The AZEK Company(US:AZEK)2024-06-14 12:06Financial Performance - Net sales for the three months ended March 31, 2024 increased by $40.7 million, or 10.8%, to $418.4 million from $377.7 million for the same period in 2023[126]. - Gross profit for the three months ended March 31, 2024 increased by $46.2 million, or 41.7%, to $157.1 million, with gross profit as a percentage of net sales rising to 37.5% from 29.4%[128]. - Net income for the three months ended March 31, 2024 increased by $31.5 million, or 173.0%, to $49.8 million compared to $18.2 million for the same period in 2023[132]. - Net sales for the six months ended March 31, 2024 increased by $64.9 million, or 10.9%, to $658.9 million from $594.0 million for the same period in 2023[134]. - Gross profit for the six months ended March 31, 2024 increased by $94.7 million, or 61.8%, to $247.7 million from $153.1 million for the same period in 2023, with gross profit as a percent of net sales rising to 37.6%[136]. - Net income for the six months ended March 31, 2024 increased by $86.4 million to $74.9 million compared to a net loss of $11.5 million for the same period in 2023[141]. - Operating income for the six months ended March 31, 2024 increased by $80.0 million, or 1551.8%, to $85.2 million from $5.2 million for the same period in 2023[138]. Segment Performance - The Residential segment saw a net sales increase of 17.7%, while the Commercial segment experienced a decrease of 55.4% for the three months ended March 31, 2024[126]. - Net sales for the Commercial segment for the six months ended March 31, 2024 decreased by $39.0 million, or 54.0%, to $33.3 million from $72.4 million for the same period in 2023, primarily due to the sale of the Vycom business[147]. - Segment Adjusted EBITDA for the Residential segment for the six months ended March 31, 2024 increased by $90.1 million, or 124.8%, to $162.4 million from $72.2 million for the same period in 2023[145]. - Segment Adjusted EBITDA for the Commercial segment was $5.8 million for the six months ended March 31, 2024, down from $13.0 million in the prior year, reflecting lower net sales[148]. Costs and Expenses - Cost of sales for the three months ended March 31, 2024 decreased by $5.5 million, or 2.1%, to $261.3 million, primarily due to lower raw material costs[127]. - Selling, general and administrative expenses increased by $9.0 million, or 12.1%, to $83.2 million, representing 19.9% of net sales for the three months ended March 31, 2024[129]. - Cost of sales for the six months ended March 31, 2024 decreased by $29.8 million, or 6.8%, to $411.1 million, driven by lower raw material costs[135]. - Selling, general and administrative expenses increased by $12.7 million, or 8.6%, to $160.4 million, representing 24.4% of net sales for the six months ended March 31, 2024[137]. Cash Flow and Liquidity - Free cash flow for Q1 2024 was $(34,004,000), compared to $40,777,000 in Q1 2023[153]. - Free cash flow for the six months ended March 31, 2024, was $(67.97) million, a decrease from $16.86 million in the same period of 2023, primarily due to increased capital expenditures[168]. - Net cash provided by (used in) operating activities was $(31.1) million for the six months ended March 31, 2024, compared to $64.1 million in 2023, reflecting a $95.2 million decrease[173]. - Cash and cash equivalents as of March 31, 2024, totaled $227.4 million, with total indebtedness of $591.0 million[169]. - The company plans to maintain adequate liquidity over the next 12 months to meet cash requirements through operating cash flows and available credit[169]. Share Repurchase and Financing - The company repurchased 526,718 shares of Class A common stock at an average price of $47.93 per share, totaling approximately $25.2 million during the three and six months ended March 31, 2024[178]. - Net cash used in financing activities for the six months ended March 31, 2024, was $115.0 million, a significant increase from $11.4 million in the same period of 2023, primarily due to $125.0 million in treasury stock repurchases[175]. - The Revolving Credit Facility allows for maximum borrowings of up to $150.0 million, with interest rates based on the Secured Overnight Financing Rate (SOFR) plus a spread of 125 to 175 basis points[179]. - The Term Loan Agreement matures on April 28, 2029, with an interest rate option that includes a margin of 1.50% for alternative base rate borrowings[180]. Tax and Regulatory Matters - Income tax expense for the three months ended March 31, 2024 increased by $7.9 million to $15.3 million, primarily due to higher pre-tax income[132]. - Income tax expense increased by $35.4 million to $32.0 million for the six months ended March 31, 2024 compared to an income tax benefit of $3.4 million for the same period in 2023[140]. - The company is evaluating the impact of recently issued accounting standards on its disclosures, including ASU 2023-07 and ASU 2023-09, which will be adopted in fiscal years beginning October 1, 2024, and October 1, 2025, respectively[186]. Internal Controls and Risks - The company is currently addressing material weaknesses in internal controls over financial reporting as of March 31, 2024[194]. - There were no changes in internal control over financial reporting during the quarter ended March 31, 2024, that materially affected internal controls[195]. - The company does not believe that a 10% change in the value of the U.S. dollar would materially affect its operating results[191]. - The cost of sales is subject to inflationary pressures, with potential adverse effects if selling prices do not increase accordingly[191]. - The company relies on various petrochemical resins and does not have fixed price contracts with major vendors, exposing it to price volatility[192].