Strong Sales Growth and Continued Momentum; Raising Midpoint
of Fiscal 2022 Net Sales Growth Outlook; Company Announces $400
Million Share Repurchase Program
SECOND QUARTER FISCAL 2022 HIGHLIGHTS
- Consolidated net sales increased 35.2% year over year to $396.3
million
- Residential segment net sales increased 33.6% year over year to
$350.4 million
- Net income increased 58.2% year over year to $35.8 million
- Adjusted Net Income increased 29.0% year over year to $50.8
million
- EPS increased 64.3% year over year to $0.23
- Adjusted Diluted EPS increased 32.0% year over year to
$0.33
- Adjusted EBITDA increased 27.1% year over year to $90.9
million
OUTLOOK HIGHLIGHTS
- Raising Midpoint of Fiscal 2022 Net Sales Outlook – Expecting
consolidated net sales of $1.39 billion to $1.43 billion
- Fiscal 2022 Adjusted EBITDA Outlook – Expecting Adjusted EBITDA
of $316 million to $332 million, inclusive of startup costs
- Third Quarter Fiscal 2022 Outlook – Expecting consolidated net
sales of $384 million to $390 million and Adjusted EBITDA of $78
million to $82 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 second quarter
ended March 31, 2022 of its fiscal year 2022.
CEO COMMENTS
"Our second quarter results were driven by broad-based growth
across our businesses, share gains and disciplined execution. With
a healthy demand environment, added capacity coming online and
incremental shelf space at dealers, we delivered outstanding
results and excellent customer service,” said Jesse Singh, AZEK's
Chief Executive Officer.
“The committed employees of The AZEK Company, including our
experienced management team, as well as our partners and our
customers did an incredible job of managing through a difficult
operating environment. We continue to see consistent demand trends
in the market and remain confident in our ability to continue to
drive revenue and profit growth. During the quarter, we saw an
additional $40 million of incremental annualized inflation and have
taken additional actions to offset this in subsequent quarters. We
are well positioned for growth and margin expansion entering fiscal
2023,” continued Mr. Singh.
“We saw strong results across our business, with our recently
introduced new products, including wood replacement Exteriors
products, and our new cable railing and productivity solutions
seeing strong growth in the quarter. We also made substantial
progress in improving the output of our recently acquired StruXure
business, which delivered more than 90% year over year growth in
the quarter. Our Commercial segment also delivered a strong
quarter, benefiting from previous margin enhancement actions and
strong execution in a recovering market. During the quarter, we
also made progress against a number of strategic initiatives,
including our new Boise facility and expanding our recycling
program reach through a new alliance with DTG Recycle, a recycler
of construction and demolition materials. The AZEK Company has also
been named to Newsweek’s list of America's Most Trusted Companies
based upon a survey of approximately 50,000 participants including
customers, investors and employees. This recognition is a testament
to the team’s focus on our core values and unyielding dedication to
and passion for our customers and purpose-driven strategy,” Mr.
Singh said.
“Subsequent to the close of the quarter, we strengthened our
balance sheet by refinancing and upsizing our existing Term Loan to
provide additional liquidity under favorable terms, and in May 2022
our Board of Directors authorized a $400 million share purchase
program. The refinanced capital structure and internally generated
cashflow will allow for continued disciplined capital allocation,
including organic investments, tuck-in M&A opportunities and
share repurchases,” concluded Mr. Singh.
SECOND QUARTER FISCAL 2022 CONSOLIDATED RESULTS
Net sales for the three months ended March 31, 2022 increased by
$103.1 million, or 35.2%, to $396.3 million from $293.1 million for
the three months ended March 31, 2021. Net sales for the three
months ended March 31, 2022 increased for our Residential segment
by 33.6% and increased for our Commercial segment by 48.4%, in each
case as compared to the prior year period.
Net income increased by $13.2 million to $35.8 million, or $0.23
per share, for the three months ended March 31, 2022 compared to
$22.6 million, or $0.14 per share, for the three months ended March
31, 2021.
Net margin expanded to 9.0% for the three months ended March 31,
2022, as compared to net margin of 7.7% for the three months ended
March 31, 2021.
Adjusted EBITDA increased by $19.4 million to $90.9 million for
the three months ended March 31, 2022, as compared to Adjusted
EBITDA of $71.5 million for the three months ended March 31, 2021.
Adjusted EBITDA Margin declined 150 basis points to 22.9% from
24.4% for the prior year period. As previously guided, Adjusted
EBITDA margin declined due to the price/commodity lag, startup
costs and the impact of our recent acquisition of StruXure.
Adjusted Net Income increased $11.4 million to $50.8 million, or
Adjusted Diluted EPS of $0.33 per share, for the three months ended
March 31, 2022, as compared to Adjusted Net Income of $39.4
million, or Adjusted Diluted EPS of $0.25 per share, for the three
months ended March 31, 2021.
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of March 31, 2022, the Company had cash and cash equivalents
of $25.8 million and approximately $107.2 million available for
future borrowings under our Revolving Credit Facility. Total debt
as of March 31, 2022 was $507.7 million.
OUTLOOK
“I’m proud of our experienced management team that is agile and
focused on aggressively implementing our strategy to drive growth
and margin expansion in any market environment. The underlying
near-term demand trends remain healthy, with growth in sample
orders and leads from our digital engagement, continued optimism
from our channel partners and project backlogs similar to prior
quarters which are elevated from a historical perspective,” Mr.
Singh said.
“Looking to the second half of 2022, we will be lapping 40%
growth and approximately $60 million of dealer and distributor
inventory replenishment," continued Singh. “Even with this
comparable, we expect to deliver double digit revenue growth in the
second half of fiscal 2022,” continued Mr. Singh.
For full year fiscal 2022, AZEK expects consolidated net sales
between $1.39 billion to $1.43 billion, inclusive of the StruXure
acquisition. From an Adjusted EBITDA perspective, AZEK expects to
deliver $316 million to $332 million, inclusive of the startup
costs associated with our capital investment programs and the
impact from acquisitions.
For the third quarter fiscal 2022, AZEK expects consolidated net
sales between $384 million to $390 million, inclusive of the
StruXure acquisition. From an Adjusted EBITDA perspective, AZEK
expects to deliver $78 million to $82 million, inclusive of startup
costs and the impact from acquisitions.
“Over the years, we have built a resilient business model with
multiple levers to drive growth and margin enhancement. We remain
excited about the long-term opportunity to drive material
conversion away from wood toward our types of materials. We believe
we are uniquely positioned because of our breadth and capabilities
to continue to expand within our core and into near adjacencies. We
remain disciplined and focused on prioritizing strategic
initiatives to support long-term sustainable growth and margin
expansion in fiscal 2023 and well into the future,” Mr. Singh
concluded.
SHARE REPURCHASE PROGRAM
On May 5, 2022, the Board of Directors authorized the Company to
repurchase up to $400 million of the Company’s Class A common
stock. The program allows the Company to repurchase its shares
opportunistically from time to time. Purchases may be effected
through one or more open market transactions, privately negotiated
transactions, transactions structured through investment banking
institutions, accelerated share repurchases or tender offers, some
of which may be effected through Rule 10b5-1 plans, or a
combination of the foregoing. The timing of repurchases will depend
upon several factors, including market and business conditions, and
repurchases may be discontinued at any time. As part of the
program, the Company intends to enter into a $50 million
accelerated share repurchase and repurchase the remaining $350
million over time.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today,
Tuesday, May 10, 2022, at 9:00 a.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/.
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 May 24,
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 100% recycled material and primarily replace wood on the
outside of homes, providing a long-lasting, eco-friendly and
stylish solution to consumers. Leveraging the talents of its
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,
Georgia, and Minnesota, and recently announced a new facility will
open in Boise, Idaho.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This earnings release contains forward-looking statements within
the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical facts contained in this
earnings release, including statements regarding future operations
are forward-looking statements. In some cases, forward looking
statements may be identified by words such as "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "could,"
"would," "expect," "objective," "plan," "potential," "seek,"
"grow," "target," "if," 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 our expectations regarding share
repurchases, including the timing and amount of repurchases and our
intentions regarding an accelerated share repurchase; 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 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
second 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
March 31,
2022
September 30,
2021
ASSETS:
Current assets:
Cash and cash equivalents
$
25,812
$
250,536
Trade receivables, net of allowances
171,685
77,316
Inventories
299,160
188,888
Prepaid expenses
18,203
14,212
Other current assets
5,991
1,446
Total current assets
520,851
532,398
Property, plant and equipment - net
474,340
391,012
Goodwill
987,440
951,390
Intangible assets - net
260,128
242,572
Other assets
76,721
70,462
Total assets
$
2,319,480
$
2,187,834
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable
$
76,228
$
69,474
Accrued rebates
31,723
44,339
Accrued interest
46
72
Current portion of long-term debt
obligations
—
—
Accrued expenses and other liabilities
65,586
56,522
Total current liabilities
173,583
170,407
Deferred income taxes
61,505
46,371
Long-term debt—less current portion
505,284
464,715
Other non-current liabilities
86,074
79,177
Total liabilities
826,446
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
March 31, 2022 and September 30, 2021, respectively
—
—
Class A common stock, $0.001 par value;
1,100,000,000 shares authorized,
155,108,627 shares issued and outstanding
at March 31, 2022 and
154,866,313 shares issued and outstanding
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 March
31, 2022 and at September 30, 2021,
respectively
—
—
Additional paid-in capital
1,628,581
1,615,236
Accumulated deficit
(135,702
)
(188,227)
Total stockholders' equity
1,493,034
1,427,164
Total liabilities and stockholders'
equity
$
2,319,480
$
2,187,834
The AZEK Company Inc.
Condensed Consolidated
Statements of Comprehensive Income (Loss)
(In thousands of U.S. dollars,
except for share and per share amounts)
(Unaudited)
Three Months Ended March
31,
Six Months Ended March
31,
in thousands
2022
2021
2022
2021
Net sales
$
396,255
$
293,121
$
655,963
$
505,399
Cost of sales
273,795
195,272
444,894
334,572
Gross profit
122,460
97,849
211,069
170,827
Selling, general and administrative
expenses
70,822
60,155
133,991
113,602
Other general expenses
—
1,149
—
1,149
Operating income (loss)
51,638
36,545
77,078
56,076
Other expenses:
Interest expense
4,010
6,348
8,158
12,374
Total other expenses
4,010
6,348
8,158
12,374
Income (loss) before income taxes
47,628
30,197
68,920
43,702
Income tax expense (benefit)
11,810
7,557
16,395
10,914
Net income (loss)
$
35,818
$
22,640
$
52,525
$
32,788
Net income (loss) per common share -
basic
$
0.23
$
0.15
$
0.34
$
0.21
Net income (loss) per common share -
diluted
0.23
0.14
0.34
0.21
Comprehensive income (loss)
$
35,818
$
22,640
$
52,525
$
32,788
Weighted-average common shares outstanding
- basic and diluted
Basic
154,661,277
153,509,612
154,551,589
153,366,516
Diluted
156,121,476
156,747,514
156,560,502
156,377,902
The AZEK Company Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands of U.S.
dollars)
(Unaudited)
Six Months Ended March
31,
2022
2021
Operating activities:
Net income (loss)
$
52,525
$
32,788
Adjustments to reconcile net income (loss)
to net cash flows provided by (used in)
operating activities:
Depreciation
31,680
24,366
Amortization of intangibles
25,444
25,183
Non-cash interest expense
2,373
1,996
Non-cash lease expense
(68
)
39
Deferred income tax (benefit)
provision
15,132
8,710
Non-cash compensation expense
11,773
9,931
Loss (gain) on disposition of property
425
298
Changes in certain assets and
liabilities:
Trade receivables
(90,571
)
(57,578
)
Inventories
(98,616
)
(36,429
)
Prepaid expenses and other currents
assets
(8,677
)
(2,111
)
Accounts payable
12,213
8,239
Accrued expenses and interest
(22,294
)
(8,461
)
Other assets and liabilities
1,118
1,115
Net cash provided by (used in) operating
activities
(67,543
)
8,086
Investing activities:
Purchases of property, plant and
equipment
(113,995
)
(72,735
)
Proceeds from disposition of fixed
assets
497
32
Acquisitions, net of cash acquired
(86,935
)
—
Net cash provided by (used in) investing
activities
(200,433
)
(72,703
)
Financing activities:
Proceeds under revolving credit
facility
40,000
—
Payment of debt issuance costs
—
(938
)
Repayments of finance lease
obligations
(1,242
)
(883
)
Exercise of vested stock options
4,923
2,953
Payments of initial public offering
related costs
—
(210
)
Cash paid for shares withheld for
taxes
(429
)
—
Net cash provided by (used in) financing
activities
43,252
922
Net increase (decrease) in cash and cash
equivalents
(224,724
)
(63,695
)
Cash and cash equivalents – Beginning of
period
250,536
215,012
Cash and cash equivalents – End of
period
$
25,812
$
151,317
Supplemental cash flow
disclosure:
Cash paid for interest, net of amounts
capitalized
$
5,792
$
8,645
Cash paid for income taxes, net
5,484
2,341
Supplemental non-cash investing and
financing disclosure:
Capital expenditures in accounts payable
at end of period
$
11,976
$
4,420
Right-of-use operating and finance lease
assets obtained in exchange for lease liabilities
10,208
9,157
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 six months ended March 31, 2022 and 2021.
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2022
2021
$
Variance
%
Variance
2022
2021
$
Variance
%
Variance
Net sales
$
350,358
$
262,198
$
88,160
33.6
%
$
571,491
$
447,838
$
123,653
27.6
%
Segment Adjusted EBITDA
98,350
81,699
16,651
20.4
%
167,781
140,475
27,306
19.4
%
Segment Adjusted EBITDA Margin
28.1
%
31.2
%
N/A
N/A
29.4
%
31.4
%
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 six months ended March 31, 2022 and 2021.
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2022
2021
$
Variance
%
Variance
2022
2021
$
Variance
%
Variance
Net sales
$
45,897
$
30,923
$
14,974
48.4
%
$
84,472
$
57,561
$
26,911
46.8
%
Segment Adjusted EBITDA
8,675
3,714
4,961
133.6
%
13,423
7,030
6,393
90.9
%
Segment Adjusted EBITDA Margin
18.9
%
12.0
%
N/A
N/A
15.9
%
12.2
%
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)
2022
2021
2022
2021
Net income (loss)
$
35,818
$
22,640
$
52,525
$
32,788
Interest expense
4,010
6,348
8,158
12,374
Depreciation and amortization
29,042
25,271
57,124
49,549
Income tax expense (benefit)
11,810
7,557
16,395
10,914
Stock-based compensation
4,928
7,156
8,944
10,136
Acquisition costs (1)
5,136
—
5,633
—
Initial public offering and secondary
offering costs
—
1,149
—
1,149
Other costs (2)
177
1,390
662
3,053
Total adjustments
55,103
48,871
96,916
87,175
Adjusted EBITDA
$
90,921
$
71,511
$
149,441
$
119,963
Three Months Ended March
31,
Six Months Ended March
31,
2022
2021
2022
2021
Net income (loss)
9.0
%
7.7
%
8.0
%
6.5
%
Interest expense
1.0
%
2.2
%
1.2
%
2.4
%
Depreciation and amortization
7.3
%
8.6
%
8.7
%
9.8
%
Income tax expense (benefit)
3.0
%
2.6
%
2.5
%
2.2
%
Stock-based compensation
1.2
%
2.4
%
1.4
%
2.0
%
Acquisition costs
1.3
%
0.0
%
0.9
%
0.0
%
Initial public offering costs
0.0
%
0.4
%
0.0
%
0.2
%
Other costs
0.1
%
0.5
%
0.1
%
0.6
%
Total adjustments
13.9
%
16.7
%
14.8
%
17.2
%
Adjusted EBITDA Margin
22.9
%
24.4
%
22.8
%
23.7
%
___________________________
(1)
Acquisition costs reflect costs directly
related to completed acquisitions of $3.9 million and $4.4 million
in the three and six months ended March 31, 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 both the three and six months ended March 31,
2022.
(2)
Other costs include costs for legal
expense of $0.1 million and $0.5 million in the three months ended
March 31, 2022 and 2021, respectively, costs related to an
incentive plan and other ancillary expenses associated with the
initial public offering of $0.7 million for the three months ended
March 31, 2021, other costs of $0.1 million for the three months
ended March 31, 2022, and the impact of retroactive adoption of ASC
842 of $0.2 million for the three months ended March 31, 2021.
Other costs include costs for legal expense of $0.4 million and
$1.0 million in the six months ended March 31, 2022 and 2021,
respectively, costs related to an incentive plan and other
ancillary expenses associated with the initial public offering of
$0.1 million and $1.7 million in the six months ended March 31,
2022 and 2021, respectively, other costs of $0.2 million for the
six months ended March 31, 2022, and the impact of retroactive
adoption of ASC 842 of $0.4 million for the six months ended March
31, 2021.
Adjusted Gross Profit and Adjusted Gross Profit Margin
Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands)
2022
2021
2022
2021
Gross Profit
$
122,460
$
97,849
$
211,069
$
170,827
Depreciation and amortization (1)
20,086
16,816
38,567
32,610
Acquisitions costs (2)
1,208
—
1,208
—
Adjusted Gross Profit
$
143,754
$
114,665
$
250,844
$
203,437
Three Months Ended March
31,
Six Months Ended March
31,
2022
2021
2022
2021
Gross Margin
30.9
%
33.4
%
32.2
%
33.8
%
Depreciation and amortization
5.1
%
5.7
%
5.8
%
6.5
%
Acquisitions costs
0.3
%
0.0
%
0.2
%
0.0
%
Adjusted Gross Profit Margin
36.3
%
39.1
%
38.2
%
40.3
%
___________________________
(1)
Depreciation and amortization for the
three months ended March 31, 2022 and 2021 consists of $14.8
million and $11.3 million, respectively, of depreciation and $5.3
million and $5.5 million, respectively, of amortization of
intangible assets relating to our manufacturing process.
Depreciation and amortization for the six months ended March 31,
2022 and 2021 consists of $28.5 million and $21.6 million,
respectively, of depreciation and $10.1 million and $11.0 million,
respectively, of amortization of intangible assets relating to our
manufacturing process.
(2)
Acquisition costs reflect inventory
step-up adjustments related to recording the inventory of acquired
businesses at fair value on the date of acquisition.
Adjusted Net Income and Adjusted Diluted EPS
Reconciliation
Three Months Ended March
31,
Six Months Ended March
31,
(U.S. dollars in thousands, except per
share amounts)
2022
2021
2022
2021
Net income (loss)
$
35,818
$
22,640
$
52,525
$
32,788
Amortization
12,564
12,540
25,444
25,183
Stock-based compensation (1)
1,804
6,087
3,765
8,773
Acquisition costs (2)
5,136
—
5,633
—
Initial public offering and secondary
offering costs
—
1,149
—
1,149
Other costs (3)
177
1,390
662
3,053
Tax impact of adjustments (4)
(4,716
)
(4,439
)
(8,488
)
(8,438
)
Adjusted Net Income
$
50,783
$
39,367
$
79,541
$
62,508
Three Months Ended March
31,
Six Months Ended March
31,
2022
2021
2022
2021
Net income (loss)
$
0.23
$
0.14
$
0.34
$
0.21
Amortization
0.08
0.08
0.15
0.16
Stock-based compensation
0.01
0.04
0.02
0.06
Acquisition costs
0.03
—
0.04
—
Initial public offering and secondary
offering costs
—
0.01
—
0.01
Other costs
0.01
0.01
0.01
0.02
Tax impact of adjustments
(0.03
)
(0.03
)
(0.05
)
(0.06
)
Adjusted Diluted EPS (5)
$
0.33
$
0.25
$
0.51
$
0.40
___________________________
(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 $3.9 million and $4.4 million
in the three and six months ended March 31, 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 both the three and six months ended March 31,
2022.
(3)
Other costs include costs for legal
expense of $0.1 million and $0.5 million in the three months ended
March 31, 2022 and 2021, respectively, costs related to an
incentive plan and other ancillary expenses associated with the
initial public offering of $0.7 million for the three months ended
March 31, 2021, other costs of 0.1 million for the three months
ended March 31, 2022, and the impact of retroactive adoption of ASC
842 of $0.2 million for the three months ended March 31, 2021.
Other costs include costs for legal expense of $0.4 million and
$1.0 million in the six months ended March 31, 2022 and 2021,
respectively, costs related to an incentive plan and other
ancillary expenses associated with the initial public offering of
$0.1 million and $1.7 million in the six months ended March 31,
2022 and 2021, respectively, other costs of $0.2 million for the
six months ended March 31, 2022, and the impact of retroactive
adoption of ASC 842 of $0.4 million for the six months ended March
31, 2021.
(4)
Tax impact of adjustments are based on
applying a combined U.S. federal and state statutory tax rate of
24.5% for both the three and six months ended March 31, 2022 and
2021.
(5)
Weighted average common shares outstanding
used in computing diluted net income (loss) per common share of
156,121,476 and 156,747,514 for the three months ended March 31,
2022 and 2021, respectively, and 156,560,502 and 156,377,902 for
the six months ended March 31, 2022 and 2021, respectively.
Net Leverage Reconciliation
Twelve Months Ended March
31,
(In thousands)
2022
Net income (loss)
$
112,887
Interest expense
16,095
Depreciation and amortization
109,179
Tax expense (benefit)
34,149
Stock-based compensation costs
21,478
Acquisition costs
5,633
Initial public offering and secondary
offering costs
1,443
Other costs
2,801
Total adjustments
190,778
Adjusted EBITDA
$
303,665
Long-term debt — less current portion
$
505,284
Unamortized deferred financing fees
2,117
Unamortized original issue discount
253
Finance leases
57,213
Gross debt
$
564,867
Cash and cash equivalents
(25,812
)
Net debt
$
539,055
Net Leverage
1.8x
Outlook
We have not reconciled Adjusted EBITDA guidance to its most
comparable GAAP measure as a result of the uncertainty regarding,
and the potential variability of, reconciling items such as the
variability in the provision for income taxes, the estimates for
warranty and rebate accruals and timing of the gain or loss on
disposal of property, plant and equipment. Such reconciling items
that impact Adjusted EBITDA have not occurred, are outside of our
control or cannot be reasonably predicted. Accordingly, a
reconciliation of Adjusted EBITDA to its most comparable GAAP
measure is not available without unreasonable effort. However, it
is important to note that material changes to these reconciling
items could have a significant effect on our Adjusted EBITDA
guidance and future GAAP results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220510005207/en/
Investor Relations Contact: Amanda Cimaglia 312-809-1093
ir@azekco.com
Media Contact: Rachel Mihulka 402-980-9603
AZEKquestions@zenogroup.com
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