Azek Co. Inc., the maker of TimberTech decking and related accessories, and engineered sheet, has filed paperwork with the Securities and Exchange Commission as it moves closer to becoming publicly traded on the New York Stock Exchange.
The Feb. 7 filing was made by CPG Newco LLC of Chicago, the official owner of Azek. The name will change to Azek as part of the initial public offering.
The prospectus did not give a time frame for the IPO, spell out share-price details nor list how much money the Azek expects to raise. But officials of the building products maker plan to use the net proceeds to pay down 8 percent senior notes that mature on Oct. 1, 2021, and to fund general corporate purposes.
According to the prospectus, Azek generated sales of $794.2 million in fiscal year 2019, which ended Sept. 30. That marked an increase of 16.5 percent from the year before because of organic sales growth and the acquisitions of Versatex Holdings LLC, a maker of cellular PVC building products, and WES LLC, a company that develops aluminum railing, porch and other products and markets an interlocking machine for customized assembly.
Azek lost $20.2 million in fiscal 2019.
The residential market accounts for more than 80 percent of Azek's total sales. That includes TimberTech and Azek wood-composite and cellular PVC decking, plus railing and trim accessories. Residential construction generated 2019 sales of $655.4. million in 2019, up 20.9 percent from fiscal 2018. The increase was 10.9 percent when measured in organic sales, excluding the acquisitions.
The commercial market, mainly sheet for partitions and lockers, had 2019 sales of $139 million.
The prospectus showed that Azek's residential products are growing much faster than the commercial side and at a more profitable rate. The residential segment generated about 15 percent net sales on a 10-year compounded annual growth rate and 28.8 percent in 2019 for adjusted earnings before interest, taxes, depreciation and amortization.
Commercial had about a 3 percent net sales on a 10-year CAGR and 15.5 percent EBITDA.
"Our business has a strong profile driven by our differentiated premium branded products, vertically integrated U.S.-based manufacturing capabilities and strong customer relationships," Azek said in the prospectus.
The company said the movement away from wood decking to low-maintenance engineered materials continues: "Over our 30-year history, we have introduced numerous disruptive products and demonstrated our ability to material conversion and extend our portfolio, addressing consumer needs across a wide range of price segments."
In the last three fiscal years, Azek has increased research and development, sales and marketing expenses by more than 40 percent. The company has beefed up its market and sales force.
Azek is also making major investments in recycling of both polyethylene and PVC for its decking. In April 2019, the company opened a 100,000-square-foot PE recycling plant in Wilmington, Ohio. On Feb. 3, Azek announced it had purchased Return Polymers Inc., a major PVC recycler and compounder in Ashland, Ohio.
"In fiscal 2019, we utilized more than 200 million pounds of recycled materials in our deck boards and we expect to increase the amount of recycled materials in our deck boards by over 25 percent in fiscal 2020," Azek officials said in the prospectus.
Azek has invested more than $28 million to develop recycling capability "to substantially reduce our material cost, divert waste from landfills and increase our utilization of recycled materials," the company said in the prospectus. In 2019, Azek increased the recycled material content used in the core of its deck boards by around 20 percent more than the amount of recycled content in 2018.
"Increasing the recycled material content in our deck boards has allowed us to substantially reduce the utilization of virgin [high density PE] in the production of the core of our TimberTech PRO and EDGE products, representing approximately $9 million in cost savings on an annualized basis when compared to legacy material content formulations," the company said, adding that the recycled material substitution is "still in the early stages."