Strong Third Quarter Results; Announcing Acquisition of INTEX
Millwork™; Returned $58 Million to Shareholders Through Share
Repurchases
THIRD QUARTER FISCAL 2022 HIGHLIGHTS
- Consolidated net sales increased 20.6% year over year to $395.0
million
- Net income increased 26.2% year over year to $27.5 million
- Adjusted Net Income increased 11.3% year over year to $45.2
million
- EPS increased 28.6% year over year to $0.18
- Adjusted Diluted EPS increased 11.5% year over year to
$0.29
- Adjusted EBITDA increased 19.0% year over year to $86.5
million
OUTLOOK HIGHLIGHTS
- Fiscal 2022 Net Sales Outlook – Expecting consolidated net
sales between $1.327 to $1.353 billion, inclusive of a
recalibration of channel inventory
- Fiscal 2022 Adjusted EBITDA Outlook – Expecting Adjusted EBITDA
of $295 to $307 million, inclusive of startup costs
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, Versatex® and AZEK Trim® and StruXure™
pergolas, today announced financial results for the third quarter
ended June 30, 2022 of its fiscal year 2022.
CEO COMMENTS
“We delivered another strong quarter of net sales growth, led by
solid in-season demand, and Adjusted EBITDA growth, including
outperformance in our margins driven by our operational execution
and recycling initiatives, combined with pricing actions offsetting
material inflation,” said Jesse Singh, AZEK’s Chief Executive
Officer. “We saw continued demand from our channel partners,
sustained contractor backlogs and positive sell through over a
strong comparable period in 2021. Our contractors continue to be
busy and consumer interest in our TimberTech decking is driving
strong digital lead and sample order activity growth,” commented
Mr. Singh.
“As we move into fiscal Q4, we have seen some signs of demand
moderation versus the prior year and our service levels have
returned to historical norms, as we have benefited from increased
capacity and improved operational execution. We saw the channel
begin to recalibrate late in the third quarter and we are working
with our dealer and distributor partners to reduce their inventory
levels primarily in fiscal Q4 2022 and into fiscal Q1 2023. We
believe this will better position AZEK and our channel partners to
drive continued expansion of our market position in fiscal year
2023. We are proactively managing the business from a cost and
capital perspective and will remain nimble in our execution while
maintaining focus on delivering our long-term growth and margin
expansion goals,” continued Mr. Singh.
“We made notable progress against our strategic initiatives
during the quarter, including investments in our brand and consumer
journey as evidenced by strong customer engagement and double-digit
growth in our digital leads and sample orders activity. Our sales
efforts continue to convert more contractors and channel partners
to the AZEK family. Last month, we released our second annual
FULL-CIRCLE ESG report, which highlights how ESG is central to both
our purpose and growth as a Company. A key part of our ESG journey
is accelerating our use of recycled materials, which has the added
benefit of reducing our costs,” said Mr. Singh.
“We continue to deploy capital in a disciplined manner and
supplement our existing core markets with strategic acquisitions.
We are proud to announce the acquisition of INTEX Millwork
Solutions, LLC in early August. INTEX® is a provider of
high-quality railing solutions, column wraps, and pergolas that
strengthens AZEK’s existing Railing and Exteriors portfolios with
similar material science targeting wood conversion. The acquisition
continues our inorganic momentum in fiscal 2022, as our previously
announced acquisition of StruXure continues to exceed our
expectations and expand our industry-leading position with
customers and contractors alike. During the quarter, we also
returned value to our shareholders by repurchasing $58 million
worth of Class A shares as part of our recently announced share
repurchase program,” continued Mr. Singh.
“We play in incredibly attractive categories that are driven by
repair and remodel and material conversion. We are in the early
stages of a multiyear expansion and conversion within our markets
and are as excited as ever about the compelling long-term growth
and margin expansion opportunity in front of us,” said Mr.
Singh.
THIRD QUARTER FISCAL 2022 CONSOLIDATED RESULTS
Net sales for the three months ended June 30, 2022 increased by
$67.5 million, or 20.6%, to $395.0 million from $327.5 million for
the three months ended June 30, 2021. Net sales for the three
months ended June 30, 2022 increased for our Residential segment by
17.8% and increased for our Commercial segment by 43.3%, in each
case as compared to the prior year period.
Net income increased by $5.7 million to $27.5 million, or $0.18
per share, for the three months ended June 30, 2022 compared to
$21.8 million, or $0.14 per share, for the three months ended June
30, 2021.
Net margin expanded to 7.0% for the three months ended June 30,
2022, as compared to net margin of 6.6% for the three months ended
June 30, 2021.
Adjusted EBITDA increased by $13.8 million to $86.5 million for
the three months ended June 30, 2022, as compared to Adjusted
EBITDA of $72.7 million for the three months ended June 30, 2021.
Adjusted EBITDA Margin declined 30 basis points to 21.9% from 22.2%
for the prior year period. As previously guided, Adjusted EBITDA
Margin included approximately 100 basis points of near-term
dilution due to capacity startup costs and the impact of our recent
acquisition of StruXure.
Adjusted Net Income increased $4.6 million to $45.2 million, or
Adjusted Diluted EPS of $0.29 per share, for the three months ended
June 30, 2022, as compared to Adjusted Net Income of $40.6 million,
or Adjusted Diluted EPS of $0.26 per share, for the three months
ended June 30, 2021.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of June 30, 2022, the Company had cash and cash equivalents
of $159.6 million and approximately $147.2 million available for
future borrowings under our Revolving Credit Facility. Total debt
as of June 30, 2022 was $664.3 million. During the quarter, the
Company repurchased approximately 3.0 million shares of its Class A
common stock for an aggregate purchase price of approximately $58
million.
OUTLOOK
“As we look forward, we continue to make progress on our
recycling and AIMS continuous improvement initiatives, and
experience strong price realization. We expect these actions to
meaningfully contribute to our fourth quarter results. We are as
excited as ever about the compelling long-term growth and margin
expansion opportunity in front of us. We have an attractive,
resilient business model, with multiple levers to drive growth and
margin expansion that we believe can outperform in any economic
environment,” concluded Mr. Singh.
For full year fiscal 2022, AZEK expects consolidated net sales
between $1.327 billion to $1.353 billion, inclusive of the impact
from acquisitions. From an Adjusted EBITDA perspective, AZEK
expects to deliver $295 million to $307 million, inclusive of the
startup costs associated with our capital investment programs and
the impact from acquisitions. AZEK expects Adjusted Diluted EPS
between $0.95 to $1.01 per share. AZEK expects capital expenditures
to be closer to the low end of our $180 million to $200 million
range.
For the fourth quarter fiscal 2022, AZEK expects consolidated
net sales between $276 million to $302 million, inclusive of the
StruXure acquisition. From an Adjusted EBITDA perspective, AZEK
expects to deliver $59 million to $71 million, inclusive of startup
costs and the impact from acquisitions. AZEK expects Adjusted
Diluted EPS between $0.15 to $0.19 per share.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today,
Thursday, August 4, 2022, at 9:00 a.m. (CT).
The conference call can be accessed live over the phone by
dialing 888-999-6096 or +1-848-280-6470 for international callers.
Participants should inform the operator you want to be joined to
The AZEK Company call using the following conference ID:
9582416.
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 800-645-7964
or 757-849-6722. The conference ID for the replay is 1049#. The
replay will be available until 10:59 p.m. (CT) on August 18,
2022.
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® and StruXure™
pergolas. Consistently recognized as a market leader in innovation,
quality and aesthetics, products across AZEK’s portfolio are made
from up to 90% recycled material and primarily replace wood on the
outside of homes, providing a long-lasting, eco-friendly and
stylish solution to consumers. Leveraging the talents of its
approximately 2,000 employees and the strength of relationships
across its value chain, The AZEK Company is committed to
accelerating the use of recycled material in the manufacturing of
its innovative products, keeping millions of pounds of waste out of
landfills each year, and revolutionizing the industry to create a
more sustainable future. Headquartered in Chicago, Illinois, the
company operates manufacturing facilities in Ohio, Pennsylvania,
Idaho, Georgia, Nevada, New Jersey 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. 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 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 rates, growth of our various
markets and growth in the use of engineered products as well as our
ability to share in such growth; statements about future conversion
opportunities from wood and other materials and our ability to
capture market share from such opportunities; and all other
statements with respect to our expectations, beliefs, plans,
strategies, objectives, prospects, assumptions or future events or
performance contained in this earnings release are forward-looking
statements. We have based these forward-looking statements
primarily on our current expectations and projections about future
events and trends that we believe may affect our financial
condition, results of operations, business strategy, short-term and
long-term business operations and objectives and financial needs.
These forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including those described in the
section titled "Risk Factors" set forth in Part I, Item 1A of the
Annual Report on Form 10-K for fiscal 2021 (our “2021 Annual
Report”) and in our other filings with the U.S. Securities and
Exchange Commission. Moreover, we operate in a very competitive and
rapidly changing environment. New risks emerge from time to time.
It is not possible for our management to predict all risks, nor can
we assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements we may make. In light of these risks,
uncertainties and assumptions, the future events and trends
discussed in this earnings release may not occur and actual results
may differ materially and adversely from those anticipated or
implied in the forward-looking statements. You should read this
earnings release with the understanding that our actual future
results, levels of activity, performance and events and
circumstances may be materially different from what we expect.
These statements are based on information available to us as of
the date of this earnings release. While we believe that such
information provides a reasonable basis for these statements, such
information may be limited or incomplete. Our statements should not
be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all relevant information. We disclaim any
intention and undertake no obligation to update or revise any of
our forward-looking statements after the date of this release to
reflect actual results or future events or circumstances whether as
a result of new information, future events or otherwise, except as
required by law. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking
statements.
NON-GAAP FINANCIAL MEASURES
To supplement our earnings release and consolidated financial
statements prepared and presented in accordance with generally
accepted accounting principles in the United States, or (“GAAP”),
we use certain non-GAAP performance financial measures, as
described within this earnings release, to provide investors with
additional useful information about our financial performance, to
enhance the overall understanding of our past performance and
future prospects and to allow for greater transparency with respect
to important metrics used by our management for financial and
operational decision-making. We are presenting these non-GAAP
financial measures to assist investors in seeing our financial
performance from management’s view and because we believe they
provide an additional tool for investors to use in comparing our
core financial performance over multiple periods with other
companies in our industry. Our GAAP financial results include
significant expenses that may not be indicative of our ongoing
operations as detailed within this earnings release.
However, non-GAAP financial measures have limitations in their
usefulness to investors because they have no standardized meaning
prescribed by GAAP and are not prepared under any comprehensive set
of accounting rules or principles. In addition, non-GAAP financial
measures may be calculated differently from, and therefore may not
be directly comparable to, similarly titled measures used by other
companies. As a result, non-GAAP financial measures should be
viewed as supplementing, and not as an alternative or substitute
for, our earnings release and our consolidated financial statements
prepared and presented in accordance with GAAP.
We define Adjusted Gross Profit as gross profit before
depreciation and amortization, business transformation costs,
acquisition costs and certain other costs as described below.
Adjusted Gross Profit Margin is equal to Adjusted Gross Profit
divided by net sales.
We define Adjusted Net Income as net income (loss) before
amortization, share-based compensation costs, business
transformation costs, acquisition costs, initial public offering
and secondary offering costs and certain other costs as described
below.
We define Adjusted Diluted EPS as Adjusted Net Income divided by
weighted average common shares outstanding – diluted, to reflect
the conversion or exercise, as applicable, of all outstanding
shares of restricted stock awards, restricted stock units and
options to purchase shares of our common stock.
We define Adjusted EBITDA as net income (loss) before interest
expense, net, income tax (benefit) expense and depreciation and
amortization and by adding to or subtracting therefrom items of
expense and income as described above.
Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by
net sales. Net Leverage is equal to gross debt less cash and cash
equivalents, divided by trailing twelve month Adjusted EBITDA. We
believe Adjusted Gross Profit, Adjusted Gross Profit Margin,
Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA,
Adjusted EBITDA Margin and Net Leverage are useful to investors
because they help identify underlying trends in our business that
could otherwise be masked by certain expenses that can vary from
company to company depending on, among other things, its financing,
capital structure and the method by which its assets were acquired,
and can also vary significantly from period to period. We also add
back depreciation and amortization and share-based compensation
because we do not consider them indicative of our core operating
performance. We believe their exclusion facilitates comparisons of
our operating performance on a period-to-period basis. Therefore,
we believe that showing gross profit and net income, as adjusted to
remove the impact of these expenses, is helpful to investors in
assessing our gross profit and net income performance in a way that
is similar to the way management assesses our performance.
Additionally, EBITDA and EBITDA margin are common measures of
operating performance in our industry, and we believe they
facilitate operating comparisons. Our management also uses Adjusted
Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA and
Adjusted EBITDA Margin in conjunction with other GAAP financial
measures for planning purposes, including as a measure of our core
operating results and the effectiveness of our business strategy,
and in evaluating our financial performance. Management considers
Adjusted Gross Profit and Adjusted Net Income as useful measures
because our cost of sales includes the depreciation of property,
plant and equipment used in the production of products and the
amortization of various intangibles related to our manufacturing
processes. Further, management considers Net Leverage as a useful
measure to assess our borrowing capacity.
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted
Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA
Margin and Net Leverage have limitations as analytical tools, and
you should not consider them in isolation or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
- These measures do not reflect our cash expenditures, future
requirements for capital expenditures or contractual
commitments;
- These measures do not reflect changes in, or cash requirements
for, our working capital needs;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the
significant interest expense, or the cash requirements necessary to
service interest or principal payments, on our debt;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our
income tax expense or the cash requirements to pay our taxes;
- Adjusted Gross Profit, Adjusted 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 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 I, Item 2 of our Quarterly Report on Form 10-Q for the
third quarter of fiscal 2022 and our Consolidated Financial
Statements and related notes included therein.
The AZEK Company Inc.
Condensed Consolidated Balance
Sheets
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
in thousands
June 30,
2022
September 30,
2021
ASSETS:
Current assets:
Cash and cash equivalents
$
159,621
$
250,536
Trade receivables, net of allowances
101,513
77,316
Inventories
322,117
188,888
Prepaid expenses
20,522
14,212
Other current assets
2,727
1,446
Total current assets
606,500
532,398
Property, plant and equipment - net
495,961
391,012
Goodwill
987,440
951,390
Intangible assets - net
247,606
242,572
Other assets
83,041
70,462
Total assets
$
2,420,548
$
2,187,834
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
83,034
$
69,474
Accrued rebates
44,491
44,339
Accrued interest
4,367
72
Current portion of long-term debt
obligations
4,500
—
Accrued expenses and other liabilities
68,660
56,522
Total current liabilities
205,052
170,407
Deferred income taxes
67,892
46,371
Long-term debt—less current portion
586,033
464,715
Other non-current liabilities
93,601
79,177
Total liabilities
952,578
760,670
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized and no shares issued or outstanding at
June 30, 2022 and September 30, 2021, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized, 155,153,226 shares issued at June
30, 2022 and 154,866,313 shares issued at September 30, 2021
155
155
Class B common stock, $0.001 par value;
100,000,000 shares authorized, 100 shares issued and outstanding at
June 30, 2022 and at September 30, 2021, respectively
—
—
Additional paid‑in capital
1,626,115
1,615,236
Accumulated deficit
(108,227
)
(188,227
)
Treasury stock, at cost, 3,013,575 shares
at June 30, 2022 and 0 shares at September 30, 2021
(50,073
)
—
Total stockholders' equity
1,467,970
1,427,164
Total liabilities and stockholders'
equity
$
2,420,548
$
2,187,834
The AZEK Company Inc.
Condensed Consolidated
Statements of Comprehensive Income
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
Three Months Ended June
30,
Nine Months Ended June
30,
in thousands
2022
2021
2022
2021
Net sales
$
394,991
$
327,454
$
1,050,954
$
832,854
Cost of sales
268,604
220,617
713,498
555,190
Gross profit
126,387
106,837
337,456
277,664
Selling, general and administrative
expenses
78,737
70,760
212,728
184,362
Other general expenses
—
1,443
—
2,592
Operating income
47,650
34,634
124,728
90,710
Other expenses:
Interest expense
10,618
4,054
18,776
16,428
Total other expenses
10,618
4,054
18,776
16,428
Income before income taxes
37,032
30,580
105,952
74,282
Income tax expense (benefit)
9,556
8,811
25,951
19,725
Net income
$
27,476
$
21,769
$
80,001
$
54,557
Net income per common share - basic
$
0.18
$
0.14
$
0.52
$
0.36
Net income per common share - diluted
0.18
0.14
0.51
0.35
Comprehensive income
$
27,476
$
21,769
$
80,001
$
54,557
Weighted-average common shares outstanding
- basic and diluted
Basic
153,493,355
153,854,313
154,199,158
153,623,579
Diluted
153,891,090
157,022,043
155,631,884
156,658,640
The AZEK Company Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Nine Months Ended June
30,
2022
2021
Operating activities:
Net income
$
80,001
$
54,557
Adjustments to reconcile net income to net
cash flows provided by (used in) operating activities:
Depreciation
48,764
37,654
Amortization of intangibles
37,966
37,666
Non-cash interest expense
4,194
2,550
Non-cash lease expense
(218
)
(17
)
Deferred income tax (benefit)
provision
21,520
17,385
Non-cash compensation expense
19,550
19,272
Loss (gain) on disposition of property
317
624
Changes in certain assets and
liabilities:
Trade receivables
(20,399
)
(19,287
)
Inventories
(121,574
)
(42,721
)
Prepaid expenses and other currents
assets
(7,732
)
(1,324
)
Accounts payable
4,512
6,911
Accrued expenses and interest
(3,733
)
4,877
Other assets and liabilities
2,532
1,901
Net cash provided by (used in) operating
activities
65,700
120,048
Investing activities:
Purchases of property, plant and
equipment
(139,491
)
(116,715
)
Proceeds from disposition of fixed
assets
617
38
Acquisitions, net of cash acquired
(86,935
)
—
Net cash provided by (used in) investing
activities
(225,809
)
(116,677
)
Financing activities:
Proceeds under revolving credit
facility
40,000
—
Payments under revolving credit
facility
(40,000
)
Proceeds from 2022 Term Loan Agreement
595,500
—
Payment of debt issuance costs
(3,442
)
(938
)
Repayments of Term Loan Agreement
(467,654
)
—
Repayments of finance lease
obligations
(2,308
)
(1,385
)
Exercise of vested stock options
5,995
4,614
Payments of initial public offering
related costs
—
(210
)
Cash paid for shares withheld for
taxes
(429
)
—
Purchases of treasury stock
(58,468
)
—
Net cash provided by (used in) financing
activities
69,194
2,081
Net increase (decrease) in cash and cash
equivalents
(90,915
)
5,452
Cash and cash equivalents – Beginning of
period
250,536
215,012
Cash and cash equivalents – End of
period
$
159,621
$
220,464
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
10,269
$
14,871
Cash paid for income taxes, net
5,608
2,458
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
24,321
$
3,780
Right-of-use operating and finance lease
assets obtained in exchange for lease liabilities
18,705
11,861
Segment Results from Operations
Residential
The following table summarizes certain financial information
relating to the Residential segment results that have been derived
from our unaudited Condensed Consolidated Financial Statements for
the three and nine months ended June 30, 2022 and 2021.
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2022
2021
$
Variance
%
Variance
2022
2021
$
Variance
%
Variance
Net sales
$
343,064
$
291,209
$
51,855
17.8
%
$
914,555
$
739,048
$
175,507
23.7
%
Segment Adjusted EBITDA
91,093
82,525
8,568
10.4
%
258,874
222,999
35,875
16.1
%
Segment Adjusted EBITDA Margin
26.6
%
28.3
%
N/A
N/A
28.3
%
30.2
%
N/A
N/A
Commercial
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 nine months ended June 30, 2022 and 2021.
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2022
2021
$
Variance
%
Variance
2022
2021
$
Variance
%
Variance
Net sales
$
51,927
$
36,245
$
15,682
43.3
%
$
136,399
$
93,806
$
42,593
45.4
%
Segment Adjusted EBITDA
12,271
6,273
5,998
95.6
%
25,693
13,304
12,389
93.1
%
Segment Adjusted EBITDA Margin
23.6
%
17.3
%
N/A
N/A
18.8
%
14.2
%
N/A
N/A
Adjusted EBITDA and Adjusted EBITDA
Margin Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2022
2021
2022
2021
Net income
$
27,476
$
21,769
$
80,001
$
54,557
Interest expense
10,618
4,054
18,776
16,428
Depreciation and amortization
29,606
25,771
86,730
75,321
Income tax expense (benefit)
9,556
8,811
25,951
19,725
Stock-based compensation
4,903
9,510
13,846
19,646
Acquisition costs (1)
3,227
—
8,861
—
Initial public offering and secondary
offering costs
—
1,443
—
2,592
Other costs (2)
1,138
1,358
1,799
4,411
Total adjustments
59,048
50,947
155,963
138,123
Adjusted EBITDA
$
86,524
$
72,716
$
235,964
$
192,680
Three Months Ended June
30,
Nine Months Ended June
30,
2022
2021
2022
2021
Net income
7.0
%
6.6
%
7.6
%
6.6
%
Interest expense
2.7
%
1.3
%
1.8
%
2.0
%
Depreciation and amortization
7.5
%
7.9
%
8.3
%
9.0
%
Income tax expense (benefit)
2.4
%
2.7
%
2.5
%
2.4
%
Stock-based compensation
1.2
%
2.9
%
1.3
%
2.4
%
Acquisition costs
0.8
%
0.0
%
0.8
%
0.0
%
Initial public offering costs
0.0
%
0.4
%
0.0
%
0.3
%
Other costs
0.3
%
0.4
%
0.2
%
0.4
%
Total adjustments
14.9
%
15.6
%
14.9
%
16.5
%
Adjusted EBITDA Margin
21.9
%
22.2
%
22.5
%
23.1
%
_______________________
(1)
Acquisition costs reflect costs directly
related to completed acquisitions of $3.2 million and $7.7 million
in the three and nine months ended June 30, 2022, respectively, and
inventory step-up adjustments related to recording inventory of
acquired businesses at fair value on the date of acquisition of
$1.2 million for the nine months ended June 30, 2022.
(2)
Other costs include costs for legal
expense of $0.2 million and $0.8 million in the three months ended
June 30, 2022 and 2021, respectively, costs related to a reduction
in workforce of $0.8 million in the three months ended June 30,
2022, costs related to an incentive plan and other ancillary
expenses associated with the initial public offering of $0.4
million for the three months ended June 30, 2021, other costs of
$0.1 million for the three months ended June 30, 2022, and the
impact of retroactive adoption of ASC 842 of $0.2 million for the
three months ended June 30, 2021. Other costs include costs for
legal expense of $0.6 million and $1.8 million in the nine months
ended June 30, 2022 and 2021, respectively, costs related to a
reduction in workforce of $0.8 million in the nine months ended
June 30, 2022, costs related to an incentive plan and other
ancillary expenses associated with the initial public offering of
$0.1 million and $2.1 million in the nine months ended June 30,
2022 and 2021, respectively, other costs of $0.3 million for the
nine months ended June 30, 2022, and the impact of retroactive
adoption of ASC 842 of $0.5 million for the nine months ended June
30, 2021.
Adjusted Gross Profit and Adjusted
Gross Profit Margin Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands)
2022
2021
2022
2021
Gross Profit
$
126,387
$
106,837
$
337,456
$
277,664
Depreciation and amortization (1)
20,843
17,280
59,410
49,891
Acquisitions costs (2)
—
—
1,208
—
Other costs (3)
324
—
324
—
Adjusted Gross Profit
$
147,554
$
124,117
$
398,398
$
327,555
Three Months Ended June
30,
Nine Months Ended June
30,
2022
2021
2022
2021
Gross Margin
32.0
%
32.6
%
32.1
%
33.3
%
Depreciation and amortization
5.3
%
5.3
%
5.7
%
6.0
%
Acquisitions costs
0.0
%
0.0
%
0.1
%
0.0
%
Other costs
0.1
%
0.0
%
0.0
%
0.0
%
Adjusted Gross Profit Margin
37.4
%
37.9
%
37.9
%
39.3
%
_______________________
(1)
Depreciation and amortization for the
three months ended June 30, 2022 and 2021 consists of $15.6 million
and $11.8 million, respectively, of depreciation and $5.2 million
and $5.5 million, respectively, of amortization of intangible
assets relating to our manufacturing process. Depreciation and
amortization for the nine months ended June 30, 2022 and 2021
consists of $44.0 million and $33.4 million, respectively, of
depreciation and $15.4 million and $16.5 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 $0.3 million in the three and nine months
ended June 30, 2022.
Adjusted Net Income and Adjusted
Diluted EPS Reconciliation
Three Months Ended June
30,
Nine Months Ended June
30,
(U.S. dollars in thousands, except per
share amounts)
2022
2021
2022
2021
Net income
$
27,476
$
21,769
$
80,001
$
54,557
Amortization
12,522
12,483
37,966
37,666
Stock-based compensation (1)
1,460
8,167
5,224
16,940
Acquisition costs (2)
3,227
—
8,861
—
Capital structure transaction costs
(3)
5,112
—
5,112
—
Initial public offering and secondary
offering costs
—
1,443
—
2,592
Other costs (4)
1,138
1,358
1,799
4,411
Tax impact of adjustments (5)
(5,694
)
(4,589
)
(14,182
)
(13,026
)
Adjusted Net Income
$
45,241
$
40,631
$
124,781
$
103,140
Three Months Ended June
30,
Nine Months Ended June
30,
2022
2021
2022
2021
Net income
$
0.18
$
0.14
$
0.51
$
0.35
Amortization
0.08
0.08
0.24
0.24
Stock-based compensation
0.01
0.05
0.04
0.11
Acquisition costs
0.02
—
0.06
—
Capital structure transaction costs
0.03
—
0.03
—
Initial public offering and secondary
offering costs
—
0.01
—
0.02
Other costs
0.01
0.01
0.01
0.03
Tax impact of adjustments
(0.04
)
(0.03
)
(0.09
)
(0.09
)
Adjusted Diluted EPS (6)
$
0.29
$
0.26
$
0.80
$
0.66
_______________________
(1)
Stock-based compensation costs reflect
expenses related to our initial public offering. Expenses related
to our recurring awards granted each fiscal year are excluded from
the Adjusted Net Income reconciliation.
(2)
Acquisition costs reflect costs directly
related to completed acquisitions of $3.2 million and $7.7 million
in the three and nine months ended June 30, 2022, respectively, and
inventory step-up adjustments related to recording inventory of
acquired businesses at fair value on the date of acquisition of
$1.2 million for the nine months ended June 30, 2022.
(3)
Capital structure transaction costs
include third party costs related to the 2022 Term Loan
Agreement.
(4)
Other costs include costs for legal
expense of $0.2 million and $0.8 million in the three months ended
June 30, 2022 and 2021, respectively, costs related to a reduction
in workforce of $0.8 million in the three months ended June 30,
2022, costs related to an incentive plan and other ancillary
expenses associated with the initial public offering of $0.4
million for the three months ended June 30, 2021, other costs of
$0.1 million for the three months ended June 30, 2022, and the
impact of retroactive adoption of ASC 842 of $0.2 million for the
three months ended June 30, 2021. Other costs include costs for
legal expense of $0.6 million and $1.8 million in the nine months
ended June 30, 2022 and 2021, respectively, costs related to a
reduction in workforce of $0.8 million in the nine months ended
June 30, 2022, costs related to an incentive plan and other
ancillary expenses associated with the initial public offering of
$0.1 million and $2.1 million in the nine months ended June 30,
2022 and 2021, respectively, other costs of $0.3 million for the
nine months ended June 30, 2022, and the impact of retroactive
adoption of ASC 842 of $0.5 million for the nine months ended June
30, 2021.
(5)
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 nine months ended June 30, 2022 and
2021.
(6)
Weighted average common shares outstanding
used in computing diluted net income per common share of
153,891,090 and 157,022,043 for the three months ended June 30,
2022 and 2021, respectively, and 155,631,884 and 156,658,640 for
the nine months ended June 30, 2022 and 2021, respectively.
Net Leverage Reconciliation
Twelve Months Ended June
30,
(In thousands)
2022
Net income
$
118,594
Interest expense
22,659
Depreciation and amortization
113,013
Tax expense (benefit)
34,894
Stock-based compensation costs
16,870
Acquisition costs
8,861
Initial public offering and secondary
offering costs
—
Other costs
2,580
Total adjustments
198,877
Adjusted EBITDA
$
317,471
Long-term debt — less current portion
$
586,033
Unamortized deferred financing fees
4,891
Unamortized original issue discount
4,576
Current portion
4,500
Finance leases
64,299
Gross debt
$
664,299
Cash and cash equivalents
(159,621
)
Net debt
$
504,678
Net Leverage
1.6x
Outlook
We have not reconciled either Adjusted EBITDA or Adjusted
Diluted EPS 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 and
Adjusted Diluted EPS have not occurred, are outside of our control
or cannot be reasonably predicted. Accordingly, a reconciliation of
each of Adjusted EBITDA and Adjusted Diluted EPS 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 and Adjusted Diluted EPS guidance and future GAAP
results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220804005204/en/
Investor Relations Contact: Eric Robinson 312-809-1093
ir@azekco.com
Media Contact: Rachel Mihulka 402-980-9603
AZEKquestions@zenogroup.com
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