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Advanced Drainage Systems Announces Second Quarter Fiscal 2021 Results

11/05/2020

HILLIARD, Ohio--(BUSINESS WIRE)-- Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading provider of innovative water management solutions in the stormwater and on-site septic waste water industries today announced financial results for the second quarter ended September 30, 2020.

Second Quarter Fiscal 2021 Results

  • Net sales increased 9.7% to $544.2 million
  • Net income increased to $80.6 million, compared to $8.5 million in the prior year
  • Adjusted EBITDA (Non-GAAP) increased 47.3% to $174.1 million

Year-to-Date Fiscal 2021 Results

  • Net sales increased 15.7% to $1.1 billion
  • Net income increased to $151.3 million, compared to a net loss of $219.0 million in the prior year
  • Adjusted EBITDA (Non-GAAP) increased 68.1% to $333.5 million
  • Cash provided by operating activities increased 66.7% to $286.2 million
  • Free cash flow (Non-GAAP) increased 76.1% to $257.2 million

Scott Barbour, President and Chief Executive Officer of ADS commented, “We had a strong second quarter of fiscal 2021, with 10% net sales growth as demand and business activity remained favorable. We generated strong performance in key growth states including the Carolinas and Florida, as well as more broadly across the South and Southeast regions of the United States. As a whole, ADS benefitted from our national presence as well as our geographic and end market exposure, including the increased exposure to the Residential end market that Infiltrator provides.”

Barbour continued, “We also achieved record second quarter profitability, with an increase of 820 basis points in our Adjusted EBITDA margin. The profitability improvement was driven by favorable material cost, leverage from sales growth, execution of our operational initiatives, contributions from the proactive cost mitigation steps and our synergy programs.”

Barbour concluded. “We are optimistic as we look to the second half of our fiscal year, with our order book, project tracking, book-to-bill ratio and backlog all remaining positive on a year-over-year basis. We expect the normal seasonal patterns to apply to the second half of our fiscal year as installation activity slows down in geographies with colder temperatures. Though uncertainties still exist regarding the broader market environment, we are well positioned to capitalize on residential development and horizontal construction, while continuing to generate above-market growth through the execution of our material conversion and water management solutions strategies. We remain focused on disciplined execution as we look to build off a very strong first half of fiscal 2021.”

Second Quarter Fiscal 2021 Results

Net sales increased $48.3 million, or 9.7%, to $544.2 million, as compared to $495.9 million in the prior year. Domestic pipe sales increased $10.7 million, or 3.8%, to $292.1 million. Domestic allied products & other sales increased $3.6 million, or 3.2%, to $118.0 million. These increases were driven by sales growth in the U.S. construction end markets. Infiltrator sales increased $41.1 million, or 63.3%, to $106.0 million, as compared to $64.9 million in the prior year.

Gross profit increased $59.3 million, or 40.5%, to $205.9 million as compared to $146.5 million in the prior year. The increase is primarily due to the incremental benefit from the acquisition of Infiltrator Water Technologies, favorable material cost, leverage from sales growth in both pipe and allied product sales and operational improvements offsetting inflationary costs.

Adjusted EBITDA (Non-GAAP) increased $55.9 million, or 47.3%, to $174.1 million, as compared to $118.2 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 32.0% as compared to 23.8% in the prior year.

Reconciliations of GAAP to Non-GAAP financial measures for Adjusted EBITDA and Free Cash Flow have been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

Year-to-Date Fiscal 2021 Results

Net sales increased $143.2 million, or 15.7%, to $1.053 billion, as compared to $909.6 million in the prior year. Domestic pipe sales increased $22.2 million, or 4.1%, to $565.8 million. Domestic allied products & other sales increased $8.4 million, or 3.7%, to $234.9 million. These increases were driven by growth in both the U.S. construction and agriculture end markets. Infiltrator sales increased $143.3 million, or 220.8%, to $208.1 million, as compared to $64.9 million in the prior year.

Gross profit increased $310.0 million to $394.4 million as compared to $84.4 million in the prior year. The prior year gross profit includes $168.6 million of ESOP special dividend compensation expense. The remaining increase is primarily due to the acquisition of Infiltrator Water Technologies, favorable material cost, an increase in operational efficiency and increases in both pipe and allied product sales.

Adjusted EBITDA (Non-GAAP) increased $135.1 million, or 68.1%, to $333.5 million, as compared to $198.5 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 31.7% as compared to 21.8% in the prior year.

Balance Sheet and Liquidity

Net cash provided by operating activities increased $114.5 million, or 66.7%, to $286.2 million, as compared to $171.7 million in the prior year, primarily due to the increase in profitability. Free cash flow (Non-GAAP) increased $111.1 million, or 76.1%, to $257.2 million, as compared to $146.1 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $745.0 million as of September 30, 2020, a decrease of $243.0 million from March 31, 2020.

ADS had total liquidity of $543 million, comprised of cash of $204 million as of September 30, 2020 and $339 million of availability under committed credit facilities. As of September 30, 2020, the Company’s leverage ratio was 1.5 times.

Fiscal 2021 Outlook

ADS continues to carefully monitor the pandemic and the impact on its business. Based on current visibility, backlog of existing orders and business trends, the Company issued net sales and Adjusted EBITDA targets for fiscal 2021. Net sales are expected to be in the range of $1.790 billion to $1.840 billion and Adjusted EBITDA is expected to be in the range of $495 to $515 million. Capital expenditures are expected to be in the range of $80 million to $90 million.

Scott Cottrill, Chief Financial Officer of ADS commented, “Today’s guidance is based on the current orderbook, market trends and visibility into the second half of fiscal 2021 as well as our strong financial performance in the first half of fiscal 2021. It does not contemplate any further change in economic conditions due to the COVID-19 pandemic. We expect volume in the second half of the year to be consistent with the prior year, driven by seasonality, with modest improvement in year-over-year profitability despite inflationary pressure as well as investments in both capital and our organization to drive future value.”

Webcast Information

Participants may Register Here for this conference call or copy and paste the following text into your browser: http://www.directeventreg.com/registration/event/3888036. After registering, participants will receive a confirmation through email, including dial in details and unique conference call codes for entry. Registration is open through the live call. To ensure participants are connected for the full call, please register at least 10 minutes before the start of the call. The live webcast will also be accessible via the "Events Calendar” section of the Company’s Investor Relations website, www.investors.ads-pipe.com. An archived version of the webcast will be available for one year following the call.

About the Company

Advanced Drainage Systems is a leading provider of innovative water management solutions in the stormwater and on-site septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplace. For over 50 years, the Company has been manufacturing a variety of innovative and environmentally friendly alternatives to traditional materials. Its innovative products are used across a broad range of end markets and applications, including non-residential, residential, infrastructure and agriculture applications. The Company has established a leading position in many of these end markets by leveraging its national sales and distribution platform, overall product breadth and scale and manufacturing excellence. Founded in 1966, the Company operates a global network of approximately 60 manufacturing plants and 30 distribution centers. To learn more about ADS, please visit the Company’s website at www.ads-pipe.com.

Forward Looking Statements

Certain statements in this press release may be deemed to be forward-looking statements. These statements are not historical facts but rather are based on the Company’s current expectations, estimates and projections regarding the Company’s business, operations and other factors relating thereto. Words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “predict,” “potential,” “continue,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “confident” and similar expressions are used to identify these forward-looking statements. Factors that could cause actual results to differ from those reflected in forward-looking statements relating to our operations and business include: fluctuations in the price and availability of resins and other raw materials and our ability to pass any increased costs of raw materials on to our customers in a timely manner; volatility in general business and economic conditions in the markets in which we operate, including the adverse impact on the U.S. and global economy of the COVID-19 global pandemic, and the impact of COVID-19 in the near, medium and long-term on our business, results of operations, financial position, liquidity or cash flows, and other factors relating to availability of credit, interest rates, fluctuations in capital and business and consumer confidence; cyclicality and seasonality of the non-residential and residential construction markets and infrastructure spending; the risks of increasing competition in our existing and future markets, including competition from both manufacturers of high performance thermoplastic corrugated pipe and manufacturers of products using alternative materials; uncertainties surrounding the integration of acquisitions and similar transactions, including the acquisition of Infiltrator Water Technologies and the integration of Infiltrator Water Technologies; our ability to realize the anticipated benefits from the acquisition of Infiltrator Water Technologies; risks that the acquisition of Infiltrator Water Technologies and related transactions may involve unexpected costs, liabilities or delays; our ability to continue to convert current demand for concrete, steel and polyvinyl chloride (“PVC”) pipe products into demand for our high performance thermoplastic corrugated pipe and Allied Products; the effect of any claims, litigation, investigations or proceedings; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; our ability to remediate the material weakness in our internal control over financial reporting, including remediation of the control environment for our joint venture affiliate ADS Mexicana, S.A. de C.V.; the risks of conducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets, including risks associated with new markets and products associated with our recent acquisition of Infiltrator Water Technologies; our ability to achieve the acquisition component of our growth strategy; the risk associated with manufacturing processes; our ability to manage our assets; the risks associated with our product warranties; our ability to manage our supply purchasing and customer credit policies; the risks associated with our self-insured programs; our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, including environmental laws and regulations; our ability to project product mix; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; fluctuations in our effective tax rate; our ability to meet future capital requirements and fund our liquidity needs; the risk that additional information may arise that would require the Company to make additional adjustments or revisions or to restate the financial statements and other financial data for certain prior periods and any future periods; any delay in the filing of any filings with the Securities and Exchange Commission (“SEC”); the review of potential weaknesses or deficiencies in the Company’s disclosure controls and procedures, and discovering weaknesses of which we are not currently aware or which have not been detected; additional uncertainties related to accounting issues generally; and the other risks and uncertainties described in the Company’s filings with the SEC. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautioned not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Financial Statements

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands, except per share data)

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

$

544,187

 

 

$

495,905

 

 

$

1,052,826

 

 

$

909,613

 

Cost of goods sold

 

338,330

 

 

 

349,381

 

 

 

658,466

 

 

 

656,637

 

Cost of goods sold - ESOP special dividend compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

168,610

 

Gross profit

 

205,857

 

 

 

146,524

 

 

 

394,360

 

 

 

84,366

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling

 

30,586

 

 

 

29,971

 

 

 

58,746

 

 

 

56,336

 

General and administrative

 

35,115

 

 

 

48,030

 

 

 

68,731

 

 

 

79,463

 

Selling, general and administrative - ESOP special dividend compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

78,142

 

Loss on disposal of assets and costs from exit and disposal activities

 

627

 

 

 

2,004

 

 

 

2,274

 

 

 

2,711

 

Intangible amortization

 

17,955

 

 

 

9,300

 

 

 

35,937

 

 

 

10,842

 

Income (loss) from operations

 

121,574

 

 

 

57,219

 

 

 

228,672

 

 

 

(143,128

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

9,360

 

 

 

52,332

 

 

 

19,330

 

 

 

57,596

 

Derivative loss (gains) and other expense (income), net

 

(151

)

 

 

175

 

 

 

(718

)

 

 

79

 

(Loss) income before income taxes

 

112,365

 

 

 

4,712

 

 

 

210,060

 

 

 

(200,803

)

Income tax (benefit) expense

 

31,827

 

 

 

(3,547

)

 

 

59,027

 

 

 

18,823

 

Equity in net (income) loss of unconsolidated affiliates

 

(67

)

 

 

(203

)

 

 

(240

)

 

 

(637

)

Net income (loss)

 

80,605

 

 

 

8,462

 

 

 

151,273

 

 

 

(218,989

)

Less: net income attributable to noncontrolling interest

 

369

 

 

 

873

 

 

 

571

 

 

 

(222

)

Net income (loss) attributable to ADS

 

80,236

 

 

 

7,589

 

 

 

150,702

 

 

 

(218,767

)

Dividends to redeemable convertible preferred stockholders

 

(1,329

)

 

 

(1,355

)

 

 

(2,695

)

 

 

(8,196

)

Dividends paid to unvested restricted stockholders

 

-

 

 

 

(4

)

 

 

(2

)

 

 

(330

)

Net income (loss) available to common stockholders and participating securities

 

78,907

 

 

 

6,230

 

 

 

148,005

 

 

 

(227,293

)

Undistributed income allocated to participating securities

 

(12,760

)

 

 

(204

)

 

 

(24,025

)

 

 

-

 

Net income (loss) available to common stockholders

$

66,147

 

 

$

6,026

 

 

$

123,980

 

 

$

(227,293

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

69,843

 

 

 

60,222

 

 

 

69,612

 

 

 

58,906

 

Diluted

 

70,755

 

 

 

60,876

 

 

 

70,459

 

 

 

58,906

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.95

 

 

$

0.10

 

 

$

1.78

 

 

$

(3.86

)

Diluted

$

0.93

 

 

$

0.10

 

 

$

1.76

 

 

$

(3.86

)

Cash dividends declared per share

$

0.09

 

 

$

0.09

 

 

$

0.18

 

 

$

1.18

 

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)

 

 

As of

 

(Amounts in thousands)

September 30, 2020

 

 

March 31, 2020

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

$

203,883

 

 

$

174,233

 

Receivables, net

 

260,180

 

 

 

200,028

 

Inventories

 

223,268

 

 

 

282,398

 

Other current assets

 

13,248

 

 

 

9,552

 

Total current assets

 

700,579

 

 

 

666,211

 

Property, plant and equipment, net

 

481,947

 

 

 

481,380

 

Other assets:

 

 

 

 

 

 

 

Goodwill

 

598,416

 

 

 

597,819

 

Intangible assets, net

 

519,660

 

 

 

555,338

 

Other assets

 

72,770

 

 

 

69,140

 

Total assets

$

2,373,372

 

 

$

2,369,888

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current maturities of debt obligations

$

7,000

 

 

$

7,955

 

Current maturities of finance lease obligations

 

19,319

 

 

 

20,382

 

Accounts payable

 

114,030

 

 

 

106,710

 

Other accrued liabilities

 

119,084

 

 

 

101,116

 

Accrued income taxes

 

23,058

 

 

 

2,050

 

Total current liabilities

 

282,491

 

 

 

238,213

 

Long-term debt obligations, net

 

885,528

 

 

 

1,089,368

 

Long-term finance lease obligations

 

37,016

 

 

 

44,501

 

Deferred tax liabilities

 

172,183

 

 

 

175,616

 

Other liabilities

 

40,551

 

 

 

37,608

 

Total liabilities

 

1,417,769

 

 

 

1,585,306

 

Mezzanine equity:

 

 

 

 

 

 

 

Redeemable convertible preferred stock

 

262,872

 

 

 

269,529

 

Deferred compensation — unearned ESOP shares

 

(16,779

)

 

 

(22,432

)

Total mezzanine equity

 

246,093

 

 

 

247,097

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock

 

11,562

 

 

 

11,555

 

Paid-in capital

 

859,254

 

 

 

827,573

 

Common stock in treasury, at cost

 

(10,859

)

 

 

(10,461

)

Accumulated other comprehensive loss

 

(30,426

)

 

 

(35,325

)

Retained (deficit) earnings

 

(133,011

)

 

 

(267,619

)

Total ADS stockholders’ equity

 

696,520

 

 

 

525,723

 

Noncontrolling interest in subsidiaries

 

12,990

 

 

 

11,762

 

Total stockholders’ equity

 

709,510

 

 

 

537,485

 

Total liabilities, mezzanine equity and stockholders’ equity

$

2,373,372

 

 

$

2,369,888

 

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

 

 

Six Months Ended September 30,

 

(Amounts in thousands)

2020

 

 

2019

 

Cash Flow from Operating Activities

 

 

 

 

 

 

 

Net (loss) income

$

151,273

 

 

$

(218,989

)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

71,559

 

 

 

43,260

 

Deferred income taxes

 

(3,446

)

 

 

1,127

 

Loss on disposal of assets and costs from exit and disposal activities

 

2,274

 

 

 

2,711

 

ESOP and stock-based compensation

 

27,088

 

 

 

16,082

 

ESOP special dividend compensation

 

-

 

 

 

246,752

 

Amortization of deferred financing charges

 

197

 

 

 

34,285

 

Inventory step up related to Infiltrator Water Technologies acquisition

 

-

 

 

 

5,773

 

Fair market value adjustments to derivatives

 

(1,455

)

 

 

996

 

Equity in net (income) loss of unconsolidated affiliates

 

(240

)

 

 

(637

)

Other operating activities

 

(236

)

 

 

(3,635

)

Changes in working capital:

 

 

 

 

 

 

 

Receivables

 

(60,106

)

 

 

(44,883

)

Inventories

 

60,663

 

 

 

57,316

 

Prepaid expenses and other current assets

 

(3,666

)

 

 

(2,917

)

Accounts payable, accrued expenses, and other liabilities

 

42,263

 

 

 

34,470

 

Net cash provided by operating activities

 

286,168

 

 

 

171,711

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Capital expenditures

 

(28,959

)

 

 

(25,622

)

Cash paid for acquisitions, net of cash acquired

 

-

 

 

 

(1,088,617

)

Other investing activities

 

455

 

 

 

(116

)

Net cash used in investing activities

 

(28,504

)

 

 

(1,114,355

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Proceeds from Term Loan Facility

 

-

 

 

 

1,300,000

 

Payments on Term Loan Facility

 

-

 

 

 

(1,300,000

)

Proceeds from syndication of Term Loan Facility

 

-

 

 

 

700,000

 

Payments on syndicated Term Loan Facility

 

(103,500

)

 

 

-

 

Proceeds from Senior Notes

 

-

 

 

 

350,000

 

Proceeds from Revolving Credit Agreement

 

-

 

 

 

177,900

 

Payments on Revolving Credit Agreement

 

(100,000

)

 

 

(177,900

)

Debt issuance costs

 

-

 

 

 

(34,606

)

Proceeds from PNC Credit Agreement

 

-

 

 

 

253,900

 

Payments on PNC Credit Agreement

 

-

 

 

 

(388,300

)

Payments on Prudential Senior Notes

 

-

 

 

 

(100,000

)

Payments on finance lease obligations

 

(10,677

)

 

 

(12,375

)

Proceeds from common stock offering, net of offering costs

 

-

 

 

 

293,648

 

Cash dividends paid

 

(15,402

)

 

 

(76,324

)

Proceeds from exercise of stock options

 

3,275

 

 

 

2,430

 

Other financing activities

 

(1,489

)

 

 

(236

)

Net cash used in financing activities

 

(227,793

)

 

 

988,137

 

Effect of exchange rate changes on cash

 

(221

)

 

 

(177

)

Net change in cash

 

29,650

 

 

 

45,316

 

Cash at beginning of period

 

174,233

 

 

 

8,891

 

Cash at end of period

$

203,883

 

 

$

54,207

 

 

Selected Financial Data

The following tables set forth net sales by reportable segment for each of the periods indicated.

 

Three Months Ended

 

 

September 30, 2020

 

 

September 30, 2019

 

 

Net Sales

 

 

Intersegment
Net Sales

 

 

Net Sales
from External
Customers

 

 

Net Sales

 

 

Intersegment
Net Sales

 

 

Net Sales
from External
Customers

 

Pipe

$

292,133

 

 

$

(1,637

)

 

$

290,496

 

 

$

281,405

 

 

$

(342

)

 

$

281,063

 

Infiltrator Water Technologies

 

105,986

 

 

 

(18,692

)

 

 

87,294

 

 

 

64,889

 

 

 

(12,189

)

 

 

52,700

 

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

35,592

 

 

 

(896

)

 

 

34,696

 

 

 

34,617

 

 

 

 

 

 

34,617

 

International - Allied Products

 

13,706

 

 

 

 

 

 

13,706

 

 

 

13,167

 

 

 

 

 

 

13,167

 

Total International

 

49,298

 

 

 

(896

)

 

 

48,402

 

 

 

47,784

 

 

 

 

 

 

47,784

 

Allied Products & Other

 

117,995

 

 

 

 

 

 

117,995

 

 

 

114,358

 

 

 

 

 

 

114,358

 

Intersegment Eliminations

 

(21,225

)

 

 

21,225

 

 

 

 

 

 

(12,531

)

 

 

12,531

 

 

 

 

Total Consolidated

$

544,187

 

 

$

 

 

$

544,187

 

 

$

495,905

 

 

$

 

 

$

495,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

September 30, 2020

 

 

September 30, 2019

 

 

Net Sales

 

 

Intersegment
Net Sales

 

 

Net Sales
from External
Customers

 

 

Net Sales

 

 

Intersegment
Net Sales

 

 

Net Sales
from External
Customers

 

Pipe

$

565,785

 

 

$

(3,482

)

 

$

562,303

 

 

$

543,586

 

 

$

(342

)

 

$

543,244

 

Infiltrator Water Technologies

 

208,139

 

 

 

(36,760

)

 

 

171,379

 

 

 

64,889

 

 

 

(12,189

)

 

 

52,700

 

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

62,542

 

 

 

(896

)

 

 

61,646

 

 

 

63,902

 

 

 

 

 

 

63,902

 

International - Allied Products

 

22,585

 

 

 

 

 

 

22,585

 

 

 

23,216

 

 

 

 

 

 

23,216

 

Total International

 

85,127

 

 

 

(896

)

 

 

84,231

 

 

 

87,118

 

 

 

 

 

 

87,118

 

Allied Products & Other

 

234,913

 

 

 

 

 

 

234,913

 

 

 

226,551

 

 

 

 

 

 

226,551

 

Intersegment Eliminations

 

(41,138

)

 

 

41,138

 

 

 

 

 

 

(12,531

)

 

 

12,531

 

 

 

 

Total Consolidated

$

1,052,826

 

 

$

 

 

$

1,052,826

 

 

$

909,613

 

 

$

 

 

$

909,613

 

 

Employee Stock Ownership Plan (“ESOP”)

The Company established an ESOP to enable employees to acquire stock ownership in ADS in the form of redeemable convertible preferred shares (“preferred shares”). All preferred shares will be converted to common shares by plan maturity, which will be no later than March 2023. The ESOP’s conversion of preferred shares into common shares will have a meaningful impact on net income, net income per share and common shares outstanding. The common shares outstanding will be greater after conversion.

Net Income (Loss)

The impact of the ESOP on net (loss) income includes the ESOP deferred compensation attributable to the preferred shares allocated to employee accounts during the period, which is a non-cash charge to our earnings and not deductible for income tax purposes.

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss) attributable to ADS

$

80,236

 

 

$

7,589

 

 

$

150,702

 

 

$

(218,767

)

ESOP deferred stock-based compensation

$

9,130

 

 

$

5,486

 

 

$

15,993

 

 

$

11,070

 

ESOP special dividend compensation

$

-

 

 

-

 

 

$

-

 

 

$

246,752

 

Common shares outstanding

The conversion of the preferred shares will increase the number of common shares outstanding. Preferred shares will convert to common shares at plan maturity, or upon retirement, disability, death or vested terminations over the life of the plan.

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

(Shares in thousands)

2020

 

 

2019

 

 

2020

 

 

2019

 

Weighted average common shares outstanding - Basic

 

69,843

 

 

 

60,222

 

 

 

69,612

 

 

 

58,906

 

Conversion of preferred shares

 

16,298

 

 

 

17,218

 

 

 

16,440

 

 

 

17,342

 

Unvested restricted shares

 

2

 

 

 

42

 

 

 

2

 

 

 

42

 

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of the Company’s performance. Investors are encouraged to review the reconciliation of non-GAAP financial measures to the comparable GAAP results available in the accompanying tables.

Reconciliation of Non-GAAP Financial Measures

This press release includes references to organic results, Adjusted EBITDA and Free Cash Flow, non-GAAP financial measures. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for those reported in accordance with GAAP. Adjusted EBITDA and Free Cash Flow may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.

EBITDA and Adjusted EBITDA are non-GAAP financial measures that comprise net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. The Company’s definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board of directors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’s management and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of Adjusted EBITDA to net income.

Free Cash Flow is a non-GAAP financial measure that comprises cash flow from operating activities less capital expenditures. Free Cash Flow is a measure used by management and the Company’s board of directors to assess the Company’s ability to generate cash. Accordingly, management believes that Free Cash Flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. In order to provide investors with a meaningful reconciliation, the Company has provided below a reconciliation of cash flow from operating activities to Free Cash Flow.

The following tables present a reconciliation of EBITDA and Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from Operating Activities, the most comparable GAAP measures, for each of the periods indicated.

Reconciliation of Segment Adjusted Gross Profit to Gross profit

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2020

 

 

2019

 

 

2020

 

 

2019

 

Segment Adjusted Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pipe

$

100,496

 

 

$

74,246

 

 

$

191,095

 

 

$

131,739

 

International

 

14,582

 

 

 

10,841

 

 

 

25,990

 

 

 

20,068

 

Infiltrator Water Technologies

 

53,105

 

 

 

30,144

 

 

 

101,033

 

 

 

30,144

 

Allied Products & Other

 

60,380

 

 

 

57,621

 

 

 

120,848

 

 

 

114,808

 

Intersegment Elimination

 

372

 

 

 

(978

)

 

 

14

 

 

 

(978

)

Total Segment Adjusted Gross Profit

 

228,935

 

 

 

171,874

 

 

 

438,980

 

 

 

295,781

 

Depreciation and amortization

 

16,463

 

 

 

15,708

 

 

 

32,886

 

 

 

29,392

 

ESOP and stock-based compensation expense

 

6,598

 

 

 

3,869

 

 

 

11,537

 

 

 

7,640

 

ESOP special dividend compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

168,610

 

COVID-19 related expenses

 

17

 

 

 

-

 

 

 

197

 

 

 

-

 

Inventory step up related to Infiltrator Water Technologies acquisition

 

-

 

 

 

5,773

 

 

 

-

 

 

 

5,773

 

Total Gross Profit

$

205,857

 

 

$

146,524

 

 

$

394,360

 

 

$

84,366

 

 

Reconciliation of Adjusted EBITDA to Net Income

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

$

80,605

 

 

$

8,462

 

 

$

151,273

 

 

$

(218,989

)

Depreciation and amortization

 

35,778

 

 

 

26,566

 

 

 

71,559

 

 

 

43,260

 

Interest expense

 

9,360

 

 

 

52,332

 

 

 

19,330

 

 

 

57,596

 

Income tax expense

 

31,827

 

 

 

(3,547

)

 

 

59,027

 

 

 

18,823

 

EBITDA

 

157,570

 

 

 

83,813

 

 

 

301,189

 

 

 

(99,310

)

Loss on disposal of assets and costs from exit and disposal activities

 

627

 

 

 

2,004

 

 

 

2,274

 

 

 

2,711

 

ESOP and stock-based compensation expense

 

14,626

 

 

 

8,657

 

 

 

27,088

 

 

 

16,082

 

ESOP special dividend compensation

 

-

 

 

-

 

 

 

-

 

 

 

246,752

 

Transaction costs

 

718

 

 

 

16,590

 

 

 

1,374

 

 

 

20,835

 

Inventory step up related to Infiltrator Water Technologies acquisition

 

-

 

 

 

5,773

 

 

 

-

 

 

 

5,773

 

Strategic growth and operational improvement initiatives

 

361

 

 

 

701

 

 

 

2,116

 

 

 

2,896

 

COVID-19 related expenses (a)

 

242

 

 

 

-

 

 

 

806

 

 

 

-

 

Other adjustments(b)

 

(70

)

 

 

626

 

 

 

(1,303

)

 

 

2,721

 

Adjusted EBITDA

$

174,074

 

 

$

118,164

 

 

$

333,544

 

 

$

198,460

 

(a)

Includes expenses directly related to our response to the COVID-19 pandemic, including adjustments to our pandemic pay program and expenses associated with our 3rd party crisis management vendor.

(b)

Includes derivative fair value adjustments, foreign currency transaction (gains) losses, the proportionate share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is accounted for under the equity method of accounting and executive retirement expense. The other adjustments in fiscal 2020 also includes expenses related to the ADS Mexicana’s investigation.

 

Reconciliation of Segment Adjusted EBITDA

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

(Amounts in thousands)

2020

 

 

2019

 

 

2020

 

 

2019

 

Legacy ADS Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pipe Adjusted Gross Profit

$

100,496

 

 

$

74,246

 

 

$

191,095

 

 

$

131,739

 

International Adjusted Gross Profit

 

14,582

 

 

 

10,841

 

 

 

25,990

 

 

 

20,068

 

Allied Products & Other Adjusted Gross Profit

 

60,380

 

 

 

57,621

 

 

 

120,848

 

 

 

114,808

 

Unallocated corporate and selling expenses

 

(48,449

)

 

 

(48,621

)

 

 

(93,093

)

 

 

(92,232

)

Legacy ADS Adjusted EBITDA

 

127,009

 

 

 

94,087

 

 

 

244,840

 

 

 

174,383

 

Legacy Infiltrator Water Technologies Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Infiltrator Water Technologies

 

53,105

 

 

 

30,144

 

 

 

101,033

 

 

 

30,144

 

Unallocated corporate and selling expenses

 

(6,600

)

 

 

(5,089

)

 

 

(12,531

)

 

 

(5,089

)

Legacy Infiltrator Water Technologies Adjusted EBITDA

$

46,505

 

 

$

25,055

 

 

$

88,502

 

 

$

25,055

 

Intersegment Eliminations

 

560

 

 

 

(978

)

 

 

202

 

 

 

(978

)

Consolidated Adjusted EBITDA

$

174,074

 

 

$

118,164

 

 

$

333,544

 

 

$

198,460

 

 

Reconciliation of Free Cash Flow to Cash flow from Operating Activities

 

Six Months Ended September 30,

 

(Amounts in thousands)

2020

 

 

2019

 

Net cash flow from operating activities

$

286,168

 

 

$

171,711

 

Capital expenditures

 

(28,959

)

 

 

(25,622

)

Free cash flow

$

257,209

 

 

$

146,089

 

 

Michael Higgins
VP, Corporate Strategy & Investor Relations
(614) 658-0050
Mike.Higgins@ads-pipe.com

Source: Advanced Drainage Systems, Inc.

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