The AZEK Company Inc. (NYSE: AZEK) reported Q3 EPS of $0.13, $0.02 better than the analyst estimate of $0.11. Revenue for the quarter came in at $223.77 million versus the consensus estimate of $213 million.

THIRD QUARTER FISCAL 2020 HIGHLIGHTS

• Residential segment net sales increased 5.5% year-over-year to $192.6 million; June net sales increased over 15% year-over-year
• Deck, Rail & Accessories net sales increased over 9% year-over-year
• Net loss of ($52.1) million, driven by $59.7 million of IPO-related and debt extinguishment expenses; Net Margin of (23.3%)
• Adjusted EBITDA increased 9.6% year-over-year to $57.8 million; Adjusted EBITDA Margin expanded 200 basis points to 25.8%
• Balance sheet significantly strengthened as IPO net proceeds were primarily used to pay down debt
• Q4 Outlook – Expecting net sales growth of 12% to 17% year-over-year and Adjusted EBITDA growth of 14% to 19% year-over-year

CEO COMMENTS

“We are very pleased to be announcing our earnings results for the first time as a public company,” commented Jesse Singh, AZEK’s Chief Executive Officer. “Despite the difficult environment, our growth initiatives and margin expansion programs such as recycling remain on track. Our dedicated team delivered sales and Adjusted EBITDA growth in the quarter and expanded Adjusted EBITDA Margin by 200 basis points compared to very strong performance in the same quarter last year. We achieved these results through our focus on customer service, disciplined execution and prudent cost management, while continuing to drive our strategic initiatives and long-term growth potential.”

“At the beginning of the third quarter, we experienced an industry-wide slowdown and interruption due to the negative impact from the COVID-19 pandemic, with certain geographies more severely affected by stay-at-home and shutdown orders than others. Consistent with our core values, our priority was to ensure the health and safety of our employees, channel partners and customers.”

“As the quarter progressed, we saw momentum improve within our Residential segment as channels re-opened, new construction re-started, stay-at-home orders were eased in certain regions and homeowners continued to invest in home improvement and their outdoor living spaces. Our strong focus on the customer has led to an increase in multiple customer engagement metrics that we track including digital interaction, sample orders and new dealers, as well as contractor and architect conversions. Demand accelerated in June driving significant sell-through growth across both Deck, Rail & Accessories and Exteriors in the month, and our ability to meet demand in decking and railing product lines was somewhat limited by capacity and timing. We continued to experience robust demand trends through July.”

“We continue to execute on our strategic initiatives that position our business for future success, and we remain optimistic about our long-term growth opportunity. We used the proceeds from our recent IPO to reduce our debt and are announcing an expanded capacity plan from an original $100 million investment to approximately $180 million to support the significant market demand and wood conversion opportunity. The strategic capacity expansion plan includes an incremental 70% decking production capacity and a new manufacturing facility over the next 18 to 24 months.”

“I would like to thank all of our employees for their hard work, dedication and adaptability that are enabling us to effectively manage through the adversity associated with COVID-19 and quickly respond to a sharp increase in market demand,” concluded Mr. Singh.

OUTLOOK

“As we enter our fourth quarter, our outlook is based on current strong demand within our Residential segment end markets, balanced by the economic uncertainty caused by the pandemic, including high unemployment. Over the next quarter, we expect continued robust demand within our Residential segment across both our Deck, Rail & Accessories and Exteriors businesses, partially offset by continued weakness in our Commercial segment. Strong demand has resulted in certain temporary shortages in our decking and railing product lines. While we added capacity during the third quarter, we have accelerated the deployment of our previously announced expansion and expect additional capacity to come online during the fourth quarter as well as the second and third quarters of our fiscal year 2021, with the completion of the program expected in the first half of fiscal year 2022,” added Mr. Singh.

AZEK is introducing guidance for the fourth quarter fiscal 2020 for net sales growth in the range of 12% to 17% year-over-year following 13% growth in the comparable period last year and Adjusted EBITDA growth in the range of 14% to 19% year-over-year following 16% growth in the comparable period last year.

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