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Decking manufacturing company AZEK launches PVC recycling program

Yahoo Finance's Alexis Christoforous and Jesse Singh, AZEK CEO, discuss demand amid COVID-19 and the company's new PVC recycling program.

Video Transcript

ALEXIS CHRISTOFOROUS: Since going public in June, shares of the sustainable outdoor building materials company AZEK are up 27%. And the company just announced it is expanding its recycling efforts to now include a PVC return program. That program will make AZEK one of the largest PVC recyclers in the country. Joining us now is the CEO of AZEK, Jesse Singh.

Jesse, good to see you again. The last time you were on our air was the day the company went public, so good to see you. Before we get to the recycling program, you have benefited, your company has benefited from the increased focus on home improvement during this pandemic. I'm curious what business is like right now, as we head into the colder winter months here in the Northeast.

JESSE SINGH: Well, we had a strong business coming into the pandemic. And as a reminder, we make decking products and other products that are used in sustainable outdoor living. We had a growth rate of 16% coming into the pandemic, and as we've gone through the pandemic, we've continued to see a significant interest in people building outdoor living rooms and outdoor living spaces. And that's continued. You know, we continue to see strong interest and strong demand in our products.

ALEXIS CHRISTOFOROUS: Now, let's talk a little bit about this recycling program that you just announced. Tell us who you're partnering with to make this happen, and what does it mean exactly for our landfills?

JESSE SINGH: Well, we-- we've historically focused on using recycling as a material. In fact, last year, we used almost 300 million pounds of recycle. A lot of that was recycled polyethylene. And earlier this year, we bought a company called Return Polymers, which was the premier PVC recycler. And we've continued to expand that.

And this most recent announcement, you know, we're highlighting the fact that we've been running a pilot program, where we will actually ship products to our customers. As they use it, whether that's contractors or manufacturers, as they use it and generate waste, we'll actually take that waste back. So it's our first foray into creating a closed-loop system in an area, PVC, that's not typically recycled.

ALEXIS CHRISTOFOROUS: That is definitely exciting, but tell us what that might mean for AZEK's bottom line.

JESSE SINGH: Well, we-- you know, the benefit we have is we're able to use recycled materials either within our deck boards-- and in fact, our-- some of our deck boards range from 50% recycle in the middle all the way to 100% recycle in the middle. And as we continue to expand our position in recycle, as we close the loop, get closer to the consumer in terms of what we take back, it gives us an opportunity to expand our gross margins.

Recycle, when you're competing against people landfilling the product, you know, it's a very cost-effective raw material. And of course, it's significantly better for the environment, in that we're able to prevent those materials from going into landfills.

ALEXIS CHRISTOFOROUS: You know, Jesse, one of the concerns that seems to come up with analysts pretty regularly is how much AZEK is leveraged, and the debt that the company is carrying. The last figure I saw was for June, when the company had $1.2 billion in debt, equivalent to about 64% of total assets. Where do things stand right now, and what would you tell investors who are concerned about the company's debt level?

JESSE SINGH: Yeah, coming into going public, we did have the leverage that you highlighted, over a billion in debt. We generated over $800 million as part of the IPO in June, and we used all of the proceeds of that to secure our balance sheet. So as we stand right now, we've got a leverage ratio below two relative to our EBITDA. So we're actually in what we think is the right leverage point right now.

And once again, we used the proceeds for the IPO to pay down debt. And I think as important, you know, we've embarked on a almost $200 million capacity expansion to meet current and future demand. And so we're one of those folks that, you know, I've raised money from an IPO, not only paying down debt, but also give us an opportunity to invest in the US as we expand our manufacturing.

ALEXIS CHRISTOFOROUS: And lastly, what's the supply chain looking like for you, and are you able to meet the increased demand for your products, Jesse?

JESSE SINGH: Yeah, in our last earnings call, we-- in August, we highlighted that we were at 100% utilization. So all of our capacity was going to meet demand. And as we add capacity, we continue to see strong demand. And so, you know, we're in an industry right now where certainly it's been a challenge meeting the demand, but I think more importantly, long-term, we see trends that continue to drive pretty significant demand. And the capacity we're adding will allow us to meet that future demand.

ALEXIS CHRISTOFOROUS: All right, Jesse Singh, CEO of AZEK, thanks for being with us.

JESSE SINGH: Terrific. Thanks for having me.