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Advanced Drainage Systems Announces First Quarter Fiscal 2023 Results

08/04/2022

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 onsite septic wastewater industries today announced financial results for the fiscal first quarter ended June 30, 2022.

First Quarter Fiscal 2023 Results

  • Net sales increased 36.6% to $914.2 million
  • Net income increased 144.4% to $188.5 million
  • Adjusted EBITDA (Non-GAAP) increased 79.5% to $299.0 million

Scott Barbour, President and Chief Executive Officer of ADS commented, "We achieved record revenue and Adjusted EBITDA results in the first quarter of fiscal 2023, with results coming in well above plan. Sales growth of 37% was driven by favorable pricing at both ADS and Infiltrator, as well as strong volume growth in Allied Products, Infiltrator and the residential end market driven by share gains. In addition, the new production equipment installed during the fourth quarter of fiscal year 2022, at both ADS and Infiltrator is producing to expected rates and helping to bring down elevated backlogs. While pipe volume in our non-residential, infrastructure and agriculture end markets started slower than anticipated, year-over-year volume performance improved as the quarter progressed and we remain confident in the outlook for all of our end markets for the remainder of the fiscal year."

Barbour continued, "The favorable top line growth we achieved in the first quarter was broad based across our construction end markets and geographies, with notable strength in our priority states. This growth offset inflationary cost pressures that we continue to see in transportation and our manufacturing operations. In addition, the pricing actions we have taken have more than offset our raw material costs, which moderated, but remain at elevated levels. As a result of these actions, we generated strong growth in Adjusted EBITDA, which in combination with improvements in working capital, helped drive significant free cash flow generation."

Barbour concluded, "Based on better than expected performance this quarter that we anticipate will continue into the second quarter, we are raising our fiscal year guidance for both revenue and Adjusted EBITDA. While there is uncertainty around general economic conditions, specifically in residential construction, the strength we see in our leading indicators including project identification, quoting, book-to-bill and order trends, give us confidence we can achieve the updated guidance issued today."

First Quarter Fiscal 2023 Results

Net sales increased $244.9 million, or 36.6%, to $914.2 million, as compared to $669.3 million in the prior year quarter. Domestic pipe sales increased $150.8 million, or 40.3%, to $524.9 million. Domestic allied products & other sales increased $71.9 million, or 56.6%, to $198.9 million. Infiltrator sales increased $39.5 million, or 31.2%, to $166.3 million. These increases were driven by double-digit sales growth in the U.S. construction end markets. International sales increased $6.1 million, or 9.4%, to $71.5 million, driven by strong sales growth in the Canadian, Mexican and Exports businesses.

Gross profit increased $151.0 million, or 75.1%, to $352.1 million as compared to $201.1 million in the prior year. The increase in gross profit is primarily due to the increase in sales volume and favorable pricing on pipe, onsite septic and allied products. The increase in our gross profit was due to an increase in net sales from improved pricing partially offset by inflationary pressures of higher material and transportation costs along with higher manufacturing costs.

Adjusted EBITDA (Non-GAAP) increased $132.5 million, or 79.5%, to $299.0 million, as compared to $166.6 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 32.7% as compared to 24.9% 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.”

Balance Sheet and Liquidity

Net cash provided by operating activities was $249.8 million, as compared to $104.3 million in the prior year. Free cash flow (Non-GAAP) was $213.6 million, as compared to $78.8 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $850.2 million as of June 30, 2022, a decrease of $74.3 million from March 31, 2021.

On June 9, 2022 the Company issued $500.0 million aggregate principal amount of 6.375% Senior Notes due 2030. Some of the proceeds of this issuance were used to repay the outstanding borrowings under its senior secured revolving credit facility.

ADS had total liquidity of $1,059 million, comprised of cash of $464 million as of June 30, 2022 and $595 million of availability under committed credit facilities. As of June 30, 2022, the Company’s leverage ratio was 1.1 times.

In the three months ended June 30, 2022, the Company repurchased 0.8 million shares of its common stock for a total cost of $67.4 million. As of June 30, 2022, approximately $932.6 million of common stock may be repurchased under the authorization.

Fiscal 2023 Outlook

Based on current visibility, backlog of existing orders and business trends, the Company raised its financial targets for fiscal 2023. Net sales are now expected to be in the range of $3.250 billion to $3.350 billion. Adjusted EBITDA is expected to be in the range of $900 to $940 million. Capital expenditures are expected to be in the range of $150 million to $180 million.

Conference Call Information

Webcast: Interested investors and other parties can listen to a webcast of the live conference call by logging in through the Investor Relations section of the Company's website at https://investors.ads-pipe.com/events-and-presentations. An online replay will be available on the same website following the call.

Teleconference: To participate in the live teleconference, participants may register at https://ige.netroadshow.com/registration/q4inc/11113/ads/#39-first-quarter-fiscal-year-2023-financial-results/. 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.

About the Company

Advanced Drainage Systems is a leading manufacturer of innovative stormwater and onsite septic wastewater solutions that manages the world’s most precious resource: water. ADS provides superior drainage solutions for use in a wide variety of markets and applications including commercial, residential, infrastructure and agriculture. ADS delivers tremendous service to its customers with the industry’s largest company-owned fleet, an expansive sales team, and a vast manufacturing network of approximately 70 manufacturing plants and 38 distribution centers. ADS is the largest plastic recycling company in North America, ensuring over half a billion pounds of plastic is kept out of landfills every year. Founded in 1966, ADS’ water management solutions are designed to last for decades. To learn more, visit the Company’s website at www.adspipe.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; the risks related to the COVID-19 pandemic or other pandemics in the future; disruption or volatility in general business and economic conditions in the markets in which we operate; 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; uncertainties surrounding the integration and realization of anticipated benefits of; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; the risks of conducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets; the risk associated with manufacturing processes; the effect of global climate change; cybersecurity risks; our ability to manage our supply purchasing and customer credit policies; 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; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; and 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 June 30,

(In thousands, except per share data)

2022

 

2021

Net sales

$

914,186

 

 

$

669,300

 

Cost of goods sold

 

562,079

 

 

 

468,179

 

Gross profit

 

352,107

 

 

 

201,121

 

Operating expenses:

 

 

 

Selling, general and administrative

 

86,520

 

 

 

76,221

 

Loss (gain) on disposal of assets and costs from exit and disposal activities

 

303

 

 

 

(11

)

Intangible amortization

 

13,677

 

 

 

15,645

 

Income from operations

 

251,607

 

 

 

109,266

 

Other expense:

 

 

 

Interest expense

 

11,072

 

 

 

7,907

 

Derivative gains and other income, net

 

(1,902

)

 

 

(2,014

)

Income before income taxes

 

242,437

 

 

 

103,373

 

Income tax expense

 

55,065

 

 

 

26,455

 

Equity in net income of unconsolidated affiliates

 

(1,110

)

 

 

(205

)

Net income

 

188,482

 

 

 

77,123

 

Less: net income attributable to noncontrolling interest

 

1,336

 

 

 

1,136

 

Net income attributable to ADS

 

187,146

 

 

 

75,987

 

Dividends to participating securities

 

 

 

 

(1,635

)

Net income available to common stockholders and participating securities

 

187,146

 

 

 

74,352

 

Undistributed income allocated to participating securities

 

 

 

 

(10,933

)

Net income available to common stockholders

$

187,146

 

 

$

63,419

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

Basic

 

83,144

 

 

 

71,534

 

Diluted

 

84,389

 

 

 

73,124

 

Net income per share:

 

 

 

Basic

$

2.25

 

 

$

0.89

 

Diluted

$

2.22

 

 

$

0.87

 

Cash dividends declared per share

$

0.12

 

 

$

0.11

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

As of

(Amounts in thousands)

June 30, 2022

 

March 31, 2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash

$

463,696

 

 

$

20,125

 

Receivables, net

 

427,620

 

 

 

341,753

 

Inventories

 

489,492

 

 

 

494,324

 

Other current assets

 

20,532

 

 

 

15,696

 

Total current assets

 

1,401,340

 

 

 

871,898

 

Property, plant and equipment, net

 

636,042

 

 

 

619,383

 

Other assets:

 

 

 

Goodwill

 

619,626

 

 

 

610,293

 

Intangible assets, net

 

449,115

 

 

 

431,385

 

Other assets

 

119,240

 

 

 

116,799

 

Total assets

$

3,225,363

 

 

$

2,649,758

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current maturities of debt obligations

$

18,113

 

 

$

19,451

 

Current maturities of finance lease obligations

 

5,227

 

 

 

5,089

 

Accounts payable

 

274,606

 

 

 

224,986

 

Other accrued liabilities

 

148,605

 

 

 

134,877

 

Accrued income taxes

 

58,207

 

 

 

6,838

 

Total current liabilities

 

504,758

 

 

 

391,241

 

Long-term debt obligations, net

 

1,279,176

 

 

 

908,705

 

Long-term finance lease obligations

 

11,429

 

 

 

11,393

 

Deferred tax liabilities

 

166,741

 

 

 

168,435

 

Other liabilities

 

66,472

 

 

 

64,939

 

Total liabilities

 

2,028,576

 

 

 

1,544,713

 

Mezzanine equity:

 

 

 

Redeemable common stock

 

188,828

 

 

 

 

Redeemable convertible preferred stock

 

 

 

 

195,384

 

Total mezzanine equity

 

188,828

 

 

 

195,384

 

Stockholders’ equity:

 

 

 

Common stock

 

11,623

 

 

 

11,612

 

Paid-in capital

 

1,079,701

 

 

 

1,065,628

 

Common stock in treasury, at cost

 

(408,861

)

 

 

(318,691

)

Accumulated other comprehensive loss

 

(28,289

)

 

 

(24,386

)

Retained earnings

 

335,822

 

 

 

158,876

 

Total ADS stockholders’ equity

 

989,996

 

 

 

893,039

 

Noncontrolling interest in subsidiaries

 

17,963

 

 

 

16,622

 

Total stockholders’ equity

 

1,007,959

 

 

 

909,661

 

Total liabilities, mezzanine equity and stockholders’ equity

$

3,225,363

 

 

$

2,649,758

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

Three Months Ended June 30,

(Amounts in thousands)

2022

 

2021

Cash Flow from Operating Activities

 

 

 

Net income

$

188,482

 

 

$

77,123

 

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

 

 

 

Depreciation and amortization

 

35,578

 

 

 

34,656

 

Deferred income taxes

 

(1,272

)

 

 

64

 

Loss (gain) on disposal of assets and costs from exit and disposal activities

 

303

 

 

 

(11

)

ESOP and stock-based compensation

 

6,273

 

 

 

20,806

 

Amortization of deferred financing charges

 

344

 

 

 

95

 

Fair market value adjustments to derivatives

 

(90

)

 

 

(675

)

Equity in net income of unconsolidated affiliates

 

(1,110

)

 

 

(205

)

Other operating activities

 

(3,535

)

 

 

450

 

Changes in working capital:

 

 

 

Receivables

 

(79,616

)

 

 

(67,388

)

Inventories

 

8,039

 

 

 

(28,985

)

Prepaid expenses and other current assets

 

(4,840

)

 

 

(7,442

)

Accounts payable, accrued expenses, and other liabilities

 

101,209

 

 

 

75,860

 

Net cash provided by operating activities

 

249,765

 

 

 

104,348

 

Cash Flows from Investing Activities

 

 

 

Capital expenditures

 

(36,189

)

 

 

(25,546

)

Acquisition, net of cash acquired

 

(47,492

)

 

 

 

Other investing activities

 

13

 

 

 

53

 

Net cash used in investing activities

 

(83,668

)

 

 

(25,493

)

Cash Flows from Financing Activities

 

 

 

Payments on syndicated Term Loan Facility

 

(1,750

)

 

 

(1,750

)

Proceeds from Revolving Credit Agreement

 

26,200

 

 

 

 

Payments on Revolving Credit Agreement

 

(140,500

)

 

 

 

Proceeds from Amended Revolving Credit Agreement

 

97,000

 

 

 

 

Payments on Amended Revolving Credit Agreement

 

(97,000

)

 

 

 

Proceeds from Senior Notes due 2030

 

500,000

 

 

 

 

Debt issuance costs

 

(11,575

)

 

 

 

Payments on Equipment Financing

 

(3,548

)

 

 

 

Payments on finance lease obligations

 

(1,721

)

 

 

(5,379

)

Repurchase of common stock

 

(57,699

)

 

 

(102,013

)

Cash dividends paid

 

(10,170

)

 

 

(9,451

)

Dividends paid to noncontrolling interest holder

 

 

 

 

(957

)

Proceeds from exercise of stock options

 

1,249

 

 

 

1,336

 

Payment of withholding taxes on vesting of restricted stock units

 

(22,809

)

 

 

(12,976

)

Other financing activities

 

 

 

 

(131

)

Net cash provided by (used in) financing activities

 

277,677

 

 

 

(131,321

)

Effect of exchange rate changes on cash

 

(203

)

 

 

290

 

Net change in cash

 

443,571

 

 

 

(52,176

)

Cash at beginning of period

 

20,125

 

 

 

195,009

 

Cash at end of period

$

463,696

 

 

$

142,833

 

Selected Financial Data

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

 

Three Months Ended

 

June 30, 2022

 

June 30, 2021

(In thousands)

Net Sales

 

Intersegment
Net Sales

 

Net Sales from
External Customers

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales from
External Customers

Pipe

$

524,857

 

 

$

(9,874

)

 

$

514,983

 

$

374,010

 

 

$

(1,903

)

 

$

372,107

Infiltrator Water Technologies

 

166,290

 

 

 

(28,906

)

 

 

137,384

 

 

126,742

 

 

 

(19,037

)

 

 

107,705

International

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

53,419

 

 

 

(5,859

)

 

 

47,560

 

 

50,838

 

 

 

(2,914

)

 

 

47,924

International - Allied Products & Other

 

18,095

 

 

 

 

 

 

18,095

 

 

14,528

 

 

 

 

 

 

14,528

Total International

 

71,514

 

 

 

(5,859

)

 

 

65,655

 

 

65,366

 

 

 

(2,914

)

 

 

62,452

Allied Products & Other

 

198,909

 

 

 

(2,745

)

 

 

196,164

 

 

127,036

 

 

 

 

 

 

127,036

Intersegment Eliminations

 

(47,384

)

 

 

47,384

 

 

 

 

 

(23,854

)

 

 

23,854

 

 

 

Total Consolidated

$

914,186

 

 

$

 

 

$

914,186

 

$

669,300

 

 

$

 

 

$

669,300

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

June 30,

(Amounts in thousands)

2022

 

2021

Segment adjusted gross profit

 

 

 

Pipe

$

168,579

 

 

$

84,143

 

Infiltrator Water Technologies

 

75,794

 

 

 

59,402

 

International

 

20,484

 

 

 

21,378

 

Allied Products & Other

 

109,041

 

 

 

63,299

 

Intersegment Eliminations

 

(815

)

 

 

(14

)

Total Segment Adjusted Gross Profit

 

373,083

 

 

 

228,208

 

Depreciation and amortization

 

20,302

 

 

 

17,532

 

ESOP and stock-based compensation expense

 

674

 

 

 

9,555

 

Total Gross Profit

$

352,107

 

 

$

201,121

 

Reconciliation of Adjusted EBITDA to Net Income

 

Three Months Ended

June 30,

(Amounts in thousands)

2022

2021

Net income

$

188,482

 

$

77,123

 

Depreciation and amortization

 

35,578

 

 

34,656

 

Interest expense

 

11,072

 

 

7,907

 

Income tax expense

 

55,065

 

 

26,455

 

EBITDA

 

290,197

 

 

146,141

 

Loss (gain) on disposal of assets and costs from exit and disposal activities

 

303

 

 

(11

)

Stock-based compensation expense

 

6,273

 

 

6,651

 

ESOP compensation expense

 

 

 

14,155

 

Transaction costs

 

1,715

 

 

43

 

Other adjustments(a)

 

555

 

 

(397

)

Adjusted EBITDA

$

299,043

 

$

166,582

 

(a)

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.

Reconciliation of Free Cash Flow to Cash flow from Operating Activities

 

Three Months Ended

June 30,

(Amounts in thousands)

2022

 

2021

Net cash flow from operating activities

$

249,765

 

 

$

104,348

 

Capital expenditures

 

(36,189

)

 

 

(25,546

)

Free cash flow

$

213,576

 

 

$

78,802

 

 

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

Source: Advanced Drainage Systems, Inc.

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