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Press Release Details

Advanced Drainage Systems Announces First Quarter Fiscal 2024 Results

08/03/2023

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, 2023.

First Quarter Fiscal 2024 Results

  • Net sales decreased 14.9% to $778.0 million
  • Net income decreased 7.7% to $173.9 million
  • Net income per diluted share decreased 1.7% to $2.18
  • Adjusted EBITDA (Non-GAAP) decreased 5.9% to $281.3 million
  • Cash provided by operating activities decreased 2.3% to $244.0 million
  • Free cash flow (Non-GAAP) decreased 5.5% to $201.9 million

Scott Barbour, President and Chief Executive Officer of ADS commented, "The first quarter net sales and Adjusted EBITDA results exceeded expectations, primarily driven by better-than-expected performance from the Infiltrator business and the Allied products portfolio. We had an excellent quarter from a profitability standpoint, as the Adjusted EBITDA margin increased to a new quarterly record of 36.2%, 350 basis points above the same quarter last year. This reflects the continued disciplined execution in pricing, good control over material and operational costs, and benefits from actions we took during the second half of last year to reduce manufacturing and transportation costs in the lower demand environment."

“From a top line perspective, the decrease in revenue of the domestic pipe business was generally in-line with our expectations. Allied products performed better than expected and Infiltrator benefited from the improvement in single-family housing starts outlook compared to the beginning of the calendar year. The overall sales decline of 15% in the quarter was modestly better than expected.”

"The need for water management solutions provided by ADS and Infiltrator remains highly relevant due to the increasing effects of heavy rainfall patterns and water scarcity. As communities and developers deal with these emerging issues, ADS is a trusted resource in the development of standards and practices around management of water, the world’s most precious resource, helping to safeguard our environment and communities. Developers, contractors and distributors recognize our expertise and value proposition as they continue to choose ADS and Infiltrator as the premier partner for water management solutions."

Barbour concluded, "We will continue to invest capital to increase manufacturing and recycling capacity, improve productivity and further automation so that we are in a favorable position as the market rebounds. We will focus on opportunities in key states and market segments, large scale development projects, and market penetration opportunities for products such as our HP pipe, Allied products, onsite septic tanks and active onsite treatment solutions to drive sales through our proven go to market capabilities."

First Quarter Fiscal 2024 Results

Net sales decreased $136.1 million, or 14.9%, to $778.0 million, as compared to $914.2 million in the prior year quarter. Domestic pipe sales decreased $96.3 million, or 18.3%, to $428.6 million. Domestic allied products & other sales decreased $15.5 million, or 7.8%, to $183.4 million. Infiltrator sales decreased $24.8 million, or 14.9%, to $141.5 million. The decrease in domestic net sales was primarily driven by lower demand in the U.S. construction end markets. International sales decreased $18.7 million, or 26.2%, to $52.8 million.

Gross profit decreased $20.6 million, or 5.9%, to $331.5 million as compared to $352.1 million in the prior year. The decrease in gross profit is primarily due to the decrease in volume and higher manufacturing costs, partially offset by favorable pricing and material costs.

Net income per diluted share decreased $0.04, or 1.7%, to $2.18, as compared to $2.22 per share in the prior year. Results for the first quarter of fiscal 2024 include a $14.9 million gain on the sale of assets, which after considering the income tax impact of this gain impacted net income per diluted share by $0.14.

Adjusted EBITDA (Non-GAAP) decreased $17.7 million, or 5.9%, to $281.3 million, as compared to $299.0 million in the prior year, primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 36.2% as compared to 32.7% 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 $244.0 million, as compared to $249.8 million in the prior year. Free cash flow (Non-GAAP) was $201.9 million, as compared to $213.6 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $953.7 million as of June 30, 2023, a decrease of $154.0 million from March 31, 2023.

ADS had total liquidity of $955.0 million, comprised of cash of $366.1 million as of June 30, 2023 and $588.9 million of availability under committed credit facilities. As of June 30, 2023, the Company’s trailing-twelve-month leverage ratio was 1.1 times Adjusted EBITDA.

In the three months ended June 30, 2023, the Company repurchased 0.5 million shares of its common stock for a total cost of $47.8 million. As of June 30, 2023, approximately $377.2 million of common stock may be repurchased under the Company's existing share repurchase authorization.

Fiscal 2024 Outlook

Based on current visibility, backlog of existing orders and business trends, the Company confirmed its financial targets for fiscal 2024. Net sales are expected to be in the range of $2.600 billion to $2.800 billion. Adjusted EBITDA is expected to be in the range of $725 to $825 million. Capital expenditures are expected to be in the range of $200 million to $225 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://conferencingportals.com/event/gnGtWRav using Conference ID: 45786. 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 and its subsidiary, Infiltrator Water Technologies, provide superior stormwater drainage and onsite septic wastewater products used in a wide variety of markets and applications including commercial, residential, infrastructure and agriculture, while delivering unparalleled customer service. ADS manages the industry’s largest company-owned fleet, an expansive sales team, and a vast manufacturing network of approximately 70 manufacturing plants and 40 distribution centers. The company is one of the largest plastic recycling companies 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; 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 acquisitions; 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)

 

2023

 

2022

Net sales

 

$

778,046

 

 

$

914,186

 

Cost of goods sold

 

 

446,586

 

 

 

562,079

 

Gross profit

 

 

331,460

 

 

 

352,107

 

Operating expenses:

 

 

 

 

Selling, general and administrative

 

 

86,511

 

 

 

86,520

 

(Gain) loss on disposal of assets and costs from exit and disposal activities

 

 

(13,304

)

 

 

303

 

Intangible amortization

 

 

12,802

 

 

 

13,677

 

Income from operations

 

 

245,451

 

 

 

251,607

 

Other expense:

 

 

 

 

Interest expense

 

 

21,712

 

 

 

11,072

 

Derivative gains and other income, net

 

 

(3,549

)

 

 

(1,902

)

Income before income taxes

 

 

227,288

 

 

 

242,437

 

Income tax expense

 

 

55,058

 

 

 

55,065

 

Equity in net income of unconsolidated affiliates

 

 

(1,675

)

 

 

(1,110

)

Net income

 

 

173,905

 

 

 

188,482

 

Less: net income attributable to noncontrolling interest

 

 

253

 

 

 

1,336

 

Net income attributable to ADS

 

 

173,652

 

 

 

187,146

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

Basic

 

 

78,908

 

 

 

83,144

 

Diluted

 

 

79,634

 

 

 

84,389

 

Net income per share:

 

 

 

 

Basic

 

$

2.20

 

 

$

2.25

 

Diluted

 

$

2.18

 

 

$

2.22

 

Cash dividends declared per share

 

$

0.14

 

 

$

0.12

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

As of

(Amounts in thousands)

 

June 30, 2023

 

March 31, 2023

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$

366,104

 

 

$

217,128

 

Receivables, net

 

 

342,338

 

 

 

306,945

 

Inventories

 

 

434,631

 

 

 

463,994

 

Other current assets

 

 

25,450

 

 

 

29,422

 

Total current assets

 

 

1,168,523

 

 

 

1,017,489

 

Property, plant and equipment, net

 

 

747,312

 

 

 

733,059

 

Other assets:

 

 

 

 

Goodwill

 

 

620,428

 

 

 

620,193

 

Intangible assets, net

 

 

394,837

 

 

 

407,627

 

Other assets

 

 

117,569

 

 

 

122,757

 

Total assets

 

$

3,048,669

 

 

$

2,901,125

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Current maturities of debt obligations

 

$

13,806

 

 

$

14,693

 

Current maturities of finance lease obligations

 

 

10,447

 

 

 

8,541

 

Accounts payable

 

 

205,591

 

 

 

210,111

 

Other accrued liabilities

 

 

137,511

 

 

 

142,400

 

Accrued income taxes

 

 

52,232

 

 

 

3,057

 

Total current liabilities

 

 

419,587

 

 

 

378,802

 

Long-term debt obligations, net

 

 

1,266,797

 

 

 

1,269,391

 

Long-term finance lease obligations

 

 

28,795

 

 

 

32,272

 

Deferred tax liabilities

 

 

158,942

 

 

 

159,056

 

Other liabilities

 

 

62,682

 

 

 

66,744

 

Total liabilities

 

 

1,936,803

 

 

 

1,906,265

 

Mezzanine equity:

 

 

 

 

Redeemable common stock

 

 

148,397

 

 

 

153,220

 

Total mezzanine equity

 

 

148,397

 

 

 

153,220

 

Stockholders’ equity:

 

 

 

 

Common stock

 

 

11,654

 

 

 

11,647

 

Paid-in capital

 

 

1,147,449

 

 

 

1,134,864

 

Common stock in treasury, at cost

 

 

(977,812

)

 

 

(920,999

)

Accumulated other comprehensive loss

 

 

(25,399

)

 

 

(27,580

)

Retained earnings

 

 

788,780

 

 

 

626,215

 

Total ADS stockholders’ equity

 

 

944,672

 

 

 

824,147

 

Noncontrolling interest in subsidiaries

 

 

18,797

 

 

 

17,493

 

Total stockholders’ equity

 

 

963,469

 

 

 

841,640

 

Total liabilities, mezzanine equity and stockholders’ equity

 

$

3,048,669

 

 

$

2,901,125

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Three Months Ended June 30,

(Amounts in thousands)

 

2023

 

2022

Cash Flow from Operating Activities

 

 

 

 

Net income

 

$

173,905

 

 

$

188,482

 

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

 

 

 

 

Depreciation and amortization

 

 

37,240

 

 

 

35,578

 

Deferred income taxes

 

 

573

 

 

 

(1,272

)

(Gain) loss on disposal of assets and costs from exit and disposal activities

 

 

(13,304

)

 

 

303

 

Stock-based compensation

 

 

6,903

 

 

 

6,273

 

Amortization of deferred financing charges

 

 

511

 

 

 

344

 

Fair market value adjustments to derivatives

 

 

(36

)

 

 

(90

)

Equity in net income of unconsolidated affiliates

 

 

(1,675

)

 

 

(1,110

)

Other operating activities

 

 

501

 

 

 

(3,535

)

Changes in working capital:

 

 

 

 

Receivables

 

 

(33,406

)

 

 

(79,616

)

Inventories

 

 

30,860

 

 

 

8,039

 

Prepaid expenses and other current assets

 

 

(3,699

)

 

 

(4,840

)

Accounts payable, accrued expenses, and other liabilities

 

 

45,594

 

 

 

101,209

 

Net cash provided by operating activities

 

 

243,967

 

 

 

249,765

 

Cash Flows from Investing Activities

 

 

 

 

Capital expenditures

 

 

(42,078

)

 

 

(36,189

)

Proceeds from disposition of assets

 

 

19,979

 

 

 

 

Acquisition, net of cash acquired

 

 

 

 

 

(47,492

)

Other investing activities

 

 

155

 

 

 

13

 

Net cash used in investing activities

 

 

(21,944

)

 

 

(83,668

)

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

 

 

(2,256

)

 

 

(3,548

)

Payments on finance lease obligations

 

 

(2,769

)

 

 

(1,721

)

Repurchase of common stock

 

 

(47,778

)

 

 

(57,699

)

Cash dividends paid

 

 

(11,084

)

 

 

(10,170

)

Proceeds from exercise of stock options

 

 

867

 

 

 

1,249

 

Payment of withholding taxes on vesting of restricted stock units

 

 

(8,742

)

 

 

(22,809

)

Net cash (used in) provided by financing activities

 

 

(73,512

)

 

 

277,677

 

Effect of exchange rate changes on cash

 

 

465

 

 

 

(203

)

Net change in cash

 

 

148,976

 

 

 

443,571

 

Cash at beginning of period

 

 

217,128

 

 

 

20,125

 

Cash at end of period

 

$

366,104

 

 

$

463,696

 

Selected Financial Data

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

 

 

Three Months Ended

 

 

June 30, 2023

 

June 30, 2022

Net Sales from

Net Sales from

Intersegment

External

Intersegment

External

(In thousands)

 

Net Sales

 

Net Sales

 

Customers

 

Net Sales

 

Net Sales

 

Customers

Pipe

 

$

428,572

 

 

$

(8,144

)

 

$

420,428

 

$

524,857

 

 

$

(9,874

)

 

$

514,983

Infiltrator

 

 

141,486

 

 

 

(18,578

)

 

 

122,908

 

 

166,290

 

 

 

(28,906

)

 

 

137,384

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

 

37,178

 

 

 

(528

)

 

 

36,650

 

 

53,419

 

 

 

(5,859

)

 

 

47,560

International - Allied Products & Other

 

 

15,598

 

 

 

 

 

 

15,598

 

 

18,095

 

 

 

 

 

 

18,095

Total International

 

 

52,776

 

 

 

(528

)

 

 

52,248

 

 

71,514

 

 

 

(5,859

)

 

 

65,655

Allied Products & Other

 

 

183,445

 

 

 

(983

)

 

 

182,462

 

 

198,909

 

 

 

(2,745

)

 

 

196,164

Intersegment Eliminations

 

 

(28,233

)

 

 

28,233

 

 

 

 

 

(47,384

)

 

 

47,384

 

 

 

Total Consolidated

 

$

778,046

 

 

$

 

 

$

778,046

 

$

914,186

 

 

$

 

 

$

914,186

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 Adjusted Gross Profit to Gross Profit

 

 

 

Three Months Ended

June 30,

(Amounts in thousands)

 

2023

 

2022

Segment Adjusted Gross Profit

 

 

 

 

Pipe

 

$

160,649

 

 

$

168,579

 

Infiltrator

 

 

74,264

 

 

 

75,794

 

International

 

 

16,029

 

 

 

20,484

 

Allied Products & Other

 

 

106,185

 

 

 

109,041

 

Intersegment Elimination

 

 

(2,055

)

 

 

(815

)

Total Segment Adjusted Gross Profit

 

 

355,072

 

 

 

373,083

 

Depreciation and amortization

 

 

22,799

 

 

 

20,302

 

ESOP and stock-based compensation

 

 

813

 

 

 

674

 

Total Gross Profit

 

$

331,460

 

 

$

352,107

 

Reconciliation of Adjusted EBITDA to Net Income

 

 

 

Three Months Ended

June 30,

(Amounts in thousands)

 

2023

 

2022

Net income

 

$

173,905

 

 

$

188,482

 

Depreciation and amortization

 

 

37,240

 

 

 

35,578

 

Interest expense

 

 

21,712

 

 

 

11,072

 

Income tax expense

 

 

55,058

 

 

 

55,065

 

EBITDA

 

 

287,915

 

 

 

290,197

 

(Gain) loss on disposal of assets and costs from exit and disposal activities

 

 

(13,304

)

 

 

303

 

Stock-based compensation expense

 

 

6,903

 

 

 

6,273

 

Transaction costs

 

 

1,972

 

 

 

1,715

 

Interest income

 

 

(3,489

)

 

 

(117

)

Other adjustments(a)

 

 

1,316

 

 

 

672

 

Adjusted EBITDA

 

$

281,313

 

 

$

299,043

 

   

(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)

 

2023

 

2022

Net cash flow from operating activities

 

$

243,967

 

 

$

249,765

 

Capital expenditures

 

 

(42,078

)

 

 

(36,189

)

Free cash flow

 

$

201,889

 

 

$

213,576

 

 

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

Source: Advanced Drainage Systems, Inc.