The AZEK Company Announces First Quarter Fiscal Year 2021 Financial Results
The AZEK Company reported strong financial results for Q1 fiscal 2021, with net sales up 27.8% to $212.3 million, driven by a 36.8% increase in the Residential segment. Gross profit rose 42.3% to $73.0 million, reflecting improved margins. Net income turned positive at $10.2 million, compared to a net loss in the previous year, with adjusted EBITDA increasing 43.3% to $48.5 million. The company announced a target of using 1 billion pounds of recycled materials by 2026 and expects continued growth, raising its full-year sales guidance to 14%-18% year-over-year.
- Net sales increased by 27.8% to $212.3 million.
- Residential segment sales grew by 36.8%.
- Gross profit increased by 42.3% to $73.0 million.
- Net income reached $10.2 million, a significant turnaround from a loss.
- Adjusted EBITDA rose by 43.3% to $48.5 million.
- Outlook raised for full-year sales growth to 14%-18%.
- Commercial segment sales decreased by 12.3% to $26.6 million.
- Stock-based compensation and public company expenses led to higher SG&A costs.
The AZEK Company Inc. (the “Company” or “AZEK”) (NYSE: AZEK), an industry-leading manufacturer of beautiful, low-maintenance and sustainable residential and commercial building products, today announced financial results for the first quarter ended December 31, 2020 of its fiscal year 2021.
CEO COMMENTS
“Demand trends have continued their momentum, enabling us to deliver strong first quarter sales growth as well as increased confidence in our outlook for the remainder of the year,” commented Jesse Singh, AZEK’s Chief Executive Officer. “Our team continues to do an excellent job of executing against our key strategic initiatives, including new product launches as well as our capacity expansion and recycling programs, which is evident in our robust growth profile and significant margin improvement during the quarter. Our capacity expansion program remains on track as we execute against the second phase of implementation and finalize site selection for our new western U.S. facility.”
“Consistent with our mission to accelerate the use of recycled materials and further divert plastic waste from landfills, we are announcing a goal of utilizing 1 billion pounds of recycled scrap and waste annually by the end of 2026. We believe in revolutionizing outdoor living to build a more sustainable future. We are also honored to have recently been recognized as a 2021 Green Innovation of the Year award winner in recognition of our FULL-CIRCLE PVC Recycling Program by Green Builder Media and are excited about the increasing momentum around the program. Finally, our continued focus on innovation is demonstrated by the recent launch of our new high-performance TimberTech AZEK Landmark Collection which is the latest extension of our premium capped polymer decking and leverages advanced technology to create the most natural on-trend look of rustic, reclaimed wood. The combination of unique design and cascading colors creates a stunning, nature-inspired visual that’s never been seen in the industry,” concluded Mr. Singh.
FIRST QUARTER FISCAL 2021 CONSOLIDATED RESULTS
Net sales for the first quarter of fiscal 2021 increased by
Gross profit for the first quarter of fiscal 2021 increased by
Selling, general and administrative expenses increased by
Net income was
Adjusted Net Income was
Adjusted EBITDA for the first quarter of fiscal 2021 increased by
FIRST QUARTER FISCAL 2021 SEGMENT RESULTS
Residential Segment
Net sales for the first quarter of fiscal 2021 increased by
Segment Adjusted EBITDA for the first quarter of fiscal 2021 increased by
Commercial Segment
Net sales were
Segment Adjusted EBITDA was
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of December 31, 2020, the Company had cash and cash equivalents of
Net cash provided by operating activities was
OUTLOOK
“We believe that the strength and flexibility of our business model position us well to deliver long term value and outperformance in various market environments. As we look ahead to the remainder of our fiscal 2021, we have increased our outlook as steady demand continues across our Residential segment. We have improved visibility on channel inventory levels and downstream demand from our pre-season or “early buy” program, balanced by a macro-economic environment that continues to carry a level of uncertainty. Our second fiscal quarter is historically one where inventory is manufactured and positioned in the channel ahead of the building season. In fiscal 2021, we expect this staging to extend more into the third fiscal quarter given demand and production timing. We continue to see steady demand within our Residential segment across both our Deck, Rail & Accessories and Exteriors businesses supported by favorable repair and remodel, material conversion and outdoor living tailwinds, partially offset by reduced demand within our Commercial segment, which has been adversely impacted by the macro-environment,” added Mr. Singh.
AZEK is raising its outlook for the full year fiscal 2021. AZEK now expects consolidated net sales growth of
For the second quarter fiscal 2021 guidance, AZEK expects consolidated net sales growth in the
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today, Thursday, February 11, 2021 at 9:00 a.m. (CT).
To access the live conference call, please register for the call in advance by visiting http://www.directeventreg.com/registration/event/1291887. Registration will also be available during the call. After registering, a confirmation e-mail will be sent including dial-in details and unique conference call codes for entry. To ensure you are connected for the full call please register at least 10 minutes before the start of the call.
Interested investors and other parties can also listen to a webcast of the live conference call by logging onto the Investor Relations section of the Company's website at https://investors.azekco.com/events-and-presentations/.
For those unable to listen to the live conference call, a replay will be available approximately two hours after the call through the archived webcast on the AZEK website or by dialing (800) 585-8367 or (416) 621-4642. The conference ID for the replay is 1291887. The replay will be available until 10:59 p.m. (CT) on February 25, 2021.
ABOUT THE AZEK® COMPANY
The AZEK® Company Inc. is an industry-leading designer and manufacturer of beautiful, low-maintenance residential and commercial building products and is committed to innovation, sustainability and research & development. Headquartered in Chicago, Illinois, the company operates manufacturing facilities in Ohio, Pennsylvania 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," and similar expressions intended to identify forward-looking statements. In particular, statements about potential new products and product innovation, statements regarding the potential impact of the COVID-19 pandemic, statements about the markets in which we operate, including growth of our various markets and growth in the use of engineered products, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this earnings release are forward-looking statements. We have based these forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled "Risk Factors" set forth in Part II, Item 1A of the Quarterly Report on Form 10-Q for our first quarter of fiscal 2021 and in our other filings with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for fiscal 2020. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this earnings release may not occur and actual results may differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this earnings release with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
These statements are based on information available to us as of the date of this earnings release. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. We disclaim any intention and undertake no obligation to update or revise any of our forward-looking statements after the date of this release to reflect actual results or future events or circumstances whether as a result of new information, future events or otherwise, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
NON-GAAP FINANCIAL MEASURES
To supplement our earnings release and consolidated financial statements prepared and presented in accordance with generally accepted accounting principles in the United States, or (“GAAP”), we use certain non-GAAP performance financial measures, as described within this earnings release, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP financial measures to assist investors in seeing our financial performance from management’s view and because we believe they provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry. Our GAAP financial results include significant expenses that are not indicative of our ongoing operations as detailed within this earnings release.
However, non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our earnings release and our consolidated financial statements prepared and presented in accordance with GAAP.
We define Adjusted Gross Profit as gross profit before depreciation and amortization, business transformation costs and acquisition costs as described below. Adjusted Gross Profit Margin is equal to Adjusted Gross Profit divided by net sales.
We define Adjusted Net Income as net income (loss) before amortization, share-based compensation costs, business transformation costs, acquisition costs, initial public offering costs and certain other costs as described below.
We define Adjusted Diluted EPS as Adjusted Net Income divided by weighted average common shares outstanding – diluted, to reflect the conversion or exercise, as applicable, of all outstanding shares of restricted stock awards, restricted stock units and options to purchase shares of our common stock.
We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax (benefit) expense and depreciation and amortization and by adding to or subtracting therefrom items of expense and income as described above.
Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by net sales. Net Leverage is equal to gross debt less cash and cash equivalents, divided by trailing twelve month Adjusted EBITDA. We believe Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Net Leverage are useful to investors because they help identify underlying trends in our business that could otherwise be masked by certain expenses that can vary from company to company depending on, among other things, its financing, capital structure and the method by which its assets were acquired, and can also vary significantly from period to period. We also add back depreciation and amortization and share-based compensation because we do not consider them indicative of our core operating performance. We believe their exclusion facilitates comparisons of our operating performance on a period-to-period basis. Therefore, we believe that showing gross profit and net income, as adjusted to remove the impact of these expenses, is helpful to investors in assessing our gross profit and net income performance in a way that is similar to the way management assesses our performance. Additionally, EBITDA and EBITDA margin are common measures of operating performance in our industry, and we believe they facilitate operating comparisons. Our management also uses Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with other GAAP financial measures for planning purposes, including as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. Management considers Adjusted Gross Profit and Adjusted Net Income as useful measures because our cost of sales includes the depreciation of property, plant and equipment used in the production of products and the amortization of various intangibles related to our manufacturing processes. Further, management considers Net Leverage as a useful measure to assess our borrowing capacity.
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Net Leverage have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
- These measures do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
- These measures do not reflect changes in, or cash requirements for, our working capital needs;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
- Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our income tax expense or the cash requirements to pay our taxes;
- Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA exclude the expense of depreciation, in the case of Adjusted Gross Profit and Adjusted EBITDA, and amortization, in each case, of our assets, and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future;
- Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA exclude the expense associated with our equity compensation plan, although equity compensation has been, and will continue to be, an important part of our compensation strategy;
- Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA exclude certain business transformation costs, acquisition costs and other costs, each of which can affect our current and future cash requirements; and
- Other companies in our industry may calculate Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin and Net Leverage differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, none of these metrics should be considered indicative of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Segment Adjusted EBITDA
Depending on certain circumstances, Segment Adjusted EBITDA may be calculated differently, from time to time, than our Adjusted EBITDA and Adjusted EBITDA Margin, which are further discussed under the heading “Non-GAAP Financial Measures.” Segment Adjusted EBITDA represents a measure of segment profit reported to our chief operating decision maker for the purpose of making decisions about allocating resources to a segment and assessing its performance. For more information regarding how Segment Adjusted EBITDA is determined, see our Consolidated Financial Statements and related notes included in our Quarterly Report on Form 10-Q for the first quarter of fiscal 2021 filed with the SEC.
The AZEK Company Inc. Consolidated Balance Sheets (In thousands of U.S. dollars, except for share and per share amounts) (Unaudited) |
||||||||
December 31, 2020 |
September 30, 2020 |
|||||||
ASSETS: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
210,034 |
|
$ |
215,012 |
||
Trade receivables, net of allowances |
|
|
41,234 |
|
|
70,886 |
||
Inventories |
166,151 |
130,070 |
||||||
Prepaid expenses |
|
|
11,412 |
|
|
8,367 |
||
Other current assets |
|
|
161 |
|
|
360 |
||
Total current assets |
|
|
428,992 |
|
424,695 |
|||
Property, plant and equipment, net |
279,183 |
261,774 |
||||||
Goodwill |
|
|
951,390 |
|
|
951,390 |
||
Intangible assets, net |
279,731 |
292,374 |
||||||
Other assets |
1,608 |
|
1,623 |
|||||
Total assets |
|
$ |
1,940,904 |
|
$ |
1,931,856 |
||
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
38,179 |
|
$ |
42,059 |
||
Accrued rebates |
|
|
35,754 |
|
|
30,362 |
||
Accrued interest |
|
|
1,089 |
|
|
1,103 |
||
Current portion of long-term debt obligations |
|
|
─ |
|
|
─ |
||
Accrued expenses and other liabilities |
|
|
39,408 |
|
|
50,516 |
||
Total current liabilities |
|
|
114,430 |
|
|
124,040 |
||
Deferred income taxes |
|
|
24,168 |
|
|
21,260 |
||
Finance lease obligations — less current portion |
|
|
10,886 |
|
|
10,910 |
||
Long-term debt — less current portion |
|
|
463,308 |
|
|
462,982 |
||
Other non-current liabilities |
|
|
9,009 |
|
|
8,776 |
||
Total liabilities |
|
|
621,801 |
|
|
627,968 |
||
Commitments and contingencies |
|
|
|
|
|
|
||
Stockholders’ equity: |
|
|
|
|
|
|
||
Preferred stock, |
|
|
|
|
|
|
||
authorized and no shares issued and outstanding at |
|
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|
|
|
|
||
December 31, 2020 and at September 30, 2020, |
|
|
|
|
|
|
||
respectively |
|
|
─ |
|
|
─ |
||
Class A common stock, |
|
|
|
|
|
|
||
shares authorized, 154,735,617 shares issued and |
|
|
|
|
|
|
||
outstanding at December 31, 2020, and 154,637,240 |
|
|
|
|
|
|
||
shares issued and outstanding at September 30, 2020 |
|
|
155 |
|
|
155 |
||
Class B common stock, |
|
|
|
|
|
|
||
shares authorized, 100 shares issued and outstanding |
|
|
|
|
|
|
||
at December 31, 2020 and at September 30, 2020, |
|
|
|
|
|
|
||
respectively |
|
|
─ |
|
|
─ |
||
Additional paid‑in capital |
|
|
1,592,240 |
|
|
1,587,208 |
||
Accumulated deficit |
|
|
(273,292) |
|
|
(283,475) |
||
Total stockholders’ equity |
|
|
1,319,103 |
|
|
1,303,888 |
||
Total liabilities and stockholders’ equity |
|
$ |
1,940,904 |
|
$ |
1,931,856 |
||
The AZEK Company Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands of U.S. dollars, except for share and per share amounts) (Unaudited) |
||||||
Three Months Ended December 31, |
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2020 |
2019 |
|||||
|
|
|
|
|||
Net sales |
$ |
212,278 |
$ |
166,043 |
||
Cost of sales |
|
139,302 |
|
114,752 |
||
Gross profit |
|
72,976 |
|
51,291 |
||
Selling, general and administrative expenses |
|
53,029 |
|
43,473 |
||
Other general expenses |
|
─ |
|
1,978 |
||
Loss (gain) on disposal of plant, property and equipment |
|
212 |
|
(73) |
||
Operating income (loss) |
|
19,735 |
|
5,913 |
||
Other expenses: |
|
|
|
|
||
Interest expense |
|
6,196 |
|
19,759 |
||
Total other expenses |
|
6,196 |
|
19,759 |
||
Income (loss) before income taxes |
|
13,539 |
|
(13,846) |
||
Income tax expense (benefit) |
|
3,356 |
|
(4,000) |
||
Net income (loss) |
$ |
10,183 |
$ |
(9,846) |
||
Net income (loss) per common share: |
|
|
|
|
||
Basic |
$ |
0.07 |
$ |
(0.09) |
||
Diluted |
|
0.07 |
|
(0.09) |
||
Comprehensive income (loss) |
$ |
10,183 |
$ |
(9,846) |
||
Weighted average shares used in calculating net income (loss) per
|
|
|
|
|
||
Basic |
|
153,226,378 |
|
108,162,741 |
||
Diluted |
|
156,018,731 |
|
108,162,741 |
||
The AZEK Company Inc. Consolidated Statements of Cash Flows (In thousands of U.S. dollars) (Unaudited) |
|||||||||||||
Three Months Ended December 31, |
|||||||||||||
2020 |
2019 |
||||||||||||
Operating activities: |
|
|
|
|
|
|
|
||||||
Net income (loss) |
$ |
10,183 |
$ |
(9,846) |
|
||||||||
Adjustments to reconcile net income (loss) to net cash flows
|
|
|
|
|
|
|
|
||||||
Depreciation expense |
|
|
11,627 |
|
|
10,283 |
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