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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/05/22 AZEK Co. Inc. 10-Q 6/30/22 99:14M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.86M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 34K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 34K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 29K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 29K
11: R1 Cover Page HTML 84K
12: R2 Condensed Consolidated Balance Sheets HTML 132K
13: R3 Condensed Consolidated Balance Sheets HTML 49K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Comprehensive HTML 110K
Income
15: R5 Condensed Consolidated Statements of Stockholders' HTML 98K
Equity
16: R6 Condensed Consolidated Statements of Cash Flows HTML 129K
17: R7 Organization and Summary of Significant Accounting HTML 41K
Policies
18: R8 Revenue HTML 67K
19: R9 Business Combinations HTML 59K
20: R10 Inventories HTML 47K
21: R11 Property, Plant and Equipment - Net HTML 72K
22: R12 Goodwill and Intangible Assets - Net HTML 154K
23: R13 Composition of Certain Balance Sheet Accounts HTML 104K
24: R14 Debt HTML 168K
25: R15 Product Warranties HTML 86K
26: R16 Leases HTML 200K
27: R17 Fair Value of Financial Instruments HTML 55K
28: R18 Segments HTML 150K
29: R19 Capital Stock HTML 41K
30: R20 Stock-Based Compensation HTML 241K
31: R21 Earnings Per Share HTML 136K
32: R22 Income Taxes HTML 32K
33: R23 Commitments And Contingencies HTML 32K
34: R24 Condensed Financial Information of Registrant HTML 127K
(Parent Company Only)
35: R25 Subsequent Events HTML 30K
36: R26 Organization and Summary of Significant Accounting HTML 48K
Policies (Policies)
37: R27 Revenue (Tables) HTML 62K
38: R28 Business Combinations (Tables) HTML 55K
39: R29 Inventories (Tables) HTML 47K
40: R30 Property, Plant and Equipment - Net (Tables) HTML 71K
41: R31 Goodwill and Intangible Assets - Net (Tables) HTML 156K
42: R32 Composition of Certain Balance Sheet Accounts HTML 105K
(Tables)
43: R33 Debt (Tables) HTML 155K
44: R34 Product Warranties (Tables) HTML 86K
45: R35 Leases (Tables) HTML 203K
46: R36 Fair Value Of Financial Instruments (Tables) HTML 50K
47: R37 Segments (Tables) HTML 145K
48: R38 Stock-Based Compensation (Tables) HTML 252K
49: R39 Earnings Per Share (Tables) HTML 136K
50: R40 Condensed Financial Information of Registrant HTML 123K
(Parent Company Only) (Tables)
51: R41 Organization and Summary of Significant Accounting HTML 63K
Policies - Additional Information (Detail)
52: R42 Revenue - Additional Information (Detail) HTML 30K
53: R43 Revenue - Summary of Rebate Activity (Detail) HTML 32K
54: R44 Business Combinations - Additional Information HTML 66K
(Detail)
55: R45 Business Combinations - Summary of Preliminary HTML 65K
Allocation of Assets Acquired and Liabilities
Assumed (Details)
56: R46 Inventories - Schedule of Inventories (Detail) HTML 37K
57: R47 Property, Plant and Equipment - Net - Summary of HTML 54K
Property, Plant and Equipment - Net (Detail)
58: R48 Property, Plant and Equipment - Net - Additional HTML 31K
Information (Detail)
59: R49 Goodwill and Intangible Assets - Net - Summary of HTML 40K
Changes in Carrying Amount of Goodwill (Detail)
60: R50 Goodwill and Intangible Assets - Net - Additional HTML 35K
Information (Detail)
61: R51 Goodwill and Intangible Assets - Net - Summary of HTML 62K
Finite-Lived Intangible Assets (Detail)
62: R52 Composition of Certain Balance Sheet Accounts - HTML 35K
Summary of Allowance for Doubtful Accounts
(Detail)
63: R53 Composition of Certain Balance Sheet Accounts - HTML 52K
Summary of Accrued Expenses and Other Liabilities
(Detail)
64: R54 Debt - Summary of Long-Term Debt (Detail) HTML 46K
65: R55 Debt - Summary of Long-Term Debt (Detail) HTML 44K
(Parenthetical)
66: R56 Debt - Additional Information (Detail) HTML 117K
67: R57 Debt - Summary of Interest Expense (Detail) HTML 59K
68: R58 Product Warranties - Additional Information HTML 29K
(Detail)
69: R59 Product Warranties - Summary of Warranty Reserve HTML 40K
Activity (Detail)
70: R60 Leases - Additional Information (Detail) HTML 32K
71: R61 Leases - Summary of Lease Assets and Lease HTML 60K
Liabilities (Detail)
72: R62 Leases - Components of Lease Expense (Detail) HTML 41K
73: R63 Leases - Supplemental Information related to HTML 38K
Leases (Detail)
74: R64 Leases - Summary of Maturities of Lease HTML 83K
Liabilities (Detail)
75: R65 Fair Value Of Financial Instruments - Summary of HTML 45K
Carrying Values and the Estimated Fair Values of
the Debt Financial Instruments (Detail)
76: R66 Fair Value Of Financial Instruments - Additional HTML 38K
Information (Detail)
77: R67 Segments - Additional Information (Detail) HTML 29K
78: R68 Segments - Summary of Residential and Commercial HTML 68K
Segment Reporting Information (Detail)
79: R69 Segments - Summary of Residential and Commercial HTML 43K
Segment Reporting Information (Parenthetical)
(Detail)
80: R70 Capital Stock - Additional Information (Detail) HTML 134K
81: R71 Stock-Based Compensation - Additional Information HTML 49K
(Detail)
82: R72 Stock-Based Compensation - Summary of Share-Based HTML 37K
Payment Award Valuation Assumptions (Detail)
83: R73 Stock-Based Compensation - Summary of Stock Option HTML 66K
Activities (Detail)
84: R74 Stock-Based Compensation - Summary of Stock Awards HTML 60K
Activity Other Than Options (Detail)
85: R75 Stock-Based Compensation - Summary of Restricted HTML 48K
Stock Unit Awards Activity (Detail)
86: R76 Earnings Per Share - Summary of Computation of HTML 63K
Basic and Diluted Earnings Per Share (Detail)
87: R77 Earnings Per Share - Summary of Antidilutive HTML 34K
Securities Excluded From Computation of Earnings
Per Share (Detail)
88: R78 Income Taxes - Additional Information (Detail) HTML 29K
89: R79 Commitments And Contingencies - Additional HTML 34K
Information (Detail)
90: R80 Condensed Financial Information of Registrant HTML 93K
(Parent Company Only) - Schedule of Balance Sheets
(Detail)
91: R81 Condensed Financial Information of Registrant HTML 55K
(Parent Company Only) - Schedule of Balance Sheets
(Parenthetical) (Detail)
92: R82 Condensed Financial Information of Registrant HTML 35K
(Parent Company Only) - Schedule of Statements of
Comprehensive Income (Loss) (Detail)
93: R83 Condensed Financial Information of Registrant HTML 37K
(Parent Company Only) - Additional Information
(Detail)
94: R84 Subsequent Events - Additional Information HTML 32K
(Detail)
97: XML IDEA XML File -- Filing Summary XML 186K
95: XML XBRL Instance -- azek-10q_20220630_htm XML 3.68M
96: EXCEL IDEA Workbook of Financial Reports XLSX 168K
7: EX-101.CAL XBRL Calculations -- azek-20220630_cal XML 243K
8: EX-101.DEF XBRL Definitions -- azek-20220630_def XML 748K
9: EX-101.LAB XBRL Labels -- azek-20220630_lab XML 1.45M
10: EX-101.PRE XBRL Presentations -- azek-20220630_pre XML 1.18M
6: EX-101.SCH XBRL Schema -- azek-20220630 XSD 224K
98: JSON XBRL Instance as JSON Data -- MetaLinks 451± 719K
99: ZIP XBRL Zipped Folder -- 0001564590-22-028212-xbrl Zip 329K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM i 10-Q
|
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i June 30, 2022
OR
|
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: i 001-39322
The AZEK Company Inc.
(Exact name of registrant as specified in its charter)
|
i Delaware |
i 90-1017663 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
|
|
i 1330 W Fulton Street, Suite 350, i Chicago, i Illinois |
i 60607 |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: ( i 877) i 275-2935
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol |
|
Name of each exchange on which registered |
|
i Class A Common Stock, par value $0.001 per share |
|
i AZEK |
|
i The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
i Large accelerated filer |
☒ |
Accelerated filer |
☐ |
|
|
|
|
|
|
Non-accelerated filer |
☐ |
Smaller reporting company |
i ☐ |
|
|
|
|
|
|
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
As of July 29, 2022, the registrant had i 152,139,674 shares of Class A Common Stock, $0.001 par value per share, and i 100 shares of Class B Common Stock, $0.001 par value per share, outstanding.
|
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|
Page |
|
3 |
||
|
Item 1. |
3 |
|
|
|
3 |
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
|
Item 3. |
38 |
|
|
Item 4. |
39 |
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|
40 |
||
|
Item 1. |
40 |
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Item 1A. |
40 |
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Item 2. |
40 |
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Item 3. |
40 |
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Item 4. |
40 |
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Item 5. |
40 |
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Item 6. |
41 |
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|
42 |
||
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
The AZEK Company Inc.
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except for share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
in thousands |
|
|
|
|
||||
|
ASSETS: |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 159,621 |
|
|
$ |
i 250,536 |
|
|
Trade receivables, net of allowances |
|
|
i 101,513 |
|
|
|
i 77,316 |
|
|
Inventories |
|
|
i 322,117 |
|
|
|
i 188,888 |
|
|
Prepaid expenses |
|
|
i 20,522 |
|
|
|
i 14,212 |
|
|
Other current assets |
|
|
i 2,727 |
|
|
|
i 1,446 |
|
|
Total current assets |
|
|
i 606,500 |
|
|
|
i 532,398 |
|
|
Property, plant and equipment - net |
|
|
i 495,961 |
|
|
|
i 391,012 |
|
|
Goodwill |
|
|
i 987,440 |
|
|
|
i 951,390 |
|
|
Intangible assets - net |
|
|
i 247,606 |
|
|
|
i 242,572 |
|
|
Other assets |
|
|
i 83,041 |
|
|
|
i 70,462 |
|
|
Total assets |
|
$ |
i 2,420,548 |
|
|
$ |
i 2,187,834 |
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
i 83,034 |
|
|
$ |
i 69,474 |
|
|
Accrued rebates |
|
|
i 44,491 |
|
|
|
i 44,339 |
|
|
Accrued interest |
|
|
i 4,367 |
|
|
|
i 72 |
|
|
Current portion of long-term debt obligations |
|
|
i 4,500 |
|
|
|
— |
|
|
Accrued expenses and other liabilities |
|
|
i 68,660 |
|
|
|
i 56,522 |
|
|
Total current liabilities |
|
|
i 205,052 |
|
|
|
i 170,407 |
|
|
Deferred income taxes |
|
|
i 67,892 |
|
|
|
i 46,371 |
|
|
Long-term debt—less current portion |
|
|
i 586,033 |
|
|
|
i 464,715 |
|
|
Other non-current liabilities |
|
|
i 93,601 |
|
|
|
i 79,177 |
|
|
Total liabilities |
|
|
i 952,578 |
|
|
|
i 760,670 |
|
|
Commitments and contingencies (See Note 17) |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ i i 0.001 / par value; i i 1,000,000 / shares authorized and i i i i no / / / shares issued or outstanding at June 30, 2022 and September 30, 2021, respectively |
|
|
— |
|
|
— |
|
|
|
Class A common stock, $ i i 0.001 / par value; i i 1,100,000,000 / shares authorized, i 155,153,226 shares issued at June 30, 2022 and i 154,866,313 shares issued |
|
|
i 155 |
|
|
|
i 155 |
|
|
Class B common stock, $ i i 0.001 / par value; i i 100,000,000 / shares authorized, i i i i 100 / / / shares issued and outstanding at June 30, 2022 and at September 30, 2021, respectively |
|
|
— |
|
|
|
— |
|
|
Additional paid‑in capital |
|
|
i 1,626,115 |
|
|
|
i 1,615,236 |
|
|
Accumulated deficit |
|
|
( i 108,227 |
) |
|
|
( i 188,227 |
) |
|
Treasury stock, at cost, i 3,013,575 shares at June 30, 2022 and i 0 shares at |
|
|
( i 50,073 |
) |
|
|
— |
|
|
Total stockholders' equity |
|
|
i 1,467,970 |
|
|
|
i 1,427,164 |
|
|
Total liabilities and stockholders' equity |
|
$ |
i 2,420,548 |
|
|
$ |
i 2,187,834 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
The AZEK Company Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands of U.S. dollars, except for share and per share amounts)
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
in thousands |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net sales |
|
$ |
i 394,991 |
|
|
$ |
i 327,454 |
|
|
$ |
i 1,050,954 |
|
|
$ |
i 832,854 |
|
|
Cost of sales |
|
|
i 268,604 |
|
|
|
i 220,617 |
|
|
|
i 713,498 |
|
|
|
i 555,190 |
|
|
Gross profit |
|
|
i 126,387 |
|
|
|
i 106,837 |
|
|
|
i 337,456 |
|
|
|
i 277,664 |
|
|
Selling, general and administrative expenses |
|
|
i 78,737 |
|
|
|
i 70,760 |
|
|
|
i 212,728 |
|
|
|
i 184,362 |
|
|
Other general expenses |
|
|
— |
|
|
|
i 1,443 |
|
|
|
— |
|
|
|
i 2,592 |
|
|
Operating income |
|
|
i 47,650 |
|
|
|
i 34,634 |
|
|
|
i 124,728 |
|
|
|
i 90,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
i 10,618 |
|
|
|
i 4,054 |
|
|
|
i 18,776 |
|
|
|
i 16,428 |
|
|
Total other expenses |
|
|
i 10,618 |
|
|
|
i 4,054 |
|
|
|
i 18,776 |
|
|
|
i 16,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
i 37,032 |
|
|
|
i 30,580 |
|
|
|
i 105,952 |
|
|
|
i 74,282 |
|
|
Income tax expense (benefit) |
|
|
i 9,556 |
|
|
|
i 8,811 |
|
|
|
i 25,951 |
|
|
|
i 19,725 |
|
|
Net income |
|
$ |
i 27,476 |
|
|
$ |
i 21,769 |
|
|
$ |
i 80,001 |
|
|
$ |
i 54,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic |
|
$ |
i 0.18 |
|
|
$ |
i 0.14 |
|
|
$ |
i 0.52 |
|
|
$ |
i 0.36 |
|
|
Net income per common share - diluted |
|
|
i 0.18 |
|
|
|
i 0.14 |
|
|
|
i 0.51 |
|
|
|
i 0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
i 27,476 |
|
|
$ |
i 21,769 |
|
|
$ |
i 80,001 |
|
|
$ |
i 54,557 |
|
|
Weighted-average common shares outstanding - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
i 153,493,355 |
|
|
|
i 153,854,313 |
|
|
|
i 154,199,158 |
|
|
|
i 153,623,579 |
|
|
Diluted |
|
|
i 153,891,090 |
|
|
|
i 157,022,043 |
|
|
|
i 155,631,884 |
|
|
|
i 156,658,640 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
The AZEK Company Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands of U.S. dollars, except for share amounts)
(Unaudited)
|
|
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|
|
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|||||||||||||||
|
|
|
Common Stock |
|
|
|
Treasury Stock |
|
|
|
Additional |
|
|
|
|
|
|
|
|
Total |
|
|||||||||||||||||||||||
|
|
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
Paid-In |
|
|
|
Accumulated |
|
|
|
Stockholders' |
|
|||||||||||||||||||||
|
|
|
Shares |
|
|
|
Amount |
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Equity |
|
|||||||||
|
Balance – March 31, 2022 |
|
|
i 155,108,627 |
|
|
$ |
i 155 |
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,628,581 |
|
|
$ |
|
( i 135,702 |
) |
|
$ |
|
i 1,493,034 |
|
||
|
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 27,476 |
|
|
|
|
i 27,476 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 4,856 |
|
|
|
|
— |
|
|
|
|
i 4,856 |
|
|
Exercise of stock options |
|
|
i 46,608 |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 1,072 |
|
|
|
|
— |
|
|
|
|
i 1,072 |
|
|
Cancellation of restricted stock awards |
|
|
( i 3,897 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Issuance of common stock under employee stock plan, net of shares withheld for taxes |
|
|
i 1,888 |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Treasury stock purchases |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 3,013,575 |
|
|
|
|
( i 50,073 |
) |
|
|
|
( i 8,395 |
) |
|
|
|
— |
|
|
|
|
( i 58,468 |
) |
|
Balance – June 30, 2022 |
|
|
i 155,153,226 |
|
|
$ |
|
i 155 |
|
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
i 3,013,575 |
|
|
$ |
|
( i 50,073 |
) |
|
$ |
|
i 1,626,114 |
|
|
$ |
|
( i 108,226 |
) |
|
$ |
|
i 1,467,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2021 |
|
|
i 154,866,313 |
|
|
$ |
i 155 |
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,615,236 |
|
|
$ |
|
( i 188,227 |
) |
|
$ |
|
i 1,427,164 |
|
||
|
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 80,001 |
|
|
|
|
i 80,001 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 13,707 |
|
|
|
|
— |
|
|
|
|
i 13,707 |
|
|
Exercise of vested stock options |
|
|
i 260,649 |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 5,995 |
|
|
|
|
— |
|
|
|
|
i 5,995 |
|
|
Cancellation of restricted stock awards |
|
|
( i 14,470 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Issuance of common stock under employee stock plan, net of shares withheld for taxes |
|
|
i 40,734 |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 429 |
) |
|
|
|
— |
|
|
|
|
( i 429 |
) |
|
Treasury stock purchases |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 3,013,575 |
|
|
|
|
( i 50,073 |
) |
|
|
|
( i 8,395 |
) |
|
|
|
— |
|
|
|
|
( i 58,468 |
) |
|
Balance – June 30, 2022 |
|
|
i 155,153,226 |
|
|
$ |
|
i 155 |
|
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
i 3,013,575 |
|
|
$ |
|
( i 50,073 |
) |
|
$ |
|
i 1,626,114 |
|
|
$ |
|
( i 108,226 |
) |
|
$ |
|
i 1,467,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Treasury Stock |
|
|
|
Additional |
|
|
|
|
|
|
|
|
Total |
|
|||||||||||||||||||||||
|
|
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
Paid-In |
|
|
|
Accumulated |
|
|
|
Stockholders' |
|
|||||||||||||||||||||
|
|
|
Shares |
|
|
|
Amount |
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares |
|
|
|
Amount |
|
|
|
Capital |
|
|
|
Deficit |
|
|
|
Equity |
|
|||||||||
|
Balance – March 31, 2021 |
|
|
i 154,739,238 |
|
|
$ |
i 155 |
|
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,599,882 |
|
|
$ |
|
( i 248,589 |
) |
|
$ |
|
i 1,351,448 |
|
|
|
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 21,769 |
|
|
|
|
i 21,769 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 9,341 |
|
|
|
|
— |
|
|
|
|
i 9,341 |
|
|
Exercise of stock options |
|
|
i 89,915 |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 1,661 |
|
|
|
|
— |
|
|
|
|
i 1,661 |
|
|
Cancellation of restricted stock awards |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Balance – June 30, 2021 |
|
|
i 154,829,153 |
|
|
$ |
|
i 155 |
|
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,610,884 |
|
|
$ |
|
( i 226,820 |
) |
|
$ |
|
i 1,384,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2020 |
|
|
i 154,637,240 |
|
|
$ |
i 155 |
|
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,587,208 |
|
|
$ |
|
( i 283,475 |
) |
|
$ |
|
i 1,303,888 |
|
|
|
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 54,557 |
|
|
|
|
i 54,557 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 19,272 |
|
|
|
|
— |
|
|
|
|
i 19,272 |
|
|
Exercise of vested stock options |
|
|
i 213,908 |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 4,614 |
|
|
|
|
— |
|
|
|
|
i 4,614 |
|
|
Cancellation of restricted stock awards |
|
|
( i 21,995 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
IPO costs |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 210 |
) |
|
|
|
— |
|
|
|
|
( i 210 |
) |
|
Adoption of ASU 2016-02 |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 2,098 |
|
|
|
|
i 2,098 |
|
|
Balance – June 30, 2021 |
|
|
i 154,829,153 |
|
|
$ |
|
i 155 |
|
|
|
i 100 |
|
|
$ |
|
— |
|
|
|
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,610,884 |
|
|
$ |
|
( i 226,820 |
) |
|
$ |
|
i 1,384,219 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
The AZEK Company Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
|
|
|
Nine Months Ended June 30, |
|
|||||
|
|
|
|
|
2021 |
|
|||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 80,001 |
|
|
$ |
i 54,557 |
|
|
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
i 48,764 |
|
|
|
i 37,654 |
|
|
Amortization of intangibles |
|
|
i 37,966 |
|
|
|
i 37,666 |
|
|
Non-cash interest expense |
|
|
i 4,194 |
|
|
|
i 2,550 |
|
|
Non-cash lease expense |
|
|
( i 218 |
) |
|
|
( i 17 |
) |
|
Deferred income tax (benefit) provision |
|
|
i 21,520 |
|
|
|
i 17,385 |
|
|
Non-cash compensation expense |
|
|
i 19,550 |
|
|
|
i 19,272 |
|
|
Loss (gain) on disposition of property |
|
|
i 317 |
|
|
|
i 624 |
|
|
Changes in certain assets and liabilities: |
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
( i 20,399 |
) |
|
|
( i 19,287 |
) |
|
Inventories |
|
|
( i 121,574 |
) |
|
|
( i 42,721 |
) |
|
Prepaid expenses and other currents assets |
|
|
( i 7,732 |
) |
|
|
( i 1,324 |
) |
|
Accounts payable |
|
|
i 4,512 |
|
|
|
i 6,911 |
|
|
Accrued expenses and interest |
|
|
( i 3,733 |
) |
|
|
i 4,877 |
|
|
Other assets and liabilities |
|
|
i 2,532 |
|
|
|
i 1,901 |
|
|
Net cash provided by (used in) operating activities |
|
|
i 65,700 |
|
|
|
i 120,048 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
( i 139,491 |
) |
|
|
( i 116,715 |
) |
|
Proceeds from disposition of fixed assets |
|
|
i 617 |
|
|
|
i 38 |
|
|
Acquisitions, net of cash acquired |
|
|
( i 86,935 |
) |
|
|
— |
|
|
Net cash provided by (used in) investing activities |
|
|
( i 225,809 |
) |
|
|
( i 116,677 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds under revolving credit facility |
|
|
i 40,000 |
|
|
|
— |
|
|
Payments under revolving credit facility |
|
|
( i 40,000 |
) |
|
|
|
|
|
Proceeds from 2022 Term Loan Agreement |
|
|
i 595,500 |
|
|
|
— |
|
|
Payment of debt issuance costs |
|
|
( i 3,442 |
) |
|
|
( i 938 |
) |
|
Repayments of Term Loan Agreement |
|
|
( i 467,654 |
) |
|
|
— |
|
|
Repayments of finance lease obligations |
|
|
( i 2,308 |
) |
|
|
( i 1,385 |
) |
|
Exercise of vested stock options |
|
|
i 5,995 |
|
|
|
i 4,614 |
|
|
Payments of initial public offering related costs |
|
|
— |
|
|
|
( i 210 |
) |
|
Cash paid for shares withheld for taxes |
|
|
( i 429 |
) |
|
|
— |
|
|
Purchases of treasury stock |
|
|
( i 58,468 |
) |
|
|
— |
|
|
Net cash provided by (used in) financing activities |
|
|
i 69,194 |
|
|
|
i 2,081 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
( i 90,915 |
) |
|
|
i 5,452 |
|
|
Cash and cash equivalents – Beginning of period |
|
|
i 250,536 |
|
|
|
i 215,012 |
|
|
Cash and cash equivalents – End of period |
|
$ |
i 159,621 |
|
|
$ |
i 220,464 |
|
|
Supplemental cash flow disclosure: |
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
i 10,269 |
|
|
$ |
i 14,871 |
|
|
Cash paid for income taxes, net |
|
|
i 5,608 |
|
|
|
i 2,458 |
|
|
Supplemental non-cash investing and financing disclosure: |
|
|
|
|
|
|
|
|
|
Capital expenditures in accounts payable at end of period |
|
$ |
i 24,321 |
|
|
$ |
i 3,780 |
|
|
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities |
|
|
i 18,705 |
|
|
|
i 11,861 |
|
See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
The AZEK Company Inc.
Notes to Condensed Consolidated Financial Statements
(In thousands of U.S. dollars, unless otherwise specified)
(Unaudited)
i1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The AZEK Company Inc. (the “Company”, “we”, “us” or “our”) is a Delaware corporation that holds all of the limited liability company interests in CPG International LLC, the entity which directly and indirectly holds all of the equity interests in the operating subsidiaries. The Company is an industry-leading designer and manufacturer of beautiful, low-maintenance and environmentally sustainable building products for residential, commercial and industrial markets. The Company’s products include decking, railing, trim, porch, moulding, pavers, bathroom and locker systems, as well as extruded plastic sheet products and other non-fabricated products for special applications in industrial markets. The Company operates in various locations throughout the United States. The Company’s residential products are primarily branded under the brand names AZEK, TimberTech, VERSATEX, ULTRALOX and StruXure, while the commercial products are branded under the brand names Celtec, Playboard, Seaboard, Flametec, Designboard, Cortec, Sanatec, Scranton Products, Aria Partitions, Eclipse Partitions, Hiny Hiders, Tufftec Lockers and Duralife Lockers.
Secondary Offerings
On January 26, 2021, the Company completed an offering of i 23,000,000 shares of Class A common stock, par value $ i 0.001 per share, including the exercise in full by the underwriters of their option to purchase up to i 3,000,000 additional shares of Class A common stock, at a public offering price of $ i 40.00 per share. The shares were sold by certain of the Selling Stockholders. The Company did not receive any of the proceeds from the sale of the shares by those Selling Stockholders. In connection with the offering the Company incurred approximately $ i 1.2 million in expenses.
On June 1, 2021, the Company completed an offering of i 17,250,000 shares of Class A common stock, par value $ i 0.001 per share, including the exercise in full by the underwriters of their option to purchase up to i 2,250,000 additional shares of Class A common stock, at a public offering price of $ i 43.50 per share. The shares were sold by certain of the Selling Stockholders. The Company did not receive any of the proceeds from the sale of the shares by those Selling Stockholders. In connection with the offering the Company incurred approximately $ i 1.1 million in expenses.
b. Summary of Significant Accounting Policies
iBasis of Presentation
The Company operates on a fiscal year ending September 30. The accompanying unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations and cash flows for the interim periods presented. The results of operations for the three and nine months ended June 30, 2022 and the cash flows for the nine months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.
The Company’s financial condition and results of operations are being, and are expected to continue to be affected by the current COVID-19 public health pandemic. The economic effects of the COVID-19 pandemic will likely continue to affect demand for the Company’s products in the foreseeable future. Although management has implemented measures to mitigate any impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations, these measures may not fully mitigate the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations. Management cannot predict the degree to, or the period over, which the Company will be affected by the COVID-19 pandemic and resulting governmental and other measures.
The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2021 Form 10-K. The Condensed Consolidated Balance Sheet as of September 30, 2021 was derived from the audited financial statements at that date. There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2021 Form 10-K, except as noted below.
i
Revision of Previously Reported Financial Information
In connection with our retroactive adoption of ASC 842 as of October 1, 2020, quarterly amounts presented in our prior Form 10-Q were revised. The impact of the adjustments was immaterial to the Consolidated Financial Statements.
/7
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates include revenue recognition, reserves for excess inventory, inventory obsolescence, product warranties, customer rebates, stock-based compensation, litigation, income taxes, contingent consideration, goodwill and intangible asset valuation and accounting for long-lived assets. Management’s estimates and assumptions are evaluated on an ongoing basis and are based on historical experience, current conditions and available information. Actual results may differ from estimated amounts. Estimates are revised as additional information becomes available.
iAccounting Policies
Refer to the Company’s 2021 Form 10-K for a discussion of the Company’s accounting policies, as updated below and for recently adopted accounting standards.
iResearch and Development Costs
Research and development costs primarily relate to new product development, product claims support and manufacturing process improvements. Such costs are expensed as incurred and are included in “Selling, general and administrative expenses” within the Condensed Consolidated Statements of Comprehensive Income. Total research and development expenses were $ i 2.6 million and $ i 1.9 million, respectively, for the three months ended June 30, 2022 and 2021, and $ i 6.9 million and $ i 5.5 million, respectively, for the nine months ended June 30, 2022 and 2021.
/ iRecently Adopted Accounting Pronouncements
On October 1, 2020, the Company adopted ASU No. 2016-02, Leases (Topic 842) and the subsequent amendments. Adoption of the new standard resulted in the recording of lease assets and lease liabilities of approximately $ i 15.2 million and $ i 18.7 million, respectively, as of October 1, 2020. The difference between the lease assets and lease liabilities primarily relates to accrued rent and unamortized lease incentives recorded in accordance with the previous leasing guidance. As of the adoption date, accumulated deficit within shareholder's equity on the Company’s consolidated balance sheet decreased by $ i 2.1 million, primarily related to the derecognition of build-to-suit leasing arrangements. The new standard did not materially impact the Company’s consolidated statements of income or cash flows.
On October 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and clarifying and amending existing guidance. The adoption of the standard did not have a material impact on the Company’s Consolidated Financial Statements.
/ i2. REVENUE
The Company recognizes revenues when control of the promised goods is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods, at a point in time, when shipping occurs.
The Company also engages in customer rebates, which are recorded in “Net sales” in the Condensed Consolidated Statements of Comprehensive Income and in “Accrued rebates” and “Trade receivables” in the Condensed Consolidated Balance Sheets. The Company recorded accrued rebates of $ i 44.5 million and $ i 32.8 million as of June 30, 2022 and 2021, respectively, and contra trade receivables of $ i 4.9 million and $ i 3.4 million as of June 30, 2022 and 2021, respectively. i The rebate activity was as follows (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Beginning balance |
|
$ |
i 40,146 |
|
|
$ |
i 27,791 |
|
|
$ |
i 47,648 |
|
|
$ |
i 32,679 |
|
|
Rebate expense |
|
|
i 23,631 |
|
|
|
i 20,645 |
|
|
|
i 70,184 |
|
|
|
i 54,857 |
|
|
Rebate payments |
|
|
( i 14,380 |
) |
|
|
( i 12,257 |
) |
|
|
( i 68,435 |
) |
|
|
( i 51,357 |
) |
|
Ending balance |
|
$ |
i 49,397 |
|
|
$ |
i 36,179 |
|
|
$ |
i 49,397 |
|
|
$ |
i 36,179 |
|
The Company records deferred revenue when cash payments are received or due in advance of the Company’s performance.
/ i
8
3. BUSINESS COMBINATIONS
On i November 30, 2021, the Company acquired i 100% of a regional recycler in the Midwest, for a total purchase price of approximately $ i 4.2 million, subject to customary post-closing working capital adjustments. The regional recycler is a provider of full-service recycled material processing, sourcing, logistical support and scrap management programs. The Company financed the acquisition with cash on hand.
On i December 29, 2021, the Company acquired i 100% of StruXure Outdoor, LLC, a Georgia limited liability company (“StruXure”), for a total purchase price of approximately $ i 84.1 million, subject to customary post-closing working capital adjustments. StruXure is located in Dahlonega, Georgia and manufactures customizable outdoor pergolas and cabanas. The Company financed the acquisition with cash on hand.
The acquisitions were accounted for as business combinations under Accounting Standards Codification (“ASC”) 805 Business Combinations. Tangible and identifiable intangible assets acquired and liabilities assumed were recorded at their respective fair values. The excess of the consideration transferred over the fair value of the net assets received has been recorded for both acquisitions as goodwill in the Residential segment. The factors that contributed to the recognition of goodwill primarily relate to future economic benefits arising from expected sales as well as consumption of the recycled PVC materials in current products.
i
The following table represents the preliminary allocation of assets acquired and liabilities assumed on the acquisition date for both acquisitions as of June 30, 2022 (in thousands):
|
(US dollars in thousands) |
Total |
|
|
|
Cash and cash equivalents |
$ |
i 1,410 |
|
|
Trade receivables |
|
i 3,798 |
|
|
Inventories |
|
i 11,655 |
|
|
Other current assets |
|
i 60 |
|
|
Property and equipment |
|
i 4,618 |
|
|
Intangible assets |
|
i 43,000 |
|
|
ROU assets |
|
i 2,881 |
|
|
Accounts payable |
|
( i 3,110 |
) |
|
Accrued expenses |
|
( i 9,171 |
) |
|
Current lease liabilities |
|
( i 740 |
) |
|
Noncurrent lease liabilities |
|
( i 2,106 |
) |
|
Total identifiable assets |
|
i 52,295 |
|
|
Goodwill |
|
i 36,050 |
|
|
Net assets acquired/total consideration |
|
i 88,345 |
|
|
Less: cash acquired |
|
( i 1,410 |
) |
|
Total consideration net of cash acquired |
$ |
i 86,935 |
|
As of the acquisition dates, total intangible assets and goodwill amounted to $ i 79.1 million, comprised of $ i 23.0 million related to customer relationships, $ i 10.0 million related to proprietary knowledge and $ i 10.0 million related to trademarks, as well as $ i 36.1 million in goodwill. It is expected that $ i 36.1 million of the goodwill is deductible for tax purposes. The estimated useful life for customer relationships and trademarks is i i 15 / years, and proprietary knowledge is i 10 years. The intangible assets weighted average useful life at the date of acquisition was i 14.2 years.
i
4. INVENTORIES
Inventories are valued at the lower of cost or net realizable value, and are reduced for slow-moving and obsolete inventory. The inventories cost is recorded at standard cost, which approximates actual cost, on a first-in first-out “FIFO”) basis. i Inventories consisted of the following (in thousands):
|
in thousands |
|
|
|
|
||||
|
Raw materials |
|
$ |
i 82,548 |
|
|
$ |
i 46,046 |
|
|
Work in process |
|
|
i 38,925 |
|
|
|
i 27,278 |
|
|
Finished goods |
|
|
i 200,644 |
|
|
|
i 115,564 |
|
|
Total inventories |
|
$ |
i 322,117 |
|
|
$ |
i 188,888 |
|
/
9
i
5. PROPERTY, PLANT AND EQUIPMENT—NET
iProperty, plant and equipment – net consisted of the following (in thousands):
|
|
|
|
|
|
||||
|
Land and improvements |
|
$ |
i 3,222 |
|
|
$ |
i 2,812 |
|
|
Buildings and improvements |
|
|
i 101,181 |
|
|
|
i 73,227 |
|
|
Manufacturing equipment |
|
|
i 515,381 |
|
|
|
i 405,611 |
|
|
Computer equipment |
|
|
i 25,978 |
|
|
|
i 23,915 |
|
|
Furniture and fixtures |
|
|
i 6,731 |
|
|
|
i 6,018 |
|
|
Vehicles |
|
|
i 906 |
|
|
|
i 604 |
|
|
Total property and equipment |
|
|
i 653,399 |
|
|
|
i 512,187 |
|
|
Construction in progress |
|
|
i 137,698 |
|
|
|
i 129,886 |
|
|
|
|
|
i 791,097 |
|
|
|
i 642,073 |
|
|
Accumulated depreciation |
|
|
( i 295,136 |
) |
|
|
( i 251,061 |
) |
|
Total property and equipment – net |
|
$ |
i 495,961 |
|
|
$ |
i 391,012 |
|
Depreciation expense was approximately $ i 17.1 million and $ i 13.3 million in the three months ended June 30, 2022 and 2021, respectively, and $ i 48.8 million and $ i 37.7 million in the nine months ended June 30, 2022 and 2021, respectively. During the three months ended June 30, 2022 and 2021, $ i 1.6 million and $ i 0.5 million of interest was capitalized, respectively, and during the nine months ended June 30, 2022 and 2021, $ i 3.9 million and $ i 1.4 million of interest was capitalized, respectively.
/ i6. GOODWILL AND INTANGIBLE ASSETS—NET
Goodwill
iGoodwill consisted of the following (in thousands):
|
|
|
Residential |
|
|
Commercial |
|
|
Total |
|
|||
|
Goodwill as of September 30, 2021 |
|
$ |
i 911,001 |
|
|
$ |
i 40,389 |
|
|
$ |
i 951,390 |
|
|
Acquisitions |
|
|
i 36,050 |
|
|
|
i — |
|
|
|
i 36,050 |
|
|
Goodwill as of June 30, 2022 |
|
$ |
i 947,051 |
|
|
$ |
i 40,389 |
|
|
$ |
i 987,440 |
|
|
Accumulated impairment losses as of September 30, 2021 |
|
|
— |
|
|
|
i 32,200 |
|
|
|
i 32,200 |
|
|
Accumulated impairment losses as of June 30, 2022 |
|
$ |
— |
|
|
$ |
i 32,200 |
|
|
$ |
i 32,200 |
|
Intangible assets, net
The Company did i i no / t have any indefinite lived intangible assets other than goodwill as of June 30, 2022 and September 30, 2021. i Finite-lived intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Lives in Years |
|
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||
|
Proprietary knowledge |
|
10 — 15 |
|
|
$ |
i 299,300 |
|
|
$ |
( i 231,025 |
) |
|
$ |
i 68,275 |
|
|
|
Trademarks |
|
5 — 20 |
|
|
|
i 229,340 |
|
|
|
( i 147,597 |
) |
|
|
i 81,743 |
|
|
|
Customer relationships |
|
15 — 19 |
|
|
|
i 169,552 |
|
|
|
( i 74,367 |
) |
|
|
i 95,185 |
|
|
|
Patents |
|
|
10 |
|
|
|
i 7,000 |
|
|
|
( i 4,709 |
) |
|
|
i 2,291 |
|
|
Other intangibles |
|
3 — 15 |
|
|
|
i 4,076 |
|
|
|
( i 3,964 |
) |
|
|
i 112 |
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
i 709,268 |
|
|
$ |
( i 461,662 |
) |
|
$ |
i 247,606 |
|
10
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Lives in Years |
|
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||
|
Propriety knowledge |
|
10 — 15 |
|
|
$ |
i 289,300 |
|
|
$ |
( i 216,283 |
) |
|
$ |
i 73,017 |
|
|
|
Trademarks |
|
5 — 20 |
|
|
|
i 223,840 |
|
|
|
( i 139,631 |
) |
|
|
i 84,209 |
|
|
|
Customer relationships |
|
15 — 19 |
|
|
|
i 146,670 |
|
|
|
( i 64,412 |
) |
|
|
i 82,258 |
|
|
|
Patents |
|
|
10 |
|
|
|
i 7,000 |
|
|
|
( i 4,105 |
) |
|
|
i 2,895 |
|
|
Other intangible assets |
|
3 — 15 |
|
|
|
i 4,076 |
|
|
|
( i 3,883 |
) |
|
|
i 193 |
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
i 670,886 |
|
|
$ |
( i 428,314 |
) |
|
$ |
i 242,572 |
|
Amortization expense was $ i 12.5 million and $ i 12.5 million in the three months ended June 30, 2022 and 2021, respectively and $ i 38.0 million and $ i 37.7 million in the nine months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the remaining weighted-average amortization period for acquired intangible assets was i 12.1 years.
i7. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
Allowance for Doubtful Accounts
iAllowance for doubtful accounts consisted of the following (in thousands):
|
|
Three Months Ended June 30, |
|
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
2021 |
|
|
|
2022 |
|
|
2021 |
|
|||||
|
Beginning balance |
$ |
i 1,172 |
|
|
$ |
i 1,487 |
|
|
|
$ |
i 1,109 |
|
|
$ |
i 1,332 |
|
|
Provision |
|
i 4 |
|
|
|
i 116 |
|
|
|
|
i 67 |
|
|
|
i 271 |
|
|
Bad debt write-offs |
|
( i 1 |
) |
|
|
( i 540 |
) |
|
|
|
( i 1 |
) |
|
|
( i 540 |
) |
|
Ending balance |
$ |
i 1,175 |
|
|
$ |
i 1,063 |
|
|
|
$ |
i 1,175 |
|
|
$ |
i 1,063 |
|
Accrued Expenses and Other Liabilities
iAccrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
||||
|
Employee related liabilities |
|
$ |
i 30,492 |
|
|
$ |
i 32,996 |
|
|
Customer deposits |
|
|
i 7,232 |
|
|
|
— |
|
|
Lease liability - operating |
|
|
i 5,481 |
|
|
|
i 3,906 |
|
|
Marketing |
|
|
i 4,352 |
|
|
|
i 3,421 |
|
|
Warranty |
|
|
i 3,170 |
|
|
|
i 2,992 |
|
|
Construction in progress |
|
|
i 6,274 |
|
|
|
i 4,068 |
|
|
Professional fees |
|
|
i 1,363 |
|
|
|
i 2,296 |
|
|
Freight |
|
|
i 2,386 |
|
|
|
i 2,292 |
|
|
Lease liability - finance |
|
|
i 1,597 |
|
|
|
i 71 |
|
|
Other |
|
|
i 6,313 |
|
|
|
i 4,480 |
|
|
Total accrued expenses and other current liabilities |
|
$ |
i 68,660 |
|
|
$ |
i 56,522 |
|
/
11
i
8. DEBT
iDebt consisted of the following (in thousands):
|
|
|
|
|
|
||||
|
2022 Term Loan due i April 28, 2029 — i SOFR + i 2.50% + 0.1% / ( i 4.09% at June 30, 2022) |
|
$ |
i 600,000 |
|
|
$ |
— |
|
|
Term Loan due i May 5, 2024 — i LIBOR + i 2.50 / % ( i 3.25% at September 30, 2021) |
|
|
— |
|
|
|
i 467,654 |
|
|
Revolving Credit Facility through i March 31, 2026 - i i LIBOR + i i 1.25 / / / % |
|
|
— |
|
|
|
— |
|
|
Total |
|
|
i 600,000 |
|
|
|
i 467,654 |
|
|
Less unamortized deferred financing costs |
|
|
( i 4,891 |
) |
|
|
( i 2,625 |
) |
|
Less unamortized original issue discount |
|
|
( i 4,576 |
) |
|
|
( i 314 |
) |
|
Less current portion |
|
|
( i 4,500 |
) |
|
|
— |
|
|
Long-term debt—less current portion and unamortized deferred financing costs |
|
$ |
i 586,033 |
|
|
$ |
i 464,715 |
|
/
Term Loan Agreements
The term loan agreement, as amended and restated from time to time (the “Term Loan Agreement”), was a first lien term loan originally entered into on September 30, 2013 by the Company’s wholly-owned subsidiary, CPG International LLC (as successor-in-interest to CPG Merger Sub LLC), as the initial borrower with a syndicate of lenders party thereto. As of September 30, 2021, CPG International LLC had $ i 467.7 million outstanding under the Term Loan Agreement and on April 28, 2022, the obligations under the Term Loan Agreement were paid off in full and the Term Loan Agreement was terminated.
As of June 30, 2022, and September 30, 2021, unamortized deferred financing fees related to the Term Loan Agreement were $ i 0.0 million and $ i 2.6 million, respectively.
On April 28, 2022, the Company entered into a new $ i 600.0 million first lien term loan credit agreement (the “2022 Term Loan Agreement”), the proceeds of which were applied, among other uses, to prepay the obligations of the Term Loan Agreement in full. The 2022 Term Loan Agreement is a first lien term loan and will mature on i April 28, 2029, subject to acceleration or prepayment. Commencing on December 31, 2022, the 2022 Term Loan Agreement will amortize in equal quarterly installments of i 0.25% of the aggregate principal amount of the loans outstanding, subject to reduction for certain prepayments. The loans thereunder bear an interest rate equal to (i) in the case of ABR borrowings, the highest of (a) the Federal Funds Rate plus i 0.50%, (b) the Prime Rate as in effect on such day and (c) the one-month Term SOFR rate plus i 1.00% per annum, provided that in no event will the alternative base rate be less than i 1.50% per annum, plus an applicable margin of i 1.50% and (ii) in the case of SOFR borrowings, the Term SOFR rate for the applicable interest period, in each case, plus an applicable margin of i 2.50%.
The obligations under the 2022 Term Loan Agreement are secured by a first priority security interest in the membership interests of CPG International LLC owned by the Company, the equity interests of CPG International LLC’s domestic subsidiaries, other than certain immaterial subsidiaries and other excluded subsidiaries, and all remaining assets not constituting Revolver Priority Collateral (as defined below and subject to certain exceptions) of the Company, CPG International LLC and the subsidiaries of CPG International LLC that are guarantors under the 2022 Term Loan Agreement (the “Term Loan Priority Collateral”), and a second priority security interest in the Revolver Priority Collateral. The obligations under the 2022 Term Loan Agreement are guaranteed by the Company and the wholly owned domestic subsidiaries of CPG International LLC other than certain immaterial subsidiaries and other excluded subsidiaries.
Loans under the 2022 Term Loan Agreement may be voluntarily prepaid in whole, or in part, in each case without premium or penalty (other than the Prepayment Premium, as defined in the 2022 Term Loan Agreement, if applicable), subject to certain customary conditions. The 2022 Term Loan Agreement also requires mandatory prepayments of loans under the 2022 Term Loan Agreement from the proceeds of certain debt issuances and certain asset dispositions (subject to certain reinvestment rights) and, commencing with the fiscal year ended September 30, 2023, a percentage of excess cash flow (subject to step-downs upon CPG International LLC achieving certain leverage ratios and other reductions in connection with other debt prepayments).
The 2022 Term Loan Agreement contains affirmative covenants, negative covenants and events of default, which are broadly consistent with those in the Revolving Credit Facility (with certain differences consistent with the differences between a revolving loan and term loan) and that are customary for facilities of this type. The 2022 Term Loan Agreement does not have any financial maintenance covenants. The 2022 Term Loan Agreement also includes customary events of default, including the occurrence of a change of control.
As of June 30, 2022, unamortized deferred financing fees related to the 2022 Term Loan Agreement were $ i 4.9 million.
/12
Revolving Credit Facility
CPG International LLC has also entered into a revolving credit facility, as amended and restated from time to time (the “Revolving Credit Facility”), with certain of our direct and indirect subsidiaries and certain lenders party thereto. The Revolving Credit Facility provides for maximum aggregate borrowings of up to $ i 150.0 million, subject to an asset-based borrowing base. The borrowing base is limited to a set percentage of eligible accounts receivable and inventory, less reserves that may be established by the administrative agent and the collateral agent in the exercise of their reasonable credit judgment.
CPG International LLC had i i no / outstanding borrowings under the Revolving Credit Facility as of June 30, 2022 and September 30, 2021, respectively. In addition, CPG International LLC had $ i 2.8 million and $ i 3.3 million of outstanding letters of credit held against the Revolving Credit Facility as of June 30, 2022 and September 30, 2021, respectively. CPG International LLC had approximately $ i 147.2 million available under the borrowing base for future borrowings as of June 30, 2022. CPG International LLC also has the option to increase the commitments under the Revolving Credit Facility by up to $ i 100.0 million, subject to certain conditions.
On March 31, 2021, CPG International LLC amended the Revolving Credit Facility, resulting in a repricing and extension thereof. Pursuant to such amendment, the i interest rate has been reduced by 25 basis points to i (i) for ABR borrowings, the highest of (a) the i Federal Funds Rate plus 50 basis points, (b) the i prime rate and (c) the i LIBOR as of such date for a deposit in U.S. dollars with a maturity of one month plus 100 basis points, plus, in each case, a spread of 25 to 75 basis points, based on average historical availability, or (ii) i for Eurocurrency borrowings, adjusted i LIBOR plus a spread of 125 to 175 basis points, based on average historical availability / . / / The maturity date for the Revolving Credit Facility was extended from i May 9, 2022 to the earlier of i March 31, 2026 and the date that is 91 days prior to the maturity of the Term Loan Agreement or any permitted refinancing thereof.
Deferred financing costs, net of accumulated amortization, related to the Revolving Credit Facility at June 30, 2022 and September 30, 2021 were $ i 1.0 million and $ i 1.2 million, respectively.
A “commitment fee” accrues on any unused portion of the commitments under the Revolving Credit Facility during the preceding three calendar month period. i If the average daily used percentage is greater than 50%, the commitment fee equals 25 basis points, and if the average daily used percentage is less than or equal to 50%, the commitment fee equals 37.5 basis points. The commitment fees were $ i 0.1 million and $ i 0.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ i 0.3 million and $ i 0.4 million in the nine months ended June 30, 2022 and 2021, respectively.
The obligations under the Revolving Credit Facility are guaranteed by the Company and its wholly owned domestic subsidiaries other than certain immaterial subsidiaries and other excluded subsidiaries. The obligations under the Revolving Credit Facility are secured by a first priority security interest in substantially all of the accounts receivable, inventory, deposit accounts, securities accounts and cash assets of the Company, CPG International LLC and the subsidiaries of CPG International LLC that are guarantors under the Revolving Credit Facility, and the proceeds thereof (subject to certain exceptions) (the “Revolver Priority Collateral”), plus a second priority security interest in all of the Term Loan Priority Collateral. The Revolving Credit Facility may be voluntarily prepaid in whole, or in part, in each case without premium or penalty. i CPG International LLC is also required to make mandatory prepayments (i) when aggregate borrowings exceed commitments or the applicable borrowing base and (ii) during “cash dominion,” which occurs if (a) the availability under the Revolving Credit Facility is less than the greater of (i) $12.5 million and (ii) 10% of the lesser of (x) $150.0 million and (y) the borrowing base, for five consecutive business days or (b) certain events of default have occurred and are continuing.
The Revolving Credit Facility contains affirmative covenants that are customary for financings of this type, including allowing the Revolver Administrative Agent to perform periodic field exams and appraisals to evaluate the borrowing base. The Revolving Credit Facility contains various negative covenants, including limitations on, subject to certain exceptions, the incurrence of indebtedness, the incurrence of liens, dispositions, investments, acquisitions, restricted payments, transactions with affiliates, as well as other negative covenants customary for financings of this type. The Revolving Credit Facility also includes a financial maintenance covenant, applicable only when the excess availability is less than the greater of i (i) 10% of the lesser of the aggregate commitments under the Revolving Credit Facility and the borrowing base, and (ii) $12.5 million. In such circumstances, CPG International LLC would be required to maintain a minimum fixed charge coverage ratio (as defined in the Revolving Credit Facility) for the trailing four quarters equal to at least i 1.0 to i 1.0; subject to CPG International LLC’s ability to make an equity cure (no more than twice in any four quarter period and up to five times over the life of the facility). As of June 30, 2022, CPG International LLC was in compliance with the financial and nonfinancial covenants imposed by the Revolving Credit Facility. The Revolving Credit Facility also includes customary events of default, including the occurrence of a change of control.
13
i
Interest expense consisted of the following (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Term Loan Agreement |
|
$ |
i 4,365 |
|
|
$ |
— |
|
|
$ |
i 4,365 |
|
|
$ |
— |
|
|
Term Loan Agreement |
|
|
i 1,140 |
|
|
|
i 3,842 |
|
|
|
i 8,824 |
|
|
|
i 13,942 |
|
|
Revolving Credit Facility |
|
|
i 276 |
|
|
|
i 156 |
|
|
|
i 693 |
|
|
|
i 473 |
|
|
Other |
|
|
i 910 |
|
|
|
i 198 |
|
|
|
i 2,595 |
|
|
|
i 606 |
|
|
Amortization - Debt issue costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Term Loan Agreement |
|
|
i 4,713 |
|
|
|
— |
|
|
|
i 4,713 |
|
|
|
— |
|
|
Term Loan Agreement |
|
|
i 548 |
|
|
|
i 254 |
|
|
|
i 1,056 |
|
|
|
i 2,243 |
|
|
Revolving Credit Facility |
|
|
i 66 |
|
|
|
i 65 |
|
|
|
i 196 |
|
|
|
i 429 |
|
|
2022 Term Loan OID |
|
|
i 112 |
|
|
|
— |
|
|
|
i 112 |
|
|
|
— |
|
|
Term Loan OID |
|
|
i 65 |
|
|
|
i 30 |
|
|
|
i 126 |
|
|
|
i 162 |
|
|
Capitalized interest |
|
|
( i 1,577 |
) |
|
|
( i 491 |
) |
|
|
( i 3,904 |
) |
|
|
( i 1,427 |
) |
|
Interest expense |
|
$ |
i 10,618 |
|
|
$ |
i 4,054 |
|
|
$ |
i 18,776 |
|
|
$ |
i 16,428 |
|
See Note 11 for the fair value of the Company’s debt as of June 30, 2022 and September 30, 2021.
i9. PRODUCT WARRANTIES
i The Company provides product assurance warranties of various lengths ranging from 5 years to lifetime for limited coverage for a variety of material and workmanship defects based on standard terms and conditions between the Company and its customers. i Warranty coverage depends on the product involved. The warranty reserve activity consisted of the following (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
|
2022 |
|
|
2021 |
|
|||||
|
Beginning balance |
|
$ |
i 13,948 |
|
|
$ |
i 12,065 |
|
|
|
$ |
i 12,699 |
|
|
$ |
i 10,913 |
|
|
Adjustments to reserve |
|
|
i 2,341 |
|
|
|
i 1,720 |
|
|
|
|
i 4,618 |
|
|
|
i 4,270 |
|
|
Warranty claims payment |
|
|
( i 801 |
) |
|
|
( i 843 |
) |
|
|
|
( i 1,829 |
) |
|
|
( i 2,269 |
) |
|
Accretion - purchase accounting valuation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
i 28 |
|
|
Ending balance |
|
|
i 15,488 |
|
|
|
i 12,942 |
|
|
|
|
i 15,488 |
|
|
|
i 12,942 |
|
|
Current portion of accrued warranty |
|
|
( i 3,170 |
) |
|
|
( i 2,977 |
) |
|
|
|
( i 3,170 |
) |
|
|
( i 2,977 |
) |
|
Accrued warranty – less current portion |
|
$ |
i 12,318 |
|
|
$ |
i 9,965 |
|
|
|
$ |
i 12,318 |
|
|
$ |
i 9,965 |
|
/
i
10. LEASES
As discussed in Note 1, on October 1, 2020, the Company adopted ASU No. 2016-02, Leases (Topic 842), and the related amendments (collectively "ASC 842"). The Company leases vehicles, machinery, manufacturing facilities, office space, land, and equipment under both operating and finance leases. We sublease excess office real estate to a third-party tenant. The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As of June 30, 2022 and September 30, 2021, amounts associated with leases are included in Other assets, Accrued expense and other liabilities and Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheet.
For leases with initial terms greater than 12 months, the Company considers these right-of-use assets and records the related asset and obligation at the present value of lease payments over the term. For leases with initial terms equal to or less than 12 months, the Company does not consider them as right-of-use assets and instead considers them short-term lease costs that are recognized on a straight-line basis over the lease term. The Company’s leases may include escalation clauses, renewal options and/or termination options that are factored into the determination of lease term and lease payments when it is reasonably certain the option will be exercised. Renewal options range from i 1 year to i 20 years.
/14
Lease assets and lease liabilities as of June 30, 2022 and September 30, 2021 were as follows (in thousands):
|
Leases |
Classification on Balance Sheet |
|
|
|
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
ROU operating lease assets |
Other assets |
|
$ |
i 21,138 |
|
|
$ |
i 19,431 |
|
|
Finance lease assets |
Other assets |
|
|
i 60,310 |
|
|
|
i 49,084 |
|
|
Total lease assets |
|
|
$ |
i 81,448 |
|
|
$ |
i 68,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating |
Accrued expenses and other liabilities |
|
$ |
i 5,481 |
|
|
$ |
i 3,906 |
|
|
Finance |
Accrued expenses and other liabilities |
|
|
i 1,597 |
|
|
|
i 71 |
|
|
Non-Current |
|
|
|
|
|
|
|
|
|
|
Operating |
Other non-current liabilities |
|
|
i 18,444 |
|
|
|
i 18,585 |
|
|
Finance |
Other non-current liabilities |
|
|
i 62,702 |
|
|
|
i 50,590 |
|
|
Total lease liabilities |
|
|
$ |
i 88,224 |
|
|
$ |
i 73,152 |
|
The components of lease expense for the three and nine months ended June 30, 2022 and 2021 were as follows:
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
(in thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Operating lease expense |
$ |
i 1,497 |
|
|
$ |
i 1,056 |
|
|
$ |
i 4,121 |
|
|
$ |
i 2,839 |
|
|
Finance lease amortization of assets |
|
i 877 |
|
|
|
i 316 |
|
|
|
i 2,390 |
|
|
|
i 841 |
|
|
Finance lease interest on lease liabilities |
|
i 911 |
|
|
|
i 204 |
|
|
|
i 2,584 |
|
|
|
i 610 |
|
|
Short term |
|
i 188 |
|
|
|
i 32 |
|
|
|
i 406 |
|
|
|
i 84 |
|
|
Sublease income |
|
( i 71 |
) |
|
|
( i 119 |
) |
|
|
( i 277 |
) |
|
|
( i 308 |
) |
|
Total lease expense |
$ |
i 3,402 |
|
|
$ |
i 1,489 |
|
|
$ |
i 9,224 |
|
|
$ |
i 4,066 |
|
/ i
The tables below present supplemental information related to leases as of June 30, 2022 and September 30, 2021:
|
Weighted-average remaining lease term (years) |
|
|
|
|
||||
|
Operating leases |
|
|
6.8 |
|
|
|
7.8 |
|
|
Finance leases |
|
|
28.8 |
|
|
|
32.2 |
|
|
Weighted-average discount rate |
|
|
|
|
|
|
||
|
Operating leases |
|
|
i 4.1 |
% |
|
|
i 4.3 |
% |
|
Finance leases |
|
|
i 6.1 |
% |
|
|
i 6.5 |
% |
15
i The following table summarizes the maturities of lease liabilities at June 30, 2022:
|
(in thousands) |
|
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
|
2022 |
|
|
$ |
i 1,598 |
|
|
$ |
i 1,307 |
|
|
$ |
i 2,905 |
|
|
2023 |
|
|
|
i 6,236 |
|
|
|
i 5,282 |
|
|
|
i 11,518 |
|
|
2024 |
|
|
|
i 4,757 |
|
|
|
i 5,016 |
|
|
|
i 9,773 |
|
|
2025 |
|
|
|
i 3,640 |
|
|
|
i 4,833 |
|
|
|
i 8,473 |
|
|
2026 |
|
|
|
i 2,386 |
|
|
|
i 4,624 |
|
|
|
i 7,010 |
|
|
Thereafter |
|
|
|
i 9,360 |
|
|
|
i 112,647 |
|
|
|
i 122,007 |
|
|
Total lease payments |
|
|
|
i 27,977 |
|
|
|
i 133,709 |
|
|
|
i 161,686 |
|
|
Less: Interest |
|
|
|
( i 4,052 |
) |
|
|
( i 69,410 |
) |
|
|
( i 73,462 |
) |
|
Present Value of lease liability |
|
|
$ |
i 23,925 |
|
|
$ |
i 64,299 |
|
|
$ |
i 88,224 |
|
i
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Accounting Standards Codification (“ASC”) requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models. We do not have any assets or liabilities measured at fair value on a recurring basis that are Level 3.
iThe carrying values and the estimated fair values of the debt financial instruments (Level 2 measurements) consisted of the following (in thousands):
|
|
|
|
|
|
||||||||||||
|
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
|
Carrying Value |
|
|
Estimated Fair Value |
|
||||
|
2022 Term Loan due i April 28, 2029 |
|
$ |
i 600,000 |
|
|
$ |
i 564,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Term Loan due i May 5, 2024 |
|
|
— |
|
|
|
— |
|
|
|
i 467,654 |
|
|
|
i 467,420 |
|
Financial instruments remeasure at fair value on a recurring basis – During the nine months ended June 30, 2022, the Company entered into an arrangement for a contingent payment to the former owner and employee of StruXure. The contingent payment is based on achievement of a minimum EBITDA amount and a multiple of EBITDA, for EBITDA exceeding a higher threshold for calendar year 2022. Based on the formula, the potential contingent payout can range from i zero to $ i 13.9 million. At the date of acquisition, the fair value was estimated to be $ i 9.5 million. As of June 30, 2022, the fair value was increased to $ i 11.7 million based on the actual EBITDA amount for StruXure. Compensation expense of $ i 2.9 million and $ i 5.8 million were recognized for the three and nine months ended June 30, 2022. The remaining amount of the contingent payment will be recognized as compensation expense through December 31, 2022.
/ i12. SEGMENTS
Operating segments for the Company are determined based on information used by the chief operating decision maker (“CODM”) in deciding how to evaluate performance and allocate resources to each of the segments. The CODM reviews Adjusted EBITDA and Adjusted EBITDA Margin as the key segment measures of performance. Adjusted EBITDA is defined as segment operating income (loss) plus depreciation and amortization, adjusted by adding thereto or subtracting therefrom stock-based compensation costs, business transformation costs, acquisition costs, capital structure transaction costs, and certain other costs. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net sales.
The Company has i two reportable segments, Residential and Commercial. The reportable segments were determined primarily based on products and end markets as follows:
• Residential—The Residential segment manufactures and distributes decking, rail, trim and accessories through a national network of dealers and distributors and multiple home improvement retailers providing extensive geographic coverage and enabling the Company to effectively serve contractors. The addition of StruXure expands our product offerings in the Residential segment. The addition of regional recyclers provides full-service recycled PVC material processing, sourcing, logistical support, and scrap management programs. This segment is impacted by trends in and the strength of home repair and remodel activity.
/16
• Commercial—The Commercial segment manufactures, fabricates and distributes resin based extruded sheeting products for a variety of commercial and industrial applications through a widespread distribution network as well as directly to original equipment manufacturers. This segment includes Scranton Products which manufactures lockers and partitions and Vycom which manufactures resin based sheeting products. This segment is impacted by trends in and the strength of the new construction sector.
iThe segment data below includes data for Residential and Commercial for the three and nine months ended June 30, 2022 and 2021 (in thousands).
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net sales to customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
$ |
i 343,064 |
|
|
$ |
i 291,209 |
|
|
$ |
i 914,555 |
|
|
$ |
i 739,048 |
|
|
Commercial |
|
i 51,927 |
|
|
|
i 36,245 |
|
|
|
i 136,399 |
|
|
|
i 93,806 |
|
|
Total |
$ |
i 394,991 |
|
|
$ |
i 327,454 |
|
|
$ |
i 1,050,954 |
|
|
$ |
i 832,854 |
|
|
Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
$ |
i 91,093 |
|
|
$ |
i 82,525 |
|
|
$ |
i 258,874 |
|
|
$ |
i 222,999 |
|
|
Commercial |
|
i 12,271 |
|
|
|
i 6,273 |
|
|
|
i 25,693 |
|
|
|
i 13,304 |
|
|
Total Adjusted EBITDA for reporting segments |
$ |
i 103,364 |
|
|
$ |
i 88,798 |
|
|
$ |
i 284,567 |
|
|
$ |
i 236,303 |
|
|
Unallocated net expenses |
|
( i 16,839 |
) |
|
|
( i 16,082 |
) |
|
|
( i 48,603 |
) |
|
|
( i 43,623 |
) |
|
Adjustments to Income before income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
( i 29,606 |
) |
|
|
( i 25,771 |
) |
|
|
( i 86,730 |
) |
|
|
( i 75,321 |
) |
|
Stock-based compensation costs |
|
( i 4,903 |
) |
|
|
( i 9,510 |
) |
|
|
( i 13,846 |
) |
|
|
( i 19,646 |
) |
|
Acquisition costs (1) |
|
( i 3,228 |
) |
|
|
— |
|
|
|
( i 8,861 |
) |
|
|
— |
|
|
Initial public offering costs and secondary offering costs |
|
- |
|
|
|
( i 1,443 |
) |
|
|
— |
|
|
|
( i 2,592 |
) |
|
Other costs (2) |
|
( i 1,138 |
) |
|
|
( i 1,358 |
) |
|
|
( i 1,799 |
) |
|
|
( i 4,411 |
) |
|
Interest expense, net |
|
( i 10,618 |
) |
|
|
( i 4,054 |
) |
|
|
( i 18,776 |
) |
|
|
( i 16,428 |
) |
|
Income before income tax provision |
$ |
i 37,032 |
|
|
$ |
i 30,580 |
|
|
$ |
i 105,952 |
|
|
$ |
i 74,282 |
|
|
(1) |
Acquisition costs reflect costs directly related to completed acquisitions of $ i 3.2 million and $ i 7.7 million in the three and nine months ended June 30, 2022, respectively, and inventory step-up adjustments related to recording inventory of acquired businesses at fair value on the date of acquisition of $ i 1.2 million for the nine months ended June 30, 2022. |
|
(2) |
Other costs include costs for legal expense of $ i 0.2 million and $ i 0.8 million in the three months ended June 30, 2022 and 2021, respectively, costs related to reduction in workforce of $ i 0.8 million in the three months ended June 30, 2022, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $ i 0.4 million for the three months ended June 30, 2021, other costs of $ i 0.1 million for the three months ended June 30, 2022, and the impact of retroactive adoption of ASC 842 of $ i 0.2 million for the three months ended June 30, 2021. Other costs include costs for legal expense of $ i 0.6 million and $ i 1.8 million in the nine months ended June 30, 2022 and 2021, respectively, costs related to reduction in workforce of $ i 0.8 million in the nine months ended June 30, 2022, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $ i 0.1 million and $ i 2.1 million in the nine months ended June 30, 2022 and 2021, respectively, other costs of $ i 0.3 million for the nine months ended June 30, 2022, and the impact of retroactive adoption of ASC 842 of $ i 0.5 million for the nine months ended June 30, 2021. |
17
13. CAPITAL STOCK
The Company completed its IPO on June 16, 2020, in which it sold i 38,237,500 shares of its Class A common stock, including i 4,987,500 shares pursuant to the underwriters’ over-allotment option. The shares were sold at an IPO price of $ i 23.00 per share for net proceeds to the Company of approximately $ i 819.7 million, after deducting underwriting discounts and commissions of $ i 50.6 million and offering expenses of approximately $ i 9.2 million payable by the Company.
Immediately prior to the completion of the IPO, the Company converted to a Delaware corporation from a limited liability company. The Company’s certificate of incorporation provides for two classes of common stock: Class A common stock and Class B common stock. In addition, the certificate of incorporation authorizes shares of undesignated preferred stock, the rights, preferences and privileges of which may be designated from time to time by the board of directors. The Company is authorized to issue up to i 1.1 billion shares of Class A common stock, up to 1 hundred million shares of Class B common stock and up to i 1 million shares of preferred stock, each par value $ i i i 0.001 / / per share, in one or more series. i The Class A common stock and Class B common stock provide identical economic rights, but holders of Class B common stock have limited voting rights, specifically that such holders have no right to vote, solely with respect to their shares of Class B common stock, with respect to the election, replacement or removal of directors. Holders of i Class A common stock and Class B common stock are not entitled to preemptive rights. Holders of Class B common stock may convert their shares of Class B common stock into shares of Class A common stock on a one-for-one basis, in whole or in part, at any time and from time to time at their option. The Company’s Class A common stock is traded on the New York Stock Exchange under the symbol “AZEK.”
In conjunction with the Corporate Conversion and prior to the closing of the IPO, the Company effected a unit split of its then-outstanding unit, resulting in an aggregate of i 108,162,741 units, including i 75,093,778 Class A units and i 33,068,963 Class B units. Concurrently with the Corporate Conversion, the units were converted to an aggregate of i 108,162,741 shares of common stock, including i 75,093,778 shares of Class A common stock and i 33,068,963 shares of Class B common stock. In addition, a class of the Company’s former indirect parent’s partnership interests referred to as “Profits Interests” were exchanged for an aggregate of i 2,703,243 shares of Class A common stock and i 5,532,057 shares of Class A restricted stock, and i 3,477,413 shares of Class A common stock reserved for issuance upon the exercise of stock options.
On January 26, 2021, the Company completed an offering of i 23,000,000 shares of Class A common stock, par value $ i 0.001 per share, including the exercise in full by the underwriters of their option to purchase up to i 3,000,000 additional shares of Class A common stock, at a public offering price of $ i 40.00 per share. The shares were sold by certain of the Selling Stockholders. The Company did not receive any of the proceeds from the sale of the shares by those Selling Stockholders. In connection with the offering the Company incurred approximately $ i 1.2 million in expenses.
On June 1, 2021, the Company completed an offering of i 17,250,000 shares of Class A common stock, par value $ i 0.001 per share, including the exercise in full by the underwriters of their option to purchase up to i 2,250,000 additional shares of Class A common stock, at a public offering price of $ i 43.50 per share. The shares were sold by certain of the Selling Stockholders. The Company did not receive any of the proceeds from the sale of the shares by those Selling Stockholders. In connection with the offering the Company incurred approximately $ i 1.1 million in expenses.
Share Repurchase Program
On May 5, 2022, the Board of Directors authorized the Company to repurchase up to $ i 400 million of the Company’s Class A common stock (the “Share Repurchase Program”). The Share Repurchase Program allows the Company to repurchase its shares opportunistically from time to time. Purchases may be effected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, accelerated share repurchases or tender offers, some of which may be effected through Rule 10b5-1 plans, or a combination of the foregoing. The timing of repurchases will depend upon several factors, including market and business conditions, and repurchases may be discontinued at any time.
On May 11, 2022, the Company entered into a $ i 50 million accelerated share repurchase agreement (the “ASR”) with JPMorgan Chase Bank, National Association (“JPMorgan”). JPMorgan delivered i 2,422,774 initial shares to the Company on May 13, 2022, based on the closing price of the Company’s Class A common stock of $ i 16.51 on May 11, 2022. JPMorgan terminated the ASR on i June 14, 2022 and delivered i 86,132 additional shares to the Company upon final settlement for no additional consideration. The average purchase price per share for shares purchased by the Company pursuant to the ASR was $ i 19.93.
During the three months ended June 30, 2022, the Company also repurchased i 504,669 shares of its Class A common stock on the open market at an average price of $ i 16.76 per share, totaling an approximately $ i 8.5 million reacquisition cost.
As of June 30, 2022, the Company had approximately $ i 341.5 million available for repurchases under the Share Repurchase Program.
/18
14. STOCK-BASED COMPENSATION
The Company grants stock-based awards to attract, retain and motivate key employees and directors.
The 2020 Omnibus Incentive Compensation Plan (“2020 Plan”), provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, and performance-based or other equity-related awards to the Company’s employees and directors. The maximum aggregate number of shares that may be issued under the 2020 Plan is i 15,852,319 shares with i 3,842,901 shares remaining in the reserve. The total aggregate number of shares may be adjusted as determined by the Board of Directors.
Stock-based compensation expense for the three months ended June 30, 2022 and 2021 was $ i 4.9 million and $ i 9.5 million, respectively and for the nine months ended June 30, 2022 and 2021was $ i 13.8 million and $ i 19.6 million, respectively, recognized in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Comprehensive Income. Total income tax benefit for the three months ended June 30, 2022 and 2021 was $ i 1.0 million and $ i 1.2 million, respectively, and for the nine months ended June 30, 2022 and 2021 was $ i 2.9 million and $ i 2.0 million. As of June 30, 2022, the Company had not yet recognized compensation cost on unvested stock-based awards of $ i 31.4 million, with a weighted average remaining recognition period of i 2.1 years.
The Company uses the Black Scholes pricing model to estimate the fair value of its service-based awards as of the grant date. Under the terms of the 2020 Plan, all stock options will expire if not exercised within i ten years of the grant date.
iThe following table sets forth the significant assumptions used for the calculation of stock-based compensation expense for the nine months ended June 30, 2022 and 2021:
|
|
|
Grant Date |
|
|
Grant Date |
|
||
|
Risk-free interest rate |
|
|
i 1.34 |
% |
|
|
i 0.56 |
% |
|
Expected volatility |
|
|
i 40.00 |
% |
|
|
i 35.00 |
% |
|
Expected term (in years) |
|
|
6.00 |
|
|
|
6.00 |
|
|
Expected dividend yield |
|
|
i 0.00 |
% |
|
|
i 0.00 |
% |
Stock Options
iThe following table summarizes the performance-based stock option activity for the nine months ended June 30, 2022:
|
|
|
Number of Shares |
|
|
|
Weighted Average Exercise Price Per Share |
|
|
Weighted Average Remaining Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||
|
Outstanding at October 1, 2021 |
|
|
i 1,556,489 |
|
|
$ |
|
i 23.00 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
|
i — |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( i 123,008 |
) |
|
|
|
i 23.00 |
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited |
|
|
( i 5,436 |
) |
|
|
|
i 23.00 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2022 |
|
|
i 1,428,045 |
|
|
|
|
i 23.00 |
|
|
|
7.9 |
|
|
|
— |
|
|
Vested and exercisable at June 30, 2022 |
|
|
i 1,428,045 |
|
|
$ |
|
i 23.00 |
|
|
|
7.9 |
|
|
|
— |
|
/ i
The following table summarizes the service-based stock option activity for the nine months ended June 30, 2022:
|
|
|
Number of Shares |
|
|
|
Weighted Average Exercise Price Per Share |
|
|
Weighted Average Remaining Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||
|
Outstanding at October 1, 2021 |
|
|
i 3,434,221 |
|
|
$ |
|
i 23.82 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
i 333,234 |
|
|
|
|
i 42.23 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
( i 137,641 |
) |
|
|
|
i 23.00 |
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited |
|
|
( i 48,150 |
) |
|
|
|
i 24.49 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2022 |
|
|
i 3,581,664 |
|
|
|
|
i 25.55 |
|
|
|
8.1 |
|
|
|
— |
|
|
Vested and exercisable at June 30, 2022 |
|
|
i 2,050,502 |
|
|
$ |
|
i 23.20 |
|
|
|
7.9 |
|
|
|
— |
|
/ /
19
Restricted Stock Awards
iA summary of the service-based restricted stock awards activity during the nine months ended June 30, 2022 was as follows:
|
|
|
Number of Shares |
|
|
|
Weighted Average Grant Date Fair Value |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at October 1, 2021 |
|
|
i 717,580 |
|
|
$ |
|
i 23.00 |
|
|
Granted |
|
|
— |
|
|
|
|
— |
|
|
Vested |
|
|
( i 326,084 |
) |
|
|
|
i 23.00 |
|
|
Forfeited |
|
|
( i 14,470 |
) |
|
|
|
i 23.00 |
|
|
Outstanding and unvested at June 30, 2022 |
|
|
i 377,026 |
|
|
$ |
|
i 23.00 |
|
/
Performance Restricted Stock Units
Performance restricted stock units were granted to officers and certain employees of the Company and represent the right to earn shares of Company common stock based on the achievement of company-wide non-GAAP performance conditions, including cumulative net sales, average return on net tangible assets and cumulative EBITDA during the three-year performance period. Compensation cost is amortized into expense over the performance period, which is generally three years, and is based on the probability of meeting performance targets. The fair value of each performance share award is based on the closing stock price on the date of grant.
iA summary of the performance-based restricted stock unit awards activity for the nine months ended June 30, 2022 presented at target was as follows:
|
|
|
Number of Shares |
|
|
|
Weighted Average Grant Date Fair Value |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at October 1, 2021 |
|
|
i 111,804 |
|
|
$ |
|
i 35.00 |
|
|
Granted |
|
|
i 122,865 |
|
|
|
|
i 40.00 |
|
|
Vested |
|
|
— |
|
|
|
|
— |
|
|
Forfeited |
|
|
( i 9,578 |
) |
|
|
|
i 35.47 |
|
|
Outstanding and unvested at June 30, 2022 |
|
|
i 225,091 |
|
|
$ |
|
i 37.73 |
|
/
Restricted Stock Units
iA summary of the service-based restricted stock unit awards activity for the nine months ended June 30, 2022 was as follows:
|
|
|
Number of Shares |
|
|
|
Weighted Average Grant Date Fair Value |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at October 1, 2021 |
|
|
i 366,852 |
|
|
$ |
|
i 30.42 |
|
|
Granted |
|
|
i 245,077 |
|
|
|
|
i 36.66 |
|
|
Vested |
|
|
( i 53,868 |
) |
|
|
|
i 36.60 |
|
|
Forfeited |
|
|
( i 35,856 |
) |
|
|
|
i 31.33 |
|
|
Outstanding and unvested at June 30, 2022 |
|
|
i 522,205 |
|
|
$ |
|
i 32.75 |
|
/ i
15. EARNINGS PER SHARE
The Company computes earnings per common share (“EPS”) under the two-class method which requires the allocation of all distributed and undistributed earnings attributable to the Company to common stock and other participating securities based on their respective rights to receive distributions of earnings or losses. The Company’s Class A common stock and Class B common stock equally share in distributed and undistributed earnings, therefore, no allocation to participating securities or dilutive securities is performed.
20
Basic EPS attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding. Diluted EPS is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, determined using the treasury-stock method. For purposes of the diluted EPS calculation, restricted stock awards, restricted stock units and options to purchase shares of common stock are considered to be potential common shares. i The following table sets forth the computation of the Company’s basic and diluted EPS attributable to common stockholders (in thousands, except share and per share amounts):
|
|
Three Months Ended June 30, |
|
|
|
Nine Months Ended June 30, |
|
||||||||||||
|
|
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
i 27,476 |
|
|
|
$ |
i 21,769 |
|
|
|
$ |
i 80,001 |
|
|
|
$ |
i 54,557 |
|
|
Net income attributable to common stockholders - basic and diluted |
$ |
i 27,476 |
|
|
|
$ |
i 21,769 |
|
|
|
$ |
i 80,001 |
|
|
|
$ |
i 54,557 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
i 153,493,355 |
|
|
|
|
i 153,854,313 |
|
|
|
|
i 154,199,158 |
|
|
|
|
i 153,623,579 |
|
|
Diluted |
|
i 153,891,090 |
|
|
|
|
i 157,022,043 |
|
|
|
|
i 155,631,884 |
|
|
|
|
i 156,658,640 |
|
|
Net income per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic |
$ |
i 0.18 |
|
|
|
$ |
i 0.14 |
|
|
|
$ |
i 0.52 |
|
|
|
$ |
i 0.36 |
|
|
Net income per common share - diluted |
$ |
i 0.18 |
|
|
|
$ |
i 0.14 |
|
|
|
$ |
i 0.51 |
|
|
|
$ |
i 0.35 |
|
i
The following table includes the number of shares that may be dilutive common shares in the future, and were not included in the computation of diluted net income per share because the effect was anti-dilutive:
|
|
Three Months Ended June 30, |
|
|
|
Nine Months Ended June 30, |
|
||||||||||||
|
|
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|||||
|
Stock Options |
|
i 5,014,206 |
|
|
|
|
— |
|
|
|
|
i 446,175 |
|
|
|
|
i 83,412 |
|
|
Restricted Stock Units |
|
i 422,466 |
|
|
|
|
i 5,207 |
|
|
|
|
i 243,480 |
|
|
|
|
i 5,160 |
|
i
16. INCOME TAXES
The Company calculates the interim tax provision in accordance with the provisions of ASC 740-270, Income Taxes; Interim Reporting, specifically ASC-740-270-25-2. For interim periods, the Company estimates the annual effective income tax rate and applies the estimated rate to the year-to-date income or loss before income taxes. The effective income tax rates for the three months ended June 30, 2022 and 2021 were i 25.8% and i 28.8%, respectively, and for the nine months ended June 30, 2022 and 2021 were i 24.5% and i 26.6%. The decrease in the effective income tax rate for the three and nine months ended June 30, 2022, as compared to the three and nine months ended June 30, 2021, is primarily driven by the impact of forecasted permanent items related to employee compensation on the Company’s year to date earnings.
/ i17. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
During the year ended September 30, 2019, the Company was made aware of a worker’s compensation case that became reasonably possible to give rise to a liability. The case is in discovery and the nature and extent of the Company’s exposure is currently being determined. The Company expects a range of loss of $ i 0.4 million to $ i 0.5 million.
In the normal course of the Company’s business, it is at times subject to various other legal actions, in some cases for which the relief or damages sought may be substantial. Although the Company is not able to predict the outcome of such actions, after reviewing all pending and threatened actions with counsel and based on information currently available, management believes that the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the Company’s results of operations or financial position. However, it is possible that the ultimate resolution of such matters, if unfavorable, may be material to the Company’s results of operations in a particular future period as the time and amount of any resolution of such actions and its relationship to the future results of operations are not currently known. The Company accrues for losses when they are probable of occurrence and such losses are reasonably estimable. Legal costs expected to be incurred are accounted for as they are incurred.
/
21
i
18. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
iThe AZEK Company Inc. (parent company only)
Balance Sheets
(In thousands of U.S. dollars, except for share and per share amounts)
|
|
|
|
|
|
||||
|
ASSETS: |
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
$ |
i 1,467,970 |
|
|
$ |
i 1,427,164 |
|
|
Total non-current assets |
|
|
i 1,467,970 |
|
|
|
i 1,427,164 |
|
|
Total assets |
|
$ |
i 1,467,970 |
|
|
$ |
i 1,427,164 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ i i 0.001 / par value; i i 1,000,000 / shares authorized and i i i i no / / / shares issued or outstanding at June 30, 2022 and September 30, 2021, respectively |
|
|
— |
|
|
|
— |
|
|
Class A common stock, $ i i 0.001 / par value; i i 1,100,000,000 / shares authorized, i 155,153,226 shares issued at June 30, 2022 and i 154,866,313 shares issued |
|
|
i 155 |
|
|
|
i 155 |
|
|
Class B common stock, $ i i 0.001 / par value; i i 100,000,000 / shares authorized, i i i i 100 / / / shares issued and outstanding at June 30, 2022 and at September 30, 2021, respectively |
|
|
— |
|
|
|
— |
|
|
Additional paid-in capital |
|
|
i 1,626,115 |
|
|
|
i 1,615,236 |
|
|
Accumulated deficit |
|
|
( i 108,227 |
) |
|
|
( i 188,227 |
) |
|
Treasury stock, at cost, i 3,013,575 shares at June 30, 2022 and i 0 shares at |
|
|
( i 50,073 |
) |
|
|
— |
|
|
Total stockholders’ equity |
|
|
i 1,467,970 |
|
|
|
i 1,427,164 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
i 1,467,970 |
|
|
$ |
i 1,427,164 |
|
i
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net income of subsidiaries |
|
$ |
i 27,476 |
|
|
$ |
i 21,769 |
|
|
$ |
i 80,001 |
|
|
$ |
i 54,557 |
|
|
Net income of subsidiaries |
|
$ |
i 27,476 |
|
|
$ |
i 21,769 |
|
|
$ |
i 80,001 |
|
|
$ |
i 54,557 |
|
|
Comprehensive income |
|
$ |
i 27,476 |
|
|
$ |
i 21,769 |
|
|
$ |
i 80,001 |
|
|
$ |
i 54,557 |
|
/
The AZEK Company Inc. did not have any cash as of June 30, 2022 or September 30, 2021, accordingly a Condensed Statement of Cash Flows has not been presented.
Basis of Presentation
The parent company financial statements should be read in conjunction with the Company’s Consolidated Financial Statements and the accompanying notes thereto. For purposes of this condensed financial information, the Company’s wholly owned and majority owned subsidiaries are recorded based upon its proportionate share of the subsidiaries’ net assets (similar to presenting them on the equity method).
Since the restricted net assets of The AZEK Company Inc. and its subsidiaries exceed i 25% of the consolidated net assets of the Company and its subsidiaries, the accompanying condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule 1 of Regulation S-X. This information should be read in conjunction with the accompanying Condensed Consolidated Financial Statements.
/22
Dividends from Subsidiaries
There were $ i i 50.0 / million and $ i i 0.0 / million cash dividends paid to The AZEK Company Inc. from the Company’s consolidated subsidiaries during the three and nine months ended June 30, 2022 and three and nine months ended June 30, 2021, respectively. The $ i 50.0 million cash dividends were used to fund the ASR with JPMorgan during the three months ended June 30, 2022.
Restricted Payments
CPG International LLC is party to the Revolving Credit Facility and the 2022 Term Loan Agreement. The obligations under the Revolving Credit Facility and 2022 Term Loan Agreement are secured by substantially all of the present and future assets of the borrowers and guarantors, including equity interests of their domestic subsidiaries, subject to certain exceptions.
The obligations under the Revolving Credit Facility and 2022 Term Loan Agreement are guaranteed by the Company and its wholly owned domestic subsidiaries other than certain immaterial subsidiaries and other excluded subsidiaries. CPG International LLC is not permitted to make certain payments unless those payments are consistent with exceptions outlined in the agreements. These payments include repurchase of equity interests, fees associated with a public offering, income taxes due in other applicable payments. Further, the payments are only permitted if certain conditions are met related to availability and fixed charge coverage as defined in the Revolving Credit Facility and described in Note 8 “Debt” to these Condensed Consolidated Financial Statements.
i19. SUBSEQUENT EVENTS
On i August 1, 2022, CPG International LLC (“Buyer”), a Delaware limited liability company and wholly-owned subsidiary of the Company, acquired all of the membership interests of INTEX Millwork Solutions, LLC (“Target”), a New Jersey limited liability company, pursuant to an Equity Purchase Agreement dated as of June 10, 2022 (the “Purchase Agreement”) by and among, Buyer, JFU III #1, LLC, JU #1, LLC and Joseph F. Umosella, III. The acquisition was funded with cash on hand. The Purchase Agreement contains customary representations, warranties and covenants of the parties. As a result of the closing of the transactions contemplated by the Purchase Agreement, Target became an indirect, wholly-owned subsidiary of the Company.
/
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our annual consolidated financial statements and related notes and our discussion and analysis of financial condition and results of operations, which were included in our 2021 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC on November 23, 2021, or our 2021 Form 10-K, as well as Item 1. Financial Statements in this Form 10-Q.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding future operations, cash flows, expansion plans, capital investments, capacity targets and other strategic initiatives, are forward-looking statements. In some cases, forward looking statements may be identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “expect,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if,” or the negative of these terms and similar expressions intended to identify forward-looking statements. In particular, statements about potential new products and product innovation, statements regarding the potential impact of the COVID-19 pandemic or geopolitical conflicts, such as the conflict between Russia and Ukraine, statements about the markets in which we operate and the economy more generally, including inflation rates, growth of our various markets and growth in the use of engineered products as well as our ability to share in such growth, statements about our ability to source our raw materials in line with our expectations, future pricing for our products or our raw materials and our ability to successfully manage market and interest rate risks and control or reduce costs, statements with respect to our ability to meet future goals and targets, including our environmental, social and governance targets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in the Quarterly Report on Form 10-Q are forward-looking statements. We have based these forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” set forth in Part I, Item 1A of our 2021 Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results may differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
Overview
We are an industry-leading designer and manufacturer of beautiful, low-maintenance and environmentally sustainable products focused on the highly attractive, large and fast-growing Outdoor Living market. Homeowners are continuing to invest in their outdoor spaces and are increasingly recognizing the significant advantages of long-lasting products, which are converting demand away from traditional materials, particularly wood. Our products transform those outdoor spaces by combining highly appealing aesthetics with significantly lower maintenance costs compared to traditional materials. Our innovative portfolio of Outdoor Living products, including decking, railing, trim, siding, pergolas, cladding and accessories, inspires consumers to design outdoor spaces tailored to their unique lifestyle needs. In addition to our leading suite of Outdoor Living products, we sell a broad range of highly engineered products that are sold in commercial markets, including partitions, lockers and storage solutions. One of our core values is to “always do the right thing”. We make decisions according to what is right, not what is the cheapest, fastest or easiest, and we strive to always operate with integrity, transparency and with the customer in mind. In furtherance of that value, we are focused on sustainability across our operations and have adopted strategies to enable us to meet the growing demand for environmentally-friendly products.
We report our results in two segments: Residential and Commercial. We leverage a shared technology and U.S.-based manufacturing platform to create an extensive range of long-lasting and low-maintenance products that convert demand away from traditional materials. Our Residential segment serves the high-growth Outdoor Living market by offering products that inspire consumers to design outdoor spaces tailored to their individual lifestyles. Our innovative portfolio of Outdoor Living products, including decking, railing, exterior trim, pergolas and accessories, are sold under our TimberTech, AZEK Exteriors, VERSATEX, ULTRALOX and StruXure brands. Our Commercial segment addresses demand for low-maintenance, highly engineered products in a variety of commercial and industrial markets, including the outdoor, graphic displays and signage, educational and recreational markets, as well as the food processing and chemical industries. Products sold by our Commercial segment include highly engineered
24
polymer sheeting as well as partitions, lockers and storage solutions. Over our history we have developed a reputation as a leading innovator in our markets by leveraging our differentiated manufacturing capabilities, material science expertise and product management proficiency to consistently introduce new products into the market. This long-standing commitment has been critical to our ability to stay at the forefront of evolving industry trends and consumer demands, which in turn has allowed us to become a market leader across our core product categories.
COVID-19
Since the onset of the COVID-19 pandemic, we have been focused on protecting our employees’ health and safety, meeting our customers’ needs as they navigate an uncertain financial and operating environment, working closely with our suppliers to protect our ongoing business operations and rapidly adjusting our short-, medium and long-term operational plans to proactively and effectively respond to the current and potential future public health crises.
Although we believe that we have adapted and are continuing to adapt well to the wide-ranging changes to the global economy and our industry, we may not be able to fully mitigate the impact of the COVID-19 pandemic on our business, financial condition and results of operations. We expect that the economic effects of the COVID-19 pandemic will likely continue to affect demand for our products over the balance of fiscal 2022 in ways that may be difficult to predict. The global impact of the COVID-19 pandemic continues to evolve, and we continue to monitor the situation closely. As the COVID-19 pandemic continues, it may also have the effect of heightening many of the risks described in “Risk Factors” in our 2021 Form 10-K.
Conflict in Ukraine
The current conflict between Russia and Ukraine and the related sanctions and other penalties imposed by countries around the world against Russia continue to create substantial uncertainty in the global political and economic landscapes. While our operations are primarily within North America and we have no operations in Russia or Ukraine, and we do not have direct exposure to customers and vendors in Russia and Ukraine, we are actively monitoring the broader economic impact of the crisis, especially the potential impact of any further disruptions to global supply chains generally and our supply chain in particular, rising commodity and fuel prices, and, in turn, prices of our raw materials, and the impact of an extended economic downturn on our direct and indirect customers. In addition, the U.S. government has reported that U.S. sanctions against Russia in response to the conflict could lead to an increased threat of cyberattacks against U.S. companies. These increased threats could pose risks to the security of our information technology systems, as well as the confidentiality, availability and integrity of our or our customers’ data. As the conflict in Ukraine continues, it may also have the effect of heightening many of the other risks described in “Risk Factors” in our 2021 Form 10-K. We are unable to fully predict the impact that current and future governmental actions will have on the global economy, our industry or our business, financial condition, results of operations or cash flows.
Economic Environment
We expect the macroeconomic environment, including increased inflation and rising interest rates, will continue to be a critical factor affecting the overall business climate as well as our business. While our performance has remained strong and demonstrates the desirability of our products, we have seen some signs of demand moderation following very strong growth in comparative periods. Improvement in our service levels and lower lead times are also expected to contribute to a recalibration of channel inventory and we are working with our dealer and distributor partners to reduce their inventory levels. We believe this will better position us and our channel partners to drive continued expansion of our market position in fiscal year 2023. Looking ahead, we will continue proactively adjusting our operating plans, capital expenditures and expenses as necessary and appropriate and to execute on our long-term strategy. See also Part I, Item 2 “Quantitative and Qualitative Disclosures About Market Risk” of this Quarterly Report on Form 10-Q and Part 1, Item 1A “Risk Factors” of our 2021 Form 10-K.
Recent Acquisitions
On August 1, 2022, we acquired INTEX Millwork Solutions, LLC, a New Jersey LLC, or INTEX, for a total purchase price of approximately $15 million, subject to customary post-closing working capital adjustments. INTEX is located in Mays Landing, New Jersey and manufactures high-quality railing solutions, column wraps, and pergolas. We financed the acquisition with cash on hand.
On December 29, 2021, we acquired StruXure Outdoor, LLC, a Georgia limited liability company, or StruXure, for a total purchase price of approximately $84.1 million, subject to customary post-closing working capital adjustments. StruXure is located in Dahlonega, Georgia and manufactures customizable outdoor pergolas and cabanas. We financed the acquisition with cash on hand.
25
Results of Operations
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
The following table summarizes certain financial information relating to our operating results that have been derived from our unaudited Consolidated Financial Statements for the three months ended June 30, 2022 and 2021.
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
||||
|
Net sales |
|
$ |
394,991 |
|
|
$ |
327,454 |
|
|
$ |
67,537 |
|
|
|
20.6 |
% |
|
Cost of sales |
|
|
268,604 |
|
|
|
220,617 |
|
|
|
47,987 |
|
|
|
21.8 |
% |
|
Gross profit |
|
|
126,387 |
|
|
|
106,837 |
|
|
|
19,550 |
|
|
|
18.3 |
% |
|
Selling, general and administrative expenses |
|
|
78,737 |
|
|
|
70,760 |
|
|
|
7,977 |
|
|
|
11.3 |
% |
|
Other general expenses |
|
|
— |
|
|
|
1,443 |
|
|
|
(1,443 |
) |
|
|
-100.0 |
% |
|
Operating income |
|
|
47,650 |
|
|
|
34,634 |
|
|
|
13,016 |
|
|
|
37.6 |
% |
|
Interest expense, net |
|
|
10,618 |
|
|
|
4,054 |
|
|
|
6,564 |
|
|
|
161.9 |
% |
|
Income tax expense (benefit) |
|
|
9,556 |
|
|
|
8,811 |
|
|
|
745 |
|
|
|
8.5 |
% |
|
Net income |
|
$ |
27,476 |
|
|
$ |
21,769 |
|
|
$ |
5,707 |
|
|
|
26.2 |
% |
Net Sales
Net sales for the three months ended June 30, 2022 increased by $67.5 million, or 20.6%, to $395.0 million from $327.5 million for the three months ended June 30, 2021. The increase was attributable to higher sales growth in both our Residential and Commercial segments. Net sales for the three months ended June 30, 2022 increased for our Residential segment by 17.8% and our Commercial segment by 43.3%, in each case as compared to the prior year period.
Cost of Sales
Cost of sales for the three months ended June 30, 2022 increased by $48.0 million, or 21.8%, to $268.6 million from $220.6 million for the three months ended June 30, 2021 primarily due to increased costs on higher sales volumes and higher costs of raw materials.
Gross Profit
Gross profit for the three months ended June 30, 2022 increased by $19.6 million, or 18.3%, to $126.4 million from $106.8 million for the three months ended June 30, 2021. The increase in gross profit was primarily driven by the strong sales results in the Residential and Commercial segments, including positive pricing, partially offset by higher costs. Gross profit as a percent of net sales decreased to 32.0% for the three months ended June 30, 2022 compared to 32.6% for the three months ended June 30, 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $8.0 million, or 11.3%, to $78.7 million, or 19.9% of net sales, for the three months ended June 30, 2022 from $70.8 million, or 21.6% of net sales, for the three months ended June 30, 2021. The increase was primarily attributable to higher marketing expenses and employee related expenses, partially offset by lower stock-based compensation expense.
Interest Expense, net
Interest expense, net, increased by $6.6 million, or 161.9%, to $10.6 million for the three months ended June 30, 2022 from $4.1 million for the three months ended June 30, 2021. Interest expense, net increased due to refinancing fees related to our 2022 Term Loan Agreement, higher principle balance outstanding and interest rate, partially offset by higher capitalized interest during the three months ended June 30, 2022, when compared to the three months ended June 30, 2021.
Income Tax Expense (Benefit)
Income tax expense increased by $0.7 million to $9.6 million for the three months ended June 30, 2022 compared to $8.8 million for the three months ended June 30, 2021. The increase in our income tax expense was primarily driven by the increase in our pre-tax operating earnings.
26
Net Income
Net income increased by $5.7 million to $27.5 million for the three months ended June 30, 2022 compared to $21.8 million for the three months ended June 30, 2021, due to the factors described above.
Nine Months Ended June 30, 2022 Compared to Nine Months Ended June 30, 2021
The following table summarizes certain financial information relating to our operating results that have been derived from our unaudited Consolidated Financial Statements for the nine months ended June 30, 2022 and 2021.
|
|
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
||||
|
Net sales |
|
$ |
1,050,954 |
|
|
$ |
832,854 |
|
|
$ |
218,100 |
|
|
|
26.2 |
% |
|
Cost of sales |
|
|
713,498 |
|
|
|
555,190 |
|
|
|
158,308 |
|
|
|
28.5 |
% |
|
Gross profit |
|
|
337,456 |
|
|
|
277,664 |
|
|
|
59,792 |
|
|
|
21.5 |
% |
|
Selling, general and administrative expenses |
|
|
212,728 |
|
|
|
184,362 |
|
|
|
28,366 |
|
|
|
15.4 |
% |
|
Other general expenses |
|
|
— |
|
|
|
2,592 |
|
|
|
(2,592 |
) |
|
|
-100.0 |
% |
|
Operating income |
|
|
124,728 |
|
|
|
90,710 |
|
|
|
34,018 |
|
|
|
37.5 |
% |
|
Interest expense, net |
|
|
18,776 |
|
|
|
16,428 |
|
|
|
2,348 |
|
|
|
14.3 |
% |
|
Income tax expense (benefit) |
|
|
25,951 |
|
|
|
19,725 |
|
|
|
6,226 |
|
|
|
31.6 |
% |
|
Net income |
|
$ |
80,001 |
|
|
$ |
54,557 |
|
|
$ |
25,444 |
|
|
|
46.6 |
% |
Net Sales
Net sales for the nine months ended June 30, 2022 increased by $218.1 million, or 26.2%, to $1,051.0 million from $832.9 million for the nine months ended June 30, 2021. The increase was attributable to higher sales growth in our Residential segment, including as a result of sales from recent acquisitions, as well as sales growth in our Commercial segment. Net sales for the nine months ended June 30, 2022 increased for our Residential segment by 23.7% and our Commercial segment by 45.4%, in each case as compared to the prior year period.
Cost of Sales
Cost of sales for the nine months ended June 30, 2022 increased by $158.3 million, or 28.5%, to $713.5 million from $555.2 million for the nine months ended June 30, 2021 primarily due to increased costs on higher sales volumes and higher costs of raw materials and manufacturing.
Gross Profit
Gross profit for the nine months ended June 30, 2022 increased by $59.8 million, or 21.5%, to $337.5 million from $277.7 million for the nine months ended June 30, 2021. The increase in gross profit was primarily driven by the strong sales results in the Residential and Commercial segments, including positive pricing, partially offset by higher costs. Gross profit as a percent of net sales decreased to 32.1% for the nine months ended June 30, 2022 compared to 33.3% for the nine months ended June 30, 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $28.4 million, or 15.4%, to $212.7 million, or 20.2% of net sales, for the nine months ended June 30, 2022 from $184.4 million, or 22.1% of net sales, for the nine months ended June 30, 2021. The increase was primarily attributable to higher employee related expenses and marketing expenses, partially offset by lower stock-based compensation expense.
Interest Expense, net
Interest expense, net, increased by $2.3 million, or 14.3%, to $18.8 million for the nine months ended June 30, 2022 from $16.4 million for the nine months ended June 30, 2021. Interest expense, net increased due to refinancing fees related to our 2022 Term Loan Agreement and higher finance lease interest, partially offset by a lower interest rate on our Term Loan Agreement and higher capitalized interest, partially offset by higher finance lease interest during the nine months ended June 30, 2022, when compared to the nine months ended June 30, 2021, as well as refinancing costs incurred during the nine months ended June 30, 2021.
27
Income Tax Expense (Benefit)
Income tax expense increased by $6.2 million to $26.0 million for the nine months ended June 30, 2022 compared to $19.7 million for the nine months ended June 30, 2021. The increase in our income tax expense was primarily driven by the increase in our pre-tax operating earnings.
Net Income
Net income increased by $25.4 million to $80.0 million for the nine months ended June 30, 2022 compared to $54.6 million for the nine months ended June 30, 2021, due to the factors described above.
Segment Results of Operations
We report our results in two segments: Residential and Commercial. The key segment measures used by our chief operating decision maker in deciding how to evaluate performance and allocate resources to each of the segments are Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin. Depending on certain circumstances, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin may be calculated differently, from time to time, than our Adjusted EBITDA and Adjusted EBITDA Margin, which are further discussed under the heading “Non-GAAP Financial Measures.” Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin represent measures of segment profit reported to our chief operating decision maker for the purpose of making decisions about allocating resources to a segment and assessing its performance and are determined as disclosed in our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q consistent with the requirements of the Financial Accounting Standards Board’s, or FASB, Accounting Standards Codification, or ASC 280, Segment Reporting. We define Segment Adjusted EBITDA as a segment’s net income (loss) before income tax (benefit) expense and by adding to or subtracting therefrom interest expense, net, depreciation and amortization, share-based compensation costs, asset impairment and inventory revaluation costs, business transformation costs, capital structure transaction costs, acquisition costs, initial public offering costs and certain other costs. Segment Adjusted EBITDA Margin is equal to a segment’s Segment Adjusted EBITDA divided by such segment’s net sales. Corporate expenses, which include selling, general and administrative costs related to our corporate offices, including payroll and other professional fees, are not included in computing Segment Adjusted EBITDA. Such corporate expenses increased by $0.7 million to $16.8 million for the three months ended June 30, 2022, from $16.1 million for the three months ended June 30, 2021, and increased by $5.0 million to $48.6 million for the nine months ended June 30, 2022, from $43.6 million for the nine months ended June 30, 2021.
Residential
The following table summarizes certain financial information relating to the Residential segment results that have been derived from our unaudited Condensed Consolidated Financial Statements for the three and nine months ended June 30, 2022 and 2021.
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
||||||||
|
Net sales |
|
$ |
343,064 |
|
|
$ |
291,209 |
|
|
$ |
51,855 |
|
|
|
17.8 |
% |
|
$ |
914,555 |
|
|
$ |
739,048 |
|
|
$ |
175,507 |
|
|
|
23.7 |
% |
|
Segment Adjusted EBITDA |
|
|
91,093 |
|
|
|
82,525 |
|
|
|
8,568 |
|
|
|
10.4 |
% |
|
|
258,874 |
|
|
|
222,999 |
|
|
|
35,875 |
|
|
|
16.1 |
% |
|
Segment Adjusted EBITDA Margin |
|
|
26.6 |
% |
|
|
28.3 |
% |
|
N/A |
|
|
N/A |
|
|
|
28.3 |
% |
|
|
30.2 |
% |
|
N/A |
|
|
N/A |
|
||||
Net Sales
Net sales for the three months ended June 30, 2022 increased by $51.9 million, or 17.8%, to $343.1 million from $291.2 million for the three months ended June 30, 2021. The increase was attributable to higher net sales related to our Deck, Rail & Accessories and Exteriors businesses, along with a $23.7 million increase related to the acquisition of StruXure.
Net sales for the nine months ended June 30, 2022 increased by $175.5 million, or 23.7%, to $914.6 million from $739.0 million for the nine months ended June 30, 2021. The increase was primarily attributable to higher net sales related to our Deck, Rail & Accessories and Exteriors businesses, along with a $39.7 million increase related to the acquisition of StruXure.
Segment Adjusted EBITDA
Segment Adjusted EBITDA for the three months ended June 30, 2022 increased by $8.6 million, or 10.4%, to $91.1 million from $82.5 million for the three months ended June 30, 2021. The increase was mainly driven by higher sales, partially offset by higher raw material costs, selling and marketing expenses and manufacturing costs.
28
Segment Adjusted EBITDA for the nine months ended June 30, 2022 increased by $35.9 million, or 16.1%, to $258.9 million from $223.0 million for the nine months ended June 30, 2021. The increase was mainly driven by higher sales, partially offset by higher raw material costs, selling and marketing expenses and manufacturing costs.
Commercial
The following table summarizes certain financial information relating to the Commercial segment results that have been derived from our unaudited Condensed Consolidated Financial Statements for the three and nine months ended June 30, 2022 and 2021.
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
||||||||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
||||||||
|
Net sales |
|
$ |
51,927 |
|
|
$ |
36,245 |
|
|
$ |
15,682 |
|
|
|
43.3 |
% |
|
$ |
136,399 |
|
|
$ |
93,806 |
|
|
$ |
42,593 |
|
|
|
45.4 |
% |
|
Segment Adjusted EBITDA |
|
|
12,271 |
|
|
|
6,273 |
|
|
|
5,998 |
|
|
|
95.6 |
% |
|
|
25,693 |
|
|
|
13,304 |
|
|
|
12,389 |
|
|
|
93.1 |
% |
|
Segment Adjusted EBITDA Margin |
|
|
23.6 |
% |
|
|
17.3 |
% |
|
N/A |
|
|
N/A |
|
|
|
18.8 |
% |
|
|
14.2 |
% |
|
N/A |
|
|
N/A |
|
||||
Net Sales
Net sales for the three months ended June 30, 2022 increased by $15.7 million, or 43.3%, to $51.9 million from $36.2 million for the three months ended June 30, 2021. The increase was primarily attributable to higher net sales in our Vycom and Scranton Products businesses.
Net sales for the nine months ended June 30, 2022 increased by $42.6 million, or 45.4%, to $136.4 million from $93.8 million for the nine months ended June 30, 2021. The increase was primarily attributable to higher net sales in our Vycom and Scranton Products businesses.
Segment Adjusted EBITDA
Segment Adjusted EBITDA of the Commercial segment was $12.3 million for the three months ended June 30, 2022, compared to $6.3 million for the three months ended June 30, 2021. The increase was primarily driven by higher sales in the Vycom business and net manufacturing productivity.
Segment Adjusted EBITDA of the Commercial segment was $25.7 million for the nine months ended June 30, 2022, compared to $13.3 million for the nine months ended June 30, 2021. The increase was primarily driven by higher sales in the Vycom business and net manufacturing productivity.
Non-GAAP Financial Measures
To supplement our Condensed Consolidated Financial Statements prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we use certain non-GAAP performance financial measures, as described below, to provide investors with additional useful information about our financial performance, to enhance the overall understanding of our past performance and future prospects and to allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP financial measures to assist investors in seeing our financial performance from management’s view and because we believe they provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry. Our GAAP financial results include significant expenses that may not be indicative of our ongoing operations as detailed in the tables below.
29
However, non-GAAP financial measures have limitations in their usefulness to investors because they have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. In addition, non-GAAP financial measures may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. As a result, non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, our Condensed Consolidated Financial Statements prepared and presented in accordance with GAAP.
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
(U.S. dollars in thousands, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Adjusted Gross Profit |
|
$ |
147,554 |
|
|
$ |
124,117 |
|
|
$ |
398,398 |
|
|
$ |
327,555 |
|
|
Adjusted Gross Profit Margin |
|
|
37.4 |
% |
|
|
37.9 |
% |
|
|
37.9 |
% |
|
|
39.3 |
% |
|
Adjusted Net Income |
|
$ |
45,241 |
|
|
$ |
40,631 |
|
|
$ |
124,781 |
|
|
$ |
103,140 |
|
|
Adjusted Diluted EPS |
|
$ |
0.29 |
|
|
$ |
0.26 |
|
|
$ |
0.80 |
|
|
$ |
0.66 |
|
|
Adjusted EBITDA |
|
$ |
86,524 |
|
|
$ |
72,716 |
|
|
$ |
235,964 |
|
|
$ |
192,680 |
|
|
Adjusted EBITDA Margin |
|
|
21.9 |
% |
|
|
22.2 |
% |
|
|
22.5 |
% |
|
|
23.1 |
% |
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted Gross Profit as gross profit before depreciation and amortization, business transformation costs and acquisition costs as described below. Adjusted Gross Profit Margin is equal to Adjusted Gross Profit divided by net sales. We define Adjusted Net Income as net income (loss) before amortization, stock-based compensation costs, business transformation costs, acquisition costs, initial public offering costs, capital structure transaction costs and certain other costs as described below. We define Adjusted Diluted EPS as Adjusted Net Income divided by weighted average common shares outstanding—diluted, to reflect the conversion or exercise, as applicable, of all outstanding shares of restricted stock awards, restricted stock units and options to purchase shares of our common stock. We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax (benefit) expense and depreciation and amortization and by adding to or subtracting therefrom items of expense and income as described above. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by net sales. We believe Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin are useful to investors because they help identify underlying trends in our business that could otherwise be masked by certain expenses that can vary from company to company depending on, among other things, its financing, capital structure and the method by which its assets were acquired, and can also vary significantly from period to period. We also add back depreciation and amortization and stock-based compensation because we do not consider them indicative of our core operating performance. We believe their exclusion facilitates comparisons of our operating performance on a period-to-period basis. Therefore, we believe that showing gross profit and net income, as adjusted to remove the impact of these expenses, is helpful to investors in assessing our gross profit and net income performance in a way that is similar to the way management assesses our performance. Additionally, EBITDA and EBITDA margin are common measures of operating performance in our industry, and we believe they facilitate operating comparisons. Our management also uses Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with other GAAP financial measures for planning purposes, including as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. Management considers Adjusted Gross Profit and Adjusted Net Income and Adjusted Diluted EPS as useful measures because our cost of sales includes the depreciation of property, plant and equipment used in the production of products and the amortization of various intangibles related to our manufacturing processes.
Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
|
|
• |
These measures do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments; |
|
|
• |
These measures do not reflect changes in, or cash requirements for, our working capital needs; |
|
|
• |
Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; |
|
|
• |
Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our income tax expense or the cash requirements to pay our taxes; |
30
|
|
• |
Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA exclude the expense of depreciation, in the case of Adjusted Gross Profit and Adjusted EBITDA, and amortization, in each case, of our assets, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future; |
|
|
• |
Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA exclude the expense associated with our equity compensation plan, although equity compensation has been, and will continue to be, an important part of our compensation strategy; |
|
|
• |
Adjusted Gross Profit, Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA exclude certain business transformation costs, acquisition costs and other costs, each of which can affect our current and future cash requirements; and |
|
|
• |
Other companies in our industry may calculate Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as comparative measures. |
Because of these limitations, none of these metrics should be considered indicative of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
The following table presents reconciliations of the most comparable financial measures calculated in accordance with GAAP to these non-GAAP financial measures for the periods indicated:
Adjusted Gross Profit and Adjusted Gross Profit Margin Reconciliation
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Gross Profit |
|
$ |
126,387 |
|
|
$ |
106,837 |
|
|
$ |
337,456 |
|
|
$ |
277,664 |
|
|
Depreciation and amortization (1) |
|
|
20,843 |
|
|
|
17,280 |
|
|
|
59,410 |
|
|
|
49,891 |
|
|
Acquisitions costs (2) |
|
|
— |
|
|
|
— |
|
|
|
1,208 |
|
|
|
— |
|
|
Other costs (3) |
|
|
324 |
|
|
|
— |
|
|
|
324 |
|
|
|
— |
|
|
Adjusted Gross Profit |
|
$ |
147,554 |
|
|
$ |
124,117 |
|
|
$ |
398,398 |
|
|
$ |
327,555 |
|
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Gross Margin |
|
|
32.0 |
% |
|
|
32.6 |
% |
|
|
32.1 |
% |
|
|
33.3 |
% |
|
Depreciation and amortization |
|
|
5.3 |
% |
|
|
5.3 |
% |
|
|
5.7 |
% |
|
|
6.0 |
% |
|
Acquisitions costs |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.0 |
% |
|
Other costs |
|
|
0.1 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
Adjusted Gross Profit Margin |
|
|
37.4 |
% |
|
|
37.9 |
% |
|
|
37.9 |
% |
|
|
39.3 |
% |
|
(1) |
Depreciation and amortization for the three months ended June 30, 2022 and 2021 consists of $15.6 million and $11.8 million, respectively, of depreciation and $5.2 million and $5.5 million, respectively, of amortization of intangible assets relating to our manufacturing process. Depreciation and amortization for the nine months ended June 30, 2022 and 2021 consists of $44.0 million and $33.4 million, respectively, of depreciation and $15.4 million and $16.5 million, respectively, of amortization of intangible assets relating to our manufacturing process. |
|
(2) |
Acquisition costs reflect inventory step-up adjustments related to recording the inventory of acquired businesses at fair value on the date of acquisition. |
|
(3) |
Other costs include costs related to a reduction in workforce of $0.3 million in the three and nine months ended June 30, 2022. |
31
Adjusted Net Income and Adjusted Diluted EPS Reconciliation
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
(U.S. dollars in thousands, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net income |
|
$ |
27,476 |
|
|
$ |
21,769 |
|
|
$ |
80,001 |
|
|
$ |
54,557 |
|
|
Amortization |
|
|
12,522 |
|
|
|
12,483 |
|
|
|
37,966 |
|
|
|
37,666 |
|
|
Stock-based compensation (1) |
|
|
1,460 |
|
|
|
8,167 |
|
|
|
5,224 |
|
|
|
16,940 |
|
|
Acquisition costs (2) |
|
|
3,227 |
|
|
|
— |
|
|
|
8,861 |
|
|
|
— |
|
|
Capital structure transaction costs (3) |
|
|
5,112 |
|
|
|
— |
|
|
|
5,112 |
|
|
|
— |
|
|
Initial public offering and secondary offering costs |
|
|
— |
|
|
|
1,443 |
|
|
|
— |
|
|
|
2,592 |
|
|
Other costs (4) |
|
|
1,138 |
|
|
|
1,358 |
|
|
|
1,799 |
|
|
|
4,411 |
|
|
Tax impact of adjustments (5) |
|
|
(5,694 |
) |
|
|
(4,589 |
) |
|
|
(14,182 |
) |
|
|
(13,026 |
) |
|
Adjusted Net Income |
|
$ |
45,241 |
|
|
$ |
40,631 |
|
|
$ |
124,781 |
|
|
$ |
103,140 |
|
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net income |
|
$ |
0.18 |
|
|
$ |
0.14 |
|
|
$ |
0.51 |
|
|
$ |
0.35 |
|
|
Amortization |
|
|
0.08 |
|
|
|
0.08 |
|
|
|
0.24 |
|
|
|
0.24 |
|
|
Stock-based compensation |
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.04 |
|
|
|
0.11 |
|
|
Acquisition costs |
|
|
0.02 |
|
|
|
— |
|
|
|
0.06 |
|
|
|
— |
|
|
Capital structure transaction costs |
|
|
0.03 |
|
|
|
— |
|
|
|
0.03 |
|
|
|
— |
|
|
Initial public offering and secondary offering costs |
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.02 |
|
|
Other costs |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
Tax impact of adjustments |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
|
Adjusted Diluted EPS (6) |
|
$ |
0.29 |
|
|
$ |
0.26 |
|
|
$ |
0.80 |
|
|
$ |
0.66 |
|
|
(1) |
Stock-based compensation costs reflect expenses related to our initial public offering. Expenses related to our recurring awards granted each fiscal year are excluded from the Adjusted Net Income reconciliation. |
|
(2) |
Acquisition costs reflect costs directly related to completed acquisitions of $3.2 million and $7.7 million in the three and nine months ended June 30, 2022, respectively, and inventory step-up adjustments related to recording inventory of acquired businesses at fair value on the date of acquisition of $1.2 million for the nine months ended June 30, 2022. |
|
(3) |
Capital structure transaction costs include third party costs related to the 2022 Term Loan Agreement. |
|
(4) |
Other costs include costs for legal expense of $0.2 million and $0.8 million in the three months ended June 30, 2022 and 2021, respectively, costs related to a reduction in workforce of $0.8 million in the three months ended June 30, 2022, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $0.4 million for the three months ended June 30, 2021, other costs of $0.1 million for the three months ended June 30, 2022, and the impact of retroactive adoption of ASC 842 of $0.2 million for the three months ended June 30, 2021. Other costs include costs for legal expense of $0.6 million and $1.8 million in the nine months ended June 30, 2022 and 2021, respectively, costs related to a reduction in workforce of $0.8 million in the nine months ended June 30, 2022, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $0.1 million and $2.1 million in the nine months ended June 30, 2022 and 2021, respectively, other costs of $0.3 million for the nine months ended June 30, 2022, and the impact of retroactive adoption of ASC 842 of $0.5 million for the nine months ended June 30, 2021. |
|
(5) |
Tax impact of adjustments are based on applying a combined U.S. federal and state statutory tax rate of 24.5% for both the three and nine months ended June 30, 2022 and 2021. |
|
(6) |
Weighted average common shares outstanding used in computing diluted net income per common share of 153,891,090 and 157,022,043 for the three months ended June 30, 2022 and 2021, respectively, and 155,631,884 and 156,658,640 for the nine months ended June 30, 2022 and 2021, respectively. |
32
Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net income |
|
$ |
27,476 |
|
|
$ |
21,769 |
|
|
$ |
80,001 |
|
|
$ |
54,557 |
|
|
Interest expense |
|
|
10,618 |
|
|
|
4,054 |
|
|
|
18,776 |
|
|
|
16,428 |
|
|
Depreciation and amortization |
|
|
29,606 |
|
|
|
25,771 |
|
|
|
86,730 |
|
|
|
75,321 |
|
|
Income tax expense (benefit) |
|
|
9,556 |
|
|
|
8,811 |
|
|
|
25,951 |
|
|
|
19,725 |
|
|
Stock-based compensation |
|
|
4,903 |
|
|
|
9,510 |
|
|
|
13,846 |
|
|
|
19,646 |
|
|
Acquisition costs (1) |
|
|
3,227 |
|
|
|
— |
|
|
|
8,861 |
|
|
|
— |
|
|
Initial public offering and secondary offering costs |
|
|
— |
|
|
|
1,443 |
|
|
|
— |
|
|
|
2,592 |
|
|
Other costs (2) |
|
|
1,138 |
|
|
|
1,358 |
|
|
|
1,799 |
|
|
|
4,411 |
|
|
Total adjustments |
|
|
59,048 |
|
|
|
50,947 |
|
|
|
155,963 |
|
|
|
138,123 |
|
|
Adjusted EBITDA |
|
$ |
86,524 |
|
|
$ |
72,716 |
|
|
$ |
235,964 |
|
|
$ |
192,680 |
|
|
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
|
Net income |
|
|
7.0 |
% |
|
|
6.6 |
% |
|
|
7.6 |
% |
|
|
6.6 |
% |
|
Interest expense |
|
|
2.7 |
% |
|
|
1.3 |
% |
|
|
1.8 |
% |
|
|
2.0 |
% |
|
Depreciation and amortization |
|
|
7.5 |
% |
|
|
7.9 |
% |
|
|
8.3 |
% |
|
|
9.0 |
% |
|
Income tax expense (benefit) |
|
|
2.4 |
% |
|
|
2.7 |
% |
|
|
2.5 |
% |
|
|
2.4 |
% |
|
Stock-based compensation |
|
|
1.2 |
% |
|
|
2.9 |
% |
|
|
1.3 |
% |
|
|
2.4 |
% |
|
Acquisition costs |
|
|
0.8 |
% |
|
|
0.0 |
% |
|
|
0.8 |
% |
|
|
0.0 |
% |
|
Initial public offering costs |
|
|
0.0 |
% |
|
|
0.4 |
% |
|
|
0.0 |
% |
|
|
0.3 |
% |
|
Other costs |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
0.2 |
% |
|
|
0.4 |
% |
|
Total adjustments |
|
|
14.9 |
% |
|
|
15.6 |
% |
|
|
14.9 |
% |
|
|
16.5 |
% |
|
Adjusted EBITDA Margin |
|
|
21.9 |
% |
|
|
22.2 |
% |
|
|
22.5 |
% |
|
|
23.1 |
% |
|
(1) |
Acquisition costs reflect costs directly related to completed acquisitions of $3.2 million and $7.7 million in the three and nine months ended June 30, 2022, respectively, and inventory step-up adjustments related to recording inventory of acquired businesses at fair value on the date of acquisition of $1.2 million for the nine months ended June 30, 2022. |
|
(2) |
Other costs include costs for legal expense of $0.2 million and $0.8 million in the three months ended June 30, 2022 and 2021, respectively, costs related to a reduction in workforce of $0.8 million in the three months ended June 30, 2022, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $0.4 million for the three months ended June 30, 2021, other costs of $0.1 million for the three months ended June 30, 2022, and the impact of retroactive adoption of ASC 842 of $0.2 million for the three months ended June 30, 2021. Other costs include costs for legal expense of $0.6 million and $1.8 million in the nine months ended June 30, 2022 and 2021, respectively, costs related to a reduction in workforce of $0.8 million in the nine months ended June 30, 2022, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $0.1 million and $2.1 million in the nine months ended June 30, 2022 and 2021, respectively, other costs of $0.3 million for the nine months ended June 30, 2022, and the impact of retroactive adoption of ASC 842 of $0.5 million for the nine months ended June 30, 2021. |
Liquidity and Capital Resources
Liquidity Outlook
Our primary cash needs are to fund working capital, capital expenditures, debt service and any acquisitions we may undertake. As of June 30, 2022, we had cash and cash equivalents of $159.6 million and total indebtedness of $600.0 million. CPG International LLC, our direct, wholly owned subsidiary, had approximately $147.2 million available under the borrowing base for future borrowings as of June 30, 2022. CPG International LLC also has the option to increase the commitments under the Revolving Credit Facility by up to $100.0 million, subject to certain conditions.
We believe we will have adequate liquidity over the next 12 months to operate our business and to meet our cash requirements as a result of cash flows from operating activities, available cash balances and availability under our Revolving Credit Facility after consideration of our debt service and other cash requirements. In the longer term, our liquidity will depend on many factors, including our results of operations, our future growth, the timing and extent of our expenditures to develop new products and improve our manufacturing capabilities, the expansion of our sales and marketing activities and the extent to which we make acquisitions. Changes
33
in our operating plans, material changes in anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional equity and/or debt financing in future periods.
Holding Company Status
We are a holding company and do not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or make other distributions to us.
CPG International LLC is party to the Revolving Credit Facility and the 2022 Term Loan Agreement, or, together, the Senior Secured Credit Facilities. The obligations under the Senior Secured Credit Facilities are secured by specified assets. The obligations under the Senior Secured Credit Facilities are guaranteed by the Company and the wholly owned domestic subsidiaries of CPG International LLC other than certain immaterial subsidiaries and other excluded subsidiaries.
The Senior Secured Credit Facilities contain covenants restricting payments of dividends by CPG International LLC unless certain conditions, as provided in the Senior Secured Credit Facilities, are met. The covenants under our Senior Secured Credit Facilities provide for certain exceptions for specific types of payments. However, other than restricted payments under the specified exceptions, the covenants under our 2022 Term Loan Agreement generally prohibit the payment of dividends unless the Total Net Leverage Ratio (as defined in the 2022 Term Loan Agreement) of CPG International LLC, on a pro forma basis, is no greater than 4.25:1.00 and no event of default has occurred and is occurring.
Since the restricted net assets of the Company and its subsidiaries exceed 25% of our consolidated net assets, in accordance with Rule 12-04, Schedule 1 of Regulation S-X, refer to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for condensed parent company financial statements of the Company.
Cash Sources
We have historically relied on cash flows from operations generated by CPG International LLC, borrowings under the credit facilities, issuances of notes and other forms of debt financing and capital contributions to fund our cash needs.
On September 30, 2013, our subsidiary, CPG International LLC (as successor-in-interest to CPG Merger Sub LLC, a limited liability company formed to effect the acquisition of CPG International LLC), and the lenders party thereto entered into the Revolving Credit Facility. On March 9, 2017, the Revolving Credit Facility was amended and restated to provide for maximum aggregate borrowings of up to $150.0 million, subject to an asset-based borrowing base. The borrowing base is limited to a specified percentage of eligible accounts receivable and inventory, less reserves that may be established by the Revolver Administrative Agent in the exercise of its reasonable credit judgment. As of June 30, 2022 and September 30, 2021, CPG International LLC had no outstanding borrowings under the Revolving Credit Facility, respectively and had $2.8 million and $3.3 million of outstanding letters of credit held against the Revolving Credit Facility, respectively. As of June 30, 2022 and September 30, 2021, CPG International LLC had approximately $147.2 million and $146.7 million, available under the borrowing base for future borrowings in addition to cash and cash equivalents on hand of $159.6 million and $250.5 million, respectively. Because our borrowing capacity under the Revolving Credit Facility depends, in part, on inventory, accounts receivable and other assets that fluctuate from time to time, the amount available under the borrowing base may not reflect actual borrowing capacity under the Revolving Credit Facility.
Cash Uses
Our principal cash requirements have included working capital, capital expenditures, payments of principal and interest on our debt, share repurchases, and, if market conditions warrant, making selected acquisitions. We may elect to use cash from operations, debt proceeds, equity or a combination thereof to finance future acquisition opportunities.
The table below details the total operating, investing and financing activity cash flows for the nine months ended June 30, 2022 and 2021.
Cash Flows
|
|
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
(U.S. dollars in thousands) |
|
2022 |
|
|
2021 |
|
|
$ Variance |
|
|
% Variance |
|
||||
|
Net cash provided by (used in) operating activities |
|
$ |
65,700 |
|
|
$ |
120,048 |
|
|
$ |
(54,348 |
) |
|
|
(45.3 |
)% |
|
Net cash provided by (used in) investing activities |
|
|
(225,809 |
) |
|
|
(116,677 |
) |
|
|
(109,132 |
) |
|
|
93.5 |
% |
|
Net cash provided by (used in) financing activities |
|
|
69,194 |
|
|
|
2,081 |
|
|
|
67,113 |
|
|
|
3225.0 |
% |
|
Net increase (decrease) in cash |
|
$ |
(90,915 |
) |
|
$ |
5,452 |
|
|
$ |
(96,367 |
) |
|
|
(1767.6 |
)% |
34
Operating Activities
Net cash provided by (used in) operating activities was $65.7 million and $120.0 million for the nine months ended June 30, 2022 and 2021, respectively. The $54.3 million decrease in cash provided by operating activities is primarily related to higher trade receivable and inventory levels compared to June 30, 2021. Higher inventory levels are primarily a result of higher raw material and finished goods, higher production for anticipated seasonal demand and the contribution from acquisitions.
Investing Activities
Net cash provided by (used) in investing activities was $(225.8) million and $(116.7) million for the nine months ended June 30, 2022 and 2021, respectively. Net cash provided by (used in) investing activities for the nine months ended June 30, 2022 primarily consisted of $86.9 million for acquisitions and $139.5 million for purchases of property, plant and equipment to support our expansion of capacity in our manufacturing facilities, as compared to the nine months ended June 30, 2021, which primarily consisted of purchases of property, plant and equipment in the normal course of business.
Financing Activities
Net cash provided by (used in) financing activities was $69.2 million and $2.1 million for the nine months ended June 30, 2022 and 2021, respectively. Net cash provided by (used in) financing activities for nine months ended June 30, 2022 primarily consisted of cash received from the 2022 Term Loan Agreement of $595.5 million offset by debt issuance costs of $3.4 million, repayments for the Term Loan Agreement of $467.7 million, and treasury stock repurchase of $58.5 million, as compared to the nine months ended June 30, 2021, which primarily consisted of cash received from the exercise of stock options partially offset by repayment of finance lease obligations.
Share Repurchase Program
On May 5, 2022, the Board of Directors authorized us to repurchase up to $400 million of our Class A common stock. The program allows us to repurchase our shares opportunistically from time to time. Purchases may be effected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, accelerated share repurchases or tender offers, some of which may be effected through Rule 10b5-1 plans, or a combination of the foregoing. The timing of repurchases will depend upon several factors, including market and business conditions, and repurchases may be discontinued at any time.
On May 11, 2022, we entered into a $50 million accelerated share repurchase agreement, or the ASR, with JPMorgan Chase Bank, National Association, or JPMorgan. JPMorgan delivered 2,422,774 initial shares to us on May 13, 2022, based on the closing price of our Class A common stock of $16.51 on May 11, 2022. JPMorgan terminated the ASR on June 14, 2022 and delivered 86,132 additional shares to us upon final settlement for no additional consideration. The average purchase price per share for shares purchased by us pursuant to the ASR was $19.93.
During the three months ended June 30, 2022, we also repurchased 504,669 shares of our Class A common stock on the open market at an average price of $16.76 per share, totaling an approximately $8.5 million reacquisition cost.
As of June 30, 2022, we had approximately $341.5 million available for repurchases under the share repurchase program.
See Note 13 in the Notes to Condensed Consolidated Financial Statements for additional information.
Revolving Credit Facility
The Revolving Credit Facility provides for maximum aggregate borrowings of up to $150.0 million, subject to an asset-based borrowing base. Outstanding revolving loans under the Revolving Credit Facility will bear interest at a rate which equals, at our option, either (i) for alternative base rate, or ABR, borrowings, the highest of (a) the Federal Funds Rate plus 50 basis points, (b) the prime rate and (c) the LIBOR, as of such date for a deposit in U.S. dollars with a maturity of one month plus 100 basis points, plus, in each case, a spread of 25 to 75 basis points based on average historical availability, or (ii) for Eurocurrency borrowings, adjusted LIBOR plus a spread of 125 to 175 basis points, based on average historical availability. The maturity of the Revolving Credit Facility is the earlier of March 31, 2026 and the date that is 91 days prior to the maturity of the Term Loan Agreement or any permitted refinancing thereof.
A “commitment fee” accrues on any unused portion of the revolving commitments under the Revolving Credit Facility during the preceding three calendar month period. If the average daily used percentage is greater than 50%, the commitment fee equals 25 basis points, and if the average daily used percentage is less than or equal to 50%, the commitment fee equals 37.5 basis points.
The obligations under the Revolving Credit Facility are secured by a first priority security interest in certain assets, including substantially all of the accounts receivable, inventory, deposit accounts, securities accounts and cash assets of the Company, CPG International LLC and the subsidiaries of CPG International LLC that are guarantors under the Revolving Credit Facility, and the
35
proceeds thereof (subject to certain exceptions), or the Revolver Priority Collateral, plus a second priority security interest in all of the Term Loan Priority Collateral (as defined below). The obligations under the Revolving Credit Facility are guaranteed by the Company and the wholly owned domestic subsidiaries of CPG International LLC other than certain immaterial subsidiaries and other excluded subsidiaries.
Revolving loans under the Revolving Credit Facility may be voluntarily prepaid in whole, or in part, in each case without premium or penalty. CPG International LLC is also required to make mandatory prepayments (i) when aggregate borrowings exceed commitments or the applicable borrowing base and (ii) during “cash dominion,” which occurs if (a) the availability under the Revolving Credit Facility is less than the greater of (i) $12.5 million and (ii) 10% of the lesser of (x) $150.0 million and (y) the borrowing base, for five consecutive business days or (b) certain events of default have occurred and are continuing.
The Revolving Credit Facility contains affirmative covenants that are customary for financings of this type, including allowing the Revolver Administrative Agent to perform periodic field exams and appraisals to evaluate the borrowing base. The Revolving Credit Facility contains various negative covenants, including limitations on, subject to certain exceptions, the incurrence of indebtedness, the incurrence of liens, dispositions, investments, acquisitions, restricted payments, transactions with affiliates, as well as other negative covenants customary for financings of this type. The Revolving Credit Facility also includes a financial maintenance covenant, applicable only when the excess availability is less than the greater of (i) 10% of the lesser of the aggregate commitments under the Revolving Credit Facility and the borrowing base, and (ii) $12.5 million. In such circumstances, we would be required to maintain a minimum fixed charge coverage ratio (as defined in the Revolving Credit Facility) for the trailing four quarters equal to at least 1.0 to 1.0; subject to our ability to make an equity cure (no more than twice in any four quarter period and up to five times over the life of the facility). As of June 30, 2022 and September 30, 2021, CPG International LLC was in compliance with the financial and nonfinancial covenants imposed by the Revolving Credit Facility. The Revolving Credit Facility also includes customary events of default, including the occurrence of a change of control.
We also have the option to increase the commitments under the Revolving Credit Facility by up to $100.0 million, subject to certain conditions.
Term Loan Agreement
The Term Loan Agreement was a first lien term loan. As of September 30, 2021, CPG International LLC had $467.7 million outstanding under the Term Loan Agreement.
On April 28, 2022, the Company and CPG International LLC entered into the 2022 Term Loan Agreement, the proceeds of which were applied, among other uses, to prepay the obligations of the Term Loan Agreement in full. The 2022 Term Loan Agreement is a first lien term loan and will mature on April 28, 2029, subject to acceleration or prepayment. Commencing on December 31, 2022, the 2022 Term Loan Agreement will amortize in equal quarterly installments of 0.25% of the aggregate principal amount of the loans outstanding, subject to reduction for certain prepayments.
The obligations under the 2022 Term Loan Agreement are secured by a first priority security interest in the membership interests of CPG International LLC owned by the Company, the equity interests of CPG International LLC’s domestic subsidiaries, other than certain immaterial subsidiaries and other excluded subsidiaries, and all remaining assets not constituting Revolver Priority Collateral (subject to certain exceptions) of the Company, CPG International LLC and the subsidiaries of CPG International LLC that are guarantors under the 2022 Term Loan Agreement, and a second priority security interest in the Revolver Priority Collateral. The obligations under the 2022 Term Loan Agreement are guaranteed by the Company and the wholly owned domestic subsidiaries of CPG International LLC other than certain immaterial subsidiaries and other excluded subsidiaries.
The interest rate applicable to the outstanding principal under the 2022 Term Loan Agreement equals, at our option, (i) in the case of alternative base rate borrowings, the highest of (a) the Federal Funds Rate (as defined in the 2022 Term Loan Agreement) plus 0.50%, (b) the Prime Rate (as defined in the 2022 Term Loan Agreement) as in effect on such day and (c) the one-month Term SOFR (as defined in the 2022 Term Loan Agreement) plus 1.00% per annum, provided that in no event will the alternative base rate be less than 1.50% per annum, plus an applicable margin of 1.50% and (ii) in the case of SOFR borrowings, Term SOFR for the applicable interest period, plus an applicable margin of 2.50%.
Loans under the 2022 Term Loan Agreement may be voluntarily prepaid in whole, or in part, in each case without premium or penalty (other than the Prepayment Premium, as defined in the 2022 Term Loan Agreement, if applicable), subject to certain customary conditions. The 2022 Term Loan Agreement also requires mandatory prepayments of loans under the 2022 Term Loan Agreement from the proceeds of certain debt issuances and certain asset dispositions (subject to certain reinvestment rights) and, commencing with the fiscal year ended September 30, 2023, a percentage of excess cash flow (subject to step-downs upon CPG International LLC achieving certain leverage ratios and other reductions in connection with other debt prepayments).
The 2022 Term Loan Agreement contains affirmative covenants, negative covenants and events of default, which are broadly consistent with those in the Revolving Credit Facility (with certain differences consistent with the differences between a revolving loan and term loan) and that are customary for facilities of this type. The 2022 Term Loan Agreement does not have any financial maintenance covenants. The 2022 Term Loan Agreement also includes customary events of default, including the occurrence of a change of control.
36
We have the right to arrange for incremental term loans under the Credit Agreement in an amount that shall not exceed the sum of (i) the Fixed Incremental Amount, as defined in the 2022 Term Loan Agreement, and (ii) the Ratio Amount, as defined in the 2022 Term Loan Agreement.
Restrictions on Dividends
The Senior Secured Credit Facilities each restrict payments of dividends unless certain conditions, as provided in the Revolving Credit Facility or the 2022 Term Loan Agreement, as applicable, are met.
Contingent Commitments
We have contractual commitments for purchases of certain minimum quantities of raw materials at index-based prices, and non-cancelable capital and operating leases, outstanding letters of credit and fixed asset purchase commitments. For a description of our contractual obligations and commitments, see Notes 8 “Debt”, 10 “Leases” and 17 “Commitments and Contingencies” to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Other
We are currently in the process of a multi-phase capacity expansion program including the opening of a new manufacturing facility in Boise, Idaho. We also intend to continue to invest in new capacity in the ordinary course as we execute against the long-term material conversion opportunity and market expansion. As a result, we intend to invest approximately $180 - $200 million of capital expenditures during fiscal 2022 on these and other projects.
Critical Accounting Policies and Estimates
Our unaudited Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The preparation of these unaudited Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates.
There have been no material changes to our critical accounting policies as compared to the critical accounting policies and significant judgments and estimates disclosed in our 2021 Form 10-K, except as updated in Note 1 of our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are subject to interest rate risk in connection with our long-term debt. Our principal interest rate risk relates to the Senior Secured Credit Facilities. To meet our seasonal working capital needs, we borrow periodically on our variable rate revolving line of credit under the Revolving Credit Facility. As of June 30, 2022 and September 30, 2021, we had $600.0 million outstanding under the 2022 Term Loan Agreement and $467.7 million outstanding under the Term Loan Agreement, respectively, and $0.0 million and $0.0 million outstanding amounts under the Revolving Credit Facility, respectively. The 2022 Term Loan Agreement and Revolving Credit Facility bear interest at variable rates. An increase or decrease of 100 basis points in the floating rates on the amounts outstanding under the Senior Secured Credit Facilities as of June 30, 2022 and 2021, would have increased or decreased, respectively, annual cash interest by approximately $6.0 million and $4.7 million, respectively.
In the future, in order to manage our interest rate risk, we may refinance our existing debt or enter into interest rate swaps or otherwise hedge the risk of changes in the interest rate under the Senior Secured Credit Facilities. However, we do not intend or expect to enter into derivative or interest rate swap transactions for speculative purposes.
Credit Risk
As of June 30, 2022 and September 30, 2021, our cash and cash equivalents were maintained at major financial institutions in the United States, and our current deposits are likely in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us.
Our accounts receivable primarily relate to revenue from the sale of products primarily to established distributors inside of the United States. To mitigate credit risk, ongoing credit evaluations of customers’ financial condition are performed. As of June 30, 2022, one customer represented more than 10% of gross trade receivables; Customer A was 12.0%. As of September 30, 2021, three customers represented more than 10% of gross trade receivables; Customer A was 11.5%, Customer B was 12.7% and Customer C was 10.3%.
Foreign Currency Risk
Substantially all of our business is currently conducted in U.S. dollars. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar as compared to other currencies would have a material effect on our operating results.
Inflation
Our cost of sales is subject to inflationary pressures and price fluctuations of the raw materials we use and other costs, including freight and labor costs. Global inflation has increased during 2022, and the conflict in Ukraine and other geopolitical tensions and economic uncertainties have exacerbated inflationary pressures, including causing increases in the prices for goods and services and exacerbating global supply chain disruptions, which have resulted in, and may continue to result in, shortages in materials and services and related issues. Historically, we have generally been able over time to offset, in whole or in part, the effects of inflation and price fluctuations through sales price increases and production efficiencies associated with technological enhancements and volume growth; however, we cannot reasonably estimate our ability to offset any increases in raw material prices or freight or labor costs or other inflationary pressures in the future. Such sustained inflationary pressures may have an adverse effect on our business, financial condition and results of operations if the selling prices of our products do not increase with these increased costs, or we cannot identify cost efficiencies.
Raw Materials
We rely upon the supply of certain raw materials in our production processes; however, we do not typically enter into fixed price contracts with our suppliers and currently have no fixed price contracts with our major vendors. The primary raw materials we use in the manufacture of our products are various petrochemical resins, including polyethylene, polypropylene and PVC resins, reclaimed polyethylene and PVC material, waste wood fiber and aluminum. In addition, we utilize a variety of other additives including modifiers, TiO2 and pigments. The exposures associated with these costs are primarily managed through terms of the sales and by maintaining relationships with multiple vendors. Prices for spot market purchases are negotiated on a continuous basis in line with the market at the time. We have not entered into hedges with respect to our raw material costs at this time, but we may choose to enter into such hedges in the future. Other than short term supply contracts for resins with indexed based pricing and occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis.
The cost of some of the raw materials we use in the manufacture of our products is subject to significant price volatility. For example, the cost of petrochemical resins used in our manufacturing processes has historically varied significantly and has been affected by changes in supply and demand and in the price of crude oil. Substantially all of our resins are purchased under supply contracts that average approximately one to two years, for which pricing is variable based on an industry benchmark price index. The resin supply contracts are negotiated annually and generally provide that we are obligated to purchase a minimum amount of resins from each supplier. In addition, the price of reclaimed polyethylene material, waste wood fiber, aluminum, other additives (including modifiers, TiO2 and pigments) and other raw materials fluctuates depending on, among other things, overall market supply and demand and general business conditions.
38
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
39
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations and businesses that cover a wide range of matters, including, among others, contract and employment claims, personal injury claims, product liability claims and warranty claims. Currently, there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows. However, the results of any current or future litigation cannot be predicted with certainty and, regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of litigation.
Item 1A. Risk Factors.
Except as set forth in our Quarterly Report on Form 10-Q for our second fiscal quarter of 2022, since September 30, 2021, there have been no material changes to the risk factors previously disclosed under the heading “Risk Factors” in our 2021 Form 10-K. You should carefully consider the risk factors in our 2021 Form 10-K and our other filings made with the SEC. You should be aware that such risk factors and other information may not describe every risk we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table provides information with respect to our purchases of our Class A common stock during the three months ended June 30, 2022:
|
Period |
|
Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced plans or programs (1), (2), (3) |
|
|
Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (1), (2) |
|
||||
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
2,422,774 |
|
|
19.93 |
|
|
|
2,422,774 |
|
|
|
350,000,000 |
|
||
|
|
|
590,801 |
|
|
|
17.24 |
|
|
|
590,801 |
|
|
|
341,532,108 |
|
|
|
Total |
|
|
3,013,575 |
|
|
$ |
19.40 |
|
|
|
3,013,575 |
|
|
|
|
|
|
(1) |
On May 5, 2022, the Board of Directors authorized us to repurchase up to $400 million of our Class A common stock. |
|
(2) |
On May 11, 2022, we entered into a $50 million ASR with JPMorgan and 2,422,774 initial shares were delivered to us on May 13, 2022, based on the closing price of our Class A common stock of $16.51 on May 11, 2022. JPMorgan terminated the ASR on June 14, 2022 and delivered 86,132 additional shares to us on June 17, 2022 for no additional consideration. |
|
(3) |
We repurchased 504,669 shares of our Class A common stock on the open market at an average price of $16.76 per share, totaling an approximately $8.5 million reacquisition cost, during the three months ended June 30, 2022. |
See Note 13 in the Notes to Condensed Consolidated Financial Statements for additional information on Share Repurchase Program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information
None.
40
Item 6. Exhibits
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||||
|
Exhibit No. |
|
Description |
|
Form |
|
Exhibit |
|
Filing Date |
|
File No. |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
Restated Certificate of Incorporation of The AZEK Company Inc. |
|
8-K |
|
3.2 |
|
03/10/2022 |
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|
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3.2 |
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8-K |
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3.3 |
|
03/10/2022 |
|
||
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|
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|
|
|
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|
|
|
|
4.1 |
|
Stockholders Agreement, by and among The AZEK Company Inc. and the other parties named therein |
|
10-Q |
|
4.1 |
|
08/14/2020 |
|
|
|
|
|
|
|
|
|
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|
4.2 |
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|
10-Q |
|
4.2 |
|
08/14/2020 |
|
||
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|
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|
10.1 |
|
|
8-K |
|
10.1 |
|
05/03/2022 |
|
||
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|
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|
|
|
10.2 |
|
|
8-K |
|
10.2 |
|
05/03/2022 |
|
||
|
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|
|
|
|
|
|
|
|
|
|
|
10.3 |
|
|
8-K |
|
10.3 |
|
05/03/2022 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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|
|
101.INS |
|
Inline XBRL Instance Document* |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document* |
|
|
|
|
|
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|
|
|
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|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
|
|
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101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document* |
|
|
|
|
|
|
|
|
|
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|
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101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document* |
|
|
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|
|
|
|
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|
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|
|
|
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101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
|
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
|
|
|
+ |
This certification is deemed furnished and not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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The AZEK Company Inc. |
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Date: August 5, 2022 |
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/s/ Peter Clifford |
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Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 4/28/29 | ||||
| 3/31/26 | ||||
| 5/5/24 | ||||
| 9/30/23 | ||||
| 12/31/22 | ||||
| Filed on: | 8/5/22 | |||
| 8/1/22 | 8-K | |||
| 7/29/22 | ||||
| For Period end: | 6/30/22 | |||
| 6/17/22 | ||||
| 6/14/22 | ||||
| 6/10/22 | ||||
| 6/1/22 | 4 | |||
| 5/31/22 | ||||
| 5/13/22 | ||||
| 5/11/22 | 8-K | |||
| 5/9/22 | ||||
| 5/5/22 | 4, 8-K | |||
| 5/1/22 | ||||
| 4/30/22 | ||||
| 4/28/22 | 8-K | |||
| 4/1/22 | ||||
| 3/31/22 | 10-Q | |||
| 12/29/21 | 8-K | |||
| 11/30/21 | 4 | |||
| 11/23/21 | 10-K, 3, 4 | |||
| 11/19/21 | 3, 4 | |||
| 10/1/21 | ||||
| 9/30/21 | 10-K, 5 | |||
| 6/30/21 | 10-Q | |||
| 6/1/21 | 4, 8-K | |||
| 3/31/21 | 10-Q, 8-K | |||
| 1/26/21 | 4, 8-K | |||
| 12/4/20 | 10-K, 4, 4/A | |||
| 10/1/20 | ||||
| 9/30/20 | 10-K, 10-K/A | |||
| 6/16/20 | 4 | |||
| 9/30/19 | ||||
| 3/9/17 | ||||
| 9/30/13 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/03/22 AZEK Co. Inc. 8-K:1,2,9 4/28/22 14:2.1M Donnelley … Solutions/FA 3/10/22 AZEK Co. Inc. 8-K:3,5,9 3/08/22 14:626K ActiveDisclosure/FA 8/14/20 AZEK Co. Inc. 10-Q 6/30/20 97:9.3M Donnelley … Solutions/FA |