AZEK Company Inc - Ordinary Shares (AZEK) 7 Aug 24 2024 Q3 Earnings call transcript

The AZEK Company, a leading manufacturer of outdoor living products, recently reported a robust third quarter performance for fiscal 2024, marking a 12% increase in net sales compared to the previous year. This growth was driven by the company's residential segment, which saw an 18% year-over-year increase, excluding the recently divested Viacom business. AZEK's CEO, Jesse Singh, expressed confidence in the company's growth prospects, citing the industry-leading position and strategic initiatives that have enabled the company to outgrow the market.

Financial Highlights

The company's financial performance was underscored by a 27.5% adjusted EBITDA margin, a significant expansion from the previous year. This growth was attributed to strong gross margin performance, which was partially offset by increased growth investments. The residential segment, which includes corporate costs, delivered an even stronger growth of 33% year-over-year, achieving a segment adjusted EBITDA margin of 28.1%.

AZEK's success in maintaining strong margins was a result of its strategic focus on productivity, favorable price-cost strategies, and the inclusion of recycled materials. This approach has positioned the company to reinvest in the business while making strides towards its annual adjusted EBITDA target of 27.5%.

Product Launches and Innovations

The company's strategic investments in research and development, innovation, and brand awareness have led to a pipeline of new product launches. Notable product launches include TimberTech composite, Terrain plus decking, and TimberTech aluminum framing substructure. These innovations, coupled with the recent launch of TimberTech Fulton rail, are expected to drive growth and differentiate AZEK's offerings in the market.

Market Opportunities and Challenges

AZEK's optimism for future growth is underpinned by key trends in the market, including aging housing stock, the expansion of millennials as homeowners, a shift towards more sustainable materials, and an increased focus on outdoor living. These trends provide a favorable environment for the company's growth, particularly in the repair and remodel and new housing sectors.

However, the company also faces challenges in certain markets, such as Exteriors, which experienced market-driven softness in the quarter. Despite this, AZEK remains confident in the long-term opportunities for growth, especially in material conversion and innovative trim and siding products.

Investor Perspective

During the earnings call, analysts questioned AZEK's management on topics ranging from market trends and product launches to financial performance and strategic initiatives. These interactions provided valuable insights into the concerns and expectations of key stakeholders, highlighting the company's relationship with its investors and the importance of its strategic initiatives.

In summary, AZEK Company's strong third quarter performance, strategic investments, and optimistic outlook for the future position it well for continued growth and success in the outdoor living products market.