10-Q 1 azek-20240331.htm 10-Q azek-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 001-39322
_____________________________________________________________________________________________
The AZEK Company Inc.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________________
Delaware90-1017663
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1330 W Fulton Street, Suite 350, Chicago, Illinois
60607
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (877) 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
Class A Common Stock, par value $0.001 per shareAZEKThe 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. Yes x No o
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). Yes x No o
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.
Large accelerated filer
xAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 31, 2024, the registrant had 145,518,785 shares of Class A Common Stock, $0.001 par value per share, and no shares of Class B Common Stock, $0.001 par value per share, outstanding.


  Page
 
 
 
 
 
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 thousandsMarch 31,
2024
September 30,
2023
(As Restated)
ASSETS:
Current assets:
Cash and cash equivalents$227,399 $278,314 
Trade receivables, net of allowances134,378 57,660 
Inventories213,706 195,600 
Prepaid expenses12,986 13,595 
Other current assets23,562 16,123 
Total current assets612,031 561,292 
Property, plant and equipment - net456,699 501,023 
Goodwill967,816 994,271 
Intangible assets - net173,732 199,497 
Other assets85,234 87,793 
Total assets$2,295,512 $2,343,876 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable$52,727 $56,015 
Accrued rebates46,391 60,974 
Current portion of long-term debt obligations6,000 6,000 
Accrued expenses and other liabilities74,857 66,727 
Total current liabilities179,975 189,716 
Deferred income taxes49,408 59,509 
Long-term debt—less current portion577,957 580,265 
Other non-current liabilities101,241 104,073 
Total liabilities908,581 933,563 
Commitments and contingencies (See Note 17)
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued or outstanding at March 31, 2024 and September 30, 2023, respectively
  
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 157,010,677 shares issued at March 31, 2024 and 155,967,736 shares issued at September 30, 2023, respectively
157 156 
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 0 and 100 shares issued and outstanding at March 31, 2024 and at September 30, 2023, respectively
  
Additional paid‑in capital1,688,604 1,662,322 
Retained earnings (accumulated deficit)10,529 (64,377)
Accumulated other comprehensive income (loss)691 1,878 
Treasury stock, at cost, 11,520,848 and 8,268,423 shares at March 31, 2024 and September 30, 2023, respectively
(313,050)(189,666)
Total stockholders' equity1,386,931 1,410,313 
Total liabilities and stockholders' equity$2,295,512 $2,343,876 
See Notes to Condensed Consolidated Financial Statements (Unaudited).
3

The AZEK Company Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands of U.S. dollars, except for share and per share amounts)
(Unaudited)
Three Months Ended March 31,Six Months Ended March 31,
in thousands2024202320242023
(As Restated)(As Restated)
Net sales$418,408 $377,692 $658,852 $593,951 
Cost of sales261,335 266,818 411,129 440,890 
Gross profit157,073 110,874 247,723 153,061 
Selling, general and administrative expenses83,198 74,211 160,444 147,721 
Loss (gain) on disposal of property, plant and equipment(87)249 2,098 183 
Operating income73,962 36,414 85,181 5,157 
Other income and expenses:
Interest expense, net8,680 10,774 16,590 20,073 
Loss (gain) on sale of business215  (38,300) 
Total other (income) and expenses8,895 10,774 (21,710)20,073 
Income (loss) before income taxes65,067 25,640 106,891 (14,916)
Income tax expense (benefit)15,309 7,415 31,985 (3,406)
Net income (loss)$49,758 $18,225 $74,906 $(11,510)
Other comprehensive income (loss):
Unrealized gain (loss) due to change in fair value of derivatives, net of tax$1,908 $(1,466)$(1,187)$(3,262)
Total other comprehensive income (loss)1,908 (1,466)(1,187)(3,262)
Comprehensive income (loss)$51,666 $16,759 $73,719 $(14,772)
Net income (loss) per common share:
Basic$0.34 $0.12 $0.51 $(0.08)
Diluted0.34 0.12 0.51 (0.08)
Weighted-average common shares outstanding:
Basic145,710,663150,713,075146,516,971150,812,859
Diluted147,738,277151,268,535148,231,866150,812,859
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)
Common Stock
Treasury Stock
Additional
Paid-In
Capital
Retained Earnings (Accumulated
Deficit)
Accumulated Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Class AClass B
Shares
AmountSharesAmountShares
Amount
Balance – December 31, 2023 (As Restated)156,341,203$156 $ 10,560,030$(270,466)$1,650,160 $(39,229)$(1,217)$1,339,404 
Net income— — — — 49,758 — 49,758 
Other comprehensive income (loss)— — — — — 1,908 1,908 
Stock-based compensation— — — 6,264 — — 6,264 
Exercise of vested stock options632,2151 — — 15,390 — — 15,391 
Issuance of common stock under employee stock plan, net of shares withheld for taxes37,259— — — (379)— — (379)
Treasury stock purchases— — 960,818(42,584)17,169 — — (25,415)
Balance – March 31, 2024157,010,67715711,520,848(313,050)1,688,60410,5296911,386,931
Balance – September 30, 2023 (As Restated)155,967,736$156 100$ 8,268,423$(189,666)$1,662,322 $(64,377)$1,878 $1,410,313 
Net income— — — — 74,906 — 74,906 
Other comprehensive income (loss)— — — — — (1,187)(1,187)
Stock-based compensation— — — 14,686 — — 14,686 
Exercise of vested stock options769,1001 — — 18,628 — — 18,629 
Issuance of common stock under employee stock plan, net of shares withheld for taxes273,741— — — (4,201)— — (4,201)
Conversion of Class B common stock into Class A common stock100— (100)— — — — — — 
Treasury stock purchases— — 3,252,425(123,384)(2,831)— — (126,215)
Balance – March 31, 2024157,010,67715711,520,848(313,050)1,688,60410,5296911,386,931
Common Stock
Treasury Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income (Loss)
Total
Stockholders'
Equity
Class AClass B
Shares
AmountSharesAmountShares
Amount
Balance – December 31, 2022 (As Restated)155,196,865$155 100$ 4,469,330$(80,576)$1,633,827 $(156,473)$(1,796)$1,395,137 
Net income— — — — 18,225 — 18,225 
Other comprehensive income (loss)— — — — — (1,466)(1,466)
Stock-based compensation— — — 5,593 — — 5,593 
Exercise of vested stock options82,646— — — 1,901 — — 1,901 
Cancellation of restricted stock awards(3,665)— — — — — — — 
Issuance of common stock under employee stock plan, net of shares withheld for taxes27,587— — — — — — — 
Balance – March 31, 2023 (As Restated)155,303,4331551004,469,330(80,576)1,641,321(138,248)(3,262)1,419,390
Balance – September 30, 2022 (As Restated)155,157,220$155 100$ 4,116,570$(73,088)$1,630,378 $(126,738)$ $1,430,707 
Net income (loss)— — — — (11,510)— (11,510)
Other comprehensive income (loss)(3,262)(3,262)
Stock-based compensation— — — 9,502 — — 9,502 
Exercise of vested stock options82,646— — — 1,901 — — 1,901 
Cancellation of restricted stock awards(18,328)— — — — — — — 
Issuance of common stock under employee stock plan, net of shares withheld for taxes81,895— — — (460)— — (460)
Treasury stock purchases— — 352,760(7,488)— — — (7,488)
Balance – March 31, 2023 (As Restated)155,303,4331551004,469,330(80,576)1,641,321(138,248)(3,262)1,419,390
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)
Six Months Ended March 31,
20242023
(As Restated)
Operating activities:
Net income (loss)$74,906 $(11,510)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation44,105 42,018 
Amortization of intangibles20,036 23,457 
Non-cash interest expense824 824 
Non-cash lease expense(84)(122)
Deferred income tax (benefit) provision(9,717)465 
Non-cash compensation expense14,686 12,678 
Fair value adjustment for contingent consideration 400 
Loss on disposition of property, plant and equipment2,098 1,824 
Gain on sale of business(38,300) 
Changes in certain assets and liabilities:
Trade receivables(80,829)(62,586)
Inventories(39,771)51,571 
Prepaid expenses and other currents assets(9,334)(19,054)
Accounts payable(1,866)15,702 
Accrued expenses and interest(6,283)8,530 
Other assets and liabilities(1,565)(55)
Net cash provided by (used in) operating activities(31,094)64,142 
Investing activities:
Purchases of property, plant and equipment(36,879)(47,284)
Proceeds from disposition of fixed assets263 99 
Divestiture, net of cash disposed131,783  
Acquisitions, net of cash acquired (161)
Net cash provided by (used in) investing activities95,167 (47,346)
Financing activities:
Payments on Term Loan Agreement(3,000)(3,000)
Proceeds under revolving credit facility 25,000 
Payments under revolving credit facility (25,000)
Principal payments of finance lease obligations(1,421)(1,307)
Payments of INTEX contingent consideration (1,000)
Exercise of vested stock options18,628 1,901 
Cash paid for shares withheld for taxes(4,201)(460)
Purchases of treasury stock(124,994)(7,488)
Net cash used in financing activities(114,988)(11,354)
Net increase (decrease) in cash and cash equivalents(50,915)5,442 
Cash and cash equivalents – Beginning of period278,314 120,817 
Cash and cash equivalents – End of period$227,399 $126,259 
Supplemental cash flow disclosure:
Cash paid for interest, net of amounts capitalized$23,455 $23,611 
Cash paid for income taxes, net47,020 14,959 
Supplemental non-cash investing and financing disclosure:
Capital expenditures in accounts payable at end of period$4,704 $12,984 
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities2,654 2,439 
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)
1. 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 The AZEK Group LLC (f/k/a CPG International LLC), the entity which directly and indirectly holds all of the equity interests in the operating subsidiaries and which changed its name from CPG International LLC to The AZEK Group LLC on August 1, 2023. 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, pergolas, outdoor furniture, bathroom and locker systems, and, prior to the Company’s divestiture of its Vycom business, also included 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®, StruXure® and INTEX®, while the commercial products are branded under brand names including Scranton Products®, Aria Partitions®, Eclipse Partitions®, Hiny Hiders® partitions, Tufftec Lockers® and Duralife Lockers®.
b.Summary of Significant Accounting Policies
Basis 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 six months ended March 31, 2024 and the cash flows for the six months ended March 31, 2024 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 affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, interest rates, the impact of any supply chain disruptions, economic conditions, and/or any adverse effects from geopolitical conflicts, global health pandemics and other factors beyond the Company’s control. Management cannot predict the degree to, or the period over, which the Company may be affected by such factors.
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 Amendment No. 1 on Form 10-K/A to Annual Report on Form 10-K for the year ended September 30, 2023 (the “2023 Form 10-K/A”) filed with the Securities and Exchange Commission (the "SEC") on June 14, 2024. The Condensed Consolidated Balance Sheet as of September 30, 2023 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 on the 2023 Form 10-K/A, except as noted below.
Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, stockholder’s equity or cash flows as previously reported.
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, inventory valuation, 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.
Accounting Policies
Refer to the 2023 Form 10-K/A for a discussion of the Company’s accounting policies, as updated below and for recently adopted accounting standards.
7

Research 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 (Loss). Total research and development expenses were $3.7 million and $2.1 million, respectively, for the three months ended March 31, 2024 and 2023, and $6.8 million and $4.1 million, respectively, for the six months ended March 31, 2024 and 2023.
Recently Adopted Accounting Pronouncements
None.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280) : Improvements to Reportable Segment Disclosures. This standard requires all public entities that are subject to segment reporting requirements to disclose additional information, including significant segment expenses and other segment items on an annual and interim basis. It also requires the disclosure of the title and the position of the chief operating decision maker and how the reported measures are used for making business decisions. This standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company intends to adopt the updated standard during the fiscal year beginning October 1, 2024. The Company is currently evaluating the impact the adoption of this standard will have on its disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard expands the disclosure requirements primarily on the rate reconciliation and income tax paid. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company intends to adopt the updated standard during the fiscal year beginning October 1, 2025. The Company is currently evaluating the impact the adoption of this standard will have on its disclosures.
1A. RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS
Restatement of Previously Filed Financial Statements
In connection with the preparation of its unaudited Condensed Consolidated Financial Statements for the fiscal quarter ended March 31, 2024, the Company identified certain unexplained reconciling differences in inventory balances for certain of the Company’s locations. Upon identification of such issues, the Company initiated an independent investigation under the direction of the Audit Committee of the Company’s Board of Directors (the “Audit Committee”), which is now complete. As a result of the independent investigation procedures, the Company determined that a former employee with responsibility for cost and inventory accounting with respect to certain of the Company’s locations misstated inventory in the Company’s general ledger by creating inaccurate and unsupported manual journal entries that ultimately increased the value of inventory on the Company’s condensed consolidated balance sheet as of September 30, 2023 and decreased cost of sales on the Company’s condensed consolidated income statement for the three and six months ended March 31, 2023. As a result, income before income taxes was overstated on a net basis for the three and six months ended March 31, 2023.
The Company has restated its consolidated financial statements as of September 30, 2023 and 2022 and for the fiscal years ended September 30, 2023, 2022 and 2021, as well as the related unaudited condensed consolidated interim financial information for each of the quarters within fiscal years ended September 30, 2023 and 2022, and for the fiscal quarter ended December 31, 2023 (the "Affected Periods") in the 2023 Form 10-K/A for the fiscal year ended September 30, 2023 and Amendment No.1 to the Company's Form 10-Q for the quarter ended December 31, 2023, each as filed with the Securities and Exchange Commission on June 14, 2024.
The amounts in the "As Reported" columns are amounts derived from the Company's previously filed financial statements in its Quarterly Report on Form 10-Q for the interim period ended March 31, 2023, originally filed with the Securities and Exchange Commission on May 5, 2023 (the “Original March 31, 2023 Form 10-Q”). The amounts in the "Investigation Adjustments" columns present the impact of the adjustments from the independent investigation related to the overstatement of Inventory and the understatement of Cost of Sales. The amounts in the "Other Adjustments" columns present the impact of other adjustments primarily related to the reclassification between Accrued interest and Accrued expenses and other liabilities in the condensed consolidated balance sheet, certain reclassifications in the condensed income statements, depreciation misstatement and cash flow misclassifications in previously issued financial statements and were not material, individually or in aggregate, to any of the prior periods financial statements. The amounts in the "As Restated" columns are the updated amounts including the impacts from both Investigation Adjustments and Other Adjustments. The only impact of restatement to the Consolidated Statements of Stockholders Equity was $2.0 million and $(1.9) million to Net income (loss) for the three and six months ended March 31, 2023, respectively, and $(13.7) million, $(17.6) million, $(19.3) million and $(19.9) million to opening Accumulated deficit at September 31, 2022, December 31, 2022, September 30, 2023 and December 31, 2023, respectively.
8

The following table presents the effect of the restatement on the Company's previously reported Condensed Consolidated Balance Sheet as of September 30, 2023. The values as previously reported were derived from the Company’s Original March 31, 2023 Form 10-Q (in thousands, except for share and per share amounts).
As of September 30, 2023
Consolidated Balance SheetAs ReportedInvestigation AdjustmentsOther AdjustmentsAs Restated
ASSETS:
Current assets:
Cash and cash equivalents$278,314 $— $— $278,314 
Trade receivables, net of allowances57,660 — — 57,660 
Inventories221,101 (25,501)— 195,600 
Prepaid expenses13,595 — — 13,595 
Other current assets12,300 3,823 — 16,123 
Total current assets582,970 (21,678)— 561,292 
Property, plant and equipment - net501,023 — — 501,023 
Goodwill994,271 — — 994,271 
Intangible assets - net199,497 — — 199,497 
Other assets87,793 — — 87,793 
Total assets$2,365,554 $(21,678)$— $2,343,876 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable$56,015 $— $— $56,015 
Accrued rebates60,974 — — 60,974 
Accrued interest260 — (260) 
Current portion of long-term debt obligations6,000 — — 6,000 
Accrued expenses and other liabilities71,994 (5,527)260 66,727 
Total current liabilities195,243 (5,527)— 189,716 
Deferred income taxes56,330 3,179 — 59,509 
Long-term debt—less current portion580,265 — — 580,265 
Other non-current liabilities104,073 — — 104,073 
Total liabilities935,911 (2,348)— 933,563 
Commitments and contingencies (See Note 17)
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued or outstanding at September 30, 2023
 — —  
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 155,967,736 shares issued at September 30, 2023
156 — — 156 
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 100 shares issued and outstanding at September 30, 2023
 — —  
Additional paid‑in capital1,662,322 — — 1,662,322 
Accumulated deficit(45,047)(19,330)— (64,377)
Accumulated other comprehensive income (loss)1,878 — — 1,878 
Treasury stock, at cost, 8,268,423 shares at September 30, 2023
(189,666)— — (189,666)
Total stockholders' equity1,429,643 (19,330)— 1,410,313 
Total liabilities and stockholders' equity$2,365,554 $(21,678)$— $2,343,876 
9

The following table presents the effect of the restatement on the Company's previously reported Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2023. The values as previously reported were derived from the Company’s Original March 31, 2023 Form 10-Q (in thousands, except for share and per share amounts).
Three Months Ended March 31, 2023Six Months Ended March 31, 2023
Consolidated Statements of Comprehensive IncomeAs ReportedInvestigation AdjustmentsOther AdjustmentsAs RestatedAs ReportedInvestigation AdjustmentsOther AdjustmentsAs Restated
Net sales$377,692 $— $— $377,692 $593,951 $— $— $593,951 
Cost of sales269,519 (3,501)800 266,818 438,199 2,691 — 440,890 
Gross profit108,173 3,501 (800)110,874 155,752 (2,691)— 153,061 
Selling, general and administrative expenses74,460 — (249)74,211 147,904 — (183)147,721 
Loss (gain) on disposal of property, plant and equipment— — 249 249 — — 183 183 
Operating income33,713 3,501 (800)36,414 7,848 (2,691)— 5,157 
Other expenses:
Interest expense, net10,774 — — 10,774 20,073 — — 20,073 
Total other expenses10,774 — — 10,774 20,073 — — 20,073 
Income (loss) before income taxes22,939 3,501 (800)25,640 (12,225)(2,691)— (14,916)
Income tax expense (benefit)6,666 971 (222)7,415 (2,662)(744)— (3,406)
Net income (loss)$16,273 $2,530 $(578)$18,225 $(9,563)$(1,947)$— $(11,510)
Other comprehensive income (loss):
Unrealized loss due to change in fair value of derivatives, net of tax$(1,466)$— $— $(1,466)$(3,262)$— $— $(3,262)
Total other comprehensive income (loss)(1,466)— — (1,466)(3,262)— — (3,262)
Comprehensive income (loss)$14,807 $2,530 $(578)$16,759 $(12,825)$(1,947)$— $(14,772)
Net income (loss) per common share:
Basic$0.11 $0.02 $(0.01)$0.12 $(0.06)$(0.02)$— $(0.08)
Diluted0.11 0.02 (0.01)0.12 (0.06)(0.02)— (0.08)
Weighted-average common shares outstanding:
Basic150,713,075150,713,075150,812,859150,812,859
Diluted151,268,535151,268,535150,812,859150,812,859
10

The following table presents the effect of the restatement on the Company's previously reported Condensed Consolidated Statement of Cash Flows for the six months ended March 31, 2023. The values as previously reported were derived from the Company’s Original March 31, 2023 Form 10-Q (in thousands).
Six Months Ended March 31, 2023
Consolidated Statement of Cash FlowAs ReportedInvestigation AdjustmentsOther AdjustmentsAs Restated
Operating activities:
Net income (loss)$(9,563)$(1,947)$— $(11,510)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation42,018 — — 42,018 
Amortization of intangibles23,457 — — 23,457 
Non-cash interest expense824 — — 824 
Non-cash lease expense(122)— — (122)
Deferred income tax provision465 — — 465 
Non-cash compensation expense12,678 — — 12,678 
Fair value adjustment for contingent consideration400 — — 400 
Loss on disposition of property, plant and equipment183 — 1,641 1,824 
Changes in certain assets and liabilities:
Trade receivables(62,586)— — (62,586)
Inventories48,880 2,691 — 51,571 
Prepaid expenses and other currents assets(18,310)(744)— (19,054)
Accounts payable15,702 — — 15,702 
Accrued expenses and interest7,530 — 1,000 8,530 
Other assets and liabilities1,586 — (1,641)(55)
Net cash provided by operating activities63,142 — 1,000 64,142 
Investing activities:
Purchases of property, plant and equipment(47,284)— — (47,284)
Proceeds from disposition of fixed assets99 — — 99 
Acquisitions, net of cash acquired(161)— — (161)
Net cash used in investing activities(47,346)— — (47,346)
Financing activities:
Payments on Term Loan Agreement(3,000)— — (3,000)
Proceeds under revolving credit facility25,000 — — 25,000 
Payments under revolving credit facility(25,000)— — (25,000)
Principal payments of finance lease obligations(1,307)— — (1,307)
Payments of INTEX contingent consideration — (1,000)(1,000)
Exercise of vested stock options1,901 — — 1,901 
Cash paid for shares withheld for taxes(460)— — (460)
Purchases of treasury stock(7,488)— — (7,488)
Net cash used in financing activities(10,354)— (1,000)(11,354)
Net increase in cash and cash equivalents5,442 — — 5,442 
Cash and cash equivalents – Beginning of period120,817 — — 120,817 
Cash and cash equivalents – End of period126,259 — — 126,259 
Supplemental cash flow disclosure:
Cash paid for interest, net of amounts capitalized$23,611 $— $— $23,611 
Cash paid for income taxes, net14,959 — — 14,959 
Supplemental non-cash investing and financing disclosure:
Capital expenditures in accounts payable at end of period$12,984 $— $— $12,984 
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities2,439 — — 2,439 

11

2. 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 (Loss) and in “Accrued rebates” and “Trade receivables” in the Condensed Consolidated Balance Sheets. The Company recorded accrued rebates of $46.4 million and $65.1 million as of March 31, 2024 and 2023, respectively, and contra trade receivables of $8.6 million and $7.7 million as of March 31, 2024 and 2023, respectively. The rebate activity was as follows (in thousands):
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
Beginning balance$72,393 $61,066 $66,958 $56,542 
Rebate expense35,930 29,703 58,168 45,419 
Rebate payments(53,328)(18,028)(70,131)(29,220)
Ending balance$54,995 $72,741 $54,995 $72,741 
The Company records deferred revenue when cash payments are received or due in advance of the Company’s performance.
3. DIVESTITURE
On November 1, 2023, the Company completed the sale of its Vycom business within the Commercial segment for net proceeds of approximately $131.8 million. The divestiture allows the Company to focus on the highest value portions of its business and provides additional cash to finance its capital allocation priorities. The gain on sale of $38.3 million was recognized in "Gain on sale of business" within the Condensed Consolidated Statements of Comprehensive Income (Loss) for the six months ended March 31, 2024. The Company did not report the sale in discontinued operations as it was not a strategic shift that would have a major effect on the Company's operations and financial results.
See Note 12 for more information on the Commercial segment.
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. Inventories consisted of the following (in thousands):
in thousandsMarch 31,
2024
September 30,
2023
(As Restated)
Raw materials$49,348 $60,349 
Work in process30,558 33,240 
Finished goods133,800 102,011 
Total inventories$213,706 $195,600 
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5. PROPERTY, PLANT AND EQUIPMENT—NET
Property, plant and equipment – net consisted of the following (in thousands):
March 31,
2024
September 30,
2023
(As Restated)
Land$3,209 $4,829 
Buildings and improvements108,157 129,191 
Manufacturing equipment620,135 631,594 
Computer equipment33,164 32,392 
Furniture and fixtures7,310 7,290 
Vehicles1,353 1,087 
Total property, plant and equipment773,328 806,383 
Construction in progress69,776 87,348 
843,104 893,731 
Accumulated depreciation(386,405)(392,708)
Total property, plant and equipment – net$456,699 $501,023 
Depreciation expense was approximately $21.0 million and $19.5 million in the three months ended March 31, 2024 and 2023, respectively, and $41.5 million and $39.5 million in the six months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023, $0.8 million and $1.6 million of interest was capitalized, respectively, and during the six months ended March 31, 2024 and 2023, $1.9 million and $2.9 million of interest was capitalized, respectively.
6. GOODWILL AND INTANGIBLE ASSETS—NET
Goodwill
Goodwill consisted of the following (in thousands):
ResidentialCommercialTotal
Goodwill before impairment as of September 30, 2023$953,882 $72,589 $1,026,471 
Accumulated impairment losses as of September 30, 2023 (32,200)(32,200)
Goodwill, net as of September 30, 2023$953,882 $40,389 $994,271 
Divestiture
Goodwill disposal before impairment$ $(58,655)$(58,655)
Accumulated impairment losses 32,200 32,200 
Goodwill, net disposal$ $(26,455)$(26,455)
Goodwill before impairment as of March 31, 2024$953,882 $13,934 $967,816 
Accumulated impairment losses as of March 31, 2024   
Goodwill, net as of March 31, 2024$953,882 $13,934 $967,816 
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Intangible assets, net
The Company did not have any indefinite lived intangible assets other than goodwill as of March 31, 2024 and September 30, 2023. Finite-lived intangible assets consisted of the following (in thousands):
  March 31, 2024
 
Lives in
Years
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Proprietary knowledge
1015
$300,400 $(261,064)$39,336 
Trademarks
520
217,640 (161,282)56,358 
Customer relationships
1219
156,452 (80,625)75,827 
Patents
910
8,500 (6,332)2,168 
Other intangibles
315
4,075 (4,032)43 
Total intangible assets $687,067 $(513,335)$173,732 
  September 30, 2023
 
Lives in
Years
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Propriety knowledge
1015
$300,400 $(253,608)$46,792 
Trademarks
520
230,240 (164,759)65,481 
Customer relationships
1219
176,852 (92,268)84,584 
Patents
910
8,500 (5,913)2,587 
Other intangible assets
315
4,076 (4,023)53 
Total intangible assets $720,068 $(520,571)$199,497 
Amortization expense was $9.9 million and $11.6 million in the three months ended March 31, 2024 and 2023, respectively and $20.0 million and $23.5 million in the six months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the remaining weighted-average amortization period for acquired intangible assets was 10.9 years.
7. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
Allowance for Doubtful Accounts
Allowance for doubtful accounts consisted of the following (in thousands):
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
Beginning balance$1,308 $1,674 $1,773 $1,397 
Provision(60)234 (493)511 
Bad debt write-offs (101) (101)
Divestiture  (32) 
Ending balance$1,248 $1,807 $1,248 $1,807 
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Accrued Expenses and Other Liabilities
Accrued expenses consisted of the following (in thousands):
March 31, 2024September 30, 2023
(As Restated)
Employee related liabilities$33,747 $34,313 
Marketing7,620 3,868 
Customer deposits5,174 4,152 
Lease liability - operating4,441 4,180 
Taxes4,110 1,433 
Warranty3,699 3,556 
Lease liability - finance2,883 2,777 
Freight2,818 1,242 
Utilities2,401 2,141 
Professional fees2,091 2,073 
Construction in progress1,476 2,863 
Commissions1,151 991 
Other3,246 3,138 
Total accrued expenses and other current liabilities$74,857 $66,727 
8. DEBT
Debt consisted of the following (in thousands):
 March 31, 2024September 30, 2023
Term Loan due April 28, 2029 — SOFR + 2.50% + 0.1% (7.93% at March 31, 2024 and 7.92% at September 30, 2023)
$591,000 $594,000 
Revolving Credit Facility through March 31, 2026 - SOFR + 0.1%
  
Total591,000 594,000 
Less unamortized deferred financing costs(3,639)(3,996)
Less unamortized original issue discount(3,404)(3,739)
Less current portion(6,000)(6,000)
Long-term debt—less current portion and unamortized deferred financing costs$577,957 $580,265 
Term Loan Agreement
The Term Loan Agreement is a first lien term loan and will mature on April 28, 2029, subject to acceleration or prepayment. The Term Loan Agreement will amortize in equal quarterly installments of 0.25% of the aggregate principal amount of the loans outstanding as of the amendment date of April 28, 2022, subject to reduction for certain prepayments. The loans thereunder bear an interest rate equal to (i) in the case of alternative base rate, or ABR, borrowings, the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Prime Rate as in effect on such day and (c) the one-month Term Secured Overnight Financing Rate ("SOFR") 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, the Term SOFR rate for the applicable interest period, in each case, plus an applicable margin of 2.50%. As of March 31, 2024 and September 30, 2023, The AZEK Group LLC had $591.0 million and $594.0 million outstanding under the Term Loan Agreement.
The obligations under the Term Loan Agreement are secured by a first priority security interest in the membership interests of The AZEK Group LLC owned by the Company, the equity interests of The AZEK Group 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, The AZEK Group LLC and the subsidiaries of The AZEK Group LLC that are guarantors under the Term Loan Agreement (the “Term Loan Priority Collateral”), and a second priority security interest in the Revolver Priority Collateral. The obligations under the Term Loan Agreement are guaranteed by the Company and the
15

wholly owned domestic subsidiaries of The AZEK Group LLC other than certain immaterial subsidiaries and other excluded subsidiaries.
Loans under the Term Loan Agreement may be voluntarily prepaid in whole, or in part, in each case without premium or penalty, subject to certain customary conditions. The Term Loan Agreement also requires mandatory prepayments of loans under the 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 ending September 30, 2023, a percentage of excess cash flow (subject to step-downs upon The AZEK Group LLC achieving certain leverage ratios and other reductions in connection with other debt prepayments).
The 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 Term Loan Agreement does not have any financial maintenance covenants. The Term Loan Agreement also includes customary events of default, including the occurrence of a change of control. On May 22, 2024, as a result of the Company's delayed filing of its Form 10-Q for the quarter ended March 31, 2024, The AZEK Group LLC was not in compliance with the financial reporting requirements in the Term Loan Agreement, which non-compliance was subject to a 30-day grace period. Because the Company is filing this Form 10-Q on June 14, 2024, which is within the grace period, The AZEK Group LLC has regained compliance and no event of default occurred.
As of March 31, 2024 and September 30, 2023, unamortized deferred financing fees related to the Term Loan Agreement were $3.6 million and $4.0 million, respectively.
Revolving Credit Facility
The AZEK Group 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 dir