The AZEK Company(US:AZEK)2021-02-11 22:43Financial Data and Key Metrics Changes - For Q1 2021, net sales increased by $46.2 million or 28% to $212.3 million, primarily driven by the Residential segment [27] - Adjusted EBITDA grew by $14.6 million or 43% to $48.5 million, with adjusted EBITDA margin expanding 240 basis points to 22.8% [30][28] - Net income increased by $20 million to $10.2 million compared to a net loss of $9.8 million in the prior year [30] Business Line Data and Key Metrics Changes - Residential business grew 37% year-over-year, with Deck, Rail & Accessories growing over 40% and Exteriors growing over 20% [16][27] - Commercial segment net sales decreased by 12% year-over-year to $26.6 million, primarily due to the impact of COVID-19 on certain end markets [31][19] Market Data and Key Metrics Changes - Strong demand in the Residential segment was driven by repair and remodel as well as new construction, with significant growth in both pro and retail channels [17] - The Commercial segment continues to face challenges, particularly in trade shows and retail, but is expected to stabilize in the latter half of fiscal 2021 [20] Company Strategy and Development Direction - The company aims to utilize 1 billion pounds of recycled scrap and waste annually by the end of 2026, building on the 400 million pounds diverted in fiscal 2020 [10] - Investments are being made in brand, manufacturing, R&D, and customer connection to drive above-market growth and margin expansion [11] - A strategic capacity expansion plan is in place to increase decking production capacity by approximately 70% relative to the end of fiscal 2019 [22] Management's Comments on Operating Environment and Future Outlook - Management remains confident about the future, citing strong end-market demand and operational execution [9] - The company raised its net sales and adjusted EBITDA growth guidance for fiscal year 2021, driven by positive internal and external indicators [24][25] - The outlook reflects continued solid demand within the Residential segment, with expectations for net sales growth of 14% to 18% year-over-year [35] Other Important Information - The company is experiencing inflationary pressures in raw material pricing and has implemented price increases to offset these costs [23][29] - The company has a strong balance sheet with cash and cash equivalents of $210 million and a net leverage ratio of 1.1x [33] Q&A Session Summary Question: Is there any pull-forward of demand due to price increases? - Management indicated that the timing of orders was planned to avoid any material pull-forward effect on results [39] Question: How should capacity additions be viewed moving forward? - Management expressed satisfaction with the early success of capacity additions and indicated that guidance is based on realistic production capabilities [42] Question: What is the outlook for sell-through demand throughout the year? - Management noted strong underlying demand and the need to position inventory effectively for the selling season [45] Question: How does resin price inflation impact the P&L? - Management confirmed that pricing actions have been taken to cover expected costs, with a lag in the flow-through of costs to the P&L [50] Question: What is the company's strategy for increasing recycled material usage? - The company aims to expand the use of recycled materials in its products and is investing in sourcing capabilities [66] Question: How is SG&A expected to evolve throughout the year? - Management anticipates a return to more normalized SG&A levels, with selective investments to build demand capabilities [70]