The AZEK Company(US:AZEK)2021-08-12 19:02Financial Data and Key Metrics Changes - The company reported a net sales growth of 46% year-over-year to $327.5 million for Q3 2021, with strong growth in both residential and commercial segments [22][24] - Gross profit increased by approximately 42% to $106.9 million, while gross profit margin decreased to 32.6% from 33.6% year-over-year [22][23] - Adjusted EBITDA for the quarter increased by 26% to $72.7 million, with adjusted EBITDA margin declining to 22.2% from 25.8% the previous year [25][29] Business Line Data and Key Metrics Changes - Residential segment net sales increased by 51% to $291.2 million, driven by strong demand and pricing, with adjusted EBITDA rising by approximately 32% to $82.5 million [26][27] - Commercial segment net sales increased by 16.5% to $36.2 million, with adjusted EBITDA for the segment at $6.3 million, reflecting solid demand recovery [27][28] Market Data and Key Metrics Changes - The company continues to experience favorable demand in the residential market, with repair and remodel activities strengthening and housing inventory remaining low [19][22] - The commercial segment saw a 17% year-over-year increase in net sales, indicating a recovery in demand [19][28] Company Strategy and Development Direction - The company is focused on driving above-market growth through new product innovation and expanding its sales and marketing team [12][15] - Investments in capacity expansion are expected to increase decking capacity by 85% compared to 2019 levels, with a $230 million multi-phase capacity expansion program [15][31] - The company aims to enhance margins through the use of recycled materials and continuous improvement programs [13][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying demand across outdoor living and exteriors markets, raising fiscal 2021 guidance for net sales and adjusted EBITDA [9][20] - The company anticipates that pricing actions will offset inflationary pressures as it exits fiscal Q1 2022 [20][30] - Management views current margin compression as transitory and expects to improve margins in fiscal 2022 [18][30] Other Important Information - The company achieved Vantage Vinyl certification, highlighting its commitment to ESG leadership and sustainability [13][14] - Cash and cash equivalents stood at $220.5 million as of June 30, 2021, with total debt at $467.7 million [28] Q&A Session Summary Question: Pricing actions and realization in fiscal '21 - Management indicated that mid-teens pricing actions are expected to benefit fiscal '22, with cumulative pricing actions exiting the year at mid-teens levels [36][37] Question: Market study on non-wood materials - Management noted that consumer perceptions are shifting, with a significant portion of wood buyers open to composite materials, emphasizing the need for education [41][43] Question: Margin expectations for '22 - Management acknowledged that the first half of fiscal '22 may face headwinds due to startup costs and inflation, but they remain optimistic about long-term margin improvement [46][63] Question: Capacity and growth outlook - Management confirmed that the timing of capacity additions is well-positioned to meet demand, with an expectation of continued strong growth [60][61] Question: Impact of pricing on market share - Management clarified that conversion to composite materials is influenced by various factors beyond price, including aesthetics and value [65][66]