The AZEK Company Announces Strong Third Quarter Fiscal Year 2021 Financial Results
Continued Strong Sales Growth and Demand Environment; Phase 2 of Capacity Expansion Program Completed; Raising Full-Year Fiscal 2021 Consolidated Net Sales and Adjusted EBITDA Outlook
THIRD QUARTER FISCAL 2021 HIGHLIGHTS
- Consolidated net sales increased 46.4% year-over-year to $327.5 million
- Residential segment net sales increased 51.2% year-over-year to $291.2 million
- Net income increased by $73.9 million year-over-year to $21.8 million; Net Margin expanded to 6.6% from (23.3%)
- GAAP earnings per share increased by $0.58 year-over-year to $0.14 per share; Adjusted Diluted EPS increased by $0.21 year-over-year to $0.26 per share
- Adjusted EBITDA increased $14.9 million year-over-year to $72.7 million
OUTLOOK HIGHLIGHTS
- Raising Fiscal 2021 Net Sales Outlook – Expecting consolidated net sales growth of 28% to 30% year-over-year, compared to our previous expectation of 23% to 26%
- Raising Fiscal 2021 Adjusted EBITDA Midpoint Outlook – Expecting Adjusted EBITDA growth of 27% to 29% year-over-year, compared to our previous expectation of 25% to 29%
- Fourth Quarter Fiscal 2021 Outlook – Expecting consolidated net sales growth of 22% to 27% year-over-year, and Adjusted EBITDA growth of 19% to 25% year-over-year
CHICAGO–(BUSINESS WIRE)–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 and Versatex® and AZEK Trim®, today announced financial results for the third quarter ended June 30, 2021 of its fiscal year 2021.
CEO COMMENTS
“The AZEK Company once again delivered strong revenue and growth within the quarter, driven primarily by solid execution and underlying demand for products across channels in our Residential businesses, and improving sales trends in our Commercial segment,” commented Jesse Singh, AZEK’s Chief Executive Officer. “During the quarter, we completed the second phase of our approximately $230 million multi-phase expansion plan and delivered over 50% growth in our Residential segment. While we saw increasing inflation and availability challenges in materials, labor and transportation, we were able to navigate through these challenges to meet the exceptional underlying demand and modestly replenish inventory in the dealer channel. Our focus has and will continue to be on increasing service levels to our customers and our channel partners. Although we saw incrementally higher than expected costs within the quarter, we expect that our pricing and productivity actions will increasingly offset the impact of these higher costs, giving us conviction to deliver margin improvement as we look ahead to 2022.”
“We continue to make progress against our key initiatives, including growth through innovation, margin expansion through recycle and continuous improvement, and positively impacting the world through our commitments to ESG stewardship. In recognition of our ESG leadership within the vinyl industry, we recently achieved +Vantage Vinyl verification by the Vinyl Sustainability Council. It is clear that our broad, branded portfolio is resonating with customers and gaining momentum, especially with strong sales from our new product innovations in decking and exteriors over the last several quarters,” continued Mr. Singh.
“We remain excited about what the future will hold for AZEK and believe we are well positioned for sustainable growth, fueled by a strong outdoor living market, ongoing product expansion and material conversion opportunities. In June, we celebrated an exciting milestone – our first year as a public company. I am thankful to our entire team for their unwavering commitment to advancing our growth initiatives and their dedication to our customers, especially during such a challenging and unprecedented year,” concluded Mr. Singh.
THIRD QUARTER FISCAL 2021 CONSOLIDATED RESULTS
Net sales for the three months ended June 30, 2021 increased by $103.7 million, or 46.4%, to $327.5 million from $223.7 million for the three months ended June 30, 2020. The increase was attributable to higher sales growth in both our Residential and Commercial segments. Net sales for the three months ended June 30, 2021 increased for our Residential segment by 51.2% and increased for our Commercial segment by 16.5%, in each case as compared to the prior year.
Gross profit for the three months ended June 30, 2021 increased by $31.7 million, or 42.3%, to $106.9 million from $75.1 million for the three months ended June 30, 2020. The increase in gross profit was primarily driven by the strong sales results in the Residential and Commercial segment, pricing and manufacturing productivity, partially offset by higher costs. Gross profit margin decreased to 32.6% for the three months ended June 30, 2021 compared to 33.6% for the three months ended June 30, 2020, partially due to the rapid rise in input costs ahead of price realization. Adjusted Gross Profit Margin decreased 290 basis points to 37.9%, compared to 40.8% for the prior year period.
Selling, general and administrative expenses increased by $5.1 million, or 7.9%, to $70.3 million, or 21.5% of net sales, for the three months ended June 30, 2021 from $65.2 million, or 29.1% of net sales, for the three months ended June 30, 2020. The increase was primarily attributable to higher personnel costs, public company costs, professional fees and marketing expenses in the period as expenses normalized following a pullback in expenses during the same period last year at the onset of the COVID-19 pandemic. The increase in selling, general and administrative expenses for the three months ended June 30, 2021 was partially offset by lower stock-based compensation expense as a result of the issued shares in our initial public offering in 2020.
Net income increased by $73.9 million to $21.8 million, or $0.14 per share, for the three months ended June 30, 2021 compared to a net loss of $52.1 million, or ($0.44) per share, for the three months ended June 30, 2020, primarily due to strong operating results and a decrease in interest expense resulting from the reduced principal amount outstanding under our Term Loan Agreement and an absence of the loss on debt extinguishment of our formerly outstanding 2025 Senior Notes and 2021 Senior Notes.
Net margin expanded to 6.6% for the three months ended June 30, 2021 as compared to net margin of (23.3%) for the three months ended June 30, 2020.
Adjusted Net Income increased $34.3 million to $40.5 million, or Adjusted Diluted EPS of $0.26 per share, for the three months ended June 30, 2021 as compared to Adjusted Net Income of $6.2 million, or Adjusted Diluted EPS of $0.05 per share, for the three months ended June 30, 2020.
Adjusted EBITDA increased by $14.9 million to $72.7 million for the three months ended June 30, 2021 as compared to Adjusted EBITDA of $57.8 million for the three months ended June 30, 2020. The increase was mainly driven by higher sales growth in both our Residential and Commercial segments and higher gross profit. Adjusted EBITDA Margin declined 360 basis points to 22.2% from 25.8% for the prior year period.
THIRD QUARTER FISCAL 2021 SEGMENT RESULTS
Residential Segment
Net sales for the three months ended June 30, 2021 increased by $98.6 million, or 51.2%, to $291.2 million from $192.6 million for the three months ended June 30, 2020. The increase was primarily attributable to higher net sales in both our Deck, Rail & Accessories and Exteriors businesses.
Segment Adjusted EBITDA for the three months ended June 30, 2021 increased by $20.2 million, or 32.4%, to $82.5 million from $62.3 million for the three months ended June 30, 2020. The increase was mainly driven by higher sales and manufacturing productivity, partially offset by higher raw material and manufacturing costs and selling, general and administrative expenses. Segment Adjusted EBITDA Margin declined 410 basis points to 28.3% from 32.4% for the prior year period.
Commercial Segment
Net sales for the three months ended June 30, 2021 increased by $5.1 million, or 16.5%, to $36.2 million from $31.1 million for the three months ended June 30, 2020. The increase was primarily attributable to higher net sales in our Vycom business, partially offset by decreased net sales in our Scranton Products business.
Segment Adjusted EBITDA of the Commercial segment was $6.3 million for the three months ended June 30, 2021, compared to $5.0 million for the three months ended June 30, 2020. The increase was primarily driven by higher sales in the Vycom business and net manufacturing productivity. Segment Adjusted EBITDA Margin expanded 120 basis points to 17.3% from 16.1% for the prior year period.
NINE MONTHS FISCAL 2021 RESULTS
Net sales for the nine months ended June 30, 2021 increased by $197.5 million, or 31.1%, to $832.9 million from $635.3 million for the nine months ended June 30, 2020. The increase was primarily attributable to higher sales growth in our Residential segment which grew 37.2% partially offset by a 3.1% decline in the Commercial segment.
Net income increased by $112.5 million to $54.6 million, or $0.35 per share, for the nine months ended June 30, 2021 compared to a net loss of $57.9 million, or ($0.51) for the nine months ended June 30, 2020, primarily driven by strong operating results and a decrease in interest expense resulting from the reduced principal amount outstanding under the Term Loan Agreement and an absence of the loss on debt extinguishment of our formerly outstanding 2025 Senior Notes and 2021 Senior Notes. Net margin expanded to 6.6% for the nine months ended June 30, 2021 compared to net margin of (9.1%) for the nine months ended June 30, 2020.
Adjusted Net Income was $102.8 million, or Adjusted Diluted EPS of $0.66 per share, for the nine months ended June 30, 2021, compared to Adjusted Net Income of $28.3 million, or Adjusted Diluted EPS of $0.25 per share, for the nine months ended June 30, 2020.
Adjusted EBITDA for the first nine months ended June 30, 2021 increased by $45.3 million to $192.7 million from $147.4 million for the nine months ended June 30, 2020
BALANCE SHEET, CASH FLOW and LIQUIDITY
As of June 30, 2021, the Company had cash and cash equivalents of $220.5 million and approximately $145.6 million available for future borrowings under our Revolving Credit Facility. Total debt as of June 30, 2021 was $467.7 million.
Net cash provided by operating activities was $118.7 million for the nine months ended June 30, 2021 as compared to $11.3 million in the nine months ended June 30, 2020.
OUTLOOK
“Given the continued market strength, our recent capacity additions, pricing actions and our disciplined approach to execution, we believe we’re well positioned to deliver strong growth and margin expansion as we look ahead to 2022. We continue to invest in our brand, our people and our key strategic initiatives to fuel the long-term, sustainable growth of the business, while maintaining our focus on meeting customer demand and delivering a best-in-class consumer experience. Despite higher costs in the near-term, our long-term growth and margin expansion goals remain intact. We are reaffirming our positive outlook on the broader Outdoor Living category and our position as the innovation leader within it,” continued Mr. Singh.
As a result of the Company’s initiatives and a continued favorable demand environment, AZEK is raising its consolidated net sales and Adjusted EBITDA midpoint outlook for the full year fiscal 2021. AZEK now expects consolidated net sales growth of 28% to 30% year-over-year. From a segment perspective, AZEK now expects Residential segment net sales growth in the low-to-mid 30% range year-over-year, partially offset by a low-single digit decline in Commercial segment net sales. The Company is raising the midpoint of its Adjusted EBITDA growth outlook to between 27% to 29% range year-over-year. The outlook includes increased sales, pricing and productivity actions, strategic investments and higher costs.
For the fourth quarter fiscal 2021 guidance, AZEK expects consolidated net sales growth in the 22% to 27% range year-over-year, driven by strong Residential segment growth in the mid-to-high 20% range, partially offset with low-to-mid single digits growth in its Commercial segment. AZEK is expecting Adjusted EBITDA growth in the 19% to 25% range year-over-year.
CONFERENCE CALL INFORMATION
AZEK will hold a conference call to discuss the results today, Thursday, August 12, 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/5847476. 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 5847476. The replay will be available until 10:59 p.m. (CT) on August 26, 2021.
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®. 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 1,700 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 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,” 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, are forward-looking statements. Other forward-looking statements may include, without limitation, other statements with respect to our ability to meet the future targets and goals we establish 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 potential new products and product innovation, statements regarding the potential impact of the COVID-19 pandemic, 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, including growth of our various markets and growth in the use of engineered products, 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 II, Item 1A of the Quarterly Report on Form 10-Q for our third 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 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 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.
Contacts
Investor Relations Contact:
Amanda Cimaglia
312-809-1093
ir@azekco.com
Media Contact:
Amy Widdowson
(650) 597-7132
AZEKquestions@zenogroup.com