The AZEK Company Announces Third Quarter and Year-To-Date Fiscal 2024 Results

Residential Segment Execution Delivered Above-Market Growth, Strong Net Profit Margin and Record Adjusted EBITDA Margin

Initiatives Drove Mid-Single-Digit Residential Sell-Through Growth and Double-Digit Deck, Rail & Accessories Sell-Through Growth

The AZEK Company Inc. (“AZEK” or the “Company”), the industry-leading manufacturer of beautiful, low-maintenance and environmentally sustainable outdoor living products, including TimberTech ^® decking and railing, Versatex ^® and AZEK ^® Trim and StruXure ^® pergolas, announced preliminary financial results for its fiscal third quarter ended June 30, 2024.

Third Quarter Fiscal 2024 Financial Highlights

• Consolidated Net Sales increased 12% year-over-year to $434.4 million; Adjusted Net Sales excluding results for Vycom increased 18% year-over-year
• Residential Segment Net Sales increased 18% year-over-year to $416.0 million
• Gross profit margin expanded 380 basis points year-over-year to 37.8%; Adjusted Gross Profit Margin expanded 350 basis points year-over to 38.7%
• Net Income increased 45% year-over-year to $50.1 million; Adjusted Net Income increased 38% year-over-year to $62.0 million
• Net profit margin expanded 260 basis points year-over-year to 11.5%
• Adjusted EBITDA increased 24% year-over-year to $119.4 million; Residential Segment Adjusted EBITDA increased 33% year-over-year to $117.0 million
• Adjusted EBITDA Margin expanded 260 basis points year-over-year to 27.5%
• EPS increased $0.11 year-over-year to $0.34 per share; Adjusted Diluted EPS increased $0.12 year-over-year to $0.42 per share

Recent Company Highlights

• Delivered record fiscal third quarter financial results across Net Sales, Gross Profit, Adjusted Gross Profit, Net Income and Adjusted EBITDA
• Strong margin expansion driven by operating leverage, productivity initiatives and materials savings
• Generated $195 million of cash provided by operating activities and $178 million of Free Cash Flow
• Announced new $600 million share repurchase program and entered into $50 million accelerated share repurchase program
• Recognized as one of the best composite decking brands by U.S. News and World Report, Good Housekeeping Home Improvement & Outdoor Lab evidencing strong brand momentum

CEO Comments

“The AZEK team delivered record financial results this quarter, as we continued to execute our strategy to drive material conversion, above-market growth and margin expansion,” said Jesse Singh, CEO of The AZEK Company. “Our focus on manufacturing productivity, cost reduction initiatives, including increasing the amount of recycled content in our products, and operating leverage enabled us to deliver net profit margin expansion of 260 basis points year-over-year to 11.5% and Adjusted EBITDA Margin expansion of 260 basis points year-over-year to a record 27.5%. We also delivered strong cash generation this quarter, and our Board of Directors recently authorized a $600 million expansion of our share repurchase program. As a result of our performance, we are reaffirming our outlook for the second half of the fiscal year and raising the bottom end of our full-year guidance and outlook, demonstrating our confidence in our ability to outperform the market and deliver long-term margin expansion through AZEK-specific initiatives,” continued Mr. Singh.

“During the fiscal third quarter, Residential segment net sales increased approximately 18% year-over-year driven by strength in Deck, Rail and Accessories which saw double-digit sell-through growth to our professional dealer and retailer partners. Overall, Residential segment sell-through grew mid-single-digits year-over-year as our initiatives offset a down repair & remodel market. Exteriors experienced some market-driven softness in the quarter after delivering solid growth over the last five years. We also saw our channel partners purchase approximately $35 million of product earlier this June than in the prior year to ensure strong service levels throughout the building season, and we are adjusting our fiscal fourth quarter assumptions given the timing of these shipments,” said Mr. Singh.

“The benefit of our shelf space gains in recent years, combined with AZEK-specific initiatives driving conversion, strong brand momentum and new product innovations have enabled us to sustain our growth. We are seeing great momentum in our 2024 new product launches, including TimberTech Composite Terrain+™ decking and TimberTech Aluminum Framing substructure. Most recently, we initiated a regional launch of our first galvanized steel railing solution, TimberTech Fulton Rail, which further expands our multi-option railing portfolio across price points. We expect to see the impact of new channel expansion in fiscal year 2025, including our recently announced Doman Building Materials decking distribution partnership, which we believe will enable us to more aggressively expand in and convert the Canadian market,” stated Mr. Singh.

“Once again, our TimberTech brand was recognized for its beauty, innovation and performance by industry experts. TimberTech was recognized by U.S. News and World Report as the composite decking brand with the Best Natural Wood Look, by Good Housekeeping’s Home Improvement & Outdoor Lab as the best overall engineered decking pick, and by Architizer’s A+ Product Awards, receiving a special mention in the Innovation Category as chosen by architects. Our innovative product portfolio with premium characteristics, coupled with our brand momentum accelerating from marketing investments and recent channel expansion gains, continue to differentiate us as the leader in sustainable outdoor living building materials. I would once again like to thank AZEK’s excellent team and partners for their continued commitment and successful execution,” continued Mr. Singh.

Third Quarter Fiscal 2024 Consolidated Results

Net sales for the three months ended June 30, 2024 increased by $46.8 million, or 12%, to $434.4 million from $387.6 million for the three months ended June 30, 2023. The increase was primarily due to higher sales volume in our Residential segment attributable to key growth initiatives, including channel expansion, new products and downstream sales and marketing investments, driving demand for AZEK products, partially offset by the effect of the sale of our Vycom business in our Commercial segment. Net sales for the three months ended June 30, 2024 increased for our Residential segment by $64.4 million, or 18%, and decreased for our Commercial segment by $17.6 million, or 49%, respectively, as compared to the prior year period. The decrease in our Commercial segment was primarily due to the sale of our Vycom business. Vycom net sales were $18.6 million for the three months ended June 30, 2023.

Gross profit increased by $32.4 million to $164.3 million for the three months ended June 30, 2024, compared to $131.9 million for the three months ended June 30, 2023. Gross profit margin increased by 380 basis points to 37.8% for the three months ended June 30, 2024 compared to 34.0% for the three months ended June 30, 2023.

Effective as of December 31, 2023, AZEK has revised the definition of Adjusted Gross Profit to no longer exclude depreciation expense and the prior period has been recast to reflect the change. Adjusted Gross Profit increased by $31.7 million to $168.1 million for the three months ended June 30, 2024, compared to $136.4 million for the three months ended June 30, 2023. Adjusted Gross Profit Margin increased by 350 basis points to 38.7% for the three months ended June 30, 2024 compared to 35.2% for the three months ended June 30, 2023.

Net income increased by $15.5 million to $50.1 million, or $0.34 per share, for the three months ended June 30, 2024, compared to $34.6 million, or $0.23 per share, for the three months ended June 30, 2023. Net profit margin expanded 260 basis points to 11.5% for the three months ended June 30, 2024, as compared to net profit margin of 8.9% for the three months ended June 30, 2023.

Adjusted EBITDA increased by $22.8 million to $119.4 million for the three months ended June 30, 2024, compared to Adjusted EBITDA of $96.7 million for the three months ended June 30, 2023. Adjusted EBITDA Margin expanded 260 basis points to 27.5% from 24.9% for the prior year period.

Adjusted Net Income increased by $17.2 million to $62.0 million, or Adjusted Diluted EPS of $0.42 per share, for the three months ended June 30, 2024, compared to Adjusted Net Income of $44.8 million, or Adjusted Diluted EPS of $0.30 per share, for the three months ended June 30, 2023.

Balance Sheet, Cash Flow and Liquidity

As of June 30, 2024, AZEK had cash and cash equivalents of $346.9 million and approximately $147.8 million available for future borrowings under its Revolving Credit Facility. Total gross debt, including finance leases, as of June 30, 2024, was $666.6 million.

Net Cash Provided by Operating Activities for the three months ended June 30, 2024, increased by $23.3 million year-over-year to $195.1 million. Free Cash Flow for the three months ended June 30, 2024, increased by $12.5 million year-over-year to $177.5 million.

During the quarter, AZEK repurchased approximately 0.9 million initial shares of its Class A common stock under a $50 million accelerated share repurchase agreement (“ASR”). The final settlement of the ASR is based on the volume-weighted average price of our Class A common stock over the repurchase period, subject to certain adjustments. The ASR settled on August 5, 2024 and AZEK received an additional 0.3 million shares of its Class A common stock bringing the total ASR to approximately 1.2 million shares. As of June 30, 2024, AZEK had approximately $625.3 million available for repurchases under its existing share repurchase program.

Outlook

“As we look at the remainder of the year, we are reaffirming our outlook for the second half of fiscal 2024 and raising the bottom end of our full-year fiscal 2024 guidance. We continue to assume Residential sell-through growth to be in the mid-single-digits in the fiscal fourth quarter, as we see our initiatives driving continued outperformance relative to anticipated softer trends in the broader repair & remodel markets. Over the last few months, we have seen some choppiness in the broader construction economy and are assuming a down market for the remainder of fiscal year 2024. We expect our channel to end the fiscal year at or below historical inventory days on hand. We continue to see strong growth in our internal digital and engagement metrics and believe that there is pent-up demand that will be realized as the broader market improves. We remain confident in our ability to drive double-digit growth over the long-term, as we continue to prove the resiliency and growth potential that is an outcome of the AZEK business model,” continued Mr. Singh.

AZEK provides certain of its outlook on a non-GAAP basis, as the Company cannot predict some elements that are included in reported GAAP results, including the impact of acquisition costs and other costs. Refer to the Outlook section in the discussion of non-GAAP financial measures below for more details.

For the full-year fiscal 2024, AZEK now expects consolidated net sales in the range of $1.422 to $1.438 billion, representing an increase from the outlook range of $1.407 to $1.438 billion and Adjusted EBITDA in the range of $370 to $380 million, representing an increase from the outlook range of $364 to $380 million. Adjusted EBITDA Margin is expected to be in the range of 26.0% to 26.4%, an increase from approximately 25.8% to 26.4% from the prior outlook.

AZEK expects Residential segment net sales in the range of $1.351 to $1.365 billion, representing approximately 10% to 12% year-over-year growth, and Segment Adjusted EBITDA in the range of $358 to $367 million. AZEK expects the Commercial segment’s Scranton Products business to deliver net sales in the range of $71 to $73 million and Adjusted EBITDA in the range of $12 to $13 million. Capital expenditures for fiscal year 2024 continue to be expected in the range of $90 to $95 million.

For the fourth quarter of fiscal 2024, AZEK expects consolidated net sales between $329 to $345 million and Adjusted EBITDA between $82 to $92 million. Adjusted EBITDA Margin is expected to be in the range of 24.9% to 26.7%. We expect that our fiscal fourth quarter net sales will be impacted by approximately $35 million due to the timing of purchases in the prior quarter to ensure strong in-season service.

“We believe we are well positioned to win across any market scenario and continue to see substantial opportunities for material conversion to our types of low-maintenance, long-lasting materials. From 2019 to 2023, our Deck, Rail & Accessories business has experienced a 17% compounded annual growth rate (CAGR) and our Exteriors business has grown at a 16% CAGR, demonstrating the strength and resiliency of our business. Our fiscal year 2024 Residential segment guidance implies 10% to 12% year-over-year net sales growth and 42% to 45% year-over-year Segment Adjusted EBITDA growth. Consistent with our multi-year track record, we are well positioned to drive above-market growth in fiscal year 2024, fiscal year 2025 and over the long-term by continuing to execute our growth strategy. We continue to see significant opportunity for cost reduction, recycling and productivity, and we expect to build upon the multi-year margin initiatives we have executed upon to achieve our annual Adjusted EBITDA Margin target of 27.5%,” concluded Mr. Singh.

For the full second quarter results, click here.

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 railing, Versatex ^® and AZEK ^® Trim, and StruXure ^® pergolas. Consistently awarded and recognized as the market leader in innovation, quality, aesthetics and sustainability, our products are made from up to 85% 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 hundreds of millions of pounds of waste and scrap out of landfills each year, and revolutionizing the industry to create a more sustainable future. The AZEK Company has recently been named one of America’s Climate Leaders by USA Today, a Top Workplace by the Chicago Tribune and U.S. News and World Report, and a winner of the 2024 Real Leaders ^® Impact Awards. Headquartered in Chicago, Illinois, the company operates manufacturing and recycling facilities in Ohio, Pennsylvania, Idaho, Georgia, Nevada, New Jersey, Michigan, Minnesota and Texas. For additional information, please visit azekco.com .

Contact:

Eric Robinson – Investor Relations – ir@azekco.com – (312) 809-1093

Source: The AZEK Company, Inc.