azek-20240630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________________________________________________________________________________

FORM 10-Q

_____________________________________________________________________________________________


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

For the quarterly period ended June 30, 2024


o			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) 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 x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 31, 2024, the registrant had 144,695,631 shares of Class A Common Stock, $0.001 par value per share, and no shares of Class B Common Stock, $0.001 par value per share, outstanding.

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		Page
PART I.	Financial Information	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income	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	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46
PART II.	Other Information	47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Signatures		49

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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	June 30, 2024		September 30, 2023
			(As Restated)
ASSETS:
Current assets:
Cash and cash equivalents	$	346,948	$	278,314
Trade receivables, net of allowances	67,619		57,660
Inventories	204,871		195,600
Prepaid expenses	9,736		13,595
Other current assets	27,519		16,123
Total current assets	656,693		561,292
Property, plant and equipment - net	459,369		501,023
Goodwill	967,816		994,271
Intangible assets - net	164,083		199,497
Other assets	92,767		87,793
Total assets	$	2,340,728	$	2,343,876
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	64,131	$	56,015
Accrued rebates	59,203		60,974

Current portion of long-term debt obligations	6,000		6,000
Accrued expenses and other liabilities	84,713		66,727
Total current liabilities	214,047		189,716
Deferred income taxes	46,919		59,509
Long-term debt—less current portion	576,804		580,265
Other non-current liabilities	109,946		104,073
Total liabilities	947,716		933,563
Commitments and contingencies (See Note 17)
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued or outstanding at June 30, 2024 and September 30, 2023, respectively	—		—
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 157,072,226 shares issued at June 30, 2024 and 155,967,736 shares issued at September 30, 2023, respectively	157		156
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 0 and 100 shares issued and outstanding at June 30, 2024 and at September 30, 2023, respectively	—		—
Additional paid‑in capital	1,684,739		1,662,322
Retained earnings (accumulated deficit)	60,639		(64,377)
Accumulated other comprehensive income (loss)	927		1,878
Treasury stock, at cost, 12,377,929 and 8,268,423 shares at June 30, 2024 and September 30, 2023, respectively	(353,450)		(189,666)
Total stockholders' equity	1,393,012		1,410,313
Total liabilities and stockholders' equity	$	2,340,728	$	2,343,876

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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The AZEK Company Inc.

Condensed Consolidated Statements of Comprehensive Income

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

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,
in thousands	2024		2023		2024		2023
			(As Restated)				(As Restated)
Net sales	$	434,369	$	387,553	$	1,093,221	$	981,504
Cost of sales	270,045		255,639		681,174		696,529
Gross profit	164,324		131,914		412,047		284,975
Selling, general and administrative expenses	88,598		72,490		249,042		220,211
Other general expenses	—		1,065		—		1,065
Loss (gain) on disposal of property, plant and equipment	(49)		95		2,049		278
Operating income	75,775		58,264		160,956		63,421
Other income and expenses:
Interest expense, net	7,863		10,408		24,453		30,481
Gain on sale of business	(90)		—		(38,390)		—
Total other (income) and expenses	7,773		10,408		(13,937)		30,481
Income before income taxes	68,002		47,856		174,893		32,940
Income tax expense	17,892		13,216		49,877		9,810
Net income	$	50,110	$	34,640	$	125,016	$	23,130
Other comprehensive income (loss):
Unrealized gain (loss) due to change in fair value of derivatives, net of tax	$	236	$	3,953	$	(951)	$	691
Total other comprehensive income (loss)	236		3,953		(951)		691
Comprehensive income	$	50,346	$	38,593	$	124,065	$	23,821

Net income per common share:
Basic	$	0.34	$	0.23	$	0.86	$	0.15
Diluted	0.34		0.23		0.84		0.15

Weighted-average common shares outstanding:
Basic	145,439,955		150,140,392		146,159,550		150,610,890
Diluted	147,495,902		151,069,954		148,011,393		151,056,199

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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The AZEK Company Inc.

Condensed Consolidated Statements of Stockholders’ Equity

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

(Unaudited)


	Common Stock						Treasury Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Class A			Class B
	Shares	Amount		Shares	Amount		Shares	Amount
Balance – March 31, 2024	157,010,677	$	157	—	$	—	11,520,848	$	(313,050)	$	1,688,604	$	10,529	$	691	$	1,386,931
Net income	—	—		—	—		—	—		—		50,110		—		50,110
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		236		236
Stock-based compensation	—	—		—	—		—	—		5,997		—		—		5,997
Exercise of vested stock options	34,346	—		—	—		—	—		790		—		—		790

Issuance of common stock under employee stock plan, net of shares withheld for taxes	27,203	—		—	—		—	—		(652)		—		—		(652)
Treasury stock purchases	—	—		—	—		857,081	(40,400)		(10,000)		—		—		(50,400)
Balance – June 30, 2024	157,072,226	157		—	—		12,377,929	(353,450)		1,684,739		60,639		927		1,393,012

Balance – September 30, 2023 (As Restated)	155,967,736	$	156	100	$	—	8,268,423	$	(189,666)	$	1,662,322	$	(64,377)	$	1,878	$	1,410,313
Net income	—	—		—	—		—	—		—		125,016		—		125,016
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		(951)		(951)
Stock-based compensation	—	—		—	—		—	—		20,684		—		—		20,684
Exercise of vested stock options	803,446	1		—	—		—	—		19,418		—		—		19,419

Issuance of common stock under employee stock plan, net of shares withheld for taxes	300,944	—		—	—		—	—		(4,853)		—		—		(4,853)
Conversion of Class B common stock into Class A common stock	100	—		(100)	—		—	—		—		—		—		—
Treasury stock purchases	—	—		—	—		4,109,506	(163,784)		(12,832)		—		—		(176,616)
Balance – June 30, 2024	157,072,226	157		—	—		12,377,929	(353,450)		1,684,739		60,639		927		1,393,012

	Common Stock						Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Class A			Class B
	Shares	Amount		Shares	Amount		Shares	Amount
Balance – March 31, 2023 (As Restated)	155,303,433	$	155	100	$	—	4,469,330	$	(80,576)	$	1,641,321	$	(138,248)	$	(3,262)	$	1,419,390
Net income	—	—		—	—		—	—		—		34,640		—		34,640
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		3,953		3,953
Stock-based compensation	—	—		—	—		—	—		4,105		—		—		4,105
Exercise of vested stock options	400,428	1		—	—		—	—		9,209		—		—		9,210
Cancellation of restricted stock awards	(978)	—		—	—		—	—		—		—		—		—
Issuance of common stock under employee stock plan, net of shares withheld for taxes	66,158	—		—	—		—	—		(921)		—		—		(921)
Treasury stock purchases	—	—		—	—		1,946,747	(48,480)		—		—		—		(48,480)
Balance – June 30, 2023 (As Restated)	155,769,041	156		100	—		6,416,077	(129,056)		1,653,714		(103,608)		691		1,421,897

Balance – September 30, 2022 (As Restated)	155,157,220	$	155	100	$	—	4,116,570	$	(73,088)	$	1,630,378	$	(126,738)	$	—	$	1,430,707
Net income	—	—		—	—		—	—		—		23,130		—		23,130
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		691		691
Stock-based compensation	—	—		—	—		—	—		13,607		—		—		13,607
Exercise of vested stock options	483,074	1		—	—		—	—		11,110		—		—		11,111
Cancellation of restricted stock awards	(19,306)	—		—	—		—	—		—		—		—		—
Issuance of common stock under employee stock plan, net of shares withheld for taxes	148,053	—		—	—		—	—		(1,381)		—		—		(1,381)
Treasury stock purchases	—	—		—	—		2,299,507	(55,968)		—		—		—		(55,968)
Balance – June 30, 2023 (As Restated)	155,769,041	156		100	—		6,416,077	(129,056)		1,653,714		(103,608)		691		1,421,897

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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The AZEK Company Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)


	Nine Months Ended June 30,
	2024		2023
			(As Restated)
Operating activities:
Net income	$	125,016	$	23,130
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation	66,135		63,504
Amortization of intangibles	29,876		35,035
Non-cash interest expense	1,236		1,236
Non-cash lease expense	(102)		(188)
Deferred income tax (benefit) provision	(12,284)		1,599
Non-cash compensation expense	20,684		13,608
Fair value adjustment for contingent consideration	—		250
Loss on disposition of property, plant and equipment	2,049		1,919
Gain on sale of business	(38,390)		—
Changes in certain assets and liabilities:
Trade receivables	(12,256)		15,441
Inventories	(28,029)		83,401
Prepaid expenses and other currents assets	(10,012)		(9,590)
Accounts payable	5,696		11,308
Accrued expenses and interest	14,448		(5,803)
Other assets and liabilities	(86)		1,043
Net cash provided by operating activities	163,981		235,893
Investing activities:
Purchases of property, plant and equipment	(54,433)		(54,059)
Proceeds from disposition of fixed assets	326		173
Divestiture, net of cash disposed	131,783		—
Acquisitions, net of cash acquired	(5,962)		(161)
Net cash provided by (used in) investing activities	71,714		(54,047)
Financing activities:
Payments on Term Loan Agreement	(4,500)		(4,500)
Proceeds under revolving credit facility	—		25,000
Payments under revolving credit facility	—		(25,000)
Principal payments of finance lease obligations	(2,132)		(1,958)
Payments of INTEX contingent consideration	—		(5,850)
Exercise of vested stock options	19,418		11,111
Cash paid for shares withheld for taxes	(4,853)		(1,381)
Purchases of treasury stock	(174,994)		(55,488)
Net cash used in financing activities	(167,061)		(58,066)
Net increase in cash and cash equivalents	68,634		123,780
Cash and cash equivalents – Beginning of period	278,314		120,817
Cash and cash equivalents – End of period	$	346,948	$	244,597
Supplemental cash flow disclosure:
Cash paid for interest, net of amounts capitalized	$	34,843	$	34,581
Cash paid for income taxes, net	70,338		21,003
Supplemental non-cash investing and financing disclosure:
Capital expenditures in accounts payable at end of period	$	7,648	$	14,299
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities	11,639		2,828

See Notes to Condensed Consolidated Financial Statements (Unaudited).

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The AZEK Company Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands of U.S. dollars, unless otherwise specified)

(Unaudited)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.Organization

The AZEK Company Inc. (the “Company”, “we”, “us” or “our”) is a Delaware corporation that holds all of the limited liability company interests in The AZEK Group LLC (f/k/a CPG International LLC), the entity which directly and indirectly holds all of the equity interests in the operating subsidiaries and which changed its name from CPG International LLC to The AZEK Group LLC on August 1, 2023. The Company is an industry-leading designer and manufacturer of beautiful, low-maintenance and environmentally sustainable building products for residential, commercial and industrial markets. The Company’s products include decking, railing, trim, siding, cladding, porch, moulding, pergolas and cabanas, outdoor furniture, bathroom and locker systems, and, prior to the Company’s divestiture of its Vycom business, also included extruded plastic sheet products and other non-fabricated products for special applications in industrial markets. The Company operates in various locations throughout the United States. The Company’s residential products are primarily branded under the brand names AZEK®, TimberTech®, VERSATEX®, ULTRALOX®, StruXure® and INTEX®, while the commercial products are branded under brand names including Scranton Products®, Aria Partitions®, Eclipse Partitions®, Hiny Hiders® partitions, Tufftec Lockers® and Duralife Lockers®.

Secondary Offering

During the three months ended June 30, 2023, the Company completed an offering of 16,100,000 shares of Class A common stock, par value $0.001 per share, including the exercise in full by the underwriter of its option to purchase up to 2,100,000 additional shares of Class A common stock. All of the shares were sold by certain of the Company's stockholders (the "Selling Stockholders") to the underwriter at a price of $24.36 per share which the underwriter was then permitted to sell at variable prices to the public. The Company did not receive any of the proceeds from the sale of the shares by those Selling Stockholders. In connection with the secondary offering, the Company incurred approximately $1.1 million in expenses.

In connection with the secondary offering, the Company purchased from the underwriter 1,477,832 shares of its Class A common stock that were sold by the Selling Stockholders to the underwriter at a price per share of $24.36, which is equal to the price paid by the underwriter to the Selling Stockholders, resulting in an aggregate purchase price of approximately $36.0 million. The repurchase was made pursuant to the Company’s Share Repurchase Program (as defined in Note 13).

b.Summary of Significant Accounting Policies

Basis of Presentation

The Company operates on a fiscal year ending September 30. The accompanying unaudited Condensed Consolidated Financial Statements and notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in management’s opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations and cash flows for the interim periods presented. The results of operations for the three and nine months ended June 30, 2024 and the cash flows for the nine months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The Company’s financial condition and results of operations are affected by a number of factors, including, but not limited to, the cost to manufacture and distribute products, cost of raw materials, inflation, consumer spending and preferences, interest rates, the impact of any supply chain disruptions, economic conditions, and/or any adverse effects from geopolitical conflicts, global health pandemics and other factors beyond the Company’s control. Management cannot predict the degree to, or the period over, which the Company may be affected by such factors.

The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Amendment No. 1 on Form 10-K/A to Annual Report on Form 10-K for the year ended September 30, 2023 (the “2023 Form 10-K/A”) filed with the Securities and Exchange Commission (the "SEC") on June 14, 2024. The Condensed Consolidated Balance Sheet as of September 30, 2023 was derived from the audited financial statements at that date. There have been no material changes in the Company’s significant accounting policies from those that were disclosed in on the 2023 Form 10-K/A, except as noted below.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income, stockholder’s equity or cash flows as previously reported.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates include revenue recognition, reserves for excess inventory, inventory obsolescence, inventory valuation, product warranties, customer rebates, stock-

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based compensation, litigation, income taxes, contingent consideration, goodwill and intangible asset valuation and accounting for long-lived assets. Management’s estimates and assumptions are evaluated on an ongoing basis and are based on historical experience, current conditions and available information. Actual results may differ from estimated amounts. Estimates are revised as additional information becomes available.

Accounting Policies

Refer to the 2023 Form 10-K/A for a discussion of the Company’s accounting policies, as updated below and for recently adopted accounting standards.

Research and Development Costs

Research and development costs primarily relate to new product development, product claims support and manufacturing process improvements. Such costs are expensed as incurred and are included in “Selling, general and administrative expenses” within the Condensed Consolidated Statements of Comprehensive Income (Loss). Total research and development expenses were $4.0 million and $2.1 million, respectively, for the three months ended June 30, 2024 and 2023, and $10.8 million and $6.2 million, respectively, for the nine months ended June 30, 2024 and 2023.

Recently Adopted Accounting Pronouncements

None.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280) : Improvements to Reportable Segment Disclosures. This standard requires all public entities that are subject to segment reporting requirements to disclose additional information, including significant segment expenses and other segment items on an annual and interim basis. It also requires the disclosure of the title and the position of the chief operating decision maker and how the reported measures are used for making business decisions. This standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company intends to adopt the updated standard during the fiscal year beginning October 1, 2024. The Company is currently evaluating the impact the adoption of this standard will have on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard expands the disclosure requirements primarily on the rate reconciliation and income tax paid. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company intends to adopt the updated standard during the fiscal year beginning October 1, 2025. The Company is currently evaluating the impact the adoption of this standard will have on its disclosures.

1A. RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS

Restatement of Previously Filed Financial Statements

In connection with the preparation of its unaudited Condensed Consolidated Financial Statements for the fiscal quarter ended March 31, 2024, the Company identified certain unexplained reconciling differences in inventory balances for certain of the Company’s locations. Upon identification of such issues, the Company initiated an independent investigation under the direction of the Audit Committee of the Company’s Board of Directors (the “Audit Committee”), which is now complete. As a result of the independent investigation procedures, the Company determined that a former employee with responsibility for cost and inventory accounting with respect to certain of the Company’s locations misstated inventory in the Company’s general ledger by creating inaccurate and unsupported manual journal entries that ultimately increased the value of inventory on the Company’s condensed consolidated balance sheet as of September 30, 2023 and decreased cost of sales on the Company’s condensed consolidated income statement for the three and nine months ended June 30, 2023. As a result, income before income taxes was overstated on a net basis for the three and nine months ended June 30, 2023.

The Company has restated its consolidated financial statements as of September 30, 2023 and 2022 and for the fiscal years ended September 30, 2023, 2022 and 2021, as well as the related unaudited condensed consolidated interim financial information for each of the quarters within fiscal years ended September 30, 2023 and 2022, and for the fiscal quarter ended December 31, 2023 (the "Affected Periods") in the 2023 Form 10-K/A for the fiscal year ended September 30, 2023 and Amendment No.1 to the Company's Form 10-Q for the quarter ended December 31, 2023, each as filed with the Securities and Exchange Commission on June 14, 2024.

The amounts in the "As Reported" columns are amounts derived from the Company's previously filed financial statements in its Quarterly Report on Form 10-Q for the interim period ended June 30, 2023, originally filed with the Securities and Exchange Commission on August 9, 2023 (the “Original June 30, 2023 Form 10-Q”). The amounts in the "Investigation Adjustments" columns present the impact of the adjustments from the independent investigation related to the overstatement of Inventory and the understatement of Cost of Sales. The amounts in the "Other Adjustments" columns present the impact of other adjustments primarily related to the reclassification between Accrued interest and Accrued expenses and other liabilities in the condensed consolidated balance sheet, certain reclassifications in the condensed income statements, and previously corrected misstatements of accrued

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expenses, inventory write-down, and cash flow classifications in previously issued financial statements and were not material, individually or in aggregate, to any of the prior periods financial statements. The amounts in the "As Restated" columns are the updated amounts including the impacts from both Investigation Adjustments and Other Adjustments. The only impact of restatement to the Consolidated Statements of Stockholders Equity was $(0.2) million and $(2.2) million to Net income (loss) for the three and nine months ended June 30, 2023, respectively, and $(13.7) million, $(15.7) million and $(19.3) million to opening Accumulated deficit at September 31, 2022, March 31, 2023 and September 30, 2023, respectively.

The following table presents the effect of the restatement on the Company's previously reported Condensed Consolidated Balance Sheet as of September 30, 2023. The values as previously reported were derived from the Company’s Original June 30, 2023 Form 10-Q (in thousands, except for share and per share amounts).


	As of September 30, 2023
Consolidated Balance Sheet	As Reported		Investigation Adjustments		Other Adjustments		As Restated
ASSETS:
Current assets:
Cash and cash equivalents	$	278,314	$	—	$	—	$	278,314
Trade receivables, net of allowances	57,660		—		—		57,660
Inventories	221,101		(25,501)		—		195,600
Prepaid expenses	13,595		—		—		13,595
Other current assets	12,300		3,823		—		16,123
Total current assets	582,970		(21,678)		—		561,292
Property, plant and equipment - net	501,023		—		—		501,023
Goodwill	994,271		—		—		994,271
Intangible assets - net	199,497		—		—		199,497
Other assets	87,793		—		—		87,793
Total assets	$	2,365,554	$	(21,678)	$	—	$	2,343,876
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	56,015	$	—	$	—	$	56,015
Accrued rebates	60,974		—		—		60,974
Accrued interest	260		—		(260)		—
Current portion of long-term debt obligations	6,000		—		—		6,000
Accrued expenses and other liabilities	71,994		(5,527)		260		66,727
Total current liabilities	195,243		(5,527)		—		189,716
Deferred income taxes	56,330		3,179		—		59,509
Long-term debt—less current portion	580,265		—		—		580,265
Other non-current liabilities	104,073		—		—		104,073
Total liabilities	935,911		(2,348)		—		933,563
Commitments and contingencies (See Note 17)
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized and no shares issued or outstanding at September 30, 2023	—		—		—		—
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 155,967,736 shares issued at September 30, 2023	156		—		—		156
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 100 shares issued and outstanding at September 30, 2023	—		—		—		—
Additional paid‑in capital	1,662,322		—		—		1,662,322
Accumulated deficit	(45,047)		(19,330)		—		(64,377)
Accumulated other comprehensive income (loss)	1,878		—		—		1,878
Treasury stock, at cost, 8,268,423 shares at September 30, 2023	(189,666)		—		—		(189,666)
Total stockholders' equity	1,429,643		(19,330)		—		1,410,313
Total liabilities and stockholders' equity	$	2,365,554	$	(21,678)	$	—	$	2,343,876

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The following table presents the effect of the restatement on the Company's previously reported Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2023. The values as previously reported were derived from the Company’s Original June 30, 2023 Form 10-Q (in thousands, except for share and per share amounts).


	Three Months Ended June 30, 2023								Nine Months Ended June 30, 2023
Consolidated Statements of Comprehensive Income	As Reported		Investigation Adjustments		Other Adjustments		As Restated		As Reported		Investigation Adjustments		Other Adjustments		As Restated
Net sales	$	387,553	$	—	$	—	$	387,553	$	981,504	$	—	$	—	$	981,504
Cost of sales	255,353		886		(600)		255,639		693,552		3,577		(600)		696,529
Gross profit	132,200		(886)		600		131,914		287,952		(3,577)		600		284,975
Selling, general and administrative expenses	73,650		—		(1,160)		72,490		221,554		—		(1,343)		220,211
Other general expenses	—		—		1,065		1,065		—		—		1,065		1,065
Loss on disposal of property, plant and equipment	—		—		95		95		—		—		278		278
Operating income	58,550		(886)		600		58,264		66,398		(3,577)		600		63,421
Other expenses:
Interest expense, net	10,408		—		—		10,408		30,481		—		—		30,481

Total other expenses	10,408		—		—		10,408		30,481		—		—		30,481
Income before income taxes	48,142		(886)		600		47,856		35,917		(3,577)		600		32,940
Income tax expense	13,267		(211)		160		13,216		10,605		(955)		160		9,810
Net income	$	34,875	$	(675)	$	440	$	34,640	$	25,312	$	(2,622)	$	440	$	23,130
Other comprehensive income:
Unrealized gain due to change in fair value of derivatives, net of tax	$	3,953	$	—	$	—	$	3,953	$	691	$	—	$	—	$	691
Total other comprehensive income	3,953		—		—		3,953		691		—		—		691
Comprehensive income	$	38,828	$	(675)	$	440	$	38,593	$	26,003	$	(2,622)	$	440	$	23,821

Net income per common share:
Basic	$	0.23	$	—	$	—	$	0.23	$	0.17	$	(0.03)	$	0.01	$	0.15
Diluted	0.23		—		—		0.23		0.17		(0.03)		0.01		0.15

Weighted-average common shares outstanding:
Basic	150,140,392		—		—		150,140,392		150,610,890		—		—		150,610,890
Diluted	151,069,954		—		—		151,069,954		151,056,199		—		—		151,056,199

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The following table presents the effect of the restatement on the Company's previously reported Condensed Consolidated Statement of Cash Flows for the nine months ended June 30, 2023. The values as previously reported were derived from the Company’s Original June 30, 2023 Form 10-Q (in thousands).


	Nine Months Ended June 30, 2023
Consolidated Statement of Cash Flow	As Reported		Investigation Adjustments		Other Adjustments		As Restated
Operating activities:
Net income	$	25,312	$	(2,622)	$	440	$	23,130
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation	63,504		—		—		63,504
Amortization of intangibles	35,035		—		—		35,035
Non-cash interest expense	1,236		—		—		1,236
Non-cash lease expense	(188)		—		—		(188)
Deferred income tax provision	1,599		—		—		1,599
Non-cash compensation expense	13,608		—		—		13,608
Fair value adjustment for contingent consideration	400		—		(150)		250
Loss on disposition of property, plant and equipment	278		—		1,641		1,919

Changes in certain assets and liabilities:
Trade receivables	17,241		—		(1,800)		15,441
Inventories	78,624		3,577		1,200		83,401
Prepaid expenses and other currents assets	(8,795)		(955)		160		(9,590)
Accounts payable	11,308		—		—		11,308
Accrued expenses and interest	(11,803)		—		6,000		(5,803)
Other assets and liabilities	2,684		—		(1,641)		1,043
Net cash provided by operating activities	230,043		—		5,850		235,893
Investing activities:
Purchases of property, plant and equipment	(54,059)		—		—		(54,059)
Proceeds from disposition of fixed assets	173		—		—		173

Acquisitions, net of cash acquired	(161)		—		—		(161)
Net cash used in investing activities	(54,047)		—		—		(54,047)
Financing activities:
Payments on Term Loan Agreement	(4,500)		—		—		(4,500)
Proceeds under revolving credit facility	25,000		—		—		25,000
Payments under revolving credit facility	(25,000)		—		—		(25,000)
Principal payments of finance lease obligations	(1,958)		—		—		(1,958)
Payments of INTEX contingent consideration	—		—		(5,850)		(5,850)
Exercise of vested stock options	11,111		—		—		11,111
Cash paid for shares withheld for taxes	(1,381)		—		—		(1,381)
Purchases of treasury stock	(55,488)		—		—		(55,488)
Net cash used in financing activities	(52,216)		—		(5,850)		(58,066)
Net increase in cash and cash equivalents	123,780		—		—		123,780
Cash and cash equivalents – Beginning of period	120,817		—		—		120,817
Cash and cash equivalents – End of period	244,597		—		—		244,597
Supplemental cash flow disclosure:
Cash paid for interest, net of amounts capitalized	$	33,516	$	—	$	1,065	$	34,581
Cash paid for income taxes, net	21,003		—		—		21,003
Supplemental non-cash investing and financing disclosure:
Capital expenditures in accounts payable at end of period	$	14,299	$	—	$	—	$	14,299
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities	2,828		—		—		2,828

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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 $59.2 million and $49.4 million as of June 30, 2024 and 2023, respectively, and contra trade receivables of $7.5 million and $3.8 million as of June 30, 2024 and 2023, respectively. The rebate activity was as follows (in thousands):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
Beginning balance	$	54,995	$	72,741	$	66,958	$	56,542
Rebate expense	31,948		28,328		90,116		73,747
Rebate payments	(20,255)		(47,936)		(90,386)		(77,156)
Ending balance	$	66,688	$	53,133	$	66,688	$	53,133

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

3. DIVESTITURE

On November 1, 2023, the Company completed the sale of its Vycom business within the Commercial segment for net proceeds of approximately $131.8 million. The divestiture allows the Company to focus on the highest value portions of its business and provides additional cash to finance its capital allocation priorities. The gain on sale of $38.4 million was recognized in "Gain on sale of business" within the Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine months ended June 30, 2024. The Company did not report the sale in discontinued operations as it was not a strategic shift that would have a major effect on the Company's operations and financial results.

See Note 12 for more information on the Commercial segment.

4. INVENTORIES

Inventories are valued at the lower of cost or net realizable value, and are reduced for slow-moving and obsolete inventory. The inventories cost is recorded at standard cost, which approximates actual cost, on a first-in first-out (“FIFO”) basis. Inventories consisted of the following (in thousands):


in thousands	June 30, 2024		September 30, 2023
			(As Restated)
Raw materials	$	50,637	$	60,349
Work in process	24,373		33,240
Finished goods	129,861		102,011
Total inventories	$	204,871	$	195,600

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5. PROPERTY, PLANT AND EQUIPMENT—NET

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


	June 30, 2024		September 30, 2023
			(As Restated)
Land	$	3,209	$	4,829
Buildings and improvements	110,732		129,191
Manufacturing equipment	639,907		631,594
Computer equipment	34,280		32,392
Furniture and fixtures	7,891		7,290
Vehicles	2,307		1,087
Total property, plant and equipment	798,326		806,383
Construction in progress	68,079		87,348
	866,405		893,731
Accumulated depreciation	(407,036)		(392,708)
Total property, plant and equipment – net	$	459,369	$	501,023

Depreciation expense was approximately $20.8 million and $20.2 million in the three months ended June 30, 2024 and 2023, respectively, and $62.3 million and $59.7 million in the nine months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024 and 2023, $0.6 million and $1.3 million of interest was capitalized, respectively, and during the nine months ended June 30, 2024 and 2023, $2.5 million and $4.2 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 June 30, 2024	$	953,882	$	13,934	$	967,816
Accumulated impairment losses as of June 30, 2024	—		—		—
Goodwill, net as of June 30, 2024	$	953,882	$	13,934	$	967,816

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Intangible assets, net

The Company did not have any indefinite lived intangible assets other than goodwill as of June 30, 2024 and September 30, 2023. Finite-lived intangible assets consisted of the following (in thousands):


		June 30, 2024
	Lives in Years	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Proprietary knowledge	10 — 15	$	300,490	$	(264,755)	$	35,735
Trademarks	5 — 20	217,730		(164,173)		53,557
Customer relationships	12 — 19	156,452		(83,674)		72,778
Patents	9 — 10	8,500		(6,526)		1,974
Other intangibles	3 — 15	4,076		(4,037)		39
Total intangible assets		$	687,248	$	(523,165)	$	164,083


		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

Amortization expense was $9.8 million and $11.6 million in the three months ended June 30, 2024 and 2023, respectively and $29.9 million and $35.0 million in the nine months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the remaining weighted-average amortization period for acquired intangible assets was 10.7 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 June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
Beginning balance	$	1,248	$	1,807	$	1,773	$	1,397
Provision	(121)		136		(614)		647
Bad debt write-offs	—		(1)		—		(102)
Acquisition	30		—		30		—
Divestiture	—		—		(32)		—
Ending balance	$	1,157	$	1,942	$	1,157	$	1,942

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Accrued Expenses and Other Liabilities

Accrued expenses consisted of the following (in thousands):


	June 30, 2024		September 30, 2023
			(As Restated)
Employee related liabilities	$	39,026	$	34,313
Taxes	5,596		1,433
Professional fees	5,027		2,073
Marketing	4,962		3,868
Customer deposits	4,793		4,152
Lease liability - operating	4,693		4,180
Warranty	4,087		3,556
Lease liability - finance	2,999		2,777
Utilities	2,943		2,141
Freight	2,827		1,242
Construction in progress	2,049		2,863
Commissions	1,301		991
Other	4,410		3,138
Total accrued expenses and other current liabilities	$	84,713	$	66,727

8. DEBT

Debt consisted of the following (in thousands):


	June 30, 2024		September 30, 2023
Term Loan due April 28, 2029 — SOFR + 2.50% + 0.1% (7.94% at June 30, 2024 and 7.92% at September 30, 2023)	$	589,500	$	594,000
Revolving Credit Facility through March 31, 2026 - SOFR + 0.1%	—		—
Total	589,500		594,000
Less unamortized deferred financing costs	(3,460)		(3,996)
Less unamortized original issue discount	(3,236)		(3,739)
Less current portion	(6,000)		(6,000)
Long-term debt—less current portion and unamortized deferred financing costs	$	576,804	$	580,265

Term Loan Agreement

The Term Loan Agreement is a first lien term loan and will mature on April 28, 2029, subject to acceleration or prepayment. The Term Loan Agreement will amortize in equal quarterly installments of 0.25% of the aggregate principal amount of the loans outstanding as of the amendment date of April 28, 2022, subject to reduction for certain prepayments. The loans thereunder bear an interest rate equal to (i) in the case of alternative base rate, or ABR, borrowings, the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Prime Rate as in effect on such day and (c) the one-month Term Secured Overnight Financing Rate ("SOFR") plus 1.00% per annum, provided that in no event will the alternative base rate be less than 1.50% per annum, plus an applicable margin of 1.50% and (ii) in the case of SOFR borrowings, the Term SOFR rate for the applicable interest period, in each case, plus an applicable margin of 2.50%. As of June 30, 2024 and September 30, 2023, The AZEK Group LLC had $589.5 million and $594.0 million outstanding under the Term Loan Agreement.

The obligations under the Term Loan Agreement are secured by a first priority security interest in the membership interests of The AZEK Group LLC owned by the Company, the equity interests of The AZEK Group LLC’s domestic subsidiaries, other than certain immaterial subsidiaries and other excluded subsidiaries, and all remaining assets not constituting Revolver Priority Collateral (as defined below and subject to certain exceptions) of the Company, The AZEK Group LLC and the subsidiaries of The AZEK Group LLC that are guarantors under the Term Loan Agreement (the “Term Loan Priority Collateral”), and a second priority security interest in the Revolver Priority Collateral. The obligations under the Term Loan Agreement are guaranteed by the Company and the

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wholly owned domestic subsidiaries of The AZEK Group LLC other than certain immaterial subsidiaries and other excluded subsidiaries.

Loans under the Term Loan Agreement may be voluntarily prepaid in whole, or in part, in each case without premium or penalty, subject to certain customary conditions. The Term Loan Agreement also requires mandatory prepayments of loans under the Term Loan Agreement from the proceeds of certain debt issuances and certain asset dispositions (subject to certain reinvestment rights) and, commencing with the fiscal year ending September 30, 2023, a percentage of excess cash flow (subject to step-downs upon The AZEK Group LLC achieving certain leverage ratios and other reductions in connection with other debt prepayments).

The Term Loan Agreement contains affirmative covenants, negative covenants and events of default, which are broadly consistent with those in the Revolving Credit Facility (with certain differences consistent with the differences between a revolving loan and term loan) and that are customary for facilities of this type. The Term Loan Agreement does not have any financial maintenance covenants. The Term Loan Agreement also includes customary events of default, including the occurrence of a change of control. On May 22, 2024, as a result of the Company's delayed filing of its Form 10-Q for the quarter ended March 31, 2024, The AZEK Group LLC was not in compliance with the financial reporting requirements in the Term Loan Agreement, which non-compliance was subject to a 30-day grace period. Because the Company filed its Form 10-Q for the quarter ended March 31, 2024 on June 14, 2024, which was within the grace period, The AZEK Group LLC regained compliance and no event of default occurred.

As of June 30, 2024 and September 30, 2023, unamortized deferred financing fees related to the Term Loan Agreement were $3.5 million and $4.0 million, respectively.

Revolving Credit Facility

The AZEK Group LLC has also entered into a revolving credit facility, as amended and restated from time to time (the “Revolving Credit Facility”), with certain of our direct and indirect subsidiaries and certain lenders party thereto. The Revolving Credit Facility provides for maximum aggregate borrowings of up to $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.

The AZEK Group LLC had no outstanding borrowings under the Revolving Credit Facility as of June 30, 2024 and September 30, 2023, respectively. In addition, The AZEK Group LLC had $2.2 million and $2.8 million of outstanding letters of credit held against the Revolving Credit Facility as of June 30, 2024 and September 30, 2023, respectively. The AZEK Group LLC had approximately $147.8 million available under the borrowing base for future borrowings as of June 30, 2024. 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.

On January 26, 2023, The AZEK Group LLC amended the Revolving Credit Facility, 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 June 30, 2024, outstanding revolving loans under the Revolving Credit Facility bore interest at a rate which equaled, at the 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 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 SOFR borrowings, the Adjusted Term SOFR plus a spread of 125 to 175 basis points, based on average historical availability. The maturity date for 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.

Deferred financing costs, net of accumulated amortization, related to the Revolving Credit Facility at June 30, 2024 and September 30, 2023 were $0.5 million and $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 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and $0.4 million and $0.4 million for the nine months ended June 30, 2024 and 2023, 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, The AZEK Group LLC and the subsidiaries of 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. 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

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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, 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; subject to 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 June 30, 2024, 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. On May 22, 2024, as a result of the Company's delayed filing of its Form 10-Q for the quarter ended March 31, 2024, The AZEK Group LLC was not in compliance with the financial reporting requirements in the Revolving Credit Facility, which non-compliance was subject to a 30-day grace period. Because the Company filed its Form 10-Q for the quarter ended March 31, 2024 on June 14, 2024, which was within the grace period, The AZEK Group LLC regained compliance and no event of default occurred.

Interest expense consisted of the following (in thousands):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
Interest expense:
Term Loan Agreement	$	11,162	$	11,098	$	33,723	$	30,605
Revolving Credit Facility	148		149		446		567
Other	1,109		1,120		3,412		3,329
Amortization - Deferred financing costs
Term Loan Agreement	179		179		537		537
Revolving Credit Facility	66		66		197		197
Amortization - Original issue discount
Term Loan Agreement	167		167		502		502
Capitalized interest	(625)		(1,306)		(2,472)		(4,191)
Interest expense	12,206		11,473		36,345		31,546
Interest income	(4,343)		(1,065)		(11,892)		(1,065)
Interest expense, net	$	7,863	$	10,408	$	24,453	$	30,481

See Note 11 for the fair value of the Company’s debt as of June 30, 2024 and September 30, 2023.

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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 June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
			(As Restated)				(As Restated)
Beginning balance	$	15,625	$	15,342	$	17,012	$	16,145
Adjustments to reserve	2,946		1,717		3,097		1,952
Warranty claims payment	(1,057)		(850)		(2,595)		(1,888)
Ending balance	17,514		16,209		17,514		16,209
Current portion of accrued warranty	(4,087)		(3,454)		(4,087)		(3,454)
Accrued warranty – less current portion	$	13,427	$	12,755	$	13,427	$	12,755

10. LEASES

The Company leases vehicles, machinery, manufacturing facilities, office space, land, and equipment under both operating and finance leases. 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 June 30, 2024 and September 30, 2023, amounts associated with leases are included in Other assets, Accrued expenses 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 assets, 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 ROU 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 June 30, 2024 and September 30, 2023 were as follows (in thousands):


Leases	Classification on Balance Sheet	June 30, 2024		September 30, 2023
Assets
ROU operating lease assets	Other assets	$	23,411	$	15,423
ROU finance lease assets	Other assets	68,423		71,529
Total lease assets		$	91,834	$	86,952
Liabilities
Current
Operating	Accrued expenses and other liabilities	$	4,693	$	4,180
Finance	Accrued expenses and other liabilities	2,999		2,777
Non-current
Operating	Other non-current liabilities	21,050		13,699
Finance	Other non-current liabilities	74,112		75,718
Total lease liabilities		$	102,854	$	96,374

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The components of lease expense for the three and nine months ended June 30, 2024 and 2023 were as follows:


	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Operating lease expense	$	1,505	$	1,473	$	4,379	$	4,477
Finance lease amortization of assets	1,277		1,262		3,859		3,783
Finance lease interest on lease liabilities	1,092		1,098		3,298		3,293
Short term	137		96		403		297
Sublease income	(5)		(75)		(37)		(218)
Total lease expense	$	4,006	$	3,854	$	11,902	$	11,632

The tables below present supplemental information related to leases as of June 30, 2024 and September 30, 2023:


Weighted-average remaining lease term (years)	June 30, 2024		September 30, 2023
Operating leases	8.7		6.8
Finance leases	25.0		25.4
Weighted-average discount rate
Operating leases	6.3	%	4.4	%
Finance leases	5.8	%	5.8	%

The following table summarizes the maturities of lease liabilities at June 30, 2024:


(in thousands)	Operating Leases		Finance Leases		Total
2024	$	1,561	$	1,811	$	3,372
2025	5,970		7,248		13,218
2026	4,074		7,077		11,151
2027	3,219		6,540		9,759
2028	2,842		5,330		8,172
Thereafter	17,313		117,060		134,373
Total lease payments	34,979		145,066		180,045
Less: interest	(9,236)		(67,955)		(77,191)
Present value of lease liability	$	25,743	$	77,111	$	102,854

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 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 to manage interest rate risk related to Term Loan. Each agreement has a notional amount of $150 million and will expire on October 31, 2025. One agreement swaps variable interest at a rate based on SOFR with a fixed rate of 4.39% and the second with a fixed rate of 4.48%.

At the inceptions of the swap agreements and as of June 30, 2024, both swaps were designated and qualified as cash flow hedges in accordance with ASC 815. 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 June 30, 2024, the Company expects to reclass approximately $1.4 million ($1.0 million after-tax) as a reduction to interest expense in the next 12 months.

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The following table provides the fair values of the interest rate derivative instruments as well as their classifications on the Balance Sheet as of June 30, 2024 and September 30, 2023 (in thousands):

Fair Value as of

Fair Value Hierarchy

Balance Sheet Location

June 30, 2024

September 30, 2023

Assets

Interest rate swaps

Level 2

Other current assets

1,427

2,558

Liabilities

Interest rate swaps

Level 2

Other non-current liabilities

190

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 tables summarize the effects of the interest rate derivative instruments on Accumulated other comprehensive income (loss) for the three and nine months ended June 30, 2024 and 2023 (in thousands):


	Before-tax Amount		Income Tax Expense		Net of Tax Amount
Balance - March 31, 2024	$	921	$	230	$	691
Amount of gain recognized in other comprehensive income (loss)	990		258		732
Amount of gain reclassified from accumulated other comprehensive income (loss) into net income	(675)		(179)		(496)
Balance - June 30, 2024	$	1,236	$	309	$	927

Balance - September 30, 2023	$	2,493	$	615	$	1,878
Amount of gain recognized in other comprehensive income (loss)	782		234		548
Amount of gain reclassified from accumulated other comprehensive income (loss) into net income	(2,039)		(540)		(1,499)
Balance - June 30, 2024	$	1,236	$	309	$	927


	Before-tax Amount		Income Tax Expense		Net of Tax Amount
Balance - March 31, 2023	$	(4,499)	$	(1,237)	$	(3,262)
Amount of gain recognized in other comprehensive income (loss)	5,869		1,610		4,259
Amount of gain reclassified from accumulated other comprehensive income (loss) into net income	(417)		(111)		(306)
Balance - June 30, 2023	$	953	$	262	$	691

Balance - September 30, 2022	$	—	$	—	$	—
Amount of gain recognized in other comprehensive income (loss)	1,316		358		958
Amount of gain reclassified from accumulated other comprehensive income (loss) into net income	(363)		(96)		(267)
Balance - June 30, 2023	$	953	$	262	$	691

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):


	June 30, 2024				September 30, 2023
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Term Loan due April 28, 2029	$	589,500	$	593,184	$	594,000	$	595,485

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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 million. At the date of acquisition, the fair value was estimated to be $9.5 million. As of March 31, 2023, the fair value was increased to $12.7 million based on the actual EBITDA amount for StruXure. Compensation expense of $9.5 million was recognized for the year ended September 30, 2022 and $3.2 million was recognized for the year ended 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 million. At the date of the acquisition, the fair value was estimated to be $5.8 million. As of December 31, 2022, the fair value was increased to $6.2 million. Contingent payment of $5.8 million was included in the acquisition purchase price at the date of acquisition and the change in fair value of $0.4 million was recognized in Selling, general and administrative expense for the year ended 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. Regional recyclers provides full-service recycled PVC material processing, sourcing, logistical support, and scrap management 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 lockers and 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.

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The segment data below includes data for Residential and Commercial for the three and nine months ended June 30, 2024 and 2023 (in thousands).


	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
			(As Restated)				(As Restated)
Net sales to customers
Residential	$	416,009	$	351,608	$	1,041,550	$	873,208
Commercial	18,360		35,945		51,671		108,296
Total	$	434,369	$	387,553	$	1,093,221	$	981,504
Adjusted EBITDA
Residential(1)	$	116,965	$	87,887	$	279,330	$	160,124
Commercial	2,455		8,780		8,257		21,763
Total Adjusted EBITDA for reporting segments	$	119,420	$	96,667	$	287,587	$	181,887
Adjustments to Income before income tax provision
Depreciation and amortization	(31,871)		(33,063)		(96,012)		(98,539)
Stock-based compensation costs	(5,828)		(4,164)		(20,595)		(13,747)
Acquisition and divestiture costs (2)	(364)		—		(1,012)		(4,535)
Gain on sale of business(3)	90		—		38,390		—
Secondary offering costs	—		(1,065)		—		(1,065)
Other costs(4)	(5,582)		(111)		(9,012)		(580)
Interest expense, net	(7,863)		(10,408)		(24,453)		(30,481)
Income before income tax provision	$	68,002	$	47,856	$	174,893	$	32,940

(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 periods have been recast to reflect the change.

(2)Acquisition and divestiture costs reflect costs related to acquisitions of $0.4 million in the three months ended June 30, 2024, and $0.5 million and $3.9 million in the nine months ended June 30, 2024 and 2023, respectively, and costs related to divestiture of $0.5 million and $0.7 million in the nine months ended June 30, 2024 and 2023, respectively.

(3)Gain on sale of business relates to the sale of the Vycom business.

(4)Other costs include costs related to the restatement of the Company’s consolidated financial statements and condensed consolidated interim financial information for the Affected Periods of $4.9 million in the three and nine months ended June 30, 2024, costs related to removal of dispensable equipment resulting from a modification of the Company's manufacturing process of $2.4 million in the nine months ended June 30, 2024, reduction in workforce costs of $0.1 million in the three months ended June 30, 2023, and $0.3 million and $0.3 million in the nine months ended June 30, 2024 and 2023, respectively, costs for legal expenses of $0.7 million in the three months ended June 30, 2024, and $1.1 million and $0.2 million in the nine months ended June 30, 2024 and 2023, respectively, and other costs of $0.3 million and $0.1 million for the nine months ended June 30, 2024 and 2023, respectively.

13. CAPITAL STOCK

Secondary Offering

During the three months ended June 30, 2023, the Company completed an offering of 16,100,000 shares of Class A common stock, par value $0.001 per share, including the exercise in full by the underwriter of its option to purchase up to 2,100,000 additional shares of Class A common stock. All of the shares were sold by the Selling Stockholders to the underwriter at a price of $24.36 per share which the underwriter was then permitted to sell at variable prices to the public. The Company did not receive any of the proceeds from the sale of the shares by those Selling Stockholders. In connection with the secondary offering, the Company incurred approximately $1.1 million in expenses.

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Share Repurchase Program

On May 5, 2022, the Board of Directors authorized the Company to repurchase up to $400 million of the Company’s Class A common stock (the “2022 Share Repurchase Authorization”). On June 12, 2024, the Board of Directors authorized the Company to repurchase up to $600 million of the Company’s Class A common stock (together with the 2022 Share Repurchase Authorization, the “Share Repurchase Program”) in addition to the remaining approximately $76 million available pursuant to the 2022 Share Repurchase Authorization. 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.

The table below summarizes the Company's repurchases of its Class A common stock during the three and nine months ended June 30, 2024 and 2023 (in thousands, except per share amount):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
Total number of shares repurchased	857		1,947		4,110		2,300
Reacquisition cost(1), (2), (3), (4)	$	50,400	$	48,480	$	176,615	$	55,968
Average price per share	$	47.14	$	24.90	$	40.54	$	24.34

(1)On June 17, 2024, the Company entered into a $50 million accelerated share repurchase agreement, or the "ASR" with Goldman Sachs & Co. LLC, or Goldman Sachs. Goldman Sachs delivered approximately 857,081 initial shares to the Company on June 18, 2024, based on the closing price of the Company’s Class A common stock of $46.67 on June 17, 2024. The total value of the initial shares represents 80% of the ASR. Goldman Sachs terminated the ASR on August 2, 2024 and delivered 308,629 additional shares to the Company on August 5, 2024 upon final settlement for no additional consideration. The average purchase price per share for shares purchased by the Company pursuant to the ASR was $42.89.

(2)During the nine months ended June 30, 2024, the Company also repurchased approximately 2,725,707 shares of its Class A common stock under a $100 million ASR which was settled in February 2024 and approximately 526,718 shares of its Class A common stock on the open market for an approximately $25 million reacquisition cost.

(3)Reacquisition cost in the three and nine months ended June 30, 2023 includes the $36 million repurchase from the underwriter upon the completion of the secondary offering. The remaining repurchases in the three and nine months ended June 30, 2023 were made through open market transactions.

(4)The Company recognized $0.4 million and $1.6 million excise tax as reacquisition cost of share repurchases for the three and nine months ended June 30, 2024, respectively, and $0.5 million excise tax as reacquisition cost of share repurchases for the three months ended June 30, 2023.

As of June 30, 2024, the Company had approximately $625.3 million available for repurchases under the Share Repurchase 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 2,257,422 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 nine months ended June 30, 2024.

Stock-based compensation expense for the three months ended June 30, 2024 and 2023 was $5.8 million and $4.2 million, respectively, and for the nine months ended June 30, 2024 and 2023 was $20.6 million and $13.7 million, respectively, recognized in

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“Selling, general and administrative expenses” in the Condensed Consolidated Statements of Comprehensive Income (Loss). Total income tax benefit for the three months ended June 30, 2024 and 2023 was $1.3 million and $0.9 million, respectively, and for the nine months ended June 30, 2024 and 2023 was $4.3 million and $2.9 million, respectively. As of June 30, 2024, the Company had not yet recognized compensation cost on unvested stock-based awards of $25.9 million, with a weighted average remaining recognition period of 1.8 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 10 years of the grant date.

The following table sets forth the significant assumptions used for the calculation of stock-based compensation expense for the nine months ended June 30, 2024 and 2023:


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

Stock Options

The following table summarizes the performance-based stock option activity for the nine months ended June 30, 2024:


	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	(245,891)	23.00
Cancelled/Forfeited	—	—
Outstanding at June 30, 2024	868,370	23.00		5.9	16,612
Vested and exercisable at June 30, 2024	868,370	$	23.00	5.9	16,612

The following table summarizes the service-based stock option activity for the nine months ended June 30, 2024:


	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	3,361,707	$	25.43
Granted	138,731	38.15
Exercised	(557,555)	24.69
Cancelled/Forfeited	(20,044)	42.36
Outstanding at June 30, 2024	2,922,839	26.06		6.5	47,200
Vested and exercisable at June 30, 2024	2,464,991	$	25.07	6.2	42,208

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Restricted Stock Awards

A summary of the service-based restricted stock awards activity during the nine months ended June 30, 2024 was as follows:


	Number of Shares	Weighted Average Grant Date Fair Value

Outstanding and unvested at October 1, 2023	82,481	$	23.00
Granted	—	—
Vested	(55,724)	23.00
Forfeited	—	—
Outstanding and unvested at June 30, 2024	26,757	$	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 financial performance targets, including net sales, return on net tangible assets and Adjusted 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 nine months ended June 30, 2024 presented at target (unless otherwise noted) was as follows:


	Number of Shares	Weighted Average Grant Date Fair Value

Outstanding and unvested at October 1, 2023	508,622	$	26.72
Granted	173,020	38.15
Granted adjustment(1)	42,442	34.82
Vested	(123,821)	34.82
Forfeited	(9,376)	26.38
Outstanding and unvested at June 30, 2024	590,887	$	28.96

(1)The fiscal year 2021 grant vested in December 2023 and 42,442 shares were granted in connection therewith.

Restricted Stock Units

A summary of the service-based restricted stock unit awards activity for the nine months ended June 30, 2024 was as follows:


	Number of Shares	Weighted Average Grant Date Fair Value

Outstanding and unvested at October 1, 2023	786,096	$	25.42
Granted	250,042	39.39
Vested	(312,606)	27.29
Forfeited	(28,562)	24.06
Outstanding and unvested at June 30, 2024	694,970	$	29.65

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

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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 June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
			(As Restated)				(As Restated)
Numerator:
Net income (loss)	$	50,110	$	34,640	$	125,016	$	23,130
Net income (loss) attributable to common stockholders - basic and diluted	$	50,110	$	34,640	$	125,016	$	23,130
Denominator:
Weighted-average shares of common stock
Basic	145,439,955		150,140,392		146,159,550		150,610,890
Diluted	147,495,902		151,069,954		148,011,393		151,056,199
Net income (loss) per share attributable to common stockholders:
Net income (loss) per common share - basic	$	0.34	$	0.23	$	0.86	$	0.15
Net income (loss) per common share - diluted	$	0.34	$	0.23	$	0.84	$	0.15

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 (loss) per share because the effect was anti-dilutive:


	Three Months Ended June 30,		Nine Months Ended June 30,
	2024	2023	2024	2023
Stock Options	310,515	819,718	393,081	4,999,267
Restricted Stock Units	2,243	98,732	10,607	281,145

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 June 30, 2024 and 2023 were 26.3% and 27.6%, respectively, and for the nine months ended June 30, 2024 and 2023 were 28.5% and 29.8%, respectively. The decrease in the effective income tax rate for the three and nine months ended June 30, 2024, as compared to the three and nine months ended June 30, 2023, was primarily driven by increased earnings and tax benefit related to stock-based compensation.

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. In July 2024, the case settled for $2.65 million, with the Company’s insurance directly covering the $1.9 million attributable to the Company, resulting in no costs to the Company.

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 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

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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)


	June 30, 2024		September 30, 2023
			(As Restated)
ASSETS:
Non-current assets:
Investments in subsidiaries	$	1,393,012	$	1,410,313
Total non-current assets	1,393,012		1,410,313
Total assets	$	1,393,012	$	1,410,313
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 June 30, 2024 and September 30, 2023, respectively	—		—
Class A common stock, $0.001 par value; 1,100,000,000 shares authorized, 157,072,226 shares issued at June 30, 2024 and 155,967,736 shares issued at September 30, 2023, respectively	157		156
Class B common stock, $0.001 par value; 100,000,000 shares authorized, 0 and 100 shares issued and outstanding at June 30, 2024 and at September 30, 2023, respectively	—		—
Additional paid‑in capital	1,684,739		1,662,322
Retained earnings (accumulated deficit)	60,639		(64,377)
Accumulated other comprehensive income (loss)	927		1,878
Treasury stock, at cost, 12,377,929 and 8,268,423 shares at June 30, 2024 and September 30, 2023, respectively	(353,450)		(189,666)
Total stockholders’ equity	1,393,012		1,410,313
Total liabilities and stockholders’ equity	$	1,393,012	$	1,410,313


	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
			(As Restated)				(As Restated)
Net income (loss) of subsidiaries	$	50,110	$	34,640	$	125,016	$	23,130
Net income (loss) of subsidiaries	$	50,110	$	34,640	$	125,016	$	23,130
Comprehensive income (loss)	$	50,346	$	38,593	$	124,065	$	23,821

The AZEK Company Inc. did not have any cash as of June 30, 2024 or September 30, 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).

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Since the restricted net assets of The AZEK Company Inc. and its subsidiaries exceed 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.

Restatement of Previously Filed Financial Statements

The Company is presenting herein restated condensed financial information of The AZEK Company Inc. (parent company only) as of September 30, 2023 and for the three and nine months ended June 30, 2023.

See Note 1A “Restatement of Previously Filed Financial Statements,” for additional information on the restatement.

Dividends from Subsidiaries

There were $50.0 million and $175.0 million in cash dividends paid to The AZEK Company Inc. from the Company’s consolidated subsidiaries during the three and nine months ended June 30, 2024, respectively, and $48.0 million and $55.5 million in cash dividends paid to The AZEK Company Inc. from the Company’s consolidated subsidiaries during the three and nine months ended June 30, 2023. Cash dividends of $50.0 million and $150.0 million were used to fund the ASRs during the three and nine months ended June 30, 2024, respectively, and $25.0 million share repurchases on the open market during the nine months ended June 30, 2024. Cash dividends of $36.0 million were used to repurchase shares from the underwriter upon completion of the secondary offering during both the three and nine months ended June 30, 2023, $12.0 million and $19.5 million in cash dividends were used to fund share repurchases on the open market during the three and nine months ended June 30, 2023, respectively.

Restricted Payments

The AZEK Group LLC is party to the Revolving Credit Facility and the Term Loan Agreement. The obligations under the Revolving Credit Facility and 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 Term Loan Agreement are guaranteed by the Company and its wholly owned domestic subsidiaries other than certain immaterial subsidiaries and other excluded subsidiaries. The AZEK Group LLC is not permitted to make certain payments unless those payments are consistent with exceptions 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.

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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 Amendment No. 1 in our 2023 Annual Report on Form 10-K/A filed with the U.S. Securities and Exchange Commission, or the SEC, on June 14, 2024, or our 2023 Form 10-K/A, 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, 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, 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 our material weaknesses and our plans to remediate such material weaknesses, 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 2023 Form 10-K/A. 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.

Restatement of Previously Filed Financial Statements

As described in Note 1A to our unaudited Condensed Consolidated Financial Statements, we have restated our unaudited Condensed Consolidated Financial Statements as of June 30, 2023 and for the three and nine months ended June 30, 2023 contained in this Quarterly Report on Form 10-Q. As a result, the previously reported financial information as of and for the three and nine months ended June 30, 2023 in this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the relevant restatements. See Note 1A, Restatement of Previously Filed Financial Statements to our unaudited Condensed Consolidated Financial Statements for additional information related to the restatement, including descriptions of the adjustments and the impacts on our unaudited Condensed Consolidated Financial Statements.

Overview

We are an industry-leading designer and manufacturer of beautiful, low-maintenance and environmentally sustainable outdoor living products, including TimberTech® decking and railing, Versatex® and AZEK® Trim, and StruXure® pergolas. Homeowners continue to invest in their homes and outdoor spaces and we believe are increasingly recognizing the significant advantages of engineered, long-lasting products, which 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 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,

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lockers and storage solutions. One of our core values is to “always do the right thing”. 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, including repurposing and increasing the amount of recycled materials within our products.

We report our results in two segments: Residential and Commercial. In our Residential segment, our primary consumer brands, TimberTech and AZEK, are recognized by contractors and consumers for their premium aesthetics, uncompromising quality and performance, and diversity of style and design options. Prior to our divestiture of our Vycom business on November 1, 2023, our Commercial segment manufactured engineered sheet products and high-quality bathroom partitions and 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

Our business and financial performance may be affected by the macroeconomic and geopolitical environment, including increased inflation, elevated interest rates and geopolitical events. 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 adversely affected if we are not able to pass any associated costs on to our customers or otherwise mitigate the impact of these pressures on us or our consumers. In addition, our business may be impacted by the direct and indirect effects of geopolitical events, including changes to domestic and international trade, economic and monetary policies, possible disruptions to global supply chains generally and our supply chain in particular. These events may also cause an increased threat of cyberattacks against U.S. 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.

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. 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 2023 Form 10-K/A.

Recent Divestiture

On November 1, 2023, we completed the sale of our Vycom business within the Commercial segment for net proceeds of approximately $131.8 million. The divestiture allows us to focus on the highest value portions of our business and provides additional cash to finance our capital allocation priorities. As a result of the divestiture, we recognized a pre-tax gain on sale of $38.4 million during the nine months ended June 30, 2024.

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Results of Operations

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

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 June 30, 2024 and 2023.


	Three Months Ended June 30,				$ Variance		% Variance
(U.S. dollars in thousands)	2024		2023
			(As Restated)
Net sales	$	434,369	$	387,553	$	46,816	12.1	%
Cost of sales	270,045		255,639		14,406		5.6	%
Gross profit	164,324		131,914		32,410		24.6	%
Selling, general and administrative expenses	88,598		72,490		16,108		22.2	%
Other general expenses	—		1,065		(1,065)		(100.0)	%
Loss (gain) on disposal of property, plant and equipment	(49)		95		(144)		(151.6)	%
Operating income	75,775		58,264		17,511		30.1	%
Interest expense, net	7,863		10,408		(2,545)		(24.5)	%
Gain on sale of business	(90)		—		(90)		N/M
Income tax expense	17,892		13,216		4,676		35.4	%
Net income	$	50,110	$	34,640	$	15,470	44.7	%

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

Net Sales

Net sales for the three months ended June 30, 2024 increased by $46.8 million, or 12.1%, to $434.4 million from $387.6 million for the three months ended June 30, 2023. The increase was primarily due to higher sales volume in our Residential segment attributable to key growth initiatives, including channel expansion, new products and downstream sales and marketing investments, driving demand for our products, partially offset by the effect of the sale of our Vycom business in our Commercial segment. Net sales for the three months ended June 30, 2024 increased for our Residential segment by 18.3% and decreased for our Commercial segment by 48.9%, respectively, as compared to the prior year period.

Cost of Sales

Cost of sales for the three months ended June 30, 2024 increased by $14.4 million, or 5.6%, to $270.0 million from $255.6 million for the three months ended June 30, 2023, primarily due to higher net sales, partially offset by lower raw material costs driven by certain commodity deflation and higher utilization of manufacturing capacity.

Gross Profit

Gross profit for the three months ended June 30, 2024 increased by $32.4 million, or 24.6%, to $164.3 million from $131.9 million for the three months ended June 30, 2023. The increase in gross profit was primarily driven by higher net sales, lower raw material costs and higher plant utilization. Gross profit as a percent of net sales increased to 37.8% for the three months ended June 30, 2024 compared to 34.0% for the three months ended June 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $16.1 million, or 22.2%, to $88.6 million, or 20.4% of net sales, for the three months ended June 30, 2024 from $72.5 million, or 18.7% of net sales, for the three months ended June 30, 2023. The increase was primarily due to higher marketing expense, higher professional fees related to the restatement of our consolidated financial statements and condensed consolidated interim financial information as described in Note 1A “Restatement of Previously Filed Financial Statements” to our unaudited Condensed Consolidated Financial Statements, or the Restatement, and personnel costs.

Other General Expenses

Other general expenses were $1.1 million for the three months ended June 30, 2023, which related to our secondary offering in May 2023 as described in Note 13 to our unaudited Condensed Consolidated Financial Statements.

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Loss (Gain) on Disposal of Property, Plant and Equipment

Loss (Gain) on disposal of property, plant and equipment decreased by $0.1 million to a gain of $0.05 million in the three months ended June 30, 2024 compared to a loss of $0.1 million in the three months ended June 30, 2023, primarily due to the proceeds received from the disposition of property, plant and equipment in the normal course of business.

Interest Expense, net

Interest expense, net decreased by $2.5 million, or 24.5%, to $7.9 million for the three months ended June 30, 2024 from $10.4 million for the three months ended June 30, 2023. Interest expense, net decreased due to higher interest income, partially offset by lower capitalized interest during the three months ended June 30, 2024, when compared to the three months ended June 30, 2023.

Gain On Sale Of Business

Gain on sale of business was $0.1 million during the three months ended June 30, 2024, which related to normal post-closing adjustments of the divestiture of our Vycom business within the Commercial segment.

Income Tax Expense

Income tax expense increased by $4.7 million to $17.9 million for the three months ended June 30, 2024 compared to $13.2 million for the three months ended June 30, 2023. The increase in our income tax expense was primarily driven by our higher pre-tax income.

Net Income

Net income increased by $15.5 million to $50.1 million for the three months ended June 30, 2024 compared to $34.6 million for the three months ended June 30, 2023, due to the factors described above.

Nine Months Ended June 30, 2024 Compared to Nine Months Ended June 30, 2023

The following tables summarizes certain financial information relating to our operating results that have been derived from our unaudited Consolidated Financial Statements for the nine months ended June 30, 2024 and 2023.


	Nine Months Ended June 30,				$ Variance		% Variance
(U.S. dollars in thousands)	2024		2023
			(As Restated)
Net sales	$	1,093,221	$	981,504	$	111,717	11.4	%
Cost of sales	681,174		696,529		(15,355)		(2.2)	%
Gross profit	412,047		284,975		127,072		44.6	%
Selling, general and administrative expenses	249,042		220,211		28,831		13.1	%
Other general expenses	—		1,065		(1,065)		(100.0)	%
Loss on disposal of property, plant and equipment	2,049		278		1,771		637.1	%
Operating income	160,956		63,421		97,535		153.8	%
Interest expense, net	24,453		30,481		(6,028)		(19.8)	%
Gain on sale of business	(38,390)		—		(38,390)		N/M
Income tax expense	49,877		9,810		40,067		408.4	%
Net income	$	125,016	$	23,130	$	101,886	440.5	%

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

Net Sales

Net sales for the nine months ended June 30, 2024 increased by $111.7 million, or 11.4%, to $1,093.2 million from $981.5 million for the nine months ended June 30, 2023. The increase was primarily due to higher sales volume in our Residential segment attributable to key growth initiatives including channel expansion, new products and downstream sales and marketing investments, driving demand for AZEK products, partially offset by the effect of the sale of our Vycom business in our Commercial segment. Net sales for the nine months ended June 30, 2024 increased for our Residential segment by 19.3% and decreased for our Commercial segment by 52.3%, respectively, as compared to the prior year period.

Cost of Sales

Cost of sales for the nine months ended June 30, 2024 decreased by $15.4 million, or 2.2%, to $681.2 million from $696.5 million for the nine months ended June 30, 2023, primarily due to lower raw material costs driven by certain commodity deflation and higher utilization of manufacturing capacity.

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Gross Profit

Gross profit for the nine months ended June 30, 2024 increased by $127.1 million, or 44.6%, to $412.0 million from $285.0 million for the nine months ended June 30, 2023. The increase in gross profit was primarily driven by higher net sales, lower raw material costs and higher plant utilization. Gross profit as a percent of net sales increased to 37.7% for the nine months ended June 30, 2024 compared to 29.0% for the nine months ended June 30, 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $28.8 million, or 13.1%, to $249.0 million, or 22.8% of net sales, for the nine months ended June 30, 2024 from $220.2 million, or 22.4% of net sales, for the nine months ended June 30, 2023. The increase was primarily due to higher marketing expense, professional fees related to the Restatement, and stock-based compensation, partially offset by lower depreciation expense.

Other General Expenses

Other general expenses were $1.1 million for the nine months ended June 30, 2023, which related to our secondary offering in May 2023 as described in Note 13 to our unaudited Condensed Consolidated Financial Statements.

Loss on Disposal of Property, Plant and Equipment

Loss on disposal of property, plant and equipment increased by $1.8 million to $2.0 million for the nine months ended June 30, 2024 compared to $0.3 million for the nine months ended June 30, 2023, primarily related to the removal of dispensable equipment resulting from a modification of our manufacturing process.

Interest Expense, net

Interest expense, net decreased by $6.0 million, or 19.8%, to $24.5 million for the nine months ended June 30, 2024 from $30.5 million for the nine months ended June 30, 2023. Interest expense, net decreased due to higher interest income, partially offset by a higher interest rate on outstanding debt and lower capitalized interest during the nine months ended June 30, 2024, when compared to the nine months ended June 30, 2023.

Gain On Sale Of Business

Gain on sale of business was $38.4 million for the nine months ended June 30, 2024, which related to the divestiture of our Vycom business within the Commercial segment.

Income Tax Expense

Income tax expense increased by $40.1 million to $49.9 million for the nine months ended June 30, 2024 compared to $9.8 million for the nine months ended June 30, 2023. 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

Net income increased by $101.9 million to $125.0 million for the nine months ended June 30, 2024 compared to $23.1 million for the nine months ended June 30, 2023, 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

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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.

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 and nine months ended June 30, 2024 and 2023.


	Three Months Ended June 30,										Nine Months Ended June 30,
(U.S. dollars in thousands)	2024			2023			$ Variance		% Variance		2024			2023			$ Variance		% Variance
				(As Restated)										(As Restated)
Net sales	$	416,009		$	351,608		$	64,401	18.3	%	$	1,041,550		$	873,208		$	168,342	19.3	%
Segment Adjusted EBITDA(1)	116,965			87,887			29,078		33.1	%	279,330			160,124			119,206		74.4	%
Segment Adjusted EBITDA Margin	28.1		%	25.0		%	N/A		N/A		26.8		%	18.3		%	N/A		N/A

Net Sales

Net sales for the three months ended June 30, 2024 increased by $64.4 million, or 18.3%, to $416.0 million from $351.6 million for the three months ended June 30, 2023. The increase was attributable to higher net sales related to our Deck, Rail & Accessories business, partially offset by slightly lower net sales related to our Exteriors business as it laps strong growth in the prior year.

Net sales for the nine months ended June 30, 2024 increased by $168.3 million, or 19.3%, to $1,041.6 million from $873.2 million for the nine months ended June 30, 2023. The increase was attributable to higher net sales related to our Deck, Rail & Accessories business, partially offset by slightly lower net sales related to our Exteriors business as it laps strong growth in the prior year.

Segment Adjusted EBITDA

Segment Adjusted EBITDA for the three months ended June 30, 2024 increased by $29.1 million, or 33.1%, to $117.0 million from $87.9 million for the three months ended June 30, 2023. The increase was mainly driven by higher net sales, lower raw material costs and higher plant utilization, partially offset by higher marketing and selling expenses.

Segment Adjusted EBITDA for the nine months ended June 30, 2024 increased by $119.2 million, or 74.4%, to $279.3 million from $160.1 million for the nine months ended June 30, 2023. The increase was mainly driven by higher net sales, lower raw material costs and higher plant utilization, partially offset by higher marketing and selling expenses.

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 and nine months ended June 30, 2024 and 2023.


	Three Months Ended June 30,										Nine Months Ended June 30,
(U.S. dollars in thousands)	2024			2023					% Variance		2024			2023					% Variance
Net sales	$	18,360		$	35,945		$	(17,585)	(48.9)	%	$	51,671		$	108,296		$	(56,625)	(52.3)	%
Segment Adjusted EBITDA	2,455			8,780			(6,325)		(72.0)	%	8,257			21,763			(13,506)		(62.1)	%
Segment Adjusted EBITDA Margin	13.4		%	24.4		%	N/A		N/A		16.0		%	20.1		%	N/A		N/A

Net Sales

Net sales for the three months ended June 30, 2024 decreased by $17.6 million, or 48.9%, to $18.4 million from $35.9 million for the three months ended June 30, 2023, primarily due to the sale of our Vycom business. Vycom net sales were $18.6 million for the three months ended June 30, 2023.

Net sales for the nine months ended June 30, 2024 decreased by $56.6 million, or 52.3%, to $51.7 million from $108.3 million for the nine months ended June 30, 2023, primarily due to the sale of our Vycom business. Vycom net sales were $3.3 million for the nine months ended June 30, 2024 (prior to its divestment on November 1, 2023) compared to $59.6 million for the nine months ended June 30, 2023.

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Segment Adjusted EBITDA

Segment Adjusted EBITDA of the Commercial segment was $2.5 million for the three months ended June 30, 2024, compared to $8.8 million for the three months ended June 30, 2023. The decrease was primarily driven by lower net sales due to the sale of our Vycom business, partially offset by lower material costs.

Segment Adjusted EBITDA of the Commercial segment was $8.3 million for the nine months ended June 30, 2024, compared to $21.8 million for the nine months ended June 30, 2023. The decrease was primarily driven by lower net 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 June 30,				Nine Months Ended June 30,
(U.S. dollars in thousands, except per share amounts)	2024		2023		2024		2023
			(As Restated)				(As Restated)
GAAP Financial Measures:
Gross Profit	$	164,324	$	131,914	$	412,047	$	284,975
Gross Profit Margin	37.8%		34.0%		37.7%		29.0%
Net Income	$	50,110	$	34,640	$	125,016	$	23,130
Net Income Per Common Share - Diluted	$	0.34	$	0.23	$	0.84	$	0.15
Net Profit Margin	11.5%		8.9%		11.4%		2.4%
Net Cash Provided By Operating Activities	$	195,075	$	171,751	$	163,981	$	235,893
Net Cash Provided By (Used In) Investing Activities	$	(23,453)	$	(6,701)	$	71,714	$	(54,047)
Net Cash Used In Financing Activities	$	(52,073)	$	(46,712)	$	(167,061)	$	(58,066)


	Three Months Ended June 30,				Nine Months Ended June 30,
(U.S. dollars in thousands, except per share amounts)	2024		2023		2024		2023
			(As Restated)				(As Restated)
Non-GAAP Financial Measures:
Adjusted Gross Profit	$	168,102	$	136,429	$	423,486	$	298,828
Adjusted Gross Profit Margin	38.7%		35.2%		38.7%		30.4%
Adjusted Net Income	$	62,012	$	44,810	$	135,364	$	56,003
Adjusted Diluted EPS	$	0.42	$	0.30	$	0.91	$	0.37
Adjusted EBITDA	$	119,420	$	96,667	$	287,587	$	181,887
Adjusted EBITDA Margin	27.5%		24.9%		26.3%		18.5%
Free Cash Flow	$	177,521	$	164,976	$	109,548	$	181,834

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

Beginning at December 31, 2023, we define Adjusted Gross Profit as gross profit before amortization, business transformation costs, acquisition costs and certain other costs as described below. Prior to December 31, 2023, depreciation was also excluded from

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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. For example, we add back 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.

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.

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

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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 June 30,						Nine Months Ended June 30,
(U.S. dollars in thousands)	2024			2023			2024			2023
				(As Restated)						(As Restated)
Gross Profit	$	164,324		$	131,914		$	412,047		$	284,975
Amortization(1)	3,778			4,515			11,439			13,737
Other costs(2)	—			—			—			116
Adjusted Gross Profit	$	168,102		$	136,429		$	423,486		$	298,828

	Three Months Ended June 30,						Nine Months Ended June 30,
	2024			2023			2024			2023
				(As Restated)						(As Restated)
Gross Margin	37.8		%	34.0		%	37.7		%	29.0		%
Amortization	0.9		%	1.2		%	1.0		%	1.4		%
Other costs	0.0		%	0.0		%	0.0		%	0.0		%
Adjusted Gross Profit Margin	38.7		%	35.2		%	38.7		%	30.4		%

_______________________________________________________

(1)Effective as of December 31, 2023, we revised the definition of Adjusted Gross Profit to no longer exclude depreciation expense. The prior periods have been recast to reflect the change.

(2)Other costs include costs related to a reduction in workforce of $0.1 million in the nine months ended June 30, 2024.

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Adjusted Net Income and Adjusted Diluted EPS Reconciliation


	Three Months Ended June 30,				Nine Months Ended June 30,
(U.S. dollars in thousands, except per share amounts)	2024		2023		2024		2023
			(As Restated)				(As Restated)
Net Income	$	50,110	$	34,640	$	125,016	$	23,130
Amortization	9,840		11,578		29,876		35,035
Stock-based compensation costs(1)	475		1,062		4,188		3,422
Acquisition and divestiture costs(2)	364		—		1,012		4,535
Gain on sale of business(3)	(90)		—		(38,390)		—
Secondary offering costs	—		1,065		—		1,065
Other costs(4)	5,582		111		9,012		580
Tax impact of adjustments(5)	(4,269)		(3,646)		4,650		(11,764)
Adjusted Net Income	$	62,012	$	44,810	$	135,364	$	56,003

	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
			(As Restated)				(As Restated)
Net Income	$	0.34	$	0.23	$	0.84	$	0.15
Amortization	0.07		0.07		0.20		0.23
Stock-based compensation costs	—		0.01		0.03		0.02
Acquisition and divestiture costs	—		—		0.01		0.03
Gain on sale of business	—		—		(0.26)		—
Secondary offering costs	—		0.01		—		0.01
Other costs	0.04		—		0.06		0.01
Tax impact of adjustments	(0.03)		(0.02)		0.03		(0.08)
Adjusted Diluted EPS(6)	$	0.42	$	0.30	$	0.91	$	0.37

_______________________________________________________

(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.

(3)Gain on sale of business relates to the sale of the Vycom business.

(4)Other costs include costs related to the Restatement of $4.9 million in the three and nine months ended June 30, 2024, costs related to removal of dispensable equipment resulting from a modification of the Company's manufacturing process of $2.4 million in the nine months ended June 30, 2024, reduction in workforce costs of $0.1 million in the three months ended June 30, 2023, and $0.3 million and $0.3 million in the nine months ended June 30, 2024 and 2023, respectively, costs for legal expenses of $0.7 million in the three months ended June 30, 2024, and $1.1 million and $0.2 million in the nine months ended June 30, 2024 and 2023, respectively, and other costs of $0.3 million and $0.1 million for the nine months ended June 30, 2024 and 2023, respectively.

(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 and nine months ended June 30, 2024 and 2023, 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 and nine months ended June 30, 2024, respectively.

(6)Weighted average common shares outstanding used in computing diluted net income per common share of 147,495,902 and 151,069,954 for the three months ended June 30, 2024 and 2023, respectively, and 148,011,393 and 151,056,199 for the nine months ended June 30, 2024 and 2023, respectively.

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Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation


	Three Months Ended June 30,						Nine Months Ended June 30,
(U.S. dollars in thousands)	2024			2023			2024			2023
				(As Restated)						(As Restated)
Net Income	$	50,110		$	34,640		$	125,016		$	23,130
Interest expense, net	7,863			10,408			24,453			30,481
Depreciation and amortization	31,871			33,063			96,012			98,539
Income tax expense	17,892			13,216			49,877			9,810
Stock-based compensation costs	5,828			4,164			20,595			13,747
Acquisition and divestiture costs(1)	364			—			1,012			4,535
Gain on sale of business(2)	(90)			—			(38,390)			—
Secondary offering costs	—			1,065			—			1,065
Other costs(3)	5,582			111			9,012			580
Total adjustments	69,310			62,027			162,571			158,757
Adjusted EBITDA	$	119,420		$	96,667		$	287,587		$	181,887

	Three Months Ended June 30,						Nine Months Ended June 30,
	2024			2023			2024			2023
				(As Restated)						(As Restated)
Net Profit Margin	11.5		%	8.9		%	11.4		%	2.4		%
Interest expense, net	1.8		%	2.7		%	2.2		%	3.1		%
Depreciation and amortization	7.4		%	8.5		%	8.8		%	9.9		%
Income tax expense	4.1		%	3.4		%	4.6		%	1.0		%
Stock-based compensation costs	1.3		%	1.1		%	1.9		%	1.4		%
Acquisition and divestiture costs	0.1		%	—		%	0.1		%	0.5		%
Gain on sale of business	—		%	—		%	(3.5)		%	—		%
Secondary offering costs	—		%	0.3		%	—		%	0.1		%
Other costs	1.3		%	—		%	0.8		%	0.1		%
Total adjustments	16.0		%	16.0		%	14.9		%	16.1		%
Adjusted EBITDA Margin	27.5		%	24.9		%	26.3		%	18.5		%

_______________________________________________________

(1)Acquisition and divestiture costs reflect costs related to acquisitions of $0.4 million in the three months ended June 30, 2024, and $0.5 million and $3.9 million in the nine months ended June 30, 2024 and 2023, respectively, and costs related to divestiture of $0.5 million and $0.7 million in the nine months ended June 30, 2024 and 2023, respectively.

(2)Gain on sale of business relates to the sale of the Vycom business.

(3)Other costs include costs related to the Restatement of $4.9 million in the three and nine months ended June 30, 2024, costs related to removal of dispensable equipment resulting from a modification of the Company's manufacturing process of $2.4 million in the nine months ended June 30, 2024, reduction in workforce costs of $0.1 million in the three months ended June 30, 2023, and $0.3 million and $0.3 million in the nine months ended June 30, 2024 and 2023, respectively, costs for legal expenses of $0.7 million in the three months ended June 30, 2024, and $1.1 million and $0.2 million in the nine months ended June 30, 2024 and 2023, respectively, and other costs of $0.3 million and $0.1 million for the nine months ended June 30, 2024 and 2023, respectively.

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Free Cash Flow Reconciliation


	Three Months Ended June 30,				Nine Months Ended June 30,
(U.S. dollars in thousands)	2024		2023		2024		2023
			(As Restated)				(As Restated)
Net cash provided by operating activities	$	195,075	$	171,751	$	163,981	$	235,893
Less: Purchases of property, plant and equipment	(17,554)		(6,775)		(54,433)		(54,059)
Free Cash Flow	$	177,521	$	164,976	$	109,548	$	181,834
Net cash provided by (used in) investing activities	$	(23,453)	$	(6,701)	$	71,714	$	(54,047)
Net cash used in financing activities	$	(52,073)	$	(46,712)	$	(167,061)	$	(58,066)

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 June 30, 2024, we had cash and cash equivalents of $346.9 million and total indebtedness of $589.5 million. The AZEK Group LLC (f/k/a CPG International LLC), our direct, wholly owned subsidiary, had approximately $147.8 million available under the borrowing base for future borrowings as of June 30, 2024. 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.

The AZEK Group LLC is party to the Revolving Credit Facility and the 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 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 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 Term Loan Agreement generally prohibit the payment of dividends unless the Total Net Leverage Ratio (as defined in the Term Loan Agreement) of 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 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, The AZEK Group LLC (as successor-in-interest to CPG Merger Sub LLC, a limited liability company formed to effect the acquisition of 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 June 30, 2024 and September 30, 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

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Revolving Credit Facility, respectively. As of June 30, 2024 and September 30, 2023, The AZEK Group LLC had approximately $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 $346.9 million and $278.3 million, respectively. 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 nine months ended June 30, 2024 and 2023.

Cash Flows


	Nine Months Ended June 30,				$ Variance		% Variance
(U.S. dollars in thousands)	2024		2023
			(As Restated)
Net cash provided by operating activities	$	163,981	$	235,893	$	(71,912)	(30.5)	%
Net cash provided by (used in) investing activities	71,714		(54,047)		125,761		232.7	%
Net cash used in financing activities	(167,061)		(58,066)		(108,995)		(187.7)	%
Net increase in cash and cash equivalents	$	68,634	$	123,780	$	(55,146)	(44.6)	%

Operating Activities

Net cash provided by operating activities was $164.0 million and $235.9 million for the nine months ended June 30, 2024 and 2023, respectively. The $71.9 million decrease in cash provided by operating activities is primarily related to the increase in inventory and higher trade receivables, partially offset by increased profitability due to higher net sales and lower raw material costs.

Investing Activities

Net cash provided by (used in) investing activities was $71.7 million and $(54.0) million for the nine months ended June 30, 2024 and 2023, respectively. Net cash provided by investing activities for the nine months ended June 30, 2024 primarily consisted of $(54.4) million for purchases of property, plant and equipment in the normal course of business and $131.8 million net proceeds from the sale of the Vycom business, while net cash used in investing activities for the nine months ended June 30, 2023, consisted of $(54.1) million for purchases of property, plant and equipment in the normal course of business.

Financing Activities

Net cash used in financing activities was $167.1 million and $58.1 million for the nine months ended June 30, 2024 and 2023, respectively. Net cash used in financing activities for the nine months ended June 30, 2024 primarily consisted of $175.0 million of treasury stock repurchases and $4.5 million of debt principal payments, partially offset by $19.4 million of exercise of vested stock options, while net cash used in financing activities for the nine months ended June 30, 2023, consisted of $55.5 million of treasury stock repurchases and $4.5 million of debt principal payments, partially offset by $11.1 million of exercise of vested stock options..

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. On June 12, 2024, the Board of Directors authorized us to repurchase up to $600 million of our Class A common stock in addition to the then remaining approximately $76 million available pursuant to our prior authorization. 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.

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The table below summarizes our repurchases of our Class A common stock during the three and nine months ended June 30, 2024 and 2023 (in thousands, except per share amount):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
Total number of shares repurchased	857		1,947		4,110		2,300
Reacquisition cost(1), (2), (3), (4)	$	50,400	$	48,480	$	176,615	$	55,968
Average price per share	$	47.14	$	24.90	$	40.54	$	24.34

(1)On June 17, 2024, we entered into a $50 million accelerated share repurchase agreement, or the "ASR" with Goldman Sachs & Co. LLC, or Goldman Sachs. Goldman Sachs delivered approximately 857,081 initial shares to us on June 18, 2024based on the closing price of our Class A common stock of $46.67 on June 17, 2024. The total value of the initial shares represents 80% of the ASR. Goldman Sachs terminated the ASR on August 2, 2024 and delivered 308,629 additional shares to us on August 5, 2024 upon final settlement for no additional consideration. The average purchase price per share for shares purchased by us pursuant to the ASR was $42.89.

(2)During the nine months ended June 30, 2024, we also repurchased approximately 2,725,707 shares of our Class A common stock under a $100 million ASR which was settled in February 2024 and approximately 526,718 shares of our Class A common stock on the open market for an approximately $25 million reacquisition cost.

(3)Reacquisition cost in the three and nine months ended June 30, 2023 includes the $36 million repurchase from the underwriter upon the completion of the secondary offering as described in Note 13 to our unaudited Condensed Consolidated Financial Statements. The remaining repurchases in the three and nine months ended June 30, 2023 were made through open market transactions.

(4)We recognized $0.4 million and $1.6 million excise tax as reacquisition cost of share repurchases for the three and nine months ended June 30, 2024, respectively, and $0.5 million excise tax as reacquisition cost of share repurchases for the three months ended June 30, 2023.

As of June 30, 2024, we had approximately $625.3 million available for repurchases under the Share Repurchase 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 June 30, 2024, 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 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 SOFR borrowings, 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.

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, The AZEK Group LLC and the subsidiaries of 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 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. 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.

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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 June 30, 2024 and September 30, 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. On May 22, 2024, as a result of our delayed filing of our Form 10-Q for the quarter ended March 31, 2024, The AZEK Group LLC was not in compliance with the financial reporting requirements in the Revolving Credit Facility, which non-compliance was subject to a 30-day grace period. Because we filed our Form 10-Q for the quarter ended March 31, 2024 on June 14, 2024, which was within the grace period, The AZEK Group LLC regained compliance and no event of default occurred.

We also have the option to increase the commitments under the Revolving Credit Facility by up to $100.0 million, subject to certain conditions.

Term Loan Agreement

The obligations under the Term Loan Agreement are secured by a first priority security interest in the membership interests of The AZEK Group LLC owned by us, the equity interests of The AZEK Group LLC’s domestic subsidiaries, other than certain immaterial subsidiaries and other excluded subsidiaries, and all remaining assets not constituting Revolver Priority Collateral (subject to certain exceptions) of the Company, The AZEK Group LLC and the subsidiaries of The AZEK Group LLC that are guarantors under the Term Loan Agreement, and a second priority security interest in the Revolver Priority Collateral. The obligations under the Term Loan Agreement are guaranteed by us and the wholly owned domestic subsidiaries of The AZEK Group LLC other than certain immaterial subsidiaries and other excluded subsidiaries.

The interest rate applicable to the outstanding principal under the 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 Term Loan Agreement) plus 0.50%, (b) the Prime Rate (as defined in the Term Loan Agreement) as in effect on such day and (c) the one-month Term SOFR (as defined in the 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%.

The Term Loan Agreement contains affirmative covenants, negative covenants and events of default, which are broadly consistent with those in the Revolving Credit Facility (with certain differences consistent with the differences between a revolving loan and term loan) and that are customary for facilities of this type. The Term Loan Agreement does not have any financial maintenance covenants. The Term Loan Agreement also includes customary events of default, including the occurrence of a change of control. On May 22, 2024, as a result of our delayed filing of our Form 10-Q for the quarter ended March 31, 2024, The AZEK Group LLC was not in compliance with the financial reporting requirements in the Term Loan Agreement, which non-compliance was subject to a 30-day grace period. Because we filed our Form 10-Q for the quarter ended March 31, 2024 on June 14, 2024, which was within the grace period, The AZEK Group LLC regained compliance and no event of default occurred.

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 Term Loan Agreement, and (ii) the Ratio Amount, as defined in the 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 Term Loan Agreement, as applicable, are met.

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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 2023 Form 10-K/A, 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.

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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 June 30, 2024 and September 30, 2023, we had $589.5 million and $594.0 million outstanding under the Term Loan Agreement, respectively, and no outstanding amounts under the Revolving Credit Facility, respectively. The 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, after giving effect to related derivatives, as of June 30, 2024 and 2023, would have increased or decreased annual cash interest by approximately $2.9 million and $3.0 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 June 30, 2024 and September 30, 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.

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. Geopolitical tensions and other economic uncertainties 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. 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.

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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. Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits 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 the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2024 because of the material weaknesses in our internal control over financial reporting described in Part II, Item 9A of our 2023 Form 10-K/A.

Management’s Plan to Remediate the Material Weaknesses

As it relates to the material weaknesses that exist as of June 30, 2024, we are currently in the process of designing and implementing remediation plans and taking steps to address the root cause of the material weaknesses described above. Such plans include, but may not be limited to, the following:

•We have hired an external consultant to assist us in an evaluation of the design and implementation of certain internal controls impacted by the material weaknesses.

•We are enhancing controls, both within our information technology environment and business process controls, to establish and maintain appropriate segregation of duties.

•We will provide training over the execution and review of manual journal entry controls.

•We will provide additional training regarding prompt internal reporting of identified issues and concerns.

•We will provide technical accounting training to individuals involved in the process to reconcile inventory on a monthly basis.

•We will enhance the design of the inventory reconciliation controls to standardize the review to improve the reliability of information used by accounting personnel.

•We are enhancing our monitoring level controls to detect material and unusual variances in inventory account balances and cost of sales activity.

While we believe these efforts will improve our internal controls and address the root cause of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented and we have concluded, through testing, that our controls are operating effectively for a sufficient period of time.

Changes in Internal Control Over Financial Reporting

Other than the changes intended to remediate the material weaknesses noted above, there were no 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 June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed under the heading “Risk Factors” in our 2023 Form 10-K/A. You should carefully consider the risk factors in our 2023 Form 10-K/A 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 June 30, 2024:


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)
April 1, 2024 – April 30, 2024	—	$	—	—	$	75,723,021
May 1, 2024 – May 31, 2024	—	—		—	75,723,021
June 1, 2024 – June 30, 2024	857,081	47.14		857,081	625,323,021
Total	857,081	$	47.14	857,081

(1)On May 5, 2022, the Board of Directors authorized us to repurchase up to $400 million of our Class A common stock. On June 12, 2024, the Board of Directors authorized us to repurchase up to $600 million of our Class A common stock in addition to the then remaining approximately $76 million available pursuant to our prior authorization.

(2)On June 17, 2024, we entered into a $50 million ASR with Goldman Sachs. Goldman Sachs delivered 857,081 initial shares to us on June 18, 2024, based on the closing price of our Class A common stock of $46.67 on June 17, 2024. The total value of the initial shares represents 80% of the ASR. The final settlement of the ASR 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 fourth quarter of fiscal year 2024.

(3)We recognized $0.4 million excise tax as reacquisition cost of share repurchases for the three months ended June 30, 2024.

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

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

None.

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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. (Effective June 12, 2024)

10-Q

3.2

06/14/2024

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.

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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: August 8, 2024	By:		/s/ Peter Clifford
			Peter Clifford Senior Vice President and Chief Financial Officer (Principal Financial Officer)