased 27.6% year-over-year to $388.8
million
- Residential Segment Net Sales increased 37.6% year-over-year to
$349.6 million
- Net Income increased $47.4 million year-over-year to $42.6
million; Net profit margin expanded 1,260 basis points to
11.0%
- Adjusted EBITDA increased 63.4% year-over-year to $106.4
million; Adjusted EBITDA Margin expanded 600 basis points to
27.4%
- EPS of $0.28 per share increased $0.31 year-over-year; Adjusted
Diluted EPS of $0.36 per share increased $0.20 year-over-year
- Net Cash Provided by Operating Activities increased $86.5
million year-over-year to $126.6 million
- Free Cash Flow increased $83.5 million year-over-year to $92.2
million
RECENT COMPANY HIGHLIGHTS
- Residential initiatives including material conversion, channel
expansion and new products continue to deliver above-market
growth
- Delivered strong margin expansion in the second half of fiscal
year 2023
- Generated $362.5 million of operating cash flow and $274.0
million of Free Cash Flow and returned $115.5 million to
shareholders through share repurchases in fiscal year 2023
- Completed the sale of the Vycom business for gross proceeds of
approximately $140 million, simplifying AZEK’s portfolio to focus
on higher growth and margin accretive opportunities within Outdoor
Living and Exteriors markets
- Recognized by U.S. News & World Report 2024 as one of the
Best Companies to Work For in the construction and materials
category and by the Chicago Tribune Top Workplaces for the 3rd year
in a row
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
fourth quarter ended September 30, 2023.
CEO COMMENTS
“The AZEK team delivered strong results this quarter including
27.6% net sales growth year-over-year, a net profit margin of 11.0%
and a record fourth quarter Adjusted EBITDA Margin of 27.4%. Our
Residential business grew 37.6% in the fourth quarter and 4.6%
year-over-year, delivering an eighth straight year of net sales
growth,” said Jesse Singh, CEO of The AZEK Company. “I am very
proud of how the AZEK team was able to navigate in an uncertain
market and consistently deliver against our commitments. The team
outperformed by executing our growth playbook to drive above-market
growth and by delivering against productivity initiatives to
deliver net profit margin and Adjusted EBITDA Margin expansion in
the second half of the fiscal year. Our focus on cash delivered
strong operating cash flow and free cash flow generation of $362.5
million and $274.0 million, respectively, and returned $115.5
million to shareholders through share repurchases,” continued Mr.
Singh.
“We also made significant progress across key strategic
priorities in fiscal year 2023, including simplifying our portfolio
to focus on Residential building product markets through the sale
of our Vycom business, which closed on November 1st of this year.
Vycom is a great business, and we believe that this separation will
enable better focus for each business. During the year, we launched
a number of new products and continued to increase the amount of
recycled content we use in our TimberTech Advanced PVC decking and
AZEK ExteriorsTM products. We are well positioned to capitalize on
the momentum from both our shelf space and brand awareness gains in
2023 as well as our slate of new products for 2024, including the
introduction of the new and improved TimberTech Composite Terrain+
CollectionTM, new TimberTech Aluminum Framing, new TimberTech
Railing Horizontal Cable Infill and new AZEK Exteriors Bevel
Siding,” said Mr. Singh.
“During the fiscal fourth quarter, we continued to see strong
double-digit Residential sell-through growth driven by material
conversion, execution against shelf space gains across pro and
retail channels, and contribution from new products in Decking,
Railing and Exteriors. We drove significant margin expansion
through better manufacturing utilization, productivity initiatives
and material savings,” said Mr. Singh. “I would once again like to
thank the entire AZEK team and our partners that support The AZEK
Company for each of their contributions to this year’s results,”
said Mr. Singh. “AZEK’s fiscal year 2023 Residential net sales have
increased 86.6% versus fiscal year 2019, highlighting the
attractiveness, strength and resilience of our business model, and
the markets we play in that include categories targeting material
conversion. Our team’s focus on operational execution to drive
above-market growth and margin expansion – even across difficult
market conditions – positions us well as we begin fiscal year
2024,” continued Mr. Singh.
FOURTH QUARTER FISCAL 2023 CONSOLIDATED RESULTS
Net sales for the three months ended September 30, 2023
increased by $84.2 million, or 27.6%, to $388.8 million from $304.6
million for the three months ended September 30, 2022. The increase
was primarily due to strong volume growth in our Residential
segment, partially offset by volume declines in our Commercial
segment, as expected. Net sales for the three months ended
September 30, 2023 increased for our Residential segment by $95.4
million, or 37.6%, and decreased for our Commercial segment by
$11.2 million, or 22.4%, in each case as compared to the prior year
period. Within our Commercial segment, net sales for the three
months ended September 30, 2023 decreased for Vycom by 32.8% and
decreased for Scranton Products by 11.2%, in each case as compared
to the prior year period.
Net income (loss) increased by $47.4 million to $42.6 million,
or $0.28 per share, for the three months ended September 30, 2023,
compared to $(4.8) million, or $(0.03) per share, for the three
months ended September 30, 2022. Net profit margin expanded 1,260
basis points to 11.0% for the three months ended September 30,
2023, as compared to net profit margin of (1.6%) for the three
months ended September 30, 2022.
Adjusted EBITDA increased by $41.3 million to $106.4 million for
the three months ended September 30, 2023, compared to Adjusted
EBITDA of $65.1 million for the three months ended September 30,
2022. Adjusted EBITDA Margin expanded 600 basis points to 27.4%
from 21.4% for the prior year period.
Adjusted Net Income increased by $29.0 million to $53.5 million,
or Adjusted Diluted EPS of $0.36 per share, for the three months
ended September 30, 2023, compared to Adjusted Net Income of $24.5
million, or Adjusted Diluted EPS of $0.16 per share, for the three
months ended September 30, 2022.
YEAR ENDED SEPTEMBER 30, 2023 CONSOLIDATED RESULTS
Net sales for the year ended September 30, 2023 increased by
$14.7 million, or 1.1%, to $1,370.3 million from $1,355.6 million
for the year ended September 30, 2022. The increase was primarily
attributable to higher sales in our Residential segment, which grew
by 4.6%, partially offset by our Commercial segment which decreased
by 21.1%, in each case as compared to the prior year. Within our
Commercial segment, net sales for the year ended September 30, 2023
decreased for Vycom by 29.4% and decreased for Scranton Products by
9.4%, in each case as compared to the prior year.
Net income decreased by $7.3 million to $68.0 million, or $0.45
per share, for the year ended September 30, 2023 compared to net
income of $75.2 million, or $0.49 per share, for the year ended
September 30, 2022. This was primarily driven by the channel and
AZEK inventory recalibration resulting in underutilization of
manufacturing capacity in the first half of the year in addition to
increases in general and administrative expenses and an increase in
interest expense due to higher interest rates on outstanding debt
and a higher average principal balance outstanding during the year
ended September 30, 2023. Net profit margin declined 50 basis
points to 5.0% for the year ended September 30, 2023, compared to
net profit margin of 5.5% for the year ended September 30,
2022.
Adjusted Net Income was $111.7 million, or Adjusted Diluted EPS
of $0.74 per share, for the year ended September 30, 2023, compared
to Adjusted Net Income of $149.3 million, or Adjusted Diluted EPS
of $0.97 per share, for the twelve months ended September 30,
2022.
Adjusted EBITDA for the year ended September 30, 2023 decreased
by $9.8 million to $291.2 million from $301.0 million for the year
ended September 30, 2022. Adjusted EBITDA Margin declined 90 basis
points to 21.3% from 22.2% for the prior year period. As previously
noted, Adjusted EBITDA Margin was impacted by the inventory
recalibration and underutilization of manufacturing capacity in the
first half of the year, and as the year progressed AZEK saw
benefits from ongoing productivity and material savings
initiatives.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of September 30, 2023, the Company had cash and cash
equivalents of $278.3 million and approximately $147.2 million
available for future borrowings under our Revolving Credit
Facility. Total gross debt, including finance leases, as of
September 30, 2023, was $672.5 million.
Net Cash Provided by Operating Activities for the three months
ended September 30, 2023, increased by $86.5 million year-over-year
to $126.6 million. Free Cash Flow for the three months ended
September 30, 2023, increased by $83.5 million year-over-year to
$92.2 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 $60.6 million.
OUTLOOK
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. Starting in fiscal year
2024, AZEK expects to combine all corporate expenses into its
Residential reporting segment and expects to continue reporting
Scranton Products within the Commercial reporting segment.
“We continue to see positive Residential sell-through growth,
and demand indicators from our customer surveys and digital metrics
remain constructive as we begin fiscal year 2024. Channel
inventories are conservatively positioned through our fiscal
year-end, and we are proactively managing our finished goods
inventory levels to maintain high-levels of service. While we
continue to see favorable demand indicators, we acknowledge there
is continued macroeconomic uncertainty that may weigh on consumer
confidence. Our fiscal year 2024 planning assumptions assume
flat-to-down low single-digits repair & remodel market growth,
and consistent with our historical track-record, we would expect to
outperform the market driven by AZEK-specific initiatives including
material conversion, channel expansion, new product innovations and
consumer journey initiatives,” said Mr. Singh.
For the full-year fiscal 2024, AZEK expects consolidated net
sales in the range of $1.335 to $1.395 billion and Adjusted EBITDA
in the range of $320 to $335 million. Following the sale of the
Vycom business, AZEK expects the remaining Commercial segment’s
Scranton Products business to deliver net sales in the range of $70
to $74 million and Adjusted EBITDA in the range of $14 to $16
million. Excluding the Commercial segment, AZEK’s net sales
guidance range would imply 3% to 8% year-over-year growth and 18%
to 23% year-over-year growth in Adjusted EBITDA when combining
corporate expenses with our Residential Segment Adjusted EBITDA.
Capital expenditures for fiscal year 2024 are expected to be in the
range of $70 to $95 million.
For the first quarter of fiscal 2024, AZEK expects consolidated
net sales in the range of $230 to $236 million and Adjusted EBITDA
in the range of $45 to $48 million.
“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 year 2023 results reflect the strength of our
industry-leading positioning, our focus on strategic growth
initiatives, the resiliency of our markets 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, November 28, 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/BvLjpLVH.
Registration will also be available during the call. After
registering, a confirmation e-mail will be sent including dial-in
details and unique conference call codes for entry. To ensure you
are connected for the full call please register at least 10 minutes
before the start of the call.
Interested investors and other parties can also listen to a
webcast of the live conference call by logging onto the Investor
Relations section of the Company's website at
https://investors.azekco.com/events-and-presentations/. AZEK uses
its investor relations website at investors.azekco.com as a means
of disclosing material non-public information and for complying
with its disclosure obligations under Regulation FD.
For those unable to listen to the live conference call, a replay
will be available approximately two hours after the call through
the archived webcast on the AZEK website or by dialing (800) 770-
2030 or (647) 362- 9199. The conference ID for the replay is 63923.
The replay will be available until 10:59 p.m. (CT) on December 12,
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, our products are made from up to 85% 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 2024, 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 and conflicts in the Middle East;
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 our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q 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
2023 and our Consolidated Financial Statements and related notes
included therein.
The AZEK Company Inc.
Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
As of September 30,
2023
2022
ASSETS:
Current assets:
Cash and cash equivalents
$
278,314
$
120,817
Trade receivables, net of allowances
57,660
90,159
Inventories
221,101
299,905
Prepaid expenses
13,595
17,212
Other current assets
12,300
2,501
Total current assets
582,970
530,594
Property, plant and equipment, net
501,023
517,913
Goodwill
994,271
993,995
Intangible assets, net
199,497
245,835
Other assets
87,793
94,754
Total assets
$
2,365,554
$
2,383,091
LIABILITIES AND STOCKHOLDERS’
EQUITY:
Current liabilities:
Accounts payable
$
56,015
$
48,987
Accrued rebates
60,974
50,479
Accrued interest
260
4,436
Current portion of long-term debt
obligations
6,000
6,000
Accrued expenses and other liabilities
71,994
72,589
Total current liabilities
195,243
182,491
Deferred income taxes
56,330
65,195
Long-term debt — less current portion
580,265
584,879
Other non-current liabilities
104,073
106,083
Total liabilities
$
935,911
$
938,648
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized
and no shares issued and outstanding at
September 30, 2023
and September 30, 2022, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares
authorized, 155,967,736 shares issued at
September 30, 2023,
and 155,157,220 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 September 30,
2023 and September 30, 2022
—
—
Additional paid-in capital
1,662,322
1,630,378
Accumulated deficit
(45,047)
(113,002)
Accumulated other comprehensive income
(loss)
1,878
—
Treasury stock, at cost, 8,268,423 shares
at September 30, 2023
and 4,116,570 shares at September 30,
2022
(189,666)
(73,088)
Total stockholders’ equity
1,429,643
1,444,443
Total liabilities and stockholders’
equity
$
2,365,554
$
2,383,091
The AZEK Company Inc.
Consolidated Statements of
Comprehensive Income (Loss)
(In thousands of U.S. dollars,
except for share and per share amounts)
Three Months Ended September
30,
Years Ended September
30,
2023
2022
2023
2022
Net sales
$
388,812
$
304,632
$
1,370,316
$
1,355,586
Cost of sales
239,111
232,768
932,663
946,266
Gross profit
149,701
71,864
437,653
409,320
Selling, general and administrative
expenses
84,951
67,478
305,162
279,889
Other general expenses
—
—
1,065
—
Loss (gain) on disposal of plant, property
and equipment
(29)
179
249
496
Operating income
64,779
4,207
131,177
128,935
Other expenses:
Interest expense, net
8,812
6,180
39,293
24,956
Total other expenses
8,812
6,180
39,293
24,956
Income (loss) before income taxes
55,967
(1,973)
91,884
103,979
Income tax expense
13,324
2,803
23,929
28,754
Net income (loss)
$
42,643
$
(4,776)
$
67,955
$
75,225
Other comprehensive income:
Unrealized gain due to change in fair
value of derivatives, net of tax
$
1,187
$
—
$
1,878
$
—
Total other comprehensive income
1,187
—
1,878
—
Comprehensive income (loss)
$
43,830
$
(4,776)
$
69,833
$
75,225
Net income (loss) per common share:
Basic
$
0.29
$
(0.03)
$
0.45
$
0.49
Diluted
$
0.28
$
(0.03)
$
0.45
$
0.49
Weighted average shares used in
calculating net income (loss) per common share:
Basic
148,824,202
151,459,182
150,162,256
153,510,110
Diluted
150,522,274
151,459,182
150,849,896
154,517,843
The AZEK Company Inc.
Consolidated Statements of
Cash Flows
(In thousands of U.S.
dollars)
Years Ended September
30,
2023
2022
Operating activities:
Net income
$
67,955
$
75,225
Adjustments to reconcile net income to net
cash flows provided by (used in) operating activities:
Depreciation expense
86,206
67,996
Amortization expense
46,338
50,537
Non-cash interest expense
1,647
5,638
Non-cash lease expense
(251)
(275)
Deferred income tax expense
(9,487)
19,684
Non-cash compensation expense
18,518
27,512
Loss on disposition of property, plant and
equipment
2,220
496
Bad debt provision
731
290
Changes in operating assets and
liabilities:
Trade receivables
31,768
(8,545)
Inventories
78,688
(97,459)
Prepaid expenses and other current
assets
(3,675)
(4,300)
Accounts payable
22,596
(32,146)
Accrued expenses and interest
17,416
(1,345)
Other assets and liabilities
1,872
2,527
Net cash provided by operating
activities
362,542
105,835
Investing activities:
Purchases of property, plant and
equipment
(88,545)
(170,938)
Proceeds from sale of property, plant and
equipment
202
649
Purchases of intangible assets
—
(1,500)
Acquisitions, net of cash acquired
(161)
(108,387)
Net cash used in investing activities
(88,504)
(280,176)
Financing activities:
Proceeds under Revolving Credit
Facility
25,000
40,000
Payments under Revolving Credit
Facility
(25,000)
(40,000)
Payments of Term Loan Agreement
—
(467,654)
Proceeds from 2022 Term Loan Agreement
—
595,500
Payments on 2022 Term Loan Agreement
(6,000)
—
Payments of debt issuance costs related to
2022 Term Loan Agreement
—
(3,442)
Repayments of finance lease
obligations
(2,619)
(3,865)
Payments of INTEX contingent
consideration
(5,850)
—
Exercise of vested stock options
14,954
5,995
Cash paid for shares withheld for
taxes
(1,528)
(429)
Purchases of treasury stock
(115,498)
(81,483)
Net cash provided by (used in) financing
activities
(116,541)
44,622
Net increase (decrease) in cash and cash
equivalents
157,497
(129,719)
Cash and cash equivalents at beginning of
period
120,817
250,536
Cash and cash equivalents at end of
period
$
278,314
$
120,817
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
41,728
$
14,899
Cash paid for income taxes, net
34,480
10,549
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
7,703
$
29,562
Right-of-use operating and finance lease
assets obtained in exchange for
lease liabilities
3,830
33,400
Segment Results from Operations
Residential Segment
The following table summarizes certain financial information
relating to the Residential segment results that have been derived
from our audited Consolidated Financial Statements for the three
months and years ended September 30, 2023 and 2022.
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2023
2022
$ Variance
% Variance
2023
2022
$ Variance
% Variance
Net sales
$
349,658
$
254,196
$
95,462
37.6%
$
1,222,866
$
1,168,751
$
54,115
4.6%
Segment Adjusted EBITDA
117,968
64,503
53,465
82.9%
329,853
323,377
6,476
2.0%
Segment Adjusted EBITDA Margin
33.7%
25.4%
N/A
N/A
27.0%
27.7%
N/A
N/A
Commercial Segment
The following table summarizes certain financial information
relating to the Commercial segment results that have been derived
from our audited Consolidated Financial Statements for the three
months and years ended September 30, 2023 and 2022.
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2023
2022
$ Variance
% Variance
2023
2022
$ Variance
% Variance
Net sales
$
39,154
$
50,436
$
(11,282)
(22.4)%
$
147,450
$
186,835
$
(39,385)
(21.1)%
Segment Adjusted EBITDA
9,245
14,562
(5,317)
(36.5)%
31,008
40,255
(9,247)
(23.0)%
Segment Adjusted EBITDA Margin
23.6%
28.9%
N/A
N/A
21.0%
21.5%
N/A
N/A
Adjusted EBITDA and Adjusted EBITDA Margin
Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2023
2022
2023
2022
Net income (loss)
$
42,643
$
(4,776)
$
67,955
$
75,225
Interest expense
8,812
6,180
39,293
24,956
Depreciation and amortization
34,005
31,803
132,544
118,533
Tax expense
13,324
2,803
23,929
28,754
Stock-based compensation costs
4,957
4,259
18,704
18,105
Acquisition and divestiture costs (1)
2,355
4,405
6,890
13,406
Secondary offering costs
—
—
1,065
—
Inventories (2)
—
19,297
—
19,297
Other costs (3)
262
1,105
843
2,764
Total adjustments
63,715
69,852
223,268
225,815
Adjusted EBITDA
$
106,358
$
65,076
$
291,223
$
301,040
Three Months Ended September
30,
Years Ended September
30,
2023
2022
2023
2022
Net profit margin
11.0%
-1.6%
5.0%
5.5%
Interest expense
2.3%
2.0%
2.9%
1.8%
Depreciation and amortization
8.7%
10.5%
9.6%
8.7%
Tax expense
3.4%
1.0%
1.7%
2.2%
Stock-based compensation costs
1.3%
1.4%
1.4%
1.4%
Acquisition and divestiture costs
0.6%
1.4%
0.5%
1.0%
Secondary offering costs
0.0%
0.0%
0.1%
0.0%
Inventories
0.0%
6.3%
0.0%
1.4%
Other costs
0.1%
0.4%
0.1%
0.2%
Total adjustments
16.4%
23.0%
16.3%
16.7%
Adjusted EBITDA Margin
27.4%
21.4%
21.3%
22.2%
____________________________ (1)
Acquisition and divestiture costs reflect
costs related to divestiture of $2.4 million, $0.4 million, $3.0
million and $0.5 million for fourth quarters 2023 and 2022 and
fiscal years 2023 and 2022, respectively, costs directly related to
completed acquisitions of $3.8 million, $3.9 million and $11.5
million for fourth quarter 2022 and fiscal years 2023 and 2022,
respectively, and inventory step-up adjustments related to
recording the inventory of acquired businesses at fair value on the
date of acquisition of $0.2 million and $1.4 million for fourth
quarter 2022 and fiscal year 2022, respectively.
(2)
During the fourth quarter of fiscal year
2022, we updated the process by which we estimate the value of our
inventory. This included updating the assumptions that are used in
determining and treating certain capitalized costs, primarily by
incorporating the impacts of changes in the amount of recycled
content introduced into our products.
(3)
Other costs reflect reduction in workforce
costs of $0.3 million, $0.9 million, $0.5 million and $1.6 million
for fourth quarters 2023 and 2022 and fiscal years 2023 and 2022,
respectively, legal expenses of $0.2 million, $0.3 million and $0.9
million for fourth quarter 2022 and fiscal years 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 fiscal year 2022, and other costs of $0.2 million
for fiscal year 2022.
Adjusted Gross Profit Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2023
2022
2023
2022
Gross profit
$
149,701
$
71,864
$
437,653
$
409,320
Depreciation and amortization (1)
25,094
22,689
95,810
82,099
Inventories (2)
—
19,297
—
19,297
Acquisition costs (3)
—
165
—
1,373
Other costs (4)
18
185
134
509
Adjusted Gross Profit
$
174,813
$
114,200
$
533,597
$
512,598
Three Months Ended September
30,
Years Ended September
30,
2023
2022
2023
2022
Gross margin
38.5%
23.6%
31.9%
30.2%
Depreciation and amortization
6.5%
7.4%
7.0%
6.1%
Inventories
0.0%
6.3%
0.0%
1.4%
Acquisition costs
0.0%
0.1%
0.0%
0.1%
Other costs
0.0%
0.1%
0.0%
0.0%
Adjusted Gross Profit Margin
45.0%
37.5%
38.9%
37.8%
____________________________
(1)
Depreciation and amortization for fourth quarters 2023 and 2022,
and for fiscal years 2023 and 2022, consists of $20.7 million,
$17.5 million, $77.6 million and $61.6 million, respectively, of
depreciation, and $4.4 million, $5.2 million, $18.2 million and
$20.5 million, respectively, of amortization of intangible assets,
comprised of intangibles relating to our manufacturing
processes.
(2)
During the fourth quarter of fiscal year 2022, we updated the
process by which we estimate the value of our inventory. This
included updating the assumptions that are used in determining and
treating certain capitalized costs, primarily by incorporating the
impacts of changes in the amount of recycled content introduced
into our products.
(3)
Acquisition costs reflect inventory step-up adjustments related
to recording the inventory of acquired businesses at fair value on
the date of acquisition.
(4)
Other costs include reduction in workforce costs of $0.2
million, $0.1 million and $0.5 million for fourth quarter 2022 and
fiscal years 2023 and 2022, respectively.
Adjusted Net Income and Adjusted Diluted EPS
Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands, except per
share amounts)
2023
2022
2023
2022
Net income (loss)
$
42,643
$
(4,776)
$
67,955
$
75,225
Amortization
11,303
12,571
46,338
50,537
Stock-based compensation costs (1)
903
1,330
4,326
6,554
Acquisition and divestiture costs (2)
2,355
4,405
6,890
13,406
Secondary offering costs
—
—
1,065
—
Inventories (3)
—
19,297
—
19,297
Other costs (4)
262
1,105
843
2,764
Capital structure transaction costs
(5)
—
—
—
5,112
Tax impact of adjustments (6)
(3,920)
(9,445)
(15,684)
(23,627)
Adjusted Net Income
$
53,546
$
24,487
$
111,733
$
149,268
Three Months Ended September
30,
Years Ended September
30,
2023
2022
2023
2022
Net income (loss) per common share —
diluted
$
0.28
$
(0.03)
$
0.45
$
0.49
Amortization
0.08
0.08
0.30
0.33
Stock-based compensation costs
0.01
0.01
0.03
0.05
Acquisition and divestiture costs
0.02
0.02
0.04
0.08
Secondary offering costs
—
—
0.01
—
Inventories
—
0.13
—
0.12
Other costs
—
0.01
0.01
0.02
Capital structure transaction costs
—
—
—
0.03
Tax impact of adjustments
(0.03)
(0.06)
(0.10)
(0.15)
Adjusted Diluted EPS (7)
$
0.36
$
0.16
$
0.74
$
0.97
____________________________
(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 and divestiture costs reflect costs related to
divestiture of $2.4 million, $0.4 million, $3.0 million and $0.5
million for fourth quarters 2023 and 2022 and fiscal years 2023 and
2022, respectively, costs directly related to completed
acquisitions of $3.8 million, $3.9 million and $11.5 million for
fourth quarter 2022 and fiscal years 2023 and 2022, respectively,
and inventory step-up adjustments related to recording the
inventory of acquired businesses at fair value on the date of
acquisition of $0.2 million and $1.4 million for fourth quarter
2022 and fiscal year 2022, respectively.
(3)
During the fourth quarter of fiscal year 2022, we updated the
process by which we estimate the value of our inventory. This
included updating the assumptions that are used in determining and
treating certain capitalized costs, primarily by incorporating the
impacts of changes in the amount of recycled content introduced
into our products.
(4)
Other costs reflect reduction in workforce costs of $0.3
million, $0.9 million, $0.5 million and $1.6 million for fourth
quarters 2023 and 2022 and fiscal years 2023 and 2022,
respectively, legal expenses of $0.2 million, $0.3 million and $0.9
million for fourth quarter 2022 and fiscal years 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 fiscal year 2022, and other costs of $0.2 million
for fiscal year 2022.
(5)
Capital structure transaction costs include third party costs
related to our refinancing of our term loan agreement of $5.1
million for fiscal year 2022.
(6)
Tax impact of adjustments is based on applying a combined U.S.
federal and state statutory tax rate of 26.5% for fourth quarter
2023 and fiscal year 2023 and 24.5% for fourth quarter 2022 and
fiscal year 2022.
(7)
Weighted average common shares outstanding used in computing
diluted net income (loss) per common share is 150,522,274 shares
for fourth quarter 2023, 151,759,572 shares for fourth quarter
2022, 150,849,896 shares for fiscal year 2023, and 154,517,843
shares for fiscal year 2022.
Free Cash Flow Reconciliation
Three Months Ended September
30,
Years Ended September
30,
(U.S. dollars in thousands)
2023
2022
2023
2022
Net cash provided by operating
activities
$
126,649
$
40,135
$
362,542
$
105,835
Less: Purchases of property, plant and
equipment
(34,486)
(31,447)
(88,545)
(170,938)
Free Cash Flow
$
92,163
$
8,688
$
273,997
$
(65,103)
Net cash used in investing activities
$
(34,457)
$
(54,367)
$
(88,504)
$
(280,176)
Net cash provided by (used in) financing
activities
$
(58,475)
$
(24,572)
$
(116,541)
$
44,622
Net Leverage Reconciliation
Year Ended September
30,
(In thousands)
2023
Net income
$
67,955
Interest expense
39,293
Depreciation and amortization
132,544
Tax expense
23,929
Stock-based compensation costs
18,704
Acquisition and divestiture costs
6,890
Secondary offering costs
1,065
Other costs
843
Total adjustments
223,268
Adjusted EBITDA
$
291,223
Long-term debt — less current portion
$
580,265
Current portion
6,000
Unamortized deferred financing fees
3,996
Unamortized original issue discount
3,739
Finance leases
78,495
Gross debt
$
672,495
Cash and cash equivalents
(278,314)
Net debt
$
394,181
Net leverage
1.4x
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/20231128698360/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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