UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, ~~2022~~2023


☐	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: 001-39322

The AZEK Company Inc.

(Exact name of registrant as specified in its charter)


Delaware	90-1017663
(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)~~ (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 share

AZEK

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. 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). 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.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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 ☐ No ☒

As of January 31, ~~2023,~~2024, the registrant had ~~150,731,275~~145,826,079 shares of Class A Common Stock, $0.001 par value per share, and ~~100~~no shares of Class B Common Stock, $0.001 par value per share, outstanding.


		Page
PART I.	Financial Information	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3736
Item 4.	Controls and Procedures	3837
PART II.	Other Information	3938
Item 1.	Legal Proceedings	3938
Item 1A.	Risk Factors	3938
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3938
Item 3.	Defaults Upon Senior Securities	3938
Item 4.	Mine Safety Disclosures	3938
Item 5.	Other Information	3938
Item 6.	Exhibits	4039
Signatures		4140

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

December 31,
2022

September 30,
2022

ASSETS:

Current assets:

Cash and cash equivalents

$
86,865

$
120,817

Trade receivables, net of allowances

68,290

90,159

Inventories

320,883

299,905

Prepaid expenses

22,526

17,212

Other current assets

14,946

2,501

Total current assets

513,510

530,594

Property, plant and equipment - net

513,130

517,913

Goodwill

993,995

993,995

Intangible assets - net

233,998

245,835

Other assets

94,068

94,754

Total assets

$
2,348,701

$
2,383,091

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:

Accounts payable

$
48,563

$
48,987

Accrued rebates

54,556

50,479

Accrued interest

140

4,436

Current portion of long-term debt obligations

6,000

6,000

Accrued expenses and other liabilities

67,488

72,589

Total current liabilities

176,747

182,491

Deferred income taxes

66,052

65,195

Long-term debt—less current portion

583,726

584,879

Other non-current liabilities

109,404

106,083

Total liabilities

935,929

938,648

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 December 31, 2022 and September 30, 2022,
   respectively

—

—

Class A common stock, $0.001 par value; 1,100,000,000 shares authorized,
   155,196,865 shares issued at December 31, 2022 and 155,157,220 shares
   issued at September 30, 2022

155

155

Class B common stock, $0.001 par value; 100,000,000 shares authorized,
   100 shares issued and outstanding at December 31, 2022 and at September 30,
   2022, respectively

—

—

Additional paid‑in capital

1,633,827

1,630,378

Accumulated deficit

(138,838
)

(113,002
)
Accumulated other comprehensive income (loss)

(1,796
)

—

Treasury stock, at cost, 4,469,330 and 4,116,570 shares at December 31, 2022
   and September 30, 2022, respectively

(80,576
)

(73,088
)
Total stockholders' equity

1,412,772

1,444,443

Total liabilities and stockholders' equity

$
2,348,701

$
2,383,091


in thousands	December 31, 2023			September 30, 2023
ASSETS:
Current assets:
Cash and cash equivalents	$	274,759		$	278,314
Trade receivables, net of allowances		32,398			57,660
Inventories		261,562			221,101
Prepaid expenses		16,528			13,595
Other current assets		8,131			12,300
Total current assets		593,378			582,970
Property, plant and equipment - net		456,504			501,023
Goodwill		967,816			994,271
Intangible assets - net		183,604			199,497
Other assets		87,426			87,793
Total assets	$	2,288,728		$	2,365,554
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	43,119		$	56,015
Accrued rebates		67,925			60,974
Accrued interest		368			260
Current portion of long-term debt obligations		6,000			6,000
Accrued expenses and other liabilities		80,999			71,994
Total current liabilities		198,411			195,243
Deferred income taxes		47,117			56,330
Long-term debt—less current portion		579,111			580,265
Other non-current liabilities		104,784			104,073
Total liabilities		929,423			935,911
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 December 31, 2023 and September 30, 2023, respectively		—			—
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 156,341,203 and 155,967,736 shares issued at December 31, 2023 and September 30, 2023, respectively		156			156
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 0 shares and 100 shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively		—			—
Additional paid‑in capital		1,650,160			1,662,322
Accumulated deficit		(19,328	)		(45,047	)
Accumulated other comprehensive income (loss)		(1,217	)		1,878
Treasury stock, at cost, 10,560,030 and 8,268,423 shares at December 31, 2023 and September 30, 2023, respectively		(270,466	)		(189,666	)
Total stockholders' equity		1,359,305			1,429,643
Total liabilities and stockholders' equity	$	2,288,728		$	2,365,554

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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 December 31,					Three Months Ended December 31,
in thousands	2022			2021		2023			2022
Net sales	$	216,259		$	259,708	$	240,444		$	216,259
Cost of sales		168,680			171,099		149,011			168,680
Gross profit		47,579			88,609		91,433			47,579
Selling, general and administrative expenses		73,444			63,169		77,246			73,444
Loss on disposal of property, plant and equipment							2,185			—
Operating income (loss)		(25,865	)		25,440		12,002			(25,865	)
Other expenses:
Interest expense		9,299			4,148
Total other expenses		9,299			4,148
Other income and expenses:
Interest expense, net							7,910			9,299
Gain on sale of business							(38,515	)		—
Total other income and expenses							(30,605	)		9,299
Income (loss) before income taxes		(35,164	)		21,292		42,607			(35,164	)
Income tax expense (benefit)		(9,328	)		4,585		16,888			(9,328	)
Net income (loss)	$	(25,836	)	$	16,707	$	25,719		$	(25,836	)
Other comprehensive income (loss):
Unrealized gain (loss) due to change in fair value of derivatives, net of tax	$	(1,796	)	$	—
Unrealized loss due to change in fair value of derivatives, net of tax						$	(3,095	)	$	(1,796	)
Total other comprehensive income (loss)		(1,796	)		—		(3,095	)		(1,796	)
Comprehensive income (loss)	$	(27,632	)	$	16,707	$	22,624		$	(27,632	)

Net income (loss) per common share:
Basic	$	(0.17	)	$	0.11	$	0.17		$	(0.17	)
Diluted		(0.17	)		0.11		0.17			(0.17	)

Weighted-average common shares outstanding:
Basic		150,877,635			154,407,244		147,297,662			150,877,635
Diluted		150,877,635			156,854,925		148,876,282			150,877,635

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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

Accumulated Other

Total

Class A

Class B

Paid-In

Accumulated

Comprehensive

Stockholders'

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Income (Loss)

Equity

Balance – September 30, 2022

155,157,220

$
155

100

$

—

4,116,570

$

(73,088
)

$

1,630,378

$

(113,002
)

$

—

$

1,444,443

Net income (loss)

—

—

—

—

—

—

—

(25,836
)

—

(25,836
)
Other comprehensive income (loss)

—

—

—

—

—

—

—

—

(1,796
)

(1,796
)
Stock-based compensation

—

—

—

—

—

—

3,909

—

—

3,909

Exercise of vested stock options

—

—

—

—

—

—

—

—

—

—

Cancellation of restricted stock awards

(14,663
)

—

—

—

—

—

—

—

—

—

Issuance of common stock under employee stock plan, net of shares withheld for taxes

54,308

—

—

—

—

—

(460
)

—

—

(460
)
Treasury stock purchases

—

—

—

—

352,760

(7,488
)

—

—

—

(7,488
)
Balance – December 31, 2022

155,196,865

$

155

100

$

—

4,469,330

$

(80,576
)

$

1,633,827

$

(138,838
)

$

(1,796
)

$

1,412,772

Common Stock

Treasury Stock

Additional

Accumulated Other

Total

Class A

Class B

Paid-In

Accumulated

Comprehensive

Stockholders'

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Income (Loss)

Equity

Balance – September 30, 2021

154,866,313

$
155

100

$

—

—

$

—

$

1,615,236

$

(188,227
)

$

—

$

1,427,164

Net income (loss)

—

—

—

—

—

—

—

16,707

—

16,707

Stock-based compensation

—

—

—

—

—

—

3,970

—

—

3,970

Exercise of vested stock options

143,892

—

—

—

—

—

3,310

—

—

3,310

Cancellation of restricted stock awards

(4,399
)

—

—

—

—

—

—

—

—

—

Issuance of common stock under employee stock plan, net of shares withheld for taxes

26,571

—

—

—

—

—

—

—

—

—

Balance – December 31, 2021

155,032,377

$

155

100

$

—

—

$

—

$

1,622,516

$

(171,520
)

$

—

$

1,451,151


	Common Stock												Treasury Stock							Additional								Accumulated Other				Total
	Class A						Class B													Paid-In				Accumulated				Comprehensive				Stockholders'
	Shares				Amount		Shares				Amount		Shares			Amount				Capital				Deficit				Income (Loss)				Equity
Balance – September 30, 2023		155,967,736		$	156		100			$		—		8,268,423	$		(189,666	)	$		1,662,322		$		(45,047	)	$		1,878		$		1,429,643
Net income		—				—		—				—		—			—				—				25,719				—				25,719
Other comprehensive income (loss)		—				—		—				—		—			—				—				—				(3,095	)			(3,095	)
Stock-based compensation		—				—		—				—		—			—				8,422				—				—				8,422
Exercise of vested stock options		136,885				—		—				—		—			—				3,238				—				—				3,238
Cancellation of restricted stock awards		—				—		—				—		—			—				—				—				—				—
Issuance of common stock under employee stock plan, net of shares withheld for taxes		236,482				—		—				—		—			—				(3,822	)			—				—				(3,822	)
Conversion of Class B common stock into Class A common stock		100				—		(100	)			—		—			—				—				—				—				—
Treasury stock purchases		—				—		—				—		2,291,607			(80,800	)			(20,000	)			—				—				(100,800	)
Balance – December 31, 2023		156,341,203		$		156		—		$		—		10,560,030	$		(270,466	)	$		1,650,160		$		(19,328	)	$		(1,217	)	$		1,359,305

	Common Stock												Treasury Stock							Additional								Accumulated Other				Total
	Class A						Class B													Paid-In				Accumulated				Comprehensive				Stockholders'
	Shares				Amount		Shares				Amount		Shares			Amount				Capital				Deficit				Income (Loss)				Equity
Balance – September 30, 2022		155,157,220		$	155			100		$		—		4,116,570	$		(73,088	)	$		1,630,378		$		(113,002	)	$		—		$		1,444,443
Net loss		—				—		—				—		—			—				—				(25,836	)			—				(25,836	)
Other comprehensive income (loss)		—				—		—				—		—			—				—				-				(1,796	)			(1,796	)
Stock-based compensation		—				—		—				—		—			—				3,909				—				—				3,909
Exercise of vested stock options		—				—		—				—		—			—				—				—				—				—
Cancellation of restricted stock awards		(14,663	)			—		—				—		—			—				—				—				—				—
Issuance of common stock under employee stock plan, net of shares withheld for taxes		54,308				—		—				—		—			—				(460	)			—				—				(460	)
Treasury stock purchases		—				—		—				—		352,760			(7,488	)			—												(7,488	)
Balance – December 31, 2022		155,196,865		$		155		100		$		—		4,469,330	$		(80,576	)	$		1,633,827		$		(138,838	)	$		(1,796	)	$		1,412,772

See Notes to Condensed Consolidated Financial Statements (Unaudited).

The AZEK Company Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)


	Three Months Ended December 31,						Three Months Ended December 31,
	2022			2021			2023			2022
Operating activities:
Net income (loss)	$	(25,836	)	$	16,707		$	25,719		$	(25,836	)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation		22,002			15,202			21,773			22,002
Amortization of intangibles		11,837			12,880			10,164			11,837
Non-cash interest expense		412			1,154			412			412
Non-cash lease expense		(56	)		(39	)		(48	)		(56	)
Deferred income tax (benefit) provision		1,504			4,381			(8,192	)		1,504
Non-cash compensation expense		5,801			3,970			8,422			5,801
Fair value adjustment for contingent consideration		400			—			—			400
Loss (gain) on disposition of property, plant and equipment		(66	)		18
Loss on disposition of property, plant and equipment								2,185			1,003
Gain on sale of business								(38,515	)		—
Changes in certain assets and liabilities:
Trade receivables		21,869			18,057			21,151			21,869
Inventories		(20,978	)		(88,515	)		(62,127	)		(20,978	)
Prepaid expenses and other currents assets		(16,711	)		(3,330	)		(2,031	)		(16,711	)
Accounts payable		13,029			606			(9,319	)		13,029
Accrued expenses and interest		(7,831	)		(11,626	)		15,448			(7,831	)
Other assets and liabilities		1,033			(85	)		(1,330	)		(36	)
Net cash provided by (used in) operating activities		6,409			(30,620	)		(16,288	)		6,409
Investing activities:
Purchases of property, plant and equipment		(30,328	)		(65,333	)		(17,681	)		(30,328	)
Proceeds from disposition of fixed assets		65			32			122			65
Acquisitions, net of cash acquired		—			(91,310	)
Divestiture, net of cash disposed								133,089			—
Net cash provided by (used in) investing activities		(30,263	)		(156,611	)		115,530			(30,263	)
Financing activities:
Payments on 2022 Term Loan Agreement		(1,500	)		—
Payments on Term Loan Agreement								(1,500	)		(1,500	)
Repayments of finance lease obligations		(650	)		(559	)		(713	)		(650	)
Exercise of vested stock options		—			3,310			3,238			—
Cash paid for shares withheld for taxes		(460	)		—			(3,822	)		(460	)
Purchases of treasury stock		(7,488	)		—			(100,000	)		(7,488	)
Net cash provided by (used in) financing activities		(10,098	)		2,751
Net increase (decrease) in cash and cash equivalents		(33,952	)		(184,480	)
Net cash used in financing activities								(102,797	)		(10,098	)
Net decrease in cash and cash equivalents								(3,555	)		(33,952	)
Cash and cash equivalents – Beginning of period		120,817			250,536			278,314			120,817
Cash and cash equivalents – End of period	$	86,865		$	66,056		$	274,759		$	86,865
Supplemental cash flow disclosure:
Cash paid for interest, net of amounts capitalized	$	13,020		$	2,782		$	7,349		$	13,020
Cash paid for income taxes, net		112			(129	)		1,351			112
Supplemental non-cash investing and financing disclosure:
Capital expenditures in accounts payable at end of period	$	16,275		$	5,748		$	2,603		$	16,275
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities		1,968			8,915			2,460			1,968

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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,~~LLC), the entity which directly and indirectly holds all of the equity interests in the operating ~~subsidiaries.~~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, ~~pavers,~~pergolas, outdoor furniture, bathroom and locker systems, ~~as well as~~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 ~~StruXure,~~INTEX®, while the commercial products are branded under ~~the~~ brand names ~~Celtec, Playboard, Seaboard, Flametec, Designboard, Cortec, Sanatec,~~including Scranton Products®, Aria Partitions®, Eclipse Partitions®, Hiny Hiders® partitions, Tufftec Lockers® and Duralife ~~Lockers.~~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 months ended December 31, ~~2022~~2023 and the cash flows for the three months ended December 31, ~~2022~~2023 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 a number of factors, including, but not limited to, the ~~current COVID-19 public health pandemic. The economic effects~~cost to manufacture and distribute products, cost 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 conditionraw materials, inflation, consumer spending and ~~results of operations, these measures may not fully mitigate~~preferences, interest rates, the impact of ~~the COVID-19 pandemic on~~any supply chain disruptions, economic conditions, and/or any adverse effects from geopolitical conflicts, global health pandemics and other factors beyond the Company’s ~~business, financial condition and results of operations.~~control. Management cannot predict the degree to, or the period over, which the Company ~~will~~may be affected by ~~the COVID-19 pandemic and resulting governmental and other measures.~~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 ~~2022~~2023 Form 10-K. The Condensed Consolidated Balance Sheet as of September 30, ~~2022~~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 the ~~2022~~2023 Form 10-K, 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 Company’s ~~2022~~2023 Form 10-K for a discussion of the Company’s accounting policies, as updated below and for recently adopted accounting standards.

~~Derivatives~~

The Company uses interest rate swap agreements to hedge its exposure to interest rate risk on its Senior Secured Credit Facilities. The Company designates derivatives that meet specific accounting criteria as qualifying hedges at inception. These criteria require the Company to have the expectation that the derivative will be highly effective at offsetting changes in the fair value or expected cash flows of the hedged exposure, both at inception of the hedging relationship and on an ongoing basis.

The Company recognizes all derivative instruments at fair value and classifies them on the balance sheet as either Other current assets, Other assets, Accrued expenses and other liabilities or Other non-current liabilities. The interest rate swap agreements are designated as cash flow hedges. For cash flow hedges, the Company records the effective portion of the change in fair value of the derivative as part of Accumulated other comprehensive income and recognizes those changes in earnings in the period the hedged transaction affects earnings. The Company recognizes any ineffective portion of the change in the fair value of the derivative immediately in earnings.

~~Refer to Note 11~~ ~~in the Notes to Condensed Consolidated Financial Statements~~ ~~for additional information.~~

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.~~Income (Loss). Total research and development expenses were ~~$2.1~~$3.1 million and ~~$2.0~~$2.1 million, respectively, for the three months ended December 31, ~~2022~~2023 and ~~2021.~~2022.

Recently Adopted Accounting Pronouncements

OnNone.

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, ~~2021,~~2024. The Company is currently evaluating the ~~Company adopted~~impact the adoption of this standard will have on its disclosures.

In December 2023, the FASB issued ASU ~~No. 2019-12,~~ 2023-09, Income Taxes (Topic 740)~~—Simplifying the Accounting for~~: Improvements to Income ~~Taxes~~Tax Disclosures. This standard ~~simplifies~~expands the ~~accounting~~disclosure requirements primarily on the rate reconciliation and income tax paid. For public entities, this standard is effective for ~~income taxes by removing certain exceptions~~annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company intends to ~~general principles in Topic 740 and clarifying and amending existing guidance.~~adopt the updated standard during the fiscal year beginning October 1, 2025. The Company is currently evaluating the impact the adoption of ~~the~~this standard ~~did not~~will have ~~a material impact~~ on ~~the Company’s Consolidated Financial Statements.~~its disclosures.

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 ~~$54.6~~$67.9 million and ~~$49.1~~$54.6 million as of December 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and contra trade receivables of ~~$6.5~~$4.5 million and ~~$4.7~~$6.5 million as of December 31, 2023 and 2022, ~~and 2021,~~ respectively. The rebate activity was as follows (in thousands):

Three Months Ended December 31,

2022

2021

Beginning balance

$
56,542

$
47,648

Rebate expense

15,716

16,150

Rebate payments

(11,192
)

(9,957
)
Ending balance

$
61,066

$
53,841


	Three Months Ended December 31,
	2023			2022
Beginning balance	$	66,958		$	56,542
Rebate expense		22,239			15,716
Rebate payments		(16,804	)		(11,192	)
Ending balance	$	72,393		$	61,066

The Company records deferred revenue when cash payments are received or due in advance of the Company’s performance.

3. ~~BUSINESS COMBINATIONS~~

DIVESTITURE

On ~~August~~November 1, ~~2022,~~2023, the Company ~~acquired INTEX Millwork Solutions, LLC, a New Jersey LLC, or INTEX,~~completed the sale of its Vycom business within the Commercial segment for ~~a total purchase price~~net proceeds of approximately ~~$25.7 million, which consisted of $19.9 million in cash and $5.8 million in contingent consideration, subject~~$133.1 million. The divestiture allows the Company 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.

~~The acquisition was accounted for as a business combination 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 ofthe 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 thatcontributed to the recognition of goodwill primarily relate to future economic benefits arising from expected sales.~~

~~The following table represents the preliminary allocation of assets acquired and liabilities assumed~~focus on the ~~acquisition date as~~highest value portions of its business and provides additional cash to finance its capital allocation priorities. The gain on sale of $38.5 million was recognized in "Gain on sale of business" within the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended December 31, ~~2022 (in thousands):~~2023. 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.

(US dollars in thousands)

Total

Cash and cash equivalents

$
4,279

Trade receivables

790

Inventories

1,902

Other current assets

52

Property and equipment

3,612

Intangible assets

9,300

ROU assets

580

Accounts payable

(250
)
Accrued expenses

(510
)
Current lease liabilities

(114
)
Noncurrent lease liabilities

(466
)
Total identifiable assets

19,175

Goodwill

6,557

Net assets acquired/total consideration

25,732

Less: cash acquired

(4,279
)
Total consideration net of cash acquired

$
21,453

As of the acquisition date, total intangible assets and goodwill amounted to $15.9 million, comprised of $7.3 million related to customer relationships, $1.1 million related to proprietary knowledge and $0.9 million related to trademarks, as well as $6.6 million in goodwill. It is expected that $6.6 million of the goodwill is deductible for tax purposes. The estimated useful life for customer relationships is 12 years, and proprietary knowledge and trademarks is 10 years. The intangible assets weighted average useful life at the date of acquisition was 11.6 years.

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 thousands

December 31,
2022

September 30,
2022

Raw materials

$
66,026

$
72,464

Work in process

42,190

39,829

Finished goods

212,667

187,612

Total inventories

$
320,883

$
299,905


in thousands	December 31, 2023		September 30, 2023
Raw materials	$	60,918	$	67,330
Work in process		31,742		37,038
Finished goods		168,902		116,733
Total inventories	$	261,562	$	221,101

5. PROPERTY, PLANT AND EQUIPMENT—NET

Property, plant and equipment – net consisted of the following (in thousands):

	December 31, 2022			September 30, 2022
Land and improvements	$	4,829		$	3,350
							December 31, 2023			September 30, 2023
Land							$	3,209		$	4,829
Buildings and improvements		115,451			110,300			103,824			129,031
Manufacturing equipment		565,320			540,536			595,551			624,754
Computer equipment		28,882			28,198			32,561			32,300
Furniture and fixtures		7,167			6,867			6,614			7,290
Vehicles		929			941			1,163			1,105
Total property and equipment		722,578			690,192			742,922			799,309
Construction in progress		124,282			140,566			79,314			94,422
		846,860			830,758			822,236			893,731
Accumulated depreciation		(333,730	)		(312,845	)		(365,732	)		(392,708	)
Total property and equipment – net	$	513,130		$	517,913		$	456,504		$	501,023

Depreciation expense was approximately ~~$22.0~~$20.5 million and ~~$15.2~~$20.8 million in the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. During the three months ended December 31, 2023 and 2022, ~~and 2021, $1.3~~$1.1 million and ~~$1.1~~$1.3 million of interest was capitalized, respectively.

6. GOODWILL AND INTANGIBLE ASSETS—NET

Goodwill

Goodwill consisted of the following (in thousands):


	Residential		Commercial			Total
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 December 31, 2023	$	953,882	$	13,934		$	967,816
Accumulated impairment losses as of December 31, 2023		—		—			—
Goodwill, net as of December 31, 2023	$	953,882	$	13,934		$	967,816

Residential

Commercial

Total

Goodwill as of September 30, 2022

$
953,606

$
40,389

$
993,995

Acquisitions

—

—

—

Goodwill as of December 31, 2022

$
953,606

$
40,389

$
993,995

Accumulated impairment losses as of September 30, 2022

—

32,200

32,200

Accumulated impairment losses as of December 31, 2022

$
—

$
32,200

$
32,200

Intangible assets, net

The Company did ~~not~~not have any indefinite lived intangible assets other than goodwill as of December 31, ~~2022~~2023 and September 30, ~~2022.~~ 2023. Finite-lived intangible assets consisted of the following (in thousands):

December 31, 2022

Lives in
Years

Gross
Carrying
Value

Accumulated
Amortization

Net
Carrying
Value

Proprietary knowledge

10 — 15

$
300,400

$
(240,484
)

$
59,916

Trademarks

5 — 20

230,240

(154,692
)

75,548

Customer relationships

12 — 19

176,852

(81,672
)

95,180

Patents

9 — 10

8,500

(5,216
)

3,284

Other intangibles

3 — 15

4,076

(4,006
)

70

Total intangible assets

$
720,068

$
(486,070
)

$
233,998


		December 31, 2023
	Lives in Years	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Proprietary knowledge	10 — 15	$	300,400	$	(257,358	)	$	43,042
Trademarks	5 — 20		217,640		(158,382	)		59,258
Customer relationships	12 — 19		156,452		(77,558	)		78,894
Patents	9 — 10		8,500		(6,138	)		2,362
Other intangibles	3 — 15		4,076		(4,028	)		48
Total intangible assets		$	687,068	$	(503,464	)	$	183,604


		September 30, 2023
	Lives in Years	Gross Carrying Value		Accumulated Amortization			Net Carrying Value
Propriety knowledge	10 — 15	$	300,400	$	(253,608	)	$	46,792
Trademarks	5 — 20		230,240		(164,759	)		65,481
Customer relationships	12 — 19		176,852		(92,268	)		84,584
Patents	9 — 10		8,500		(5,913	)		2,587
Other intangible assets	3 — 15		4,076		(4,023	)		53
Total intangible assets		$	720,068	$	(520,571	)	$	199,497

September 30, 2022

Lives in
Years

Gross
Carrying
Value

Accumulated
Amortization

Net
Carrying
Value

Propriety knowledge

10 — 15

$
300,400

$
(236,024
)

$
64,376

Trademarks

5 — 20

230,240

(151,259
)

78,981

Customer relationships

12 — 19

176,852

(78,015
)

98,837

Patents

9 — 10

8,500

(4,950
)

3,550

Other intangible assets

3 — 15

4,076

(3,985
)

91

Total intangible assets

$
720,068

$
(474,233
)

$
245,835

Amortization expense was ~~$11.8~~$10.2 million and ~~$12.9~~$11.8 million in the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. As of December 31, ~~2022,~~2023, the remaining weighted-average amortization period for acquired intangible assets was ~~11.3~~ 11.1 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 December 31,
	2023			2022
Beginning balance	$	1,773		$	1,397
Provision		(433	)		277
Divestiture		(32	)		—
Ending balance	$	1,308		$	1,674

Three Months Ended December 31,

2022

2021

Beginning balance
$
1,397

$
1,109

Provision

277

(45
)

Bad debt write-offs

—

10

Ending balance
$
1,674

$
1,074

Accrued Expenses and Other Liabilities

Accrued expenses consisted of the following (in thousands):


	December 31, 2023		September 30, 2023
Taxes	$	28,168	$	6,959
Employee related liabilities		20,673		34,313
Marketing		4,799		3,868
Lease liability - operating		4,559		4,180
Customer deposits		3,771		4,152
Warranty		2,927		2,739
Lease liability - finance		2,829		2,777
Freight		1,833		1,242
Utilities		1,802		2,141
Professional fees		1,706		2,073
Construction in progress		1,530		2,863
Commissions		873		991
Other		5,529		3,696
Total accrued expenses and other current liabilities	$	80,999	$	71,994

December 31, 2022

September 30, 2022

Employee related liabilities

$
31,627

$
36,866

Construction in progress

9,236

9,032

Marketing

5,379

4,272

Lease liability - operating

5,119

5,223

Lease liability - finance

2,524

2,366

Warranty

2,492

2,900

Freight

2,384

1,821

Customer deposits

1,787

2,494

Professional fees

1,466

2,089

Other

5,474

5,526

Total accrued expenses and other current liabilities

$
67,488

$
72,589

8. DEBT

Debt consisted of the following (in thousands):

December 31, 2022

September 30, 2022

2022 Term Loan due April 28, 2029 — SOFR + 2.50% + 0.1% (6.92% at December 31, 2022 and 4.09% at September 30, 2022)

$
598,500

$
600,000

Revolving Credit Facility through March 31, 2026 - LIBOR + 1.25%

—

—

Total

598,500

600,000

Less unamortized deferred financing costs

(4,533
)

(4,712
)
Less unamortized original issue discount

(4,241
)

(4,409
)
Less current portion

(6,000
)

(6,000
)
Long-term debt—less current portion and unamortized
deferred financing costs

$
583,726

$
584,879

~~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. On April 28, 2022, the obligations under the


	December 31, 2023			September 30, 2023
Term Loan due April 28, 2029 — SOFR + 2.50% + 0.1% (7.96% at December 31, 2023 and 7.92% at September 30, 2023)	$	592,500		$	594,000
Revolving Credit Facility through March 31, 2026 - SOFR + 0.1%		—			—
Total		592,500			594,000
Less unamortized deferred financing costs		(3,818	)		(3,996	)
Less unamortized original issue discount		(3,571	)		(3,739	)
Less current portion		(6,000	)		(6,000	)
Long-term debt—less current portion and unamortized deferred financing costs	$	579,111		$	580,265

Term Loan Agreement ~~were paid off in full and the Term Loan Agreement was terminated.~~

On April 28, 2022, CPG International LLC entered into a new $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 April 28, 2029, subject to acceleration or prepayment. The ~~2022~~ Term Loan Agreement will amortize in equal quarterly installments of ~~0.25%~~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 alternative base rate, or ABR, borrowings, the highest of (a) the Federal Funds Rate plus ~~0.50%~~0.50%, (b) the Prime Rate as in effect on such day and (c) the one-month Term ~~SOFR rate~~Secured Overnight Financing Rate ("SOFR") plus ~~1.00%~~1.00% per annum, provided that in no event will the alternative base rate be less than ~~1.50%~~1.50% per annum, plus an applicable margin of ~~1.50%~~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%~~2.50%. As of December 31, ~~2022~~2023 and September 30, ~~2022, CPG International~~2023, The AZEK Group LLC had ~~$598.5~~$592.5 million and ~~$600.0~~$594.0 million outstanding under the ~~2022~~ Term Loan Agreement.

The obligations under the ~~2022~~ Term Loan Agreement are secured by a first priority security interest in the membership interests of ~~CPG International~~The AZEK Group LLC owned by the Company, the equity interests of ~~CPG International~~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, ~~CPG International~~The AZEK Group LLC and the subsidiaries of ~~CPG International~~The AZEK Group 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~~The AZEK Group 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 ending September 30, 2023, a percentage of excess cash flow (subject to step-downs upon ~~CPG International~~The AZEK Group 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 December 31, ~~2022,~~2023 and September 30, ~~2022,~~2023, unamortized deferred financing fees related to the ~~2022~~ Term Loan Agreement were ~~$4.5~~$3.8 million and ~~$4.7~~$4.0 million, respectively.

Revolving Credit Facility

~~CPG International~~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 direct and indirect subsidiaries and certain lenders party thereto. The Revolving Credit Facility provides for maximum aggregate borrowings of up to ~~$150.0~~$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~~The AZEK Group LLC had no outstanding borrowings under the Revolving Credit Facility as of December 31, ~~2022~~2023 and September 30, ~~2022,~~2023, respectively. In addition, ~~CPG International~~The AZEK Group LLC had ~~$2.8~~$2.2 million and $2.8 million of outstanding letters of credit held against the Revolving Credit Facility as of ~~both~~ December 31, ~~2022~~2023 and September 30, ~~2022. CPG International~~2023, respectively. The AZEK Group LLC had approximately ~~$147.2~~$147.8 million available under the borrowing base for future borrowings as of December 31, ~~2022. CPG International~~2023. The AZEK Group LLC also has the option to increase the commitments under the Revolving Credit Facility by up to ~~$100.0~~$100.0 million, subject to certain conditions.

On ~~March 31, 2021, CPG International~~January 26, 2023, The AZEK Group LLC amended the Revolving Credit Facility, ~~resulting~~replacing all LIBOR-based provisions with provisions reflecting SOFR, including, without limitation, the use of a new Adjusted Term SOFR benchmark rate equal to Term SOFR (as defined in the Revolving Credit Agreement) plus 0.10%.

As of December 31, 2023, outstanding revolving loans under the Revolving Credit Facility bore interest at a ~~repricing and extension thereof. Pursuant to such amendment,~~rate which equaled, at the ~~interest rate has been reduced by 25 basis points to~~ Company's option, either (i) for ABR borrowings, the highest of (a) the Federal Funds Rate plus 50 basis points, (b) the prime rate and (c) the ~~LIBOR~~Adjusted Term SOFR 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~~SOFR borrowings, ~~adjusted LIBOR~~the Adjusted Term SOFR plus a spread of 125 to 175 basis points, based on average historical ~~availability.~~availability. The maturity date for the Revolving Credit Facility ~~was extended from May 9, 2022 to~~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.

On January 26, 2023, CPG International LLC further amended the Revolving Credit Facility, replacing all LIBOR-based provisions with provisions reflecting the Secured Overnight Financing Rate (“SOFR”), including, without limitation, the use of a new Adjusted Term SOFR benchmark rate equal to Term SOFR (as defined in the Revolving Credit Agreement) plus 0.10%.

Deferred financing costs, net of accumulated amortization, related to the Revolving Credit Facility at December 31, ~~2022~~2023 and September 30, ~~2022~~2023 were ~~$0.9~~$0.6 million and ~~$0.9~~$0.7 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. 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 ~~$0.1~~$0.1 million and ~~$0.1~~$0.1 million for the three months ended December 31, 2023 and 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~~The AZEK Group LLC and the subsidiaries of ~~CPG International~~The AZEK Group 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. ~~CPG International~~The AZEK Group 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.

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, ~~CPG International~~The AZEK Group 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 1.0 to ~~1.0;~~1.0; subject to ~~CPG International~~The AZEK Group 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 December 31, ~~2022, CPG International~~2023, The AZEK Group 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.

Interest expense consisted of the following (in thousands):

	Three Months Ended December 31,
	2022			2021			Three Months Ended December 31,
Interest expense
2022 Term Loan Agreement	$	8,916		$	—
							2023			2022
Interest expense:
Term Loan Agreement		—			3,884		$	11,358		$	8,916
Revolving Credit Facility		151			163			150			151
Other		1,109			866			1,123			1,109
Amortization - Debt issue costs
2022 Term Loan Agreement		179			—
Amortization - Deferred financing costs
Term Loan Agreement		—			254			179			179
Revolving Credit Facility		66			66			66			66
2022 Term Loan OID		167			—
Term Loan OID		—			30
Amortization - Original issue discount
Term Loan Agreement								167			167
Capitalized interest		(1,289	)		(1,115	)		(1,079	)		(1,289	)
Interest expense	$	9,299		$	4,148			11,964			9,299

Interest income								(4,054	)		—
Interest expense, net							$	7,910		$	9,299

See Note 11 for the fair value of the Company’s debt as of December 31, ~~2022~~2023 and September 30, ~~2022.~~2023.

9. PRODUCT WARRANTIES

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.Warranty coverage depends on the product involved. The warranty reserve activity consisted of the following (in thousands):

Three Months Ended December 31,

2022

2021

Beginning balance

$
15,023

$
12,699

Adjustments to reserve

(172
)

467

Warranty claims payment

(313
)

(485
)
Accretion - purchase accounting valuation

—

—

Ending balance

14,538

12,681

Current portion of accrued warranty

(2,492
)

(2,885
)
Accrued warranty – less current portion

$
12,046

$
9,796


	Three Months Ended December 31,
	2023			2022
Beginning balance	$	16,195		$	15,023
Adjustments to reserve		(542	)		(172	)
Warranty claims payment		(624	)		(313	)
Ending balance		15,029			14,538
Current portion of accrued warranty		(2,927	)		(2,492	)
Accrued warranty – less current portion	$	12,102		$	12,046

10. LEASES

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 December 31, ~~2022~~2023 and September 30, ~~2022,~~2023, 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, or ROU, 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 1 year to 20 years.

Lease assets and lease liabilities as of December 31, ~~2022~~2023 and September 30, ~~2022~~2023 were as follows (in thousands):


Leases	Classification on Balance Sheet	December 31, 2023		September 30, 2023
Assets
ROU operating lease assets	Other assets	$	16,068	$	15,423
ROU finance lease assets	Other assets		70,554		71,529
Total lease assets		$	86,622	$	86,952
Liabilities
Current
Operating	Accrued expenses and other liabilities	$	4,559	$	4,180
Finance	Accrued expenses and other liabilities		2,829		2,777
Non-Current
Operating	Other non-current liabilities		13,916		13,699
Finance	Other non-current liabilities		75,276		75,718
Total lease liabilities		$	96,580	$	96,374

Leases
Classification on Balance Sheet

December 31, 2022

September 30, 2022

Assets

ROU operating lease assets
Other assets

$
18,670

$
19,724

Finance lease assets
Other assets

74,035

73,541

Total lease assets

$
92,705

$
93,265

Liabilities

Current

Operating
Accrued expenses and other liabilities

$
5,119

$
5,223

Finance
Accrued expenses and other liabilities

2,524

2,366

Non-Current

Operating
Other non-current liabilities

16,255

17,261

Finance
Other non-current liabilities

76,639

75,706

Total lease liabilities

$
100,537

$
100,556

The components of lease expense for the three months ended December 31, ~~2022~~2023 and ~~2021~~2022 were as follows:


	Three Months Ended December 31,
(in thousands)	2023			2022
Operating lease expense	$	1,478		$	1,501
Finance lease amortization of assets		1,301			1,248
Finance lease interest on lease liabilities		1,107			1,092
Short term		86			103
Sublease income		(28	)		(71	)
Total lease expense	$	3,944		$	3,873

Three Months Ended December 31,

(in thousands)
2022

2021

Operating lease expense
$
1,501

$
1,170

Finance lease amortization of assets

1,248

717

Finance lease interest on lease liabilities

1,092

804

Short term

103

42

Sublease income

(71
)

(119
)
Total lease expense
$
3,873

$
2,614

The tables below present supplemental information related to leases as of December 31, ~~2022~~2023 and September 30, ~~2022:~~2023:


Weighted-average remaining lease term (years)	December 31, 2022			September 30, 2022			December 31, 2023			September 30, 2023
Operating leases		6.8			6.9			6.4			6.8
Finance leases		26.0			26.5			25.3			25.4
Weighted-average discount rate
Operating leases		4.2	%		4.1	%		4.7	%		4.4	%
Finance leases		5.9	%		5.9	%		5.8	%		5.8	%

The following table summarizes the maturities of lease liabilities at December 31, ~~2022:~~2023:


(in thousands)	Operating Leases			Finance Leases			Total
2024	$	4,045		$	5,358		$	9,403
2025		4,719			7,105			11,824
2026		2,844			6,942			9,786
2027		2,105			6,480			8,585
2028		1,841			5,278			7,119
Thereafter		6,071			117,012			123,083
Total lease payments		21,625			148,175			169,800
Less: interest		(3,150	)		(70,070	)		(73,220	)
Present value of lease liability	$	18,475		$	78,105		$	96,580

(in thousands)

Operating Leases

Finance Leases

Total

2023

$
4,555

$
5,153

$
9,708

2024

4,636

6,741

11,377

2025

3,780

6,629

10,409

2026

2,497

6,476

8,973

2027

1,877

6,070

7,947

Thereafter

7,695

122,216

129,911

Total lease payments

25,040

153,285

178,325

Less: interest

(3,666
)

(74,122
)

(77,788
)
Present value of lease liability

$
21,374

$
79,163

$
100,537

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.

Derivative Instruments

The Company’s objective in using interest rate derivative instruments is to hedge against interest rate volatility associated with its ~~Senior Secured Credit Facilities~~senior secured credit facilities by converting a portion of its floating rate debt to fixed rate debt. In November 2022, the Company entered into two interest rate swap agreements with Barclays Bank PLC ~~(“Barclays”)~~ to manage interest rate risk related to ~~2022~~ Term Loan. Each agreement has a notional amount of ~~$150~~$150 million and will expire on October 31, ~~2025.~~2025. One agreement swaps variable interest at a rate based on SOFR with a fixed rate of ~~4.39%~~4.39% and the second with a fixed rate of ~~4.48%~~4.48%.

At the inceptions of the swap agreements and as of December 31, ~~2022,~~2023, both swaps were designated and qualified as cash flow hedges in accordance with ASC 815. ~~Their~~The gain (loss) is recorded in Accumulated other comprehensive income (loss) and then reclassified into Interest expense in the same period in which the hedged transaction affects earnings. As of December 31, ~~2022,~~2023, the Company expects to reclass approximately ~~$1.0~~$0.6 million ($~~0.7~~0.4 million after-tax) as a reduction to interest expense in the next 12 months.

The following table provides the fair values of the interest rate derivative instruments as well as their classification on the Balance Sheet as of December 31, ~~2022~~2023 and September 30, ~~2022~~2023 (in thousands):


			Fair Value as of						Fair Value as of
	Fair Value Hierarchy	Balance Sheet Location	December 31, 2022		September 30, 2022		Fair Value Hierarchy	Balance Sheet Location	December 31, 2023		September 30, 2023
Assets
Interest rate swaps	Level 2	Other current assets	$	1,048	$	—	Level 2	Other current assets	$	677	$	2,558
Liabilities
Interest rate swaps	Level 2	Other non-current liabilities	$	3,491	$	—	Level 2	Other non-current liabilities	$	2,300	$	65

The Company estimates the fair value of interest rate swaps using a valuation model based on observable market data, such as yield curves. Both swaps are classified as Level 2 measurement in the fair value hierarchy.

The following table ~~provides~~summarizes the effects of the interest rate derivative instruments ~~in Statements of Income and~~ on Accumulated other comprehensive income (loss) ~~as of~~for the three months ended December 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):

Cash Flow Hedge - Amount of Gain
(Loss) Recognized in Other
Comprehensive Income (Loss)

Location of Gain (Loss) Reclassified
from Accumulated Other

Cash Flow Hedge - Amount of Gain
(Loss) Reclassified from Accumulated
Other Comprehensive Income (Loss)

Three Months Ended December 31,

Comprehensive Income (Loss)

Three Months Ended December 31,

2022

2021

into Income

2022

2021

Interest rate swaps

$
(1,796
)

$
—

Interest expense

$
(74
)

$
—


	Before-tax Amount			Income Tax Expense			Net of Tax Amount
Balance - September 30, 2023	$	2,493		$	615		$	1,878
Amount of loss recognized in other comprehensive income (loss)		(3,437	)		(840	)		(2,596	)
Amount of gain reclassified from accumulated other comprehensive income (loss) into net income (loss)		(678	)		(180	)		(499	)
Balance - December 31, 2023	$	(1,622	)	$	(405	)	$	(1,217	)


	Before-tax Amount			Income Tax Expense			Net of Tax Amount
Balance - September 30, 2022	$	—		$	—		$	—
Amount of loss recognized in other comprehensive income (loss)		(2,544	)		(674	)		(1,870	)
Amount of loss reclassified from accumulated other comprehensive income (loss) into net income (loss)		101			27			74
Balance - December 31, 2022	$	(2,443	)	$	(647	)	$	(1,796	)

Other Financial Instruments

The carrying values and the estimated fair values of the debt financial instruments (Level 2 measurements) consisted of the following (in thousands):


	December 31, 2023				September 30, 2023
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Term Loan due April 28, 2029	$	592,500	$	596,944	$	594,000	$	595,485

December 31, 2022

September 30, 2022

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

2022 Term Loan due April 28, 2029

$
598,500

$
586,530

$
600,000

$
586,500

Financial instruments remeasure at fair value on a recurring basis – During the year ended September 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 zero to ~~$13.9~~$13.9 million. At the date of acquisition, the fair value was estimated to be ~~$9.5~~$9.5 million. As of ~~December~~March 31, ~~2022,~~2023, the fair value was increased to ~~$11.4~~$12.7 million based on the actual EBITDA amount for StruXure. Compensation expense of ~~$9.5~~$9.5 million was recognized for the year ended September 30, 2022 and ~~$1.9~~$3.2 million was recognized for the ~~three months~~year ended ~~December 31, 2022.~~September 30, 2023. The Company paid $

12.7 million as settlement of the contingent liability in April, 2023.

In connection with the acquisition of INTEX on August 1, 2022, the Company entered into a contingent consideration arrangement with the former owner of INTEX. The contingent consideration is based on achievement of a minimum gross profit amount for calendar year 2022. Based on the formula, the potential contingent consideration can range from zero to ~~$6.2~~$6.2 million. At the date of the acquisition, the fair value was estimated to be ~~$5.8~~$5.8 million. As of December 31, 2022, the fair value was increased to ~~$6.2~~$6.2 million. Contingent payment of ~~$5.8~~$5.8 million was included in the acquisition purchase price at the date of acquisition and the change in fair value of ~~$0.4~~$0.4 million was recognized in selling, general and administrative expense for the ~~three months~~year ended ~~December 31, 2022~~September 30, 2023. The Company paid $.6.2 million as settlement of this contingent liability in fiscal year 2023.

12. 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 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, pergolas, outdoor structures, exterior trim, siding 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~~Regional recyclers provides full-service recycled PVC material processing, sourcing, logistical support, and scrap management ~~programs.~~programs that are utilized in our finished goods manufacturing processes. This segment is impacted by trends in and the strength of home repair and remodel activity.

• 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.~~bathroom partitions. This segment is impacted by trends in and the strength of the repair and remodel sector. This segment also previously included the Company’s Vycom business, which manufactured resin-based extruded sheeting products for a variety of commercial and industrial applications. The Company sold the Vycom business on November 1, 2023. See Note 3 for additional information on the divestiture.

The segment data below includes data for Residential and Commercial for the three months ended December 31, ~~2022~~2023 and ~~2021~~2022 (in thousands).


	Three Months Ended December 31,
	2023			2022
Net sales to customers
Residential	$	223,000		$	179,484
Commercial		17,444			36,775
Total	$	240,444		$	216,259
Adjusted EBITDA
Residential (1)	$	52,762		$	9,946
Commercial		2,905			5,154
Total Adjusted EBITDA for reporting segments	$	55,667		$	15,100
Adjustments to Income before income tax provision
Depreciation and amortization		(31,937	)		(33,840	)
Stock-based compensation costs		(8,468	)		(3,957	)
Acquisition and divestiture costs (2)		(492	)		(2,954	)
Gain on sale of business (3)		38,515			—
Other costs (4)		(2,768	)		(214	)
Interest expense, net		(7,910	)		(9,299	)
Income (loss) before income tax provision	$	42,607		$	(35,164	)

Three Months Ended
December 31,

2022

2021

Net sales to customers

Residential
$
179,484

$
221,133

Commercial

36,775

38,575

Total
$
216,259

$
259,708

Adjusted EBITDA

Residential
$
26,007

$
69,431

Commercial

5,154

4,748

Total Adjusted EBITDA for reporting segments
$
31,161

$
74,179

Unallocated net expenses

(16,061
)

(15,659
)
Adjustments to Income before income tax provision

Depreciation and amortization

(33,840
)

(28,082
)
Stock-based compensation costs

(3,957
)

(4,016
)
Acquisition costs (1)

(2,435
)

(497
)
Other costs (2)

(733
)

(485
)
Interest expense, net

(9,299
)

(4,148
)
Income (loss) before income tax provision
$
(35,164
)

$
21,292

(1)

Effective as of December 31, 2023, Residential segment Adjusted EBITDA includes all corporate expenses, such as selling, general and administrative costs related to our corporate offices, including payroll and other professional fees. The prior period has been recast to reflect the change.

(2)

Acquisition and divestiture costs reflect costs related to divestiture of $0.5 million for both the three months ended December 31, 2023 and 2022, respectively, and costs directly related to completed acquisitions of $2.4 million in the three months ended December 31, 2022.

(3)

Gain on sale of business relates to the sale of the Vycom business.

(4)

Other costs reflect costs related to the removal of dispensable equipment resulting from a modification of our manufacturing process of $2.4 million in the three months ended December 31, 2023, reduction in workforce costs of $0.3 million in the three months ended December 31, 2023, and costs for legal expenses of $0.1 million and $0.2 million in the three months ended December 31, 2023 and 2022, respectively.

~~(1)~~

~~Acquisition costs reflect costs directly related to completed acquisitions of $2.4 million and $0.5 million in the three months ended December 31, 2022 and 2021, respectively.~~

~~(2)~~

Other costs include costs for legal expense of $0.2 million and $0.3 million in the three months ended December 31, 2022 and 2021, respectively, costs related to an incentive plan and other ancillary expenses associated with the initial public offering of $0.1 million for the three months ended December 31, 2021, and other costs of $0.5 million and $0.1 million for the three months ended December 31, 2022 and 2021, respectively.

13. CAPITAL STOCK

Share Repurchase Program

On May 5, 2022, the Board of Directors authorized the Company to repurchase up to ~~$400~~$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.

~~In the fiscal year ended September 30, 2022,~~On December 4, 2023, the Company ~~repurchased 2,508,906 shares of its Class A common stock under~~entered into a ~~$50~~$100 million accelerated share repurchase agreement, ~~at an~~or the “ASR” with Goldman Sachs & Co. LLC, or “Goldman Sachs”. Goldman Sachs delivered 2,291,607 initial shares to the Company on December 6, 2023, based on the closing price of the Company’s Class A common stock of $34.91 on December 4, 2023. The total value of the initial shares represents 80% of the $100 million ASR. The final settlement will be based on the volume-weighted average price of ~~$19.93 per share.~~ the Company's Class A common stock over the repurchase period, subject to certain adjustments. The Company expects to settle the ASR in the second quarter of fiscal year 2024.

During the ~~same period,~~three months ended December 31, 2022, the Company ~~also~~ repurchased ~~1,607,664~~352,760 shares of its Class A common stock on the open market at an average price of ~~$19.58~~$21.23 per share, totaling an approximately ~~$31.5~~$7.5 million reacquisition cost. During the three months ended December 31, 2022, the Company repurchased an additional 352,760 shares of its Class A common stock on the open market at an average price of $21.23 per share, totaling an approximately $7.5 million reacquisition cost.

~~As of December 31, 2022, the Company had approximately $311.0 million available for repurchases under the Share Repurchase Program.~~

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), that includes, among other provisions, a one percent excise tax on net repurchases of stock after December 31, 2022. For the three months ended December 31, 2023, the Company recognized $0.8 ~~The Company expects the~~million excise tax ~~to apply to its~~as reacquisition cost of share repurchases.

As of December 31, 2023, the Company had approximately $101.1 million available for repurchases under the Share Repurchase ~~Program, but does not expect the excise tax to have a material effect on its business.~~Program.

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 15,852,319 shares with ~~2,688,067~~2,219,224 shares remaining in the reserve. The total aggregate number of shares may be adjusted as determined by the Board of Directors.

On December 11, 2023, the Compensation Committee of the Board of Directors authorized certain changes to a former employee’s stock-based awards which were effective in connection with his retirement. These changes allow certain awards to continue to vest in due course following retirement and extend the exercisability of certain outstanding and exercisable stock options to the end of the contractual term of the options. This resulted in a Type III Modification (improbable to probable) as defined in accounting guidance, accounted for as a cancellation of the original award and an issuance of a new grant, as well as, a Type I Modification (probable to probable), accounted for as an exchange of the original award for a new grant under the revised terms. The modifications resulted in $1.9 million of stock-based compensation expense in the three months ended December 31, 2023.

Stock-based compensation expense for the three months ended December 31, 2023 and 2022 ~~and 2021~~ was ~~$4.0~~$8.5 million and ~~$4.0~~$4.0 million, respectively, recognized in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Comprehensive ~~Income.~~Income (Loss). Total income tax benefit for the three months ended December 31, 2023 and 2022 ~~and 2021~~ was ~~$0.8~~$1.7 million and ~~$0.8~~$0.8 million, respectively. As of December 31, ~~2022,~~2023, the Company had not yet recognized compensation cost on unvested stock-based awards of ~~$39.4~~$36.6 million, with a weighted average remaining recognition period of ~~2.2~~2.0 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 ten years of the grant date.

The following table sets forth the significant assumptions used for the calculation of stock-based compensation expense for the three months ended December 31, ~~2022~~2023 and ~~2021:~~2022:


	December 12, 2022 Grant Date			November 19, 2021 Grant Date			December 15, 2023 Grant Date			December 12, 2022 Grant Date
Risk-free interest rate		3.77	%		1.34	%		3.93	%		3.77	%
Expected volatility		40.00	%		40.00	%		40.00	%		40.00	%
Expected term (in years)		6.00			6.00			6.00			6.00
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%

Stock Options

The following table summarizes the performance-based stock option activity for the three months ended December 31, ~~2022:~~2023:


	Number of Shares				Weighted Average Exercise Price Per Share		Weighted Average Remaining Contract Term		Aggregate Intrinsic Value
							(in years)		(in thousands)
Outstanding at October 1, 2023		1,114,261		$		23.00
Granted		—				—
Exercised		(60,261	)			23.00
Cancelled/Forfeited		—				—
Outstanding at December 31, 2023		1,054,000				23.00		6.4		16,074
Vested and exercisable at December 31, 2023		1,054,000		$		23.00		6.4		16,074

Number
of Shares

Weighted
Average
Exercise
Price Per
Share

Weighted
Average
Remaining
Contract
Term

Aggregate
Intrinsic
Value

(in years)

(in thousands)

Outstanding at October 1, 2022

1,410,653

$

23.00

Granted

—

—

Exercised

—

—

Cancelled/Forfeited

(2,174
)

23.00

Outstanding at December 31, 2022

1,408,479

23.00

7.1

—

Vested and exercisable at December 31, 2022

1,408,479

$

23.00

7.1

—

The following table summarizes the service-based stock option activity for the three months ended December 31, ~~2022:~~2023:

	Number of Shares				Weighted Average Exercise Price Per Share		Weighted Average Remaining Contract Term		Aggregate Intrinsic Value
							(in years)		(in thousands)		Number of Shares				Weighted Average Exercise Price Per Share		Weighted Average Remaining Contract Term		Aggregate Intrinsic Value
Outstanding at October 1, 2022		3,557,194		$		25.57
																	(in years)		(in thousands)
Outstanding at October 1, 2023												3,361,707		$		25.43
Granted		250,477				20.18						138,731				38.15
Exercised		—				—						(76,624	)			24.17
Cancelled/Forfeited		(31,281	)			23.00						—				—
Outstanding at December 31, 2022		3,776,390				25.23		7.7		42
Vested and exercisable at December 31, 2022		2,179,215		$		23.88		7.3		—
Outstanding at December 31, 2023												3,423,814				25.97		7.0		43,493
Vested and exercisable at December 31, 2023												2,475,222		$		24.78		6.7		33,921

Restricted Stock Awards

A summary of the service-based restricted stock awards activity during the three months ended December 31, ~~2022~~2023 was as follows:

	Number of Shares				Weighted Average Grant Date Fair Value
							Number of Shares				Weighted Average Grant Date Fair Value
Outstanding and unvested at October 1, 2022		275,628		$		23.00

Outstanding and unvested at October 1, 2023								82,481		$		23.00
Granted		—				—		—				—
Vested		(20,483	)			23.00		(6,845	)			23.00
Forfeited		(14,663	)			23.00		—				—
Outstanding and unvested at December 31, 2022		240,482		$		23.00
Outstanding and unvested at December 31, 2023								75,636		$		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.

A summary of the performance-based restricted stock unit awards activity for the three months ended December 31, ~~2022~~2023 presented at target was as follows:


	Number of Shares				Weighted Average Grant Date Fair Value

Outstanding and unvested at October 1, 2023		508,622		$		26.72
Granted		215,462				38.15
Vested		(123,821	)			34.82
Forfeited		(3,308	)			28.01
Outstanding and unvested at December 31, 2023		596,955		$		28.91

Number
of Shares

Weighted
Average
Grant Date
Fair Value

Outstanding and unvested at October 1, 2022

221,469

$

37.51

Granted

317,033

20.18

Vested

—

—

Forfeited

(4,470
)

38.04

Outstanding and unvested at December 31, 2022

534,032

$

27.22

Restricted Stock Units

A summary of the service-based restricted stock unit awards activity for the three months ended December 31, ~~2022~~2023 was as follows:


	Number of Shares				Weighted Average Grant Date Fair Value

Outstanding and unvested at October 1, 2023		786,096		$		25.42
Granted		204,796				38.12
Vested		(224,591	)			28.14
Forfeited		(2,102	)			24.85
Outstanding and unvested at December 31, 2023		764,199		$		28.01

Number
of Shares

Weighted
Average
Grant Date
Fair Value

Outstanding and unvested at October 1, 2022

574,499

$

31.14

Granted

384,712

20.17

Vested

(78,358
)

38.18

Forfeited

(9,601
)

34.09

Outstanding and unvested at December 31, 2022

871,252

$

25.63

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, and, therefore, no allocation to participating securities or dilutive securities is performed.

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. 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 December 31,
	2023		2022
Numerator:
Net income (loss)	$	25,719	$	(25,836	)
Net income (loss) attributable to common stockholders - basic and diluted	$	25,719	$	(25,836	)
Denominator:
Weighted-average shares of common stock
Basic		147,297,662		150,877,635
Diluted		148,876,282		150,877,635
Net income (loss) per share attributable to common stockholders:
Net income (loss) per common share - basic	$	0.17	$	(0.17	)
Net income (loss) per common share - diluted	$	0.17	$	(0.17	)

Three Months Ended December 31,

2022

2021

Numerator:

Net income (loss)
$
(25,836
)

$
16,707

Net income (loss) attributable to
  common stockholders
  - basic and diluted
$
(25,836
)

$
16,707

Denominator:

Weighted-average shares of common stock

Basic

150,877,635

154,407,244

Diluted

150,877,635

156,854,925

Net income (loss) per share attributable
  to common stockholders:

Net income (loss) per common share - basic
$
(0.17
)

$
0.11

Net income (loss) per common share - diluted
$
(0.17
)

$
0.11

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 December 31,
	2023		2022
Stock Options		547,890		5,010,161
Restricted Stock Units		108,736		531,462

Three Months Ended December 31,

2022

2021

Stock Options

5,010,161

254,208

Restricted Stock Units

531,462

117,835

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 December 31, 2023 and 2022 were 39.6% and ~~2021 were 26.5% and 21.5%~~26.5%, respectively. The increase in the effective income tax rate for the three months ended December 31, ~~2022,~~2023, as compared to the three months ended December 31, ~~2021, is~~2022, was primarily driven by the ~~impact~~tax effects related to the sale of ~~updated forecast state tax assumptions and year-to-date disallowed stock-based compensation expense on~~ the ~~Company’s current earnings.~~Vycom business.

17. 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~~Discovery has been completed, and the ~~nature~~Company filed motions for summary judgment in April 2023. On November 8, 2023, the court granted the Company's motions for summary judgment seeking to dismiss Scranton Products Inc. and ~~extent of~~The AZEK Company Inc. but denied the ~~Company’s exposure is currently being determined.~~ Company's motions for summary judgment seeking to dismiss The ~~Company expects a range of loss of $0.4 million to $0.5 million.~~AZEK Group LLC and Vycom Corp. A trial date has been set for May 2024.

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~~legal actions to which it may be subject, 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.

18. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)

The AZEK Company Inc. (parent company only)

Balance Sheets

(In thousands of U.S. dollars, except for share and per share amounts)

December 31,
2022

September 30,
2022

ASSETS:

Non-current assets:

Investments in subsidiaries

$
1,412,772

$
1,444,443

Total non-current assets

1,412,772

1,444,443

Total assets

$
1,412,772

$
1,444,443

LIABILITIES AND STOCKHOLDERS’ EQUITY:

Total liabilities

$
—

$
—

Stockholders’ equity:

Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares
   issued or outstanding at December 31, 2022 and September 30, 2022,
   respectively

—

—

Class A common stock, $0.001 par value; 1,100,000,000 shares authorized,
   155,196,865 shares issued at December 31, 2022 and 155,157,220 shares
   issued at September 30, 2022

155

155

Class B common stock, $0.001 par value; 100,000,000 shares authorized,
   100 shares issued and outstanding at December 31, 2022 and at September 30,
   2022, respectively

—

—

Additional paid‑in capital

1,633,827

1,630,378

Accumulated deficit

(138,838
)

(113,002
)
Accumulated other comprehensive income (loss)

(1,796
)

—

Treasury stock, at cost, 4,469,330 and 4,116,570 shares at December 31, 2022
   and September 30, 2022, respectively

(80,576
)

(73,088
)
Total stockholders’ equity

1,412,772

1,444,443

Total liabilities and stockholders’ equity

$
1,412,772

$
1,444,443

Three Months Ended December 31,

2022

2021

Net income (loss) of subsidiaries

$
(25,836
)

$
16,707

Net income (loss) of subsidiaries

$
(25,836
)

$
16,707

Comprehensive income (loss)

$
(27,632
)

$
16,707


	December 31, 2023			September 30, 2023
ASSETS:
Non-current assets:
Investments in subsidiaries	$	1,359,305		$	1,429,643
Total non-current assets		1,359,305			1,429,643
Total assets	$	1,359,305		$	1,429,643
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Total liabilities	$	—		$	—

Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued or outstanding at December 31, 2023 and September 30, 2023, respectively		—			—
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 156,341,203 and 155,967,736 shares issued at December 31, 2023 and September 30, 2023, respectively		156			156
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 0 shares and 100 shares issued and outstanding at December 31, 2023 and September 30, 2023, respectively		—			—
Additional paid‑in capital		1,650,160			1,662,322
Accumulated deficit		(19,328	)		(45,047	)
Accumulated other comprehensive income (loss)		(1,217	)		1,878
Treasury stock, at cost, 10,560,030 and 8,268,423 shares at December 31, 2023 and September 30, 2023, respectively		(270,466	)		(189,666	)
Total stockholders’ equity		1,359,305			1,429,643
Total liabilities and stockholders’ equity	$	1,359,305		$	1,429,643


	Three Months Ended December 31,
	2023		2022
Net income (loss) of subsidiaries	$	25,719	$	(25,836	)
Net income (loss) of subsidiaries	$	25,719	$	(25,836	)
Comprehensive income (loss)	$	22,624	$	(27,632	)

The AZEK Company Inc. did not have any cash as of December 31, ~~2022~~2023 or September 30, ~~2022, accordingly~~2023. 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 ~~25%~~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.

Dividends from Subsidiaries

There were ~~$7.5~~$100.0 million and ~~$0.0~~$7.5 million in cash dividends paid to The AZEK Company Inc. from the Company’s consolidated subsidiaries during the three months ended December 31, 2023 and 2022, respectively. Cash dividends of $100.0 million were used to fund the ASR during the three months ended December 31, 2023 and ~~2021. The $7.5~~$7.5 million in cash dividends were used to fund share repurchases on the open ~~market.~~market during the three months ended December 31, 2022.

Restricted Payments

~~CPG International~~The AZEK Group 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~~The AZEK Group LLC is not permitted to make certain payments unless those payments are consistent with exceptions ~~outlined~~set forth 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.~~8.

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 ~~2022~~2023 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC, on November 29, ~~2022,~~2023, or our ~~2022~~2023 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 climate change and extreme weather events, ~~the COVID-19 pandemic~~global health pandemics or geopolitical conflicts, such as the conflict between Russia and Ukraine and the conflict in the Middle East, statements about the markets in which we operate and the economy more generally, including inflation and interest rates, ~~supply and demand balance,~~ 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, statements about potential share repurchases, 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 ~~2022~~2023 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 outdoor living products, including TimberTech® decking, Versatex® and AZEK® Trim, and StruXure® pergolas. Homeowners ~~are investing~~continue to invest in their homes and outdoor spaces and we believe are increasingly recognizing the significant advantages of engineered, long-lasting products, which ~~are converting~~convert 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, cladding, pergolas ~~cladding~~and cabanas 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~~In our Residential segment, ~~serves the high-growth outdoor living market~~our primary consumer brands, TimberTech and AZEK, are recognized by ~~offering products that inspire~~contractors and consumers for their premium aesthetics, uncompromising quality and performance, and diversity of style and design options. Prior to ~~design outdoor spaces tailored to their individual lifestyles. Our innovative portfolio~~our divestiture of ~~outdoor living products, including decking, railing, exterior trim, pergolas and cabanas and accessories, are sold under~~ our ~~TimberTech, AZEK Exteriors, VERSATEX, ULTRALOX, StruXure and INTEX 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 industrial and chemical industries. Products sold byVycom business on November 1, 2023, our Commercial segment ~~include highly~~manufactured engineered ~~polymer sheeting as well as~~sheet products and high-quality bathroom partitions ~~lockers~~ and ~~storage solutions.~~lockers. Following the divestiture of our Vycom business, our Commercial segment will continue to manufacture high-quality bathroom partitions and lockers. 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.

Economic Environment; Global Events

~~We expect~~Our business and financial performance may be affected by the macroeconomic and geopolitical environment, including increased inflation, ~~and~~elevated rising interest rates ~~will continue~~and geopolitical conflicts. For example, elevated interest rates and inflation levels may negatively impact the ability of consumers to purchase our products and may increase our raw material costs. Our business, financial condition and results of operations could be ~~a critical factor affecting~~adversely affected if we are not able to pass any associated costs on to our customers or otherwise mitigate the ~~overall business climate as well as~~impact of these pressures on us or our consumers. In addition, our business may be impacted by the direct and ~~demand for our products. During the first quarter~~indirect effects of ~~fiscal 2023, our channel partners met demand partially through inventory drawdowns causing us to experience a~~ ~~recalibration of channel~~ ~~inventory and negatively impacting sales for the period. We believe this recalibration in our~~ ~~Residential segment~~ is complete and 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 executing on our long-term strategy.

In addition, 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 furthergeopolitical conflicts, including possible disruptions to global supply chains generally and our supply chain in particular ~~fluctuating 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~~companies, which 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.

Finally, we expect that the direct and indirect economic effects of the COVID-19 pandemic will likely continue to affect demand for our products 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.

We are unable to fully predict the impact that the above events and conditions will have on the global economy, our industry or our business, financial condition, results of operations or cash ~~flows~~.flows. See also Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk” of this Quarterly Report on Form 10-Q and Part 1, Item 1A “Risk Factors” of our ~~2022~~2023 Form 10-K.

Recent ~~Acquisition~~Divestiture

On ~~August~~November 1, ~~2022,~~2023, we ~~acquired INTEX Millwork Solutions, LLC, a New Jersey LLC, or INTEX,~~completed the sale of our Vycom business within the Commercial segment for ~~a total purchase price~~net proceeds of approximately ~~$25.7~~$133.1 million. The divestiture allows us to focus on the highest value portions of its business and provides additional cash to finance its capital allocation priorities. We recognized a pre-tax gain on sale of $38.5 million which consisted of $19.9 million cash and $5.8 million contingent consideration, 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 financedduring the ~~acquisition with cash on hand.~~three months ended December 31, 2023.

Results of Operations

Three Months Ended December 31, ~~2022~~2023 Compared to Three Months Ended December 31, ~~2021~~2022

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 December 31, ~~2022~~2023 and ~~2021.~~2022.


	Three Months Ended December 31,											Three Months Ended December 31,
(U.S. dollars in thousands)	2022			2021		$ Variance			% Variance			2023			2022			$ Variance			% Variance
Net sales	$	216,259		$	259,708	$	(43,449	)		(16.7	)%	$	240,444		$	216,259		$	24,185			11.2	%
Cost of sales		168,680			171,099		(2,419	)		(1.4	)%		149,011			168,680			(19,669	)		(11.7	)%
Gross profit		47,579			88,609		(41,030	)		(46.3	)%		91,433			47,579			43,854			92.2	%
Selling, general and administrative expenses		73,444			63,169		10,275			16.3	%		77,246			73,444			3,802			5.2	%
Loss on disposal of property, plant and equipment													2,185			—			2,185		N/M%
Operating income (loss)		(25,865	)		25,440		(51,305	)		(201.7	)%		12,002			(25,865	)		37,867			146.4	%
Interest expense, net		9,299			4,148		5,151			124.2	%		7,910			9,299			(1,389	)		(14.9	)%
Gain on sale of business													(38,515	)		—			(38,515	)	N/M%
Income tax expense (benefit)		(9,328	)		4,585		(13,913	)		(303.4	)%		16,888			(9,328	)		26,216			281.0	%
Net income (loss)	$	(25,836	)	$	16,707	$	(42,543	)		(254.6	)%	$	25,719		$	(25,836	)	$	51,555			199.5	%

“N/M” indicates the variance as a percentage is not meaningful.

Net Sales

Net sales for the three months ended December 31, ~~2022 decreased~~2023 increased by ~~$43.4~~$24.2 million, or ~~16.7%~~11.2%, to ~~$216.3~~$240.4 million from ~~$259.7~~$216.3 million for the three months ended December 31, ~~2021.~~2022. The ~~decrease~~increase was primarily due to an ~~approximately 33% decline~~increase in volume ~~primarily as a result of the channel inventory reductions~~in our Residential segment attributable to ~~better calibrate inventory to historical average levels discussed above,~~key growth initiatives driving demand for AZEK products, partially offset by ~~positive pricing and a $20.9 million net sales contribution from recent acquisitions.~~the sale of our Vycom business in our Commercial segment. Net sales for the three months ended December 31, ~~2022 decreased~~2023 increased for our Residential segment by ~~18.8%~~24.2% and decreased for our Commercial segment by ~~4.7%~~52.6%, ~~in each case~~respectively, as compared to the prior year period.

Cost of Sales

Cost of sales for the three months ended December 31, ~~2022~~2023 decreased by ~~$2.4~~$19.7 million, or ~~1.4%~~11.7%, to ~~$168.7~~$149.0 million from ~~$171.1~~$168.7 million for the three months ended December 31, ~~2021~~2022 primarily due to ~~decreased costs on~~ lower ~~sales volumes, partially offset by higher~~ raw material ~~costs.~~costs driven by certain commodity deflation and higher utilization of manufacturing capacity.

Gross Profit

Gross profit for the three months ended December 31, ~~2022 decreased~~2023 increased by ~~$41.0~~$43.9 million, or ~~46.3%~~92.2%, to ~~$47.6~~$91.4 million from ~~$88.6~~$47.6 million for the three months ended December 31, ~~2021.~~2022. The ~~decrease~~increase in gross profit was primarily driven by ~~the~~higher net sales, lower ~~sales results in the Residential~~raw material costs and ~~Commercial segments.~~higher plant utilization. Gross profit as a percent of net sales ~~decreased~~increased to 38.0% for the three months ended December 31, 2023 compared to 22.0% for the three months ended December 31, ~~2022 compared~~2022.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $3.8 million, or 5.2%, to ~~34.1%~~$77.2 million, or 32.1% of net sales, for the three months ended December 31, ~~2021.~~

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative expenses increased by $10.3 million, or 16.3%, to~~2023 from $73.4 million, or 34.0% of net sales, for the three months ended December 31, ~~2022~~2022. The increase was primarily due to higher stock-based compensation and marketing and selling costs, partially offset by lower personnel costs.

Loss on Disposal of Property, Plant and Equipment

Loss on disposal of property, plant and equipment was $2.2 million in the three months ended December 31, 2023, primarilyrelated to the removal of dispensable equipment resulting from ~~$63.2~~a modification of our manufacturing process.

Interest Expense, net

Interest expense, net, decreased by $1.4 million, or ~~24.3% of net sales,~~14.9%, to $7.9 million for the three months ended December 31, ~~2021. The increase was primarily due to contribution~~2023 from ~~acquisitions, higher marketing expenses and acquisition costs.~~

~~Interest Expense, net~~

~~Interest expense, net, increased by $5.2 million, or 124.2%, to~~ $9.3 million for the three months ended December 31, ~~2022 from $4.1 million for the three months ended December 31, 2021.~~2022. Interest expense, net ~~increased~~decreased due to interest income, partially offset by a higher interest rate ~~and principal balance~~on outstanding debt during the three months ended December 31, ~~2022,~~2023, when compared to the three months ended December 31, ~~2021.~~2022.

Gain On Sale Of Business

Gain on sale of business was $38.5 million during the three months ended December 31, 2023, which related to the divestiture of our Vycom business within the Commercial segment.

Income Tax Expense (Benefit)

Income tax expense ~~(benefit) decreased~~increased by ~~$13.9~~$26.2 million to ~~$(9.3)~~$16.9 million for the three months ended December 31, 2023 compared to income tax benefit of $9.3 million for the three months ended December 31, 2022. The increase in our income tax expense was primarily driven by our higher pre-tax income as well as the gain from the sale of our Vycom business.

Net Income (Loss)

Net income increased by $51.6 million to $25.7 million for the three months ended December 31, 2023 compared to net loss of $25.8 million for the three months ended December 31, 2022, ~~compared to $4.6 million for the three months ended December 31, 2021. The decrease in our income tax expense was primarily driven by the pre-tax operating losses.~~

~~Net Income (Loss)~~

~~Net income (loss) decreased by $42.5 million to $(25.8) million for the three months ended December 31, 2022 compared to $16.7 million for the three months ended December 31, 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 $0.5 million to $21.2 million for the three months ended December 31, 2022, from $20.7 million for the three months ended December 31, 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 months ended December 31, ~~2022~~2023 and ~~2021.~~2022.


	Three Months Ended December 31,
(U.S. dollars in thousands)	2023			2022			$ Variance		% Variance
Net sales	$	223,000		$	179,484		$	43,516		24.2	%
Segment Adjusted EBITDA (1)		52,762			9,946			42,816		430.5	%
Segment Adjusted EBITDA Margin		23.7	%		5.5	%	N/A		N/A

Three Months Ended December 31,

(U.S. dollars in thousands)

2022

2021

$
Variance

%
Variance

Net sales

$
179,484

$
221,133

$
(41,649
)

(18.8
)%
Segment Adjusted EBITDA

26,007

69,431

(43,424
)

(62.5
)%
Segment Adjusted EBITDA Margin

14.5
%

31.4
%

N/A

N/A

(1)

Net Sales

Net sales for the three months ended December 31, ~~2022 decreased~~2023 increased by ~~$41.6~~$43.5 million, or ~~18.8%~~24.2%, to ~~$179.5~~$223.0 million from ~~$221.1~~$179.5 million for the three months ended December 31, ~~2021.~~2022. The ~~decrease~~increase was attributable to ~~lower~~higher net sales related to our Deck, Rail & Accessories ~~businesses as a result of channel inventory reductions to better calibrate inventory to historical average levels discussed above, partially offset by positive growth in~~and our Exteriors ~~business and a $20.9 million net sales contribution from recent acquisitions.~~businesses.

Segment Adjusted EBITDA

Segment Adjusted EBITDA for the three months ended December 31, ~~2022 decreased~~2023 increased by ~~$43.4~~$42.8 million, or ~~62.5%~~430.5%, to ~~$26.0~~$52.8 million from ~~$69.4~~$9.9 million for the three months ended December 31, ~~2021.~~2022. The ~~decrease~~increase was mainly driven by ~~lower~~higher net sales, ~~higher~~lower raw material costs and higher plant utilization, partially offset by higher marketing and selling ~~and marketing expenses and manufacturing costs.~~expenses.

~~Commercial~~26

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 months ended December 31, ~~2022~~2023 and ~~2021.~~2022.


	Three Months Ended December 31,												Three Months Ended December 31,
(U.S. dollars in thousands)	2022			2021			$ Variance			% Variance			2023			2022			$ Variance			% Variance
Net sales	$	36,775		$	38,575		$	(1,800	)		(4.7	)%	$	17,444		$	36,775		$	(19,331	)		(52.6	)%
Segment Adjusted EBITDA		5,154			4,748			406			8.6	%		2,905			5,154			(2,249	)		(43.6	)%
Segment Adjusted EBITDA Margin		14.0	%		12.3	%	N/A			N/A				16.7	%		14.0	%	N/A			N/A

Net Sales

Net sales for the three months ended December 31, ~~2022~~2023 decreased by ~~$1.8~~$19.3 million, or ~~4.7%~~52.6%, to ~~$36.8~~$17.4 million from ~~$38.6~~$36.8 million for the three months ended December 31, ~~2021. The decrease was~~2022, primarily ~~attributable~~due to ~~lower~~the sale of our Vycom business. Vycom net sales ~~in our Vycom and Scranton Products businesses.~~were $3.3 million for the three months ended December 31, 2023 (prior to its divestiture on November 1, 2023) compared to $21.7 million for the three months ended December 31, 2022.

Segment Adjusted EBITDA

Segment Adjusted EBITDA of the Commercial segment was $2.9 million for the three months ended December 31, 2023, compared to $5.2 million for the three months ended December 31, ~~2022, compared to $4.7 million for the three months ended December 31, 2021.~~2022. The ~~increase~~decrease was primarily driven by lower net ~~manufacturing productivity.~~sales due to the sale of our Vycom business, partially offset by lower material costs.

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.

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 December 31,
(U.S. dollars in thousands, except per share amounts)	2023			2022
GAAP Financial Measures:
Gross Profit	$	91,433		$	47,579
Gross Profit Margin		38.0	%		22.0	%
Net Income (Loss)	$	25,719		$	(25,836	)
Net Income (Loss) Per Common Share - Diluted	$	0.17		$	(0.17	)
Net Profit Margin		10.7	%		(11.9	)%
Net Cash Provided By (Used In) Operating Activities	$	(16,288	)	$	6,409
Net Cash Provided By (Used In) Investing Activities	$	115,530		$	(30,263	)
Net Cash Used In Financing Activities	$	(102,797	)	$	(10,098	)

Three Months Ended December 31,

(U.S. dollars in thousands, except per share amounts)

2022

2021

Adjusted Gross Profit

$
71,898

$
107,090

Adjusted Gross Profit Margin

33.2
%

41.2
%
Adjusted Net Income (Loss)

$
(13,852
)

$
28,757

Adjusted Diluted EPS

$
(0.09
)

$
0.18

Adjusted EBITDA

$
15,100

$
58,520

Adjusted EBITDA Margin

7.0
%

22.5
%


	Three Months Ended December 31,
(U.S. dollars in thousands, except per share amounts)	2023			2022
Non-GAAP Financial Measures:
Adjusted Gross Profit	$	95,302		$	52,185
Adjusted Gross Profit Margin		39.6	%		24.1	%
Adjusted Net Income (Loss)	$	15,602		$	(13,852	)
Adjusted Diluted EPS	$	0.10		$	(0.09	)
Adjusted EBITDA	$	55,667		$	15,100
Adjusted EBITDA Margin		23.2	%		7.0	%
Free Cash Flow	$	(33,969	)	$	(23,919	)

Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA, ~~and~~ Adjusted EBITDA Margin and Free Cash Flow

WeBeginning for the three months ended December 31, 2023, we define Adjusted Gross Profit as gross profit before ~~depreciation and~~ amortization, business transformation costs, acquisition costs and ~~acquisition~~certain other costs as described below. Prior to the three months ended December 31, 2023, depreciation was also excluded from Adjusted Gross Profit. We believe that including depreciation expense in our Adjusted Gross Profit definition will result in easier comparability to our peers. Adjusted Gross Profit Margin is equal to Adjusted Gross Profit divided by net sales. Presentations of Adjusted Gross Profit and Adjusted Gross Profit Margin for prior periods have been recast to conform to the current period presentation for comparability. We define Adjusted Net Income as net income (loss) before amortization, stock-based compensation costs, business transformation costs, acquisition costs, initial public offering and secondary 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 below. 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~~For example, we add back ~~depreciation and~~ amortization and certain stock-based compensation costs when calculating Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income and Adjusted Diluted EPS because we do not consider them indicative of our core operating performance. We believe their exclusion, and the exclusion of certain other expenses as described herein, 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;

•

Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin exclude the expense of amortization of our assets, and Adjusted EBITDA and Adjusted EBITDA Margin also exclude the expense of depreciation 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, Adjusted EBITDA and Adjusted EBITDA Margin 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, Adjusted EBITDA and Adjusted EBITDA Margin 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.

•

~~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;~~

•

Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted EBITDA Margin exclude the expense of amortization of our assets, and Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA and Adjusted EBITDA Margin also exclude the expense of depreciation 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

•

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.

In addition, we provide Free Cash Flow, which is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities less purchases of property, plant and equipment. We believe Free Cash Flow is useful to investors as an important liquidity measure of the cash that is available to us after capital expenditures. Free Cash Flow is used by our management as a measure of our ability to generate and use cash, including in order to invest in future growth, fund acquisitions, return capital to our stockholders and repay indebtedness. Our use of Free Cash Flow has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results under GAAP. Some of these limitations are:

•

Free Cash Flow is not a substitute for net cash provided by (used in) operating activities, including because our capital expenditures as a manufacturing company can be significant and can vary from period to period;

•

Free Cash Flow does not reflect our future contractual commitments or mandatory debt repayments and accordingly does not represent residual cash flow available for discretionary expenditures or the total increase or decrease in our cash balance for a given period; and

•

Other companies in our industry may calculate Free Cash Flow differently than we do, limiting its usefulness as a comparative measure.

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 December 31,
(U.S. dollars in thousands)	2023		2022
Gross Profit	$	91,433	$	47,579
Amortization (1)		3,869		4,606
Adjusted Gross Profit	$	95,302	$	52,185


	Three Months Ended December 31,
	2023			2022
Gross Profit Margin		38.0	%		22.0	%
Amortization		1.6	%		2.1	%
Adjusted Gross Profit Margin		39.6	%		24.1	%

Three Months Ended December 31,

(U.S. dollars in thousands)

2022

2021

Gross Profit

$
47,579

$
88,609

Depreciation and amortization (1)

24,319

18,481

Adjusted Gross Profit

$
71,898

$
107,090

(1)

Effective as of December 31, 2023, we revised the definition of Adjusted Gross Profit to no longer exclude depreciation expense. The prior period has been recast to reflect the change.

Three Months Ended December 31,

2022

2021

Gross Margin

22.0
%

34.1
%
Depreciation and amortization

11.2
%

7.1
%
Adjusted Gross Profit Margin

33.2
%

41.2
%

~~(1)~~

Depreciation and amortization for the three months ended December 31, 2022 and 2021 consists of $19.7 million and $13.6 million, respectively, of depreciation and $4.6 million and $4.9 million, respectively, of amortization of intangible assets relating to our manufacturing process.

Adjusted Net Income and Adjusted Diluted EPS Reconciliation


	Three Months Ended December 31,
(U.S. dollars in thousands, except per share amounts)	2023			2022
Net income (loss)	$	25,719		$	(25,836	)
Amortization		10,164			11,837
Stock-based compensation costs (1)		2,925			1,259
Acquisition and divestiture costs (2)		492			2,954
Gain on sale of business (3)		(38,515	)		—
Other costs (4)		2,768			214
Tax impact of adjustments (5)		12,049			(4,280	)
Adjusted Net Income (Loss)	$	15,602		$	(13,852	)


	Three Months Ended December 31,
	2023			2022
Net income (loss)	$	0.17		$	(0.17	)
Amortization		0.07			0.08
Stock-based compensation costs		0.02			0.01
Acquisition and divestiture costs		—			0.02
Gain on sale of business		(0.26	)		—
Other costs		0.02			—
Tax impact of adjustments		0.08			(0.03	)
Adjusted Diluted EPS (6)	$	0.10		$	(0.09	)

Three Months Ended December 31,

(U.S. dollars in thousands, except per share amounts)

2022

2021

Net income (loss)

$
(25,836
)

$
16,707

Amortization

11,837

12,880

Stock-based compensation (1)

1,259

1,960

Acquisition costs (2)

2,435

497

Other costs (3)

733

485

Tax impact of adjustments (4)

(4,280
)

(3,772
)
Adjusted Net Income (Loss)

$
(13,852
)

$
28,757

(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)

(3)

Gain on sale of business relates to the sale of the Vycom business.

(4)

(5)

Tax impact of adjustments, except for gain on sale of business, are based on applying a combined U.S. federal and state statutory tax rate of 26.5% for the three months ended December 31, 2023 and 2022, respectively. Tax impact of adjustment for gain on sale of business is based on applying a combined U.S. federal and state statutory tax rate of 42.1% for the three months ended December 31, 2023.

(6)

Weighted average common shares outstanding used in computing diluted net income per common share of 148,876,282 and 150,877,635 for the three months ended December 31, 2023 and 2022, respectively.

Three Months Ended December 31,

2022

2021

Net income (loss)

$
(0.17
)

$
0.11

Amortization

0.08

0.08

Stock-based compensation

0.01

0.01

Acquisition costs

0.02

—

Other costs

—

—

Tax impact of adjustments

(0.03
)

(0.02
)
Adjusted Diluted EPS (5)

$
(0.09
)

$
0.18

~~(1)~~

~~(2)~~

~~Acquisition costs reflect costs directly related to completed acquisitions of $2.4 million and $0.5 million in the three months ended December 31, 2022 and 2021, respectively.~~

~~(3)~~

~~(4)~~

~~Tax impact of adjustments are based on applying a combined U.S. federal and state statutory tax rate of 26.5% and 24.5% for the three months ended December 31, 2022 and 2021, respectively.~~

~~(5)~~

~~Weighted average common shares outstanding used in computing diluted net income per common share of 150,877,635 and 156,854,925 for the three months ended December 31, 2022 and 2021, respectively.~~

Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation


	Three Months Ended December 31,
(U.S. dollars in thousands)	2023			2022
Net income (loss)	$	25,719		$	(25,836	)
Interest expense, net		7,910			9,299
Depreciation and amortization		31,937			33,840
Income tax expense (benefit)		16,888			(9,328	)
Stock-based compensation costs		8,468			3,957
Acquisition and divestiture costs (1)		492			2,954
Gain on sale of business (2)		(38,515	)		—
Other costs (3)		2,768			214
Total adjustments		29,948			40,936
Adjusted EBITDA	$	55,667		$	15,100

Three Months Ended December 31,

(U.S. dollars in thousands)

2022

2021

Net income (loss)

$
(25,836
)

$
16,707

Interest expense

9,299

4,148

Depreciation and amortization

33,840

28,082

Income tax expense (benefit)

(9,328
)

4,585

Stock-based compensation

3,957

4,016

Acquisition costs (1)

2,435

497

Other costs (2)

733

485

Total adjustments

40,936

41,813

Adjusted EBITDA

$
15,100

$
58,520


	Three Months Ended December 31,
	2023			2022
Net profit margin		10.7	%		(11.9	)%
Interest expense, net		3.3	%		4.3	%
Depreciation and amortization		13.3	%		15.7	%
Income tax expense (benefit)		7.0	%		(4.3	)%
Stock-based compensation costs		3.5	%		1.8	%
Acquisition and divestiture costs		0.2	%		1.3	%
Gain on sale of business		(16.0	)%		0.0	%
Other costs		1.2	%		0.1	%
Total adjustments		12.5	%		18.9	%
Adjusted EBITDA Margin		23.2	%		7.0	%

Three Months Ended December 31,

2022

2021

Net income (loss)

(11.9
)%

6.4
%
Interest expense

4.3
%

1.6
%
Depreciation and amortization

15.7
%

10.8
%
Income tax expense (benefit)

(4.3
)%

1.8
%
Stock-based compensation

1.8
%

1.5
%
Acquisition costs

1.1
%

0.2
%
Other costs

0.3
%

0.2
%
Total adjustments

18.9
%

16.1
%
Adjusted EBITDA Margin

7.0
%

22.5
%
(1)

(2)

Gain on sale of business relates to the sale of the Vycom business.

(3)

Free Cash Flow Reconciliation


	Three Months Ended December 31,
(U.S. dollars in thousands)	2023			2022
Net cash provided by (used in) operating activities	$	(16,288	)	$	6,409
Less: Purchases of property, plant and equipment		(17,681	)		(30,328	)
Free Cash Flow	$	(33,969	)	$	(23,919	)
Net cash provided by (used in) investing activities	$	115,530		$	(30,263	)
Net cash used in financing activities	$	(102,797	)	$	(10,098	)

~~(1)~~

~~Acquisition costs reflect costs directly related to completed acquisitions of $2.4 million and $0.5 million in the three months ended December 31, 2022 and 2021, respectively.~~

~~(2)~~

Liquidity and Capital Resources

Liquidity Outlook

Our primary cash needs are to fund operations, working capital, capital expenditures, debt service, share repurchases and any acquisitions we may undertake. As of December 31, ~~2022,~~2023, we had cash and cash equivalents of ~~$86.9~~$274.8 million and total indebtedness of ~~$598.5~~$592.5 million. The AZEK Group LLC (f/k/a CPG International ~~LLC,~~LLC), our direct, wholly owned subsidiary, had approximately ~~$147.2~~$147.8 million available under the borrowing base for future borrowings as of December 31, ~~2022. CPG International~~2023. The AZEK Group 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 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~~The AZEK Group 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 us and the wholly owned domestic subsidiaries of ~~CPG International~~The AZEK Group LLC other than certain immaterial subsidiaries and other excluded subsidiaries.

The Senior Secured Credit Facilities contain covenants restricting payments of dividends by ~~CPG International~~The AZEK Group 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~~The AZEK Group 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 our and our subsidiaries’ restricted net assets 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~~The AZEK Group 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~~The AZEK Group LLC (as successor-in-interest to CPG Merger Sub LLC, a limited liability company formed to effect the acquisition of ~~CPG International~~The AZEK Group 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 ~~each of~~ December 31, ~~2022~~2023 and September 30, ~~2022, CPG International~~2023, The AZEK Group LLC had no outstanding borrowings under the Revolving Credit Facility and had $2.2 million and $2.8 million of outstanding letters of credit held against the Revolving Credit ~~Facility.~~Facility, respectively. As of both December 31, ~~2022~~2023 and September 30, ~~2022, CPG International~~2023, The AZEK Group LLC had approximately ~~$147.2~~$147.8 million and $147.2 million, respectively available under the borrowing base for future borrowings in addition to cash and cash equivalents on hand of ~~$86.9~~$274.8 million and ~~$120.8~~$278.3 million, respectively. ~~Because~~As 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 three months ended December 31, ~~2022~~2023 and ~~2021.~~2022.

Cash Flows


	Three Months Ended December 31,												Three Months Ended December 31,
(U.S. dollars in thousands)	2022			2021			$ Variance			% Variance			2023			2022			$ Variance			% Variance
Net cash provided by (used in) operating activities	$	6,409		$	(30,620	)	$	37,029			(120.9	)%	$	(16,288	)	$	6,409		$	(22,697	)		(354.1	)%
Net cash provided by (used in) investing activities		(30,263	)		(156,611	)		126,348			(80.7	)%		115,530			(30,263	)		145,793			481.8	%
Net cash provided by (used in) financing activities		(10,098	)		2,751			(12,849	)		(467.1	)%
Net increase (decrease) in cash	$	(33,952	)	$	(184,480	)	$	150,528			(81.6	)%
Net cash used in financing activities														(102,797	)		(10,098	)		(92,699	)		(918.0	)%
Net decrease in cash													$	(3,555	)	$	(33,952	)	$	30,397			89.5	%

Operating Activities

Net cash provided by (used in) operating activities was ~~$6.4~~$(16.3) million and ~~$(30.6)~~$6.4 million for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The ~~$37.0~~$22.7 million increase in cash ~~provided by~~used in operating activities is primarily related to the increase in inventory, partially offset by increased profitability due to higher net sales and lower ~~production as inventory levels were higher at year end compared to inventory levels at December 31, 2021.~~raw material costs.

Investing Activities

Net cash provided by (used in) investing activities was ~~$(30.3)~~$115.5 million and ~~$(156.6)~~$(30.3) million for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Net cash provided by ~~(used in)~~investing activities for the three months ended December 31, 2023 primarily consisted of $(17.8) million for purchases of property, plant and equipment in the normal course of business and $133.1 million net proceeds from the sale of the Vycom business, while net cash used in investing activities for the three months ended December 31, 2022 ~~primarily~~ consisted of $(30.3) million for purchases of property, plant and equipment in the normal course of business, as compared to the three months ended December 31, 2021, which consisted of $(91.3) million for acquisitions and $(65.3) million for purchases of property, plant and equipment to support our expansion of capacity in our manufacturing facilities.business.

Financing Activities

Net cash ~~provided by (used in)~~used in financing activities was ~~$(10.1)~~$102.8 million and ~~$2.8~~$10.1 million for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Net cash ~~provided by (used in)~~used in financing activities for the three months ended December 31, 2023 primarily consisted of $100.0 million of treasury stock repurchases and $1.5 million of debt principal payments, while net cash used in financing activities for the three months ended December 31, 2022 primarily consisted of $7.5 million of treasury stock repurchases ~~as compared to the three months ended December 31, 2021, which primarily consisted~~and $1.5 million of ~~cash received from the exercise of stock options.~~debt principal payments.

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.

InOn December 4, 2023, we entered into a $100 million accelerated share repurchase agreement, or the ~~fiscal year ended September 30, 2022, we repurchased 2,508,906~~“ASR” with Goldman Sachs & Co. LLC, or “Goldman Sachs”. Goldman Sachs delivered 2,291,607 initial shares to us on December 6, 2023, based on the closing price of the Company’s Class A common stock of $34.91 on December 4, 2023. The total value of the initial shares represents 80% of the $100 million ASR. The final settlement will be based on the volume-weighted average price of our Class A common stock ~~under a $50 million accelerated share~~over the repurchase ~~agreement at an average price~~period, subject to certain adjustments. We expect to settle the ASR in the second quarter of $19.93 per share. During the same period, we also repurchased 1,607,664 shares of our Class A common stock on the open market at an average price of $19.58 per share, totaling an approximately $31.5 million reacquisition cost. fiscal year 2024.

During the three months ended December 31, 2022, we repurchased ~~an additional~~ 352,760 shares of ~~our~~its Class A common stock on the open market at an average price of $21.23 per share, totaling an approximately $7.5 million reacquisition cost.

~~As of December 31, 2022, we had approximately $311.0 million available for repurchases under the Share Repurchase Program.~~

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), that includes, among other provisions, a one percent excise tax on net repurchases of stock after December 31, 2022. ~~We expect~~ For the three months ended December 31, 2023, we recognized $0.8 million excise tax ~~to apply to our~~as reacquisition cost of share repurchases.

As of December 31, 2023, we had approximately $101.1 million available for repurchases under the Share Repurchase ~~Program, but do not expect the excise tax to have a material effect on our business.~~Program.

See Note 13 in the Notes to Condensed Consolidated Financial Statements for additional information.

Revolving Credit Facility

On January 26, 2023, The AZEK Group LLC amended the Revolving Credit Facility, replacing all LIBOR-based provisions with provisions reflecting the Secured Overnight Financing Rate, or SOFR, including, without limitation, the use of a new Adjusted Term SOFR benchmark rate equal to Term SOFR (as defined in the Revolving Credit Agreement) plus 0.10%.

The Revolving Credit Facility provides for maximum aggregate borrowings of up to $150.0 million, subject to an asset-based borrowing base. As of December 31, ~~2022,~~2023, outstanding revolving loans under the Revolving Credit Facility bore interest at a rate which equaled, 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,~~Adjusted Term SOFR, 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~~SOFR borrowings, ~~adjusted LIBOR~~the Adjusted Term SOFR 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.

On January 26, 2023, CPG International LLC further amended the Revolving Credit Facility, replacing all LIBOR-based provisions with provisions reflecting the Secured Overnight Financing Rate, or SOFR, including, without limitation, the use of a new Adjusted Term SOFR benchmark rate equal to Term SOFR (as defined in the Revolving Credit Agreement) plus 0.10%.

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~~The AZEK Group LLC and the subsidiaries of ~~CPG International~~The AZEK Group LLC that are guarantors under the Revolving Credit Facility, and the 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 us and the wholly owned domestic subsidiaries of ~~CPG International~~The AZEK Group 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~~The AZEK Group 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 December 31, ~~2022~~2023 and September 30, ~~2022, CPG International~~2023, The AZEK Group 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.

~~2022~~ Term Loan Agreement

The ~~2022~~ Term Loan Agreement is a first lien term loan and will mature on April 28, 2029, subject to acceleration or prepayment. 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~~The AZEK Group LLC owned by us, the equity interests of ~~CPG International~~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 (subject to certain exceptions) of the Company, ~~CPG International~~The AZEK Group LLC and the subsidiaries of ~~CPG International~~The AZEK Group 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 us and the wholly owned domestic subsidiaries of ~~CPG International~~The AZEK Group 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%.

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.

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 ~~2022~~2023 Form 10-K, except as updated in Note 1 of our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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. We intend to adopt the updated standard during the fiscal year beginning October 1, 2024. We are currently evaluating the impact the adoption of this standard will have on our 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. We intend to adopt the updated standard during the fiscal year beginning October 1, 2025. We are currently evaluating the impact the adoption of this standard will have on our disclosures.

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 December 31, ~~2022~~2023 and September 30, ~~2022,~~2023, we had ~~$598.5~~$592.5 million and ~~$600.0~~$594.0 million outstanding under the ~~2022~~ Term Loan Agreement, respectively, and no outstanding amounts under the Revolving Credit ~~Facility.~~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, ~~and~~after giving effect to related to derivatives, as of December 31, ~~2022~~2023 and ~~2021,~~2022, would have increased or decreased annual cash interest by approximately $2.9 million and $3.0 million, ~~and $4.7 million,~~ respectively.

We have entered into and may continue to enter into, agreements such as floating for fixed-rate interest rate swaps and other hedging contracts in order to hedge against interest rate volatility associated with our Senior Secured Credit Facilities. For example, effective November 2022, we entered into interest rate swaps, which swapped interest at a rate based on SOFR on a notional amount of $300 million for a fixed rate. We do not intend or expect to enter into interest rate swaps or other derivative transactions for speculative purposes. In the future, in order to manage our interest rate risk, we may refinance our existing debt.

Credit Risk

As of December 31, ~~2022~~2023 and September 30, ~~2022,~~2023, 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 December 31, 2022, two customers represented more than 10% of gross trade receivables; Customer A was 12.4% and Customer B was 10.7%. As of September 30, 2022, two customers each represented more than 10% of gross trade receivables; Customer A was 14.8% and Customer C was 10.6%.

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 increased during 2022, and the conflict in Ukraine~~Geopolitical tensions and other ~~geopolitical tensions and~~ economic uncertainties ~~have exacerbated~~may increase 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~~Sustained or increased 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.

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 December 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~litigation..

Item 1A. Risk Factors.

Since September 30, ~~2022,~~2023, there have been no material changes to the risk factors previously disclosed under the heading “Risk Factors” in our ~~2022~~2023 Form 10-K. You should carefully consider the risk factors in our ~~2022~~2023 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 December 31, ~~2022:~~2023:


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), (3)
October 1, 2023 - October 31, 2023		—	$	—		—	$	201,938,443
November 1, 2023 – November 30, 2023		—		—		—		201,938,443
December 1, 2023 – December 31, 2023		2,291,607	$	34.91		2,291,607		101,138,443
Total		2,291,607				2,291,607

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)

Maximum approximate dollar value of shares that may yet be purchased under the plans or programs (1), (2)

October 1, 2022 –
   October 31, 2022

—

$
—

—

$
318,517,083

November 1, 2022 –
   November 30, 2022

—

—

—

318,517,083

December 1, 2022 –
   December 31, 2022

352,760

21.23

352,760

311,028,793

Total

352,760

$
21.23

352,760

(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 December 4, 2023, we entered into a $100 million ASR with Goldman Sachs. Goldman Sachs delivered 2,291,607 initial shares to us on December 6, 2023, based on the closing price of the Company’s Class A common stock of $34.91 on December 4, 2023. The total value of the initial shares represents 80% of the $100 million ASR. The final settlement will be based on the volume-weighted average price of our Class A common stock over the repurchase period, subject to certain adjustments. We expect to settle the ASR in the second quarter of fiscal year 2024. For the three months ended December 31, 2023, we recognized $0.8 million excise tax as reacquisition cost of share repurchases.

~~(1)~~

~~On May 5, 2022, the Board of Directors authorized us to repurchase up to $400 million of our Class A common stock.~~

~~(2)~~

~~We repurchased 352,760 shares of our Class A common stock on the open market at an average price of $21.23 per share,~~ ~~totaling an approximately $7.5 million reacquisition cost,~~ ~~during the three months ended December 31, 2022.~~

See Note 13 in the Notes to Condensed Consolidated Financial Statements for additional information on ~~Share Repurchase Program.~~share repurchase program.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

None.

Item 6. Exhibits


				Incorporated by Reference
Exhibit No.	Description	Form	Exhibit		Filing Date	File No.

3.1	Second Restated Certificate of Incorporation of The AZEK Company Inc.	8-K	3.2		03/01/2023	001-39322

3.2	Amended and Restated Bylaws of The AZEK Company Inc.	8-K	3.3		03/10/2022	001-39322

4.2	Registration Rights Agreement, by and among The AZEK Company Inc. and the other parties named therein	10-Q	4.2		08/14/2020	001-39322

31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

101.INS	Inline XBRL Instance Document*

101.SCH	Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents*

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Filed herewith.

+ Furnished herewith. 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.

Incorporated by Reference
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

001-39322

    3.2

Amended and Restated Bylaws of The AZEK Company Inc.

8-K

3.3

03/10/2022

001-39322

    4.1

Stockholders Agreement, by and among The AZEK Company Inc. and the other parties named therein

10-Q

4.1

08/14/2020

001-39322

    4.2

Registration Rights Agreement, by and among The AZEK Company Inc. and the other parties named therein

10-Q

4.2

08/14/2020

001-39322

    10.1*†

Employment Offer Letter, dated as of September 14, 2021, by and between CPG International LLC and Samara Toole

    10.2*†

Employment Offer Letter, dated as of December 12, 2020, by and between CPG International LLC and Morgan Walbridge

    10.3*

Fourth Amendment, dated January 26, 2023, to Amended and Restated Revolving Credit Agreement, dated as of March 9, 2017, among CPG International LLC, The AZEK Company Inc., the Lenders party thereto and Deutsche Bank AG New York Branch, as administrative agent.

  31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

  31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

  32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*+

  32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*+

101.INS

Inline XBRL Instance Document*

101.SCH

Inline XBRL Taxonomy Extension Schema Document*

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document*

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURE

*	~~Filed herewith.~~

†	~~Management contract or compensatory plan.~~

+	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.

~~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.


		The AZEK Company Inc.

Date: February ~~9, 2023~~7, 2024	By:		/s/ Peter Clifford
			Peter Clifford Senior Vice President and Chief Financial Officer (Principal Financial Officer)

(US dollars in thousands)	Total
Cash and cash equivalents	$	4,279
Trade receivables		790
Inventories		1,902
Other current assets		52
Property and equipment		3,612
Intangible assets		9,300
ROU assets		580
Accounts payable		(250	)
Accrued expenses		(510	)
Current lease liabilities		(114	)
Noncurrent lease liabilities		(466	)
Total identifiable assets		19,175
Goodwill		6,557
Net assets acquired/total consideration		25,732
Less: cash acquired		(4,279	)
Total consideration net of cash acquired	$	21,453

	December 31, 2022			September 30, 2022
2022 Term Loan due April 28, 2029 — SOFR + 2.50% + 0.1% (6.92% at December 31, 2022 and 4.09% at September 30, 2022)	$	598,500		$	600,000
Revolving Credit Facility through March 31, 2026 - LIBOR + 1.25%		—			—
Total		598,500			600,000
Less unamortized deferred financing costs		(4,533	)		(4,712	)
Less unamortized original issue discount		(4,241	)		(4,409	)
Less current portion		(6,000	)		(6,000	)
Long-term debt—less current portion and unamortized deferred financing costs	$	583,726		$	584,879

	Cash Flow Hedge - Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)					Location of Gain (Loss) Reclassified from Accumulated Other	Cash Flow Hedge - Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss)
	Three Months Ended December 31,					Comprehensive Income (Loss)	Three Months Ended December 31,
	2022			2021		into Income	2022			2021
Interest rate swaps	$	(1,796	)	$	—	Interest expense	$	(74	)	$	—