• Consolidated Net Sales: $285 million for Q1 fiscal 2025.
• Residential Segment Net Sales: $272 million, up 22% year over year.
• Commercial Segment Net Sales: $13 million, down 23% year over year.
• Gross Profit: $104 million, with a gross margin of 36.3%.
• Adjusted Gross Profit: $107 million, with an adjusted gross margin of 37.4%.
• Adjusted EBITDA: $66 million, up 20% year over year, with a margin of 23.1%.
• Net Income: $18 million, or $0.12 per share, down $7 million year over year.
• Adjusted Net Income: $25 million, up $10 million year over year.
• Adjusted Diluted EPS: $0.17 per share, up $0.07 year over year.
• Cash and Cash Equivalents: $148 million at the end of the quarter.
• Net Cash from Operating Activities: $14 million, an increase of $30 million year over year.
• Free Cash Flow: Negative $8 million, an improvement of $26 million year over year.
• Net Debt: $386 million, with a net leverage ratio of 1x.
• Fiscal 2025 Net Sales Guidance: $1.52 billion to $1.55 billion.
• Fiscal 2025 Adjusted EBITDA Guidance: $403 million to $418 million.

• Warning! GuruFocus has detected 4 Warning Signs with SNAP.

Release Date: February 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The AZEK Co Inc (NYSE:AZEK) reported a 22% year-over-year growth in net sales for its Residential segment, driven by double-digit sell-through growth.
• The company achieved a 24% year-over-year increase in Residential segment adjusted EBITDA, with a margin expansion of 40 basis points to 23.7%.
• New product launches, including TimberTech Fulton Rail and Versatex XCEED siding, are being well received in the market, contributing to future growth potential.
• The acquisition of a regional PVC and polyethylene recycling operation in Indiana expands AZEK's recycling capabilities and supports cost reduction initiatives.
• AZEK raised its fiscal full-year 2025 outlook, reflecting confidence in continued growth, with expected net sales growth of 5% to 8% and adjusted EBITDA growth of 6% to 10%.

Negative Points

• The company's first-quarter margins were modestly impacted by start-up investments in new product production, which are expected to continue into the second quarter.
• The Commercial segment experienced a 23% year-over-year decline in net sales, primarily due to the sale of the Vycom business and weaker demand in the Scranton Products business.
• First-quarter net income decreased by $7 million year over year, partly due to the absence of a prior year gain from the Vycom divestiture.
• The company faces ongoing pressure in its Scranton Products business, with expected margin normalization not occurring until the third and fourth quarters of fiscal 2025.
• Despite strong growth, the broader housing and repair and remodel markets remain uncertain, which could impact future performance.

Q & A Highlights

Q: Can you explain the demand outlook, given the double-digit sell-through growth in Q1 and the mid-single-digit sell-through guidance for the year? A: Jesse Singh, CEO: We assume the underlying growth rate of the market is flat, and we expect to deliver 5% to 7% growth above that. The Q1 performance was better than expected, leading us to raise the guidance, but we are maintaining our core assumptions for the year.

Q: What should we expect regarding the new product investments and their impact over the next few quarters? A: Jesse Singh, CEO: We are ramping up production for new products, which involves some initial inefficiencies. We have started shipping and staging inventory, and expect these products to gain momentum as they sell through and are replenished in the coming quarters.

Q: How does the recent acquisition impact your recycling capacity and income statement? A: Ryan Lada, CFO: The acquisition enhances our recycling capabilities by allowing us to process lower-grade mixed polymer materials and adds new sourcing streams. This supports our internal recycle conversion, providing future cost savings.

Q: Can you discuss the impact of tariffs on your supply chain, particularly concerning Canada and Mexico? A: Ryan Lada, CFO: Our exposure to tariffs is modest, with low volumes sourced from Mexico and China. We have alternatives for products sourced from Canada, so the impact on our year is expected to be minimal.

Q: How are you leveraging your distribution for the railing products, and what opportunities do they present? A: Jesse Singh, CEO: We are expanding our market presence with new vinyl and steel rail products, leveraging exclusive distribution partnerships. This expansion is expected to drive growth in our railing business, building on last year's strong performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.