The AZEK Company Announces Second Quarter Fiscal Year 2021 Financial Results

Second Quarter Fiscal 2021 Highlights

–Consolidated net sales increased 19.4% year-over-year to $293.1 million

–Residential segment net sales increased 24.7% year-over-year to $262.2 million

–Net income increased $18.6 million year-over-year to $22.7 million; Net Margin expanded 600 basis points to 7.7%

–Adjusted EBITDA increased $15.7 million year-over-year to $71.5 million; Adjusted EBITDA Margin expanded 170 basis points to 24.4%

Outlook Highlights

–Raising Fiscal 2021 Outlook – Expecting consolidated net sales growth of 23% to 26% year-over-year and Adjusted EBITDA growth of 25% to 29% year-over-year, compared to our previous expectation of 14% to 18% net sales growth and 19% to 23% Adjusted EBITDA growth

–Increasing Fiscal 2021 Capital Expenditure Outlook – Expecting capital expenditure of $175 to $185 million, or an additional $50 to $60 million compared to our previous guidance

–Third Quarter Fiscal 2021 Outlook – Expecting consolidated net sales growth of 29% to 32% year-over-year and Adjusted EBITDA growth of 15% to 18% year-over-year

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 second quarter ended March 31, 2021 of its fiscal year 2021.

CEO Comments

“Underlying demand across our key outdoor living and exteriors markets continues to strengthen, and as a result, we are increasing our guidance as well as investments in capacity and key strategic initiatives for the balance of the year,” commented Jesse Singh, AZEK’s Chief Executive Officer. “Within the quarter, the strength of our customer, supplier and distribution channel partnerships have enabled us to effectively navigate industry-wide supply chain disruptions, while continuing to expand capacity and service. We are seeing significant raw material and other inflation, and we expect pricing and productivity initiatives to offset inflationary headwinds by the end of the fiscal year. We are excited by the momentum of our innovative new products, including our TimberTech AZEK Landmark decking collection, and continue to see a strong demand environment. During the second quarter, we also announced that Boise, Idaho was selected as the location of our new western U.S. facility, which will enable us to capitalize on future growth and continued strong demand.”

“As we approach the one-year anniversary of becoming a public company, I am very proud of the accomplishments of our team – not only in driving financial performance, but also in their steadfast dedication to advance AZEK’s goal to revolutionize and lead our industry towards a more sustainable future. The release of FULL-CIRCLE, our inaugural ESG Report, is yet another milestone in our corporate journey. We are excited about the unique opportunity to have a positive and lasting impact on the world through our accelerated use of recycled material and look forward to communicating our progress in the months and years ahead,” concluded Mr. Singh.

Second Quarter Fiscal 2021 Consolidated Results

Net sales for the second quarter of fiscal 2021 increased by $47.5 million, or 19.4%, to $293.1 million from $245.6 million for the second quarter of fiscal 2020. The increase was attributable to higher sales growth in our Residential segment. Net sales for the Residential segment increased by 24.7%, and net sales for the Commercial segment decreased by 12.5%, in each case as compared to the prior year period.

Gross profit for the second quarter of fiscal 2021 increased by $18.5 million, or 23.3%, to $97.9 million from $79.4 million for the second quarter of fiscal 2020. The increase in gross profit was primarily driven by the strong sales results in the Residential segment during the quarter as well as positive pricing and manufacturing productivity partially offset by higher costs. Gross margin increased 110 basis points to 33.4%, compared to 32.3% for the prior year period. Adjusted Gross Profit Margin increased 30 basis points to 39.1%, compared to 38.8% for the prior year period.

Selling, general and administrative expenses increased by $10.2 million to $59.9 million, or 20.4% of net sales, for the second quarter of fiscal 2021 from $49.7 million, or 20.2% of net sales, for the second quarter of fiscal 2020. The increase was primarily attributable to stock-based compensation expense, ongoing public company expenses and personnel costs.

Net income increased $18.6 million to $22.7 million, or $0.14 per share, for the second quarter of fiscal 2021 as compared to $4.1 million, or $0.04 per share, for the second quarter of fiscal 2020, primarily due to sales growth in the Residential segment, higher gross profit and a decrease in interest expense resulting from the reduced principal amount outstanding under the Term Loan Agreement and our formerly outstanding 2021 Senior Notes. Net margin expanded 600 basis points to 7.7% for the second quarter of fiscal 2021 as compared to net margin of 1.7% for the second quarter of fiscal 2020.

Adjusted Net Income increased $20.9 million to $39.3 million, or Adjusted Diluted EPS of $0.25 per share, for the second quarter of fiscal 2021 as compared to Adjusted Net Income of $18.4 million, or Adjusted Diluted EPS of $0.17 per share, for the second quarter of fiscal 2020.

Adjusted EBITDA increased by $15.7 million to $71.5 million for the second quarter of fiscal 2021 as compared to Adjusted EBITDA of $55.8 million for the second quarter of fiscal 2020. The increase was mainly driven by sales growth in the Residential segment and higher gross profit. Adjusted EBITDA Margin expanded 170 basis points to 24.4% from 22.7% for the prior year period.

Second Quarter Fiscal 2021 Segment Results

Residential Segment

Net sales for the second quarter of fiscal 2021 increased by $52.0 million, or 24.7%, to $262.2 million from $210.2 million for the second quarter of fiscal 2020. The increase was primarily attributable to higher sales in our Deck, Rail & Accessories and Exteriors businesses.

Segment Adjusted EBITDA for the second quarter of fiscal 2021 increased by $18.9 million, or 30.1%, to $81.7 million from $62.8 million for the second quarter of fiscal 2020. The increase was mainly driven by higher sales and manufacturing productivity, partially offset by higher costs. Segment Adjusted EBITDA Margin expanded 130 basis points to 31.2% from 29.9% for the prior year period.

Commercial Segment

Net sales decreased by $4.4 million, or 12.5% to $30.9 million for the second quarter of fiscal 2021, compared to $35.3 million for the second quarter of fiscal 2020. The decrease was primarily attributable to lower net sales in our Scranton Products and Vycom businesses as the effects of COVID-19 continued to impact certain end markets demand during the quarter, partially offset by increased pricing.

Segment Adjusted EBITDA increased by $0.6 million, or 18.6%, to $3.7 million for the second quarter of fiscal 2021, compared to $3.1 million for the second quarter of fiscal 2020. The increase was primarily driven by manufacturing productivity and lower selling, general and administrative expenses partially offset by lower net sales. Segment Adjusted EBITDA Margin expanded 310 basis points to 12.0% from 8.9% for the prior year period.

Six Months Fiscal 2021 Results

Net sales for the six months ended March 31, 2021 increased by $93.8 million, or 22.8%, to $505.4 million from $411.6 million for the six months ended March 31, 2020. The increase was attributable to higher sales growth in our Residential segment. Net sales for the six months ended March 31, 2021 increased for our Residential segment by 29.5% and decreased for our Commercial segment by 12.4%, in each case as compared to the prior year.

Net income (loss) increased by $38.6 million to net income of $32.8 million, or $0.21 per share, for the six months ended March 31, 2021, compared to net loss of ($5.8) million, or ($0.05) per share, for the six months ended March 31, 2020, primarily driven by sales growth in the Residential segment, higher gross profit and a decrease in interest expense resulting from the reduced principal amount outstanding under the Term Loan Agreement and our formerly outstanding 2021 Senior Notes. Net margin expanded 790 basis points to 6.5% for the six months ended March 31, 2021 compared to net margin of (1.4%) for the six months ended March 31, 2020.

Adjusted Net Income was $62.3 million, or Adjusted Diluted EPS of $0.40 per share, for the six months ended March 31, 2021, compared to Adjusted Net Income of $22.0 million, or Adjusted Diluted EPS of $0.20 per share, for the six months ended March 31, 2020.

Adjusted EBITDA for the first six months ended March 31, 2021 increased by $30.3 million to $120.0 million from $89.6 million for the six months ended March 31, 2020. The increase was mainly driven by sales growth in the Residential segment and higher gross profit. Adjusted EBITDA Margin expanded 190 basis points to 23.7% from 21.8% for the prior year period.

Six Months Fiscal 2021 Segment Results

Residential Segment

Net sales for the six months ended March 31, 2021 increased by $101.9 million, or 29.5%, to $447.8 million from $345.9 million for the six months ended March 31, 2020. The increase was primarily attributable to higher sales in our Deck, Rail & Accessories and Exteriors businesses.

Segment Adjusted EBITDA for the six months ended March 31, 2021 increased by $38.8 million, or 38.1%, to $140.5 million from $101.7 million for the six months ended March 31, 2020. The increase was mainly driven by higher sales and manufacturing productivity, partially offset by higher selling general and administrative expenses.

Commercial Segment

Net sales for the six months ended March 31, 2021 decreased by $8.2 million, or 12.4%, to $57.6 million from $65.7 million for the six months ended March 31, 2020. The decrease was primarily attributable to lower sales in our Scranton Products and Vycom businesses as the effects of COVID-19 continue to impact certain end markets, partially offset by increased pricing.

Segment Adjusted EBITDA of the Commercial segment increased by $0.9 million, or 14.2%, to $7.0 million for the six months ended March 31, 2021, compared to $6.2 million for the six months ended March 31, 2020. The increase was primarily driven by net manufacturing productivity and selling, general and administrative expenses offset by declining sales as described above.

Balance Sheet, Cash Flow, and Liquidity

As of March 31, 2021, the Company had cash and cash equivalents of $151.3 million and approximately $145.6 million available for future borrowings under our Revolving Credit Facility. Total debt as of March 31, 2021 was $467.7 million.

Net cash provided by operating activities was $7.0 million for the six months ended March 31, 2021 versus a use of ($68.0) million in the six months ended March 31, 2020.

Outlook

“We continue to 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, our increased guidance underscores our conviction in the sustained underlying demand we are seeing across our Residential segment, while channel inventory remains below benchmark levels. We remain highly optimistic about the strong trends in outdoor living and material conversion as well as our proven ability to deliver growth and margin expansion. We continue to pursue investments in growth for the long-term, and as a result, we are upsizing our overall capacity expansion program and increasing our 2021 capital expenditure guidance to be between $175 to $185 million, or an additional $50 to $60 million investment compared to our previous guidance. The upsized capacity investment is expected to result in both an incremental 15% decking capacity and expanded recycle capabilities in early 2022, on top of our prior 70% capacity expansion program,” added Mr. Singh.

AZEK is raising its outlook for the full year fiscal 2021. The outlook includes increased sales, recent pricing and productivity actions, strategic investments and inflation. AZEK now expects consolidated net sales growth of 23% to 26% year-over-year and Adjusted EBITDA growth in the 25% to 29% range year-over-year. From a segment perspective, AZEK expects Residential segment net sales growth of around 30% year-over-year, partially offset by a mid-single digit decline in Commercial segment net sales, which is consistent with prior guidance.

For the third quarter fiscal 2021 guidance, AZEK expects consolidated net sales growth in the 29% to 32% range year-over-year, driven by strong Residential segment growth in the mid-30% range, partially offset by expected flat net sales in the Commercial segment. AZEK is expecting Adjusted EBITDA growth in the 15% to 18% range year-over-year.

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About The AZEK Company

The AZEK Company Inc. is an industry-leading designer and manufacturer of beautiful, low-maintenance residential and commercial building products, including TimberTech® decking and AZEK Trim®, and is committed to innovation, sustainability, and research & development. Headquartered in Chicago, Illinois, the company currently operates manufacturing facilities in Ohio, Pennsylvania, and Minnesota.

Contact:

Amy Widdowson – Media Contact – AZEKquestions@zenogroup.com – (650) 597-7132

Source: The AZEK Company, Inc.