The AZEK Company(AZEK) - 2025 Q2 - Quarterly Results

Financial Performance Overview Second Quarter Fiscal 2025 Financial Highlights Q2 FY2025 saw consolidated net sales up 8% to $452.2 million and Adjusted EBITDA up 10% to $124.4 million Q2 FY2025 Key Financial Metrics | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Consolidated Net Sales | $452.2 million | +8% | | Residential Segment Net Sales | $437.0 million | +9% | | Net Income | $54.3 million | +9% | | EPS | $0.37 per share | +$0.03 | | Adjusted Net Income | $65.6 million | +12% | | Adjusted Diluted EPS | $0.45 per share | +$0.06 | | Adjusted EBITDA | $124.4 million | +10% | | Adjusted EBITDA Margin | 27.5% | +40 bps | CEO Commentary CEO highlights strong Q2 performance, residential growth, margin expansion, new product success, and sustainability awards - The Residential business grew 9% year-over-year, fueled by positive mid-single-digit sell-through growth and expanded channel presence[3] - Disciplined cost initiatives led to a 10 basis point expansion in net profit margin and a 40 basis point expansion in Adjusted EBITDA margin, despite investments in marketing and production[5] - New product launches, including TimberTech Harvest+ decking and Reliance Rail, are gaining traction and driving expanded shelf space[6] - The company received several sustainability awards, including being named to Barron's 100 Most Sustainable U.S. Companies list for the first time[7] Consolidated Financial Results Q2 FY2025 consolidated net sales grew 8% to $452.2 million, with net income up 9% and Adjusted EBITDA up 10% Q2 FY2025 Consolidated Results vs. Q2 FY2024 | Metric | Q2 2025 | Q2 2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $452.2M | $418.4M | +$33.8M | +8% | | Gross Profit | $167.7M | $157.1M | +$10.6M | +6.7% | | Net Income | $54.3M | $49.8M | +$4.5M | +9% | | Adjusted EBITDA | $124.4M | $113.3M | +$11.1M | +10% | - The increase in net sales was primarily driven by higher sales volume in the Residential segment, while the Commercial segment saw a decrease due to weaker demand in its Scranton Products business[9] Balance Sheet, Cash Flow and Liquidity AZEK maintained strong liquidity with $146.7 million cash; operating cash flow significantly increased to $47.1 million - As of March 31, 2025, the company had cash and cash equivalents of $146.7 million and total gross debt of $538.4 million[15] - Net Cash Provided by Operating Activities for the quarter increased by $61.9 million year-over-year to $47.1 million[16] - Free Cash Flow for the quarter improved by $34.7 million year-over-year to $0.7 million, despite a $27.2 million increase in capital expenditures[16] Outlook and Strategic Initiatives Fiscal Year 2025 Outlook AZEK reaffirmed FY2025 guidance, projecting consolidated net sales of $1.52 to $1.55 billion and Adjusted EBITDA of $403 to $418 million Full-Year Fiscal 2025 Guidance (Consolidated) | Metric | Range | Growth (YoY) | | :--- | :--- | :--- | | Net Sales | $1.52B - $1.55B | 5% to 8% | | Adjusted EBITDA | $403M - $418M | 6% to 10% | | Adjusted EBITDA Margin | 26.5% - 27.0% | N/A | | Capital Expenditures | $110M - $120M | N/A | Full-Year Fiscal 2025 Guidance (By Segment) | Segment | Metric | Range | Growth (YoY) | | :--- | :--- | :--- | :--- | | Residential | Net Sales | $1.452B - $1.479B | 6% to 8% | | | Adj. EBITDA | $392M - $405M | 7% to 11% | | Commercial | Net Sales | $68M - $71M | N/A | | | Adj. EBITDA | $11M - $13M | N/A | Second Half Fiscal 2025 Outlook (Consolidated) | Metric | Growth (YoY) | | :--- | :--- | | Net Sales | 0% to 4% | | Adjusted EBITDA | 1% to 8% | Merger Agreement with James Hardie Merger agreement with James Hardie Industries plc confirmed, expected to close in H2 2025 pending approvals - AZEK entered into a merger agreement with James Hardie Industries plc on March 23, 2025[23] - The transaction is expected to close in the second half of calendar year 2025, subject to regulatory and shareholder approvals[23] Financial Statements Consolidated Balance Sheets Total assets increased to $2.30 billion as of March 31, 2025, with corresponding rises in liabilities and equity Key Balance Sheet Items (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $146,719 | $164,025 | | Total current assets | $560,565 | $471,377 | | Total assets | $2,299,253 | $2,167,711 | | Total current liabilities | $228,472 | $217,038 | | Total liabilities | $845,080 | $810,846 | | Total stockholders' equity | $1,454,173 | $1,356,865 | Consolidated Statements of Comprehensive Income Q2 FY2025 net sales reached $452.2 million with net income of $54.3 million, showing growth from prior year Income Statement Summary (in thousands) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net sales | $452,231 | $418,408 | | Gross profit | $167,693 | $157,073 | | Operating income | $79,394 | $73,962 | | Net income | $54,285 | $49,758 | | Diluted EPS | $0.37 | $0.34 | Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $60.6 million for the six months ended March 31, 2025 Cash Flow Summary (Six Months Ended Mar 31, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $60,619 | $(31,094) | | Net cash provided by (used in) investing activities | $(85,862) | $95,167 | | Net cash provided by (used in) financing activities | $7,937 | $(114,988) | | Net decrease in cash and cash equivalents | $(17,306) | $(50,915) | Segment Performance and Non-GAAP Reconciliations Segment Results from Operations Residential segment drove performance with 8.6% sales growth, while Commercial segment faced declines in Q2 Residential Segment The Residential segment achieved strong Q2 FY2025 results, with net sales up 8.6% to $437.0 million and Adjusted EBITDA up 11.0% Residential Segment Performance (Q2 FY2025 vs Q2 FY2024) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $437.0M | $402.5M | +8.6% | | Segment Adjusted EBITDA | $122.5M | $110.4M | +11.0% | | Segment Adjusted EBITDA Margin | 28.0% | 27.4% | +60 bps | Commercial Segment Commercial segment experienced a challenging Q2 FY2025, with net sales declining 4.3% and Adjusted EBITDA falling 34.4% Commercial Segment Performance (Q2 FY2025 vs Q2 FY2024) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $15.2M | $15.9M | -4.3% | | Segment Adjusted EBITDA | $1.9M | $2.9M | -34.4% | | Segment Adjusted EBITDA Margin | 12.5% | 18.3% | -580 bps | Non-GAAP Financial Measures Reconciliations Detailed reconciliations for key non-GAAP metrics, including Adjusted EBITDA, Gross Profit, and Free Cash Flow Adjusted EBITDA Reconciliation Q2 FY2025 Net Income of $54.3 million reconciled to Adjusted EBITDA of $124.4 million, with a 27.5% margin Adjusted EBITDA Reconciliation (Q2 FY2025, in thousands) | Line Item | Amount | | :--- | :--- | | Net Income | $54,285 | | Interest expense, net | $7,353 | | Depreciation and amortization | $33,433 | | Income tax expense | $17,756 | | Stock-based compensation costs | $4,716 | | Other costs | $6,830 | | Adjusted EBITDA | $124,373 | Adjusted Gross Profit Reconciliation GAAP Gross Profit of $167.7 million for Q2 FY2025 reconciled to Adjusted Gross Profit of $170.9 million (37.8% margin) Adjusted Gross Profit Reconciliation (Q2 FY2025, in thousands) | Line Item | Amount | | :--- | :--- | | Gross Profit | $167,693 | | Amortization | $3,054 | | Acquisition costs | $120 | | Other costs | $73 | | Adjusted Gross Profit | $170,940 | Adjusted Net Income and Adjusted Diluted EPS Reconciliation Q2 FY2025 GAAP Net Income of $54.3 million ($0.37 per diluted share) reconciled to Adjusted Net Income of $65.6 million ($0.45 per diluted share) Adjusted Net Income & EPS Reconciliation (Q2 FY2025) | Metric | GAAP | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Income | $54.3M | +$11.3M | $65.6M | | Diluted EPS | $0.37 | +$0.08 | $0.45 | Adjusted SG&A Reconciliation GAAP SG&A of $88.3 million for Q2 FY2025 reconciled to Adjusted SG&A of $71.4 million, excluding specific costs Adjusted SG&A Reconciliation (Q2 FY2025, in thousands) | Line Item | Amount | | :--- | :--- | | SG&A | $88,267 | | Less: Amortization | ($5,513) | | Less: Share-based compensation costs | ($4,716) | | Less: Acquisition and divestiture costs | ($342) | | Less: Other costs | ($6,294) | | Adjusted SG&A | $71,402 | Free Cash Flow Reconciliation Free Cash Flow for Q2 FY2025 was $0.7 million, derived from operating activities less capital expenditures Free Cash Flow Reconciliation (Q2 FY2025, in thousands) | Line Item | Amount | | :--- | :--- | | Net cash provided by operating activities | $47,054 | | Less: Purchases of property, plant and equipment | ($46,401) | | Free Cash Flow | $653 | Net Leverage Reconciliation Net Leverage ratio was 1.0x as of March 31, 2025, based on net debt and trailing twelve-month Adjusted EBITDA Net Leverage Calculation (as of March 31, 2025, in thousands) | Metric | Amount | | :--- | :--- | | Gross debt | $538,392 | | Less: Cash and cash equivalents | ($146,719) | | Net debt | $391,673 | | Trailing Twelve Month Adjusted EBITDA | $401,415 | | Net leverage | 1.0x | Supplementary Information Conference Call and Website Information Details for the May 6, 2025, earnings conference call and access to webcast and replay information were provided - A conference call to discuss the results was scheduled for May 6, 2025, at 4:00 p.m. (CT)[24] - A live webcast and an earnings presentation are available on the Investor Relations section of the company's website[25][26] About The AZEK Company AZEK is a leading manufacturer of sustainable outdoor living products, emphasizing recycled content and recent awards - AZEK is an industry-leading manufacturer of low-maintenance, sustainable outdoor living products, with key brands like TimberTech®, Versatex®, and StruXure®[27] - The company's products are made from up to 85% recycled material, helping to keep hundreds of millions of pounds of waste out of landfills annually[27] - Recent recognitions include being named to Newsweek's America's Most Responsible Companies, Barron's 100 Most Sustainable U.S. Companies, and TIME's World's Best Companies in Sustainable Growth for 2025[28] Special Note Regarding Forward-Looking Statements Cautions investors that the release contains forward-looking statements subject to risks, including the proposed merger - The earnings release contains forward-looking statements concerning future performance, guidance, growth goals, and the proposed merger with James Hardie[29] - These statements are subject to risks and uncertainties, and actual future results may differ materially from expectations. The company disclaims any obligation to update these statements[29][31] Non-GAAP Financial Measures Explains the use of non-GAAP measures like Adjusted EBITDA to supplement GAAP results, noting their limitations - The company uses non-GAAP financial measures to provide investors with additional information about its financial performance and to enhance the understanding of past and future prospects[32] - Key non-GAAP measures used include Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, and Free Cash Flow[35] - The company cautions that these non-GAAP measures have limitations and may not be comparable to similarly titled measures used by other companies[33]