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Advanced Drainage Systems Announces Third Quarter Fiscal 2022 Results

02/03/2022

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 on-site septic waste water industries today announced financial results for the fiscal third quarter ended December 31, 2021.

Third Quarter Fiscal 2022 Results

  • Net sales increased 47.1% to $715.4 million
  • Net income increased 37.8% to $74.5 million
  • Adjusted EBITDA (Non-GAAP) increased 26.9% to $176.2 million

Year-to-Date Fiscal 2022 Results

  • Net sales increased 35.9% to $2,091.1 million
  • Net income increased 11.0% to $227.9 million
  • Adjusted EBITDA (Non-GAAP) increased 7.4% to $507.5 million
  • Cash provided by operating activities of $193.8 million
  • Free cash flow (Non-GAAP) of $93.5 million

Scott Barbour, President and Chief Executive Officer of ADS commented, "We achieved another quarter of record revenue and Adjusted EBITDA results in the third quarter of fiscal 2022, with results coming in slightly ahead of plan. Sales growth of 47% was driven by favorable pricing at both ADS and Infiltrator, as well as double-digit volume growth in the domestic construction markets. We capitalized on strong demand across our product portfolio and geographic footprint, particularly in priority states such as Florida, Texas and Virginia. Leading indicators support continued strength in demand for the foreseeable future as we work through record-high levels of backlog."

Barbour continued, "The favorable top line growth we achieved in the third quarter offset inflationary cost pressure on materials, transportation and labor. However, the pressure from labor shortages and absenteeism related to the COVID variant continued to impact our manufacturing and transportation operations. The actions we previously took to simplify production processes and increase production rates are going well, improving service levels to customers overall."

"In the fourth quarter, we will ramp up new production equipment at both ADS and Infiltrator. The new equipment coming online will modestly benefit fourth quarter production, with a larger impact in the next fiscal year. These investments will allow us to bring down high backlog levels and service the strong demand we see in our end markets, particularly in key growth regions like the southeast United States."

Barbour concluded, "Finally, our demand environment, strong backlog, favorable pricing and progress on the continuous improvement initiatives give us confidence in today's increased sales targets and reaffirmed Adjusted EBITDA guidance. We will stay focused on executing the fiscal year 2022 plan and continue to work through the labor availability and supply chain issues we face in the market today."

Third Quarter Fiscal 2022 Results

Net sales increased $229.2 million, or 47.1%, to $715.4 million, as compared to $486.1 million in the prior year quarter. Domestic pipe sales increased $145.8 million, or 57.4%, to $400.0 million. Domestic allied products & other sales increased $37.9 million, or 34.5%, to $147.5 million. Infiltrator sales increased $50.3 million, or 51.1%, to $148.7 million. These increases were driven by double-digit sales growth in the U.S. construction end markets. International sales increased $10.5 million, or 23.1%, to $55.8 million, driven by strong sales growth in the Canadian, Mexican and Exports businesses.

Gross profit increased $40.5 million, or 24.0%, to $209.0 million as compared to $168.5 million in the prior year. The increase in gross profit is primarily due to the increase in sales volume and favorable pricing on pipe, on-site septic and allied products. These increases were partially offset by inflationary cost pressure on materials, transportation and labor, as well as an increase in the use of third-party logistics services. Labor shortages and absenteeism related to COVID-19 remain a challenge in both manufacturing and transportation operations.

Adjusted EBITDA (Non-GAAP) increased $37.3 million, or 26.9%, to $176.2 million, as compared to $138.9 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.6% as compared to 28.6% 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.”

Employee Stock Ownership Plan (ESOP)

On February 2, 2022, the ADS Board of Directors passed a resolution authorizing a $0.3 million Company cash contribution to the ESOP for the ESOP to repay the remaining balance of its ESOP loan on March 31, 2022, one year ahead of the ESOP loan’s March 31, 2023 maturity date. Effective March 31, 2022, the remaining balance on the Company's ESOP loan will be repaid in full, and the remaining shares of unallocated preferred stock will be allocated to participants of the ESOP. Within thirty days following this ESOP loan repayment, the 16.1 million shares of preferred stock outstanding as of January 27, 2022 will convert to 12.4 million shares of common stock, resulting in additional stock-based compensation expense of $30 million to $35 million. Starting in the fiscal year ending March 31, 2023, ADS will make matching 401(k) contributions for eligible employees, resulting in estimated incremental compensation expense of approximately $8 million to $10 million annually.

For additional information on the Company's ESOP, please refer to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021, and other reports filed by the Company with the SEC. Additional information related to this transaction will be included in a Current Report on Form 8-K, which the Company intends to file with the SEC after market-close today.

Year-to-Date Fiscal 2022 Results

Net sales increased $552.2 million, or 35.9%, to $2,091.1 million, as compared to $1,539.0 million in the prior year. Domestic pipe sales increased $338.6 million, or 41.3%, to $1,158.6 million. Domestic allied products & other sales increased $75.7 million, or 22.0%, to $420.2 million. Infiltrator sales increased $114.8 million, or 37.4%, to $421.3 million. These increases were driven by double-digit sales growth in both the U.S. construction and agriculture end markets. International sales increased $54.3 million, or 41.6%, to $184.8 million, driven by double-digit sales growth in the Canadian, Mexican and Exports businesses.

Gross profit increased $47.3 million, or 8.4%, to $610.2 million as compared to $562.9 million in the prior year. The increase is primarily due an increase in sales volume and favorable pricing on pipe, on-site septic and allied products. These increases were partially offset by inflationary cost pressure on materials, transportation and labor, as well as an increase in the use of third-party logistics services. Labor shortages and absenteeism related to COVID-19 remain a challenge in both manufacturing and transportation operations.

Adjusted EBITDA (Non-GAAP) increased $35.1 million, or 7.4%, to $507.5 million, as compared to $472.4 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.3% as compared to 30.7% in the prior year.

Balance Sheet and Liquidity

Net cash provided by operating activities was $193.8 million, as compared to $448.8 million in the prior year. Free cash flow (Non-GAAP) was $93.5 million, as compared to $391.1 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $948.9 million as of December 31, 2021, an increase of $302.4 million from March 31, 2021.

ADS had total liquidity of $226 million, comprised of cash of $22 million as of December 31, 2021 and $204 million of availability under committed credit facilities. As of December 31, 2021, the Company’s leverage ratio was 1.6 times.

In the nine months ended December 31, 2021, the Company repurchased 2.6 million shares of its common stock for a total cost of $292.0 million. As of December 31, 2021, the Company had utilized all of the common stock repurchase authorization. In a separate press release issued today, the Company announced a new $1 billion share repurchase authorization for open market share repurchases.

Fiscal 2022 Outlook

Based on current visibility, backlog of existing orders and business trends, the Company raised its net sales targets for fiscal 2022. Net sales are now expected to be in the range of $2.675 billion to $2.725 billion. Adjusted EBITDA is unchanged and expected to be in the range of $635 to $665 million. Capital expenditures are expected to be in the range of $130 million to $150 million.

Webcast Information

The live webcast will be accessible via the "Events Calendar” section of the Company’s Investor Relations website, www.investors.ads-pipe.com. Participants may also register for this conference call by copy and pasting the following text into your browser: http://www.directeventreg.com/registration/event/9136768. 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. An archived version of the webcast will be available 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.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; 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 limitation 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, and our ability to continue to convert current demand for concrete, steel and PVC pipe products into demand for our high performance thermoplastic corrugated pipe and Allied Products; uncertainties surrounding the integration and realization of anticipated benefits of acquisitions and similar transactions, including Infiltrator Water Technologies; 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, 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; 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; fluctuations in our effective tax rate, including from the Tax Cuts and Jobs Act of 2017; our ability to meet future capital requirements and fund our liquidity needs; 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

December 31,

 

Nine Months Ended

December 31,

(In thousands, except per share data)

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Net sales

$

715,357

 

 

$

486,145

 

 

$

2,091,128

 

 

$

1,538,971

 

Cost of goods sold

 

506,380

 

 

 

317,640

 

 

 

1,480,973

 

 

 

976,106

 

Gross profit

 

208,977

 

 

 

168,505

 

 

 

610,155

 

 

 

562,865

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

80,059

 

 

 

66,606

 

 

 

230,231

 

 

 

194,083

 

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

 

3,466

 

 

 

980

 

 

 

2,554

 

 

 

3,254

 

Intangible amortization

 

15,138

 

 

 

17,956

 

 

 

46,229

 

 

 

53,893

 

Income from operations

 

110,314

 

 

 

82,963

 

 

 

331,141

 

 

 

311,635

 

Other expense:

 

 

 

 

 

 

 

Interest expense

 

8,756

 

 

 

8,433

 

 

 

25,100

 

 

 

27,763

 

Derivative gains and other income, net

 

(979

)

 

 

(165

)

 

 

(2,791

)

 

 

(883

)

Income before income taxes

 

102,537

 

 

 

74,695

 

 

 

308,832

 

 

 

284,755

 

Income tax expense

 

28,792

 

 

 

20,264

 

 

 

82,063

 

 

 

79,291

 

Equity in net (income) loss of unconsolidated affiliates

 

(717

)

 

 

390

 

 

 

(1,128

)

 

 

150

 

Net income

 

74,462

 

 

 

54,041

 

 

 

227,897

 

 

 

205,314

 

Less: net income attributable to noncontrolling interest

 

784

 

 

 

267

 

 

 

2,873

 

 

 

838

 

Net income attributable to ADS

 

73,678

 

 

 

53,774

 

 

 

225,024

 

 

 

204,476

 

Dividends to participating securities

 

(1,357

)

 

 

(1,288

)

 

 

(4,633

)

 

 

(3,985

)

Net income available to common stockholders and participating securities

 

72,321

 

 

 

52,486

 

 

 

220,391

 

 

 

200,491

 

Undistributed income allocated to participating securities

 

(9,457

)

 

 

(7,798

)

 

 

(30,870

)

 

 

(31,699

)

Net income available to common stockholders

$

62,864

 

 

$

44,688

 

 

$

189,521

 

 

$

168,792

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

71,267

 

 

 

70,450

 

 

 

71,087

 

 

 

69,893

 

Diluted

 

72,789

 

 

 

71,586

 

 

 

72,752

 

 

 

70,853

 

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.88

 

 

$

0.63

 

 

$

2.67

 

 

$

2.42

 

Diluted

$

0.86

 

 

$

0.62

 

 

$

2.61

 

 

$

2.38

 

Cash dividends declared per share

$

0.11

 

 

$

0.09

 

 

$

0.33

 

 

$

0.27

 

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

As of

 

(Amounts in thousands)

December 31,

2021

 

March 31,

2021

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

$

22,173

 

 

$

195,009

 

 

Receivables, net

 

303,140

 

 

 

236,191

 

 

Inventories

 

465,518

 

 

 

300,961

 

 

Other current assets

 

16,188

 

 

 

10,817

 

 

Total current assets

 

807,019

 

 

 

742,978

 

 

Property, plant and equipment, net

 

590,949

 

 

 

504,275

 

 

Other assets:

 

 

 

 

Goodwill

 

611,578

 

 

 

599,072

 

 

Intangible assets, net

 

447,411

 

 

 

482,016

 

 

Other assets

 

98,802

 

 

 

85,491

 

 

Total assets

$

2,555,759

 

 

$

2,413,832

 

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Current maturities of debt obligations

$

20,764

 

 

$

7,000

 

 

Current maturities of finance lease obligations

 

5,167

 

 

 

19,318

 

 

Accounts payable

 

195,471

 

 

 

171,098

 

 

Other accrued liabilities

 

140,578

 

 

 

116,151

 

 

Accrued income taxes

 

2,104

 

 

 

4,703

 

 

Total current liabilities

 

364,084

 

 

 

318,270

 

 

Long-term debt obligations, net

 

931,765

 

 

 

782,220

 

 

Long-term finance lease obligations

 

13,354

 

 

 

32,964

 

 

Deferred tax liabilities

 

172,143

 

 

 

162,185

 

 

Other liabilities

 

53,903

 

 

 

54,767

 

 

Total liabilities

 

1,535,249

 

 

 

1,350,406

 

 

Mezzanine equity:

 

 

 

 

Redeemable convertible preferred stock

 

210,888

 

 

 

240,944

 

 

Deferred compensation — unearned ESOP shares

 

(5,146

)

 

 

(11,033

)

 

Total mezzanine equity

 

205,742

 

 

 

229,911

 

 

Stockholders’ equity:

 

 

 

 

Common stock

 

11,601

 

 

 

11,578

 

 

Paid-in capital

 

1,008,610

 

 

 

918,587

 

 

Common stock in treasury, at cost

 

(316,049

)

 

 

(10,959

)

 

Accumulated other comprehensive loss

 

(26,681

)

 

 

(24,220

)

 

Retained deficit

 

121,918

 

 

 

(75,202

)

 

Total ADS stockholders’ equity

 

799,399

 

 

 

819,784

 

 

Noncontrolling interest in subsidiaries

 

15,369

 

 

 

13,731

 

 

Total stockholders’ equity

 

814,768

 

 

 

833,515

 

 

Total liabilities, mezzanine equity and stockholders’ equity

$

2,555,759

 

 

$

2,413,832

 

 

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

Nine Months Ended December 31,

 

(Amounts in thousands)

 

2021

 

 

 

2020

 

 

Cash Flow from Operating Activities

 

 

 

 

Net income

$

227,897

 

 

$

205,314

 

 

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

 

 

 

 

Depreciation and amortization

 

103,687

 

 

 

107,321

 

 

Deferred income taxes

 

6,243

 

 

 

(8,032

)

 

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

 

2,554

 

 

 

3,254

 

 

ESOP and stock-based compensation

 

61,900

 

 

 

45,413

 

 

Amortization of deferred financing charges

 

286

 

 

 

293

 

 

Fair market value adjustments to derivatives

 

118

 

 

 

(2,537

)

 

Equity in net income of unconsolidated affiliates

 

(1,128

)

 

 

150

 

 

Other operating activities

 

(9,898

)

 

 

6,162

 

 

Changes in working capital:

 

 

 

 

Receivables

 

(59,821

)

 

 

12,502

 

 

Inventories

 

(161,878

)

 

 

46,809

 

 

Prepaid expenses and other current assets

 

(5,199

)

 

 

(2,288

)

 

Accounts payable, accrued expenses, and other liabilities

 

29,086

 

 

 

34,415

 

 

Net cash provided by operating activities

 

193,847

 

 

 

448,776

 

 

Cash Flows from Investing Activities

 

 

 

 

Capital expenditures

 

(100,367

)

 

 

(57,675

)

 

Acquisition, net of cash acquired

 

(49,210

)

 

 

 

 

Other investing activities

 

(463

)

 

 

516

 

 

Net cash used in investing activities

 

(150,040

)

 

 

(57,159

)

 

Cash Flows from Financing Activities

 

 

 

 

Payments on syndicated Term Loan Facility

 

(5,250

)

 

 

(205,250

)

 

Proceeds from Revolving Credit Agreement

 

258,100

 

 

 

 

 

Payments on Revolving Credit Agreement

 

(124,600

)

 

 

(100,000

)

 

Proceeds from Equipment Financing

 

35,963

 

 

 

 

 

Payments on Equipment Financing

 

(1,177

)

 

 

 

 

Payments on finance lease obligations

 

(49,365

)

 

 

(15,859

)

 

Repurchase of common stock

 

(292,000

)

 

 

 

 

Cash dividends paid

 

(27,826

)

 

 

(24,507

)

 

Dividends paid to noncontrolling interest holder

 

(1,471

)

 

 

 

 

Proceeds from exercise of stock options

 

4,274

 

 

 

3,989

 

 

Payment of withholding taxes on vesting of restricted stock units

 

(13,055

)

 

 

 

 

Other financing activities

 

(167

)

 

 

(1,489

)

 

Net cash used in financing activities

 

(216,574

)

 

 

(343,116

)

 

Effect of exchange rate changes on cash

 

(69

)

 

 

1,262

 

 

Net change in cash

 

(172,836

)

 

 

49,763

 

 

Cash at beginning of period

 

195,009

 

 

 

174,233

 

 

Cash at end of period

$

22,173

 

 

$

223,996

 

 

 

Selected Financial Data

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

 

Three Months Ended

 

 

December 31, 2021

 

December 31, 2020

 

(In thousands)

Net Sales

 

Intersegment

Net Sales

 

Net Sales

from External

Customers

 

Net Sales

 

Intersegment

Net Sales

 

Net Sales

from External

Customers

 

Pipe

$

400,027

 

 

$

(3,332

)

 

$

396,695

 

$

254,209

 

 

$

(1,311

)

 

$

252,898

 

Infiltrator Water Technologies

 

148,677

 

 

 

(26,314

)

 

 

122,363

 

 

98,409

 

 

 

(17,188

)

 

 

81,221

 

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

41,156

 

 

 

(5,700

)

 

 

35,456

 

 

33,729

 

 

 

(2,970

)

 

 

30,759

 

International - Allied Products & Other

 

14,687

 

 

 

 

 

 

14,687

 

 

11,648

 

 

 

 

 

 

11,648

 

Total International

 

55,843

 

 

 

(5,700

)

 

 

50,143

 

 

45,377

 

 

 

(2,970

)

 

 

42,407

 

Allied Products & Other

 

147,476

 

 

 

(1,320

)

 

 

146,156

 

 

109,619

 

 

 

 

 

 

109,619

 

Intersegment Eliminations

 

(36,666

)

 

 

36,666

 

 

 

 

 

(21,469

)

 

 

21,469

 

 

 

 

Total Consolidated

$

715,357

 

 

$

 

 

$

715,357

 

$

486,145

 

 

$

 

 

$

486,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

December 31, 2021

 

December 31, 2020

 

(In thousands)

Net Sales

 

Intersegment

Net Sales

 

Net Sales

from External

Customers

 

Net Sales

 

Intersegment

Net Sales

 

Net Sales

from External

Customers

 

Pipe

$

1,158,558

 

 

$

(7,903

)

 

$

1,150,655

 

$

819,994

 

 

$

(4,793

)

 

$

815,201

 

Infiltrator Water Technologies

 

421,330

 

 

 

(67,763

)

 

 

353,567

 

 

306,548

 

 

 

(53,948

)

 

 

252,600

 

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

142,135

 

 

 

(13,784

)

 

 

128,351

 

 

96,271

 

 

 

(3,866

)

 

 

92,405

 

International - Allied Products & Other

 

42,648

 

 

 

 

 

 

42,648

 

 

34,233

 

 

 

 

 

 

34,233

 

Total International

 

184,783

 

 

 

(13,784

)

 

 

170,999

 

 

130,504

 

 

 

(3,866

)

 

 

126,638

 

Allied Products & Other

 

420,231

 

 

 

(4,324

)

 

 

415,907

 

 

344,532

 

 

 

 

 

 

344,532

 

Intersegment Eliminations

 

(93,774

)

 

 

93,774

 

 

 

 

 

(62,607

)

 

 

62,607

 

 

 

 

Total Consolidated

$

2,091,128

 

 

$

 

 

$

2,091,128

 

$

1,538,971

 

 

$

 

 

$

1,538,971

 

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 within thirty days following the March 31, 2022 ESOP loan repayment; and the remaining shares of unallocated preferred stock will be allocated to the participants of the ESOP. 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.

For additional information on the Company's ESOP, please refer to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021, and other reports filed by the Company with the SEC. Additional information related to this transaction will be included in a Current Report on Form 8-K, which the Company intends to file with the SEC after market-close today.

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

December 31,

 

Nine Months Ended

December 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

(In thousands)

Net income attributable to ADS

$

73,678

 

$

53,774

 

$

225,024

 

$

204,476

ESOP deferred stock-based compensation

 

17,221

 

 

13,513

 

 

43,389

 

 

29,506

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

December 31,

 

Nine Months Ended

December 31,

 

2021

 

2020

 

2021

 

2020

 

(Shares in millions)

Weighted average common shares outstanding

71,267

 

70,450

 

71,087

 

69,893

Conversion of redeemable convertible shares

12,988

 

15,760

 

13,952

 

16,213

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

December 31,

 

Nine Months Ended

December 31,

(Amounts in thousands)

 

2021

 

 

 

2020

 

 

 

2021

 

 

2020

 

Segment adjusted gross profit

 

 

 

 

 

 

 

Pipe

$

92,066

 

 

$

78,651

 

 

$

258,681

 

$

269,746

 

Infiltrator Water Technologies

 

60,546

 

 

 

48,518

 

 

 

178,795

 

 

149,551

 

International

 

13,240

 

 

 

12,986

 

 

 

49,695

 

 

38,976

 

Allied Products & Other

 

72,785

 

 

 

55,158

 

 

 

204,063

 

 

176,006

 

Intersegment Eliminations

 

(44

)

 

 

(932

)

 

 

1,421

 

 

(918

)

Total Segment Adjusted Gross Profit

 

238,593

 

 

 

194,381

 

 

 

692,655

 

 

633,361

 

Depreciation and amortization

 

18,042

 

 

 

16,432

 

 

 

52,824

 

 

49,318

 

ESOP and stock-based compensation expense

 

11,574

 

 

 

9,444

 

 

 

29,676

 

 

20,981

 

COVID-19 related expenses

 

 

 

 

 

 

 

 

 

197

 

Total Gross Profit

$

208,977

 

 

$

168,505

 

 

$

610,155

 

$

562,865

 

Reconciliation of Adjusted EBITDA to Net Income

 

 

Three Months Ended

December 31,

 

Nine Months Ended

December 31,

(Amounts in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

$

74,462

 

$

54,041

 

$

227,897

 

$

205,314

 

Depreciation and amortization

 

34,837

 

 

35,762

 

 

103,687

 

 

107,321

 

Interest expense

 

8,756

 

 

8,433

 

 

25,100

 

 

27,763

 

Income tax expense

 

28,792

 

 

20,264

 

 

82,063

 

 

79,291

 

EBITDA

 

146,847

 

 

118,500

 

 

438,747

 

 

419,689

 

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

 

3,466

 

 

980

 

 

2,554

 

 

3,254

 

ESOP and stock-based compensation expense

 

23,463

 

 

18,325

 

 

61,900

 

 

45,413

 

Transaction costs

 

2,145

 

 

54

 

 

3,022

 

 

1,428

 

Strategic growth and operational improvement initiatives

 

 

 

573

 

 

 

 

2,689

 

COVID-19 related expenses (a)

 

 

 

 

 

 

 

806

 

Other adjustments(b)

 

234

 

 

431

 

 

1,318

 

 

(872

)

Adjusted EBITDA

$

176,155

 

$

138,863

 

$

507,541

 

$

472,407

 

(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.

 

Reconciliation of Free Cash Flow to Cash flow from Operating Activities

 

 

Nine Months Ended December 31,

 

(Amounts in thousands)

 

2021

 

 

 

2020

 

 

Net cash flow from operating activities

$

193,847

 

 

$

448,776

 

 

Capital expenditures

 

(100,367

)

 

 

(57,675

)

 

Free cash flow

$

93,480

 

 

$

391,101

 

 

 

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

Source: Advanced Drainage Systems, Inc.

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