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Press Release Details

Advanced Drainage Systems Announces Second Quarter Fiscal 2025 Results

11/08/2024

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 second quarter ended September 30, 2024.

Second Quarter Fiscal 2025 Results

  • Net sales of $782.6 million, flat to prior year
  • Net income decreased 4.3% to $131.2 million
  • Net income per diluted share decreased 2.3% to $1.67
  • Adjusted EBITDA (Non-GAAP) of $245.6 million, flat to prior year
  • Adjusted Earnings per share (Non-GAAP) of $1.70, flat to prior year

Year-to-Date Fiscal 2025 Results

  • Net sales increased 2.5% to $1.6 billion
  • Net income decreased 5.6% to $293.5 million
  • Net income per diluted share decreased 4.1% to $3.73
  • Adjusted EBITDA (Non-GAAP) decreased 1.2% to $521.0 million
  • Adjusted Earnings per share (Non-GAAP) decreased 0.5% to $3.76

Scott Barbour, President and Chief Executive Officer of ADS commented, "The second quarter results reflect strong demand at Infiltrator as well as the ADS residential and infrastructure end markets. Continued choppiness in the non-residential end market impacted revenue from both pipe and allied products which, combined with significant storm events, resulted in revenue flat to the prior year. Importantly, we were able to manage through demand fluctuations and unfavorable price/cost to maintain a robust Adjusted EBITDA margin of 31.4%, underscoring the resiliency of the ADS business model."

"Despite the near-term headwinds, demand for localized water management solutions remains strong. During the 2024 hurricane season, the United States experienced multiple significant storm events, including five hurricanes that affected several states in the Southern crescent, such as Florida, North Carolina, South Carolina and Texas. Although the disruption in business activity had a negative short-term impact in these states, these events highlight the longer-term need to address the insufficient water infrastructure investments in the United States. The Environmental Protection Agency estimates $630 billion is needed over the next 20 years to achieve the goals of the Clean Water Act, highlighting the continued opportunity for ADS and Infiltrator to support the development of more resilient water infrastructure."

"Thoughtful capital allocation continues to be a key focus for the management team and the Board, given the strong cash generation of the business. We remain focused on organic capital investments, up 36% in the first half of Fiscal 2025, as well as strategic M&A. In turn, we announced the acquisition of Orenco Systems, Inc in August. This acquisition closed in the fiscal third quarter and will accelerate the Company’s growth in the highly attractive advanced wastewater treatment space, opening new opportunities in a highly fragmented and fast-growing segment of onsite septic wastewater. We will continue to focus on both organic and inorganic capital deployment, returning excess capital to shareholders through dividends and share repurchases."

"Overall, we remain confident that we are well positioned in attractive end markets with secular tailwinds from the increasing need to manage and protect water, the world's most precious resource, safeguarding our environment and communities. As we move into the second half of the year, we updated our Fiscal 2025 guidance to reflect performance year-to-date, the impact from weather, as well as recent and forward-looking trends in our underlying core markets."

Second Quarter Fiscal 2025 Results

Net sales increased $2.4 million, or 0.3%, to $782.6 million, as compared to $780.2 million in the prior year quarter. Domestic pipe sales decreased $5.2 million, or 1.3%, to $410.5 million. Domestic allied products & other sales increased $4.9 million, or 2.7%, to $187.1 million. Infiltrator sales increased $12.3 million, or 10.6%, to $128.5 million. The overall increase in domestic net sales was primarily driven by demand in the residential and infrastructure end markets. International sales decreased $9.6 million, or 14.5%, to $56.6 million.

Gross profit decreased $8.7 million, or 2.9%, to $293.9 million as compared to $302.7 million in the prior year. The decrease in gross profit is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs.

Selling, general and administrative expenses increased $2.4 million, or 2.6% to $94.1 million, as compared to $91.7 million. As a percentage of sales, selling, general and administrative expense was largely flat at 12.0% as compared to 11.8% in the prior year.

Net income per diluted share decreased $0.04, or 2.3%, to $1.67, as compared to $1.71 per share in the prior year quarter, primarily due to the factors mentioned above.

Adjusted EBITDA (Non-GAAP) decreased $0.7 million, or 0.3%, to $245.6 million, as compared to $246.3 million in the prior year, primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 31.4% as compared to 31.6% in the prior year.

Segment sales results are based on Net sales to external customers. Reconciliations of GAAP to Non-GAAP financial measures for Adjusted EBITDA, Free Cash Flow and Adjusted Earnings per Share 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 2025 Results

Net sales increased $39.7 million, or 2.5%, to $1,597.9 million, as compared to $1,558.3 million in the prior year. Domestic pipe sales increased $5.4 million, or 0.6%, to $841.9 million. Domestic allied products & other sales increased $18.8 million, or 5.2%, to $383.1 million. Infiltrator sales increased $19.6 million, or 8.2%, to $258.7 million. The overall increase in domestic net sales was primarily driven by demand in the residential and infrastructure end markets. International sales decreased $4.1 million, or 3.5%, to $114.3 million.

Gross profit decreased $7.7 million, or 1.2%, to $626.4 million as compared to $634.1 million in the prior year. The decrease in gross profit is primarily driven by unfavorable pricing and material cost, partially offset by favorable manufacturing costs.

Selling, general and administrative expenses increased $9.9 million, or 5.6% to $188.2 million, as compared to $178.2 million. As a percentage of sales, selling, general and administrative expense was largely flat at 11.8% as compared to 11.4% in the prior year.

Net income per diluted share decreased $0.16, or 4.1%, to $3.73, as compared to $3.89 per share in the prior year. Results for 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 $6.5 million, or 1.2%, to $521.0 million, as compared to $527.6 million in the prior year, primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 32.6% as compared to 33.9% in the prior year.

Balance Sheet and Liquidity

Net cash provided by operating activities was $350.3 million, as compared to $458.9 million in the prior year. Free cash flow (Non-GAAP) was $238.1 million, as compared to $376.2 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $769.7 million as of September 30, 2024, a decrease of $91.2 million from March 31, 2024.

ADS had total liquidity of $1,202.6 million, comprised of cash of $613.0 million as of September 30, 2024 and $589.6 million of availability under committed credit facilities. As of September 30, 2024, the Company’s trailing-twelve-month leverage ratio was 0.8 times Adjusted EBITDA.

In the six months ended September 30, 2024, the Company repurchased 0.4 million shares of its common stock for a total cost of $69.9 million. As of September 30, 2024, approximately $147.7 million of common stock may be repurchased under the Company's existing share repurchase authorization.

Fiscal 2025 Outlook

Based on current visibility, backlog of existing orders and business trends, the Company updated its financial targets for fiscal 2025. Net sales are now expected to be in the range of $2.900 billion to $2.975 billion. Adjusted EBITDA is expected to be in the range of $880 million to $920 million. Capital expenditures are expected to be approximately $250 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://registrations.events/direct/Q4I4578677. 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; our ability to protect against cybersecurity incidents and disruptions or failures of our IT systems; our ability to assess and monitor the effects of artificial intelligence, machine learning, and robotics on our business and operations; 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; our ability to appropriately address any environmental, social or governance concerns that may arise from our activities; 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

 

Six Months Ended

September 30,

September 30,

(In thousands, except per share data)

 

2024

 

2023

 

2024

 

2023

Net sales

 

$

782,610

 

 

$

780,220

 

 

$

1,597,946

 

 

$

1,558,266

 

Cost of goods sold

 

 

488,669

 

 

 

477,543

 

 

 

971,551

 

 

 

924,129

 

Gross profit

 

 

293,941

 

 

 

302,677

 

 

 

626,395

 

 

 

634,137

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

94,132

 

 

 

91,725

 

 

 

188,184

 

 

 

178,236

 

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

 

 

617

 

 

 

123

 

 

 

909

 

 

 

(13,181

)

Intangible amortization

 

 

11,816

 

 

 

12,792

 

 

 

23,711

 

 

 

25,594

 

Income from operations

 

 

187,376

 

 

 

198,037

 

 

 

413,591

 

 

 

443,488

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

23,156

 

 

 

21,941

 

 

 

45,980

 

 

 

43,653

 

Interest income and other, net

 

 

(6,956

)

 

 

(7,506

)

 

 

(14,072

)

 

 

(11,055

)

Income before income taxes

 

 

171,176

 

 

 

183,602

 

 

 

381,683

 

 

 

410,890

 

Income tax expense

 

 

40,920

 

 

 

47,476

 

 

 

90,806

 

 

 

102,534

 

Equity in net income of unconsolidated affiliates

 

 

(918

)

 

 

(901

)

 

 

(2,619

)

 

 

(2,576

)

Net income

 

 

131,174

 

 

 

137,027

 

 

 

293,496

 

 

 

310,932

 

Less: net income attributable to noncontrolling interest

 

 

792

 

 

 

1,225

 

 

 

1,712

 

 

 

1,478

 

Net income attributable to ADS

 

$

130,382

 

 

$

135,802

 

 

$

291,784

 

 

$

309,454

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

77,542

 

 

 

78,606

 

 

 

77,541

 

 

 

78,756

 

Diluted

 

 

78,110

 

 

 

79,307

 

 

 

78,194

 

 

 

79,475

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

1.68

 

 

$

1.73

 

 

$

3.76

 

 

$

3.93

 

Diluted

 

$

1.67

 

 

$

1.71

 

 

$

3.73

 

 

$

3.89

 

Cash dividends declared per share

 

$

0.16

 

 

$

0.14

 

 

$

0.32

 

 

$

0.28

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

 

As of

(Amounts in thousands)

 

September 30, 2024

 

March 31, 2024

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$

613,020

 

 

$

490,163

 

Receivables, net

 

 

357,636

 

 

 

323,576

 

Inventories

 

 

487,232

 

 

 

464,200

 

Other current assets

 

 

34,032

 

 

 

22,028

 

Total current assets

 

 

1,491,920

 

 

 

1,299,967

 

Property, plant and equipment, net

 

 

955,434

 

 

 

876,351

 

Other assets:

 

 

 

 

Goodwill

 

 

617,147

 

 

 

617,183

 

Intangible assets, net

 

 

328,924

 

 

 

352,652

 

Other assets

 

 

142,325

 

 

 

122,760

 

Total assets

 

$

3,535,750

 

 

$

3,268,913

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Current maturities of debt obligations

 

$

11,130

 

 

$

11,870

 

Current maturities of finance lease obligations

 

 

26,233

 

 

 

18,015

 

Accounts payable

 

 

273,293

 

 

 

254,401

 

Other accrued liabilities

 

 

152,091

 

 

 

154,260

 

Accrued income taxes

 

 

4,590

 

 

 

1,076

 

Total current liabilities

 

 

467,337

 

 

 

439,622

 

Long-term debt obligations, net

 

 

1,255,118

 

 

 

1,259,522

 

Long-term finance lease obligations

 

 

90,272

 

 

 

61,661

 

Deferred tax liabilities

 

 

154,574

 

 

 

156,705

 

Other liabilities

 

 

76,183

 

 

 

70,704

 

Total liabilities

 

 

2,043,484

 

 

 

1,988,214

 

Mezzanine equity:

 

 

 

 

Redeemable common stock

 

 

98,231

 

 

 

108,584

 

Total mezzanine equity

 

 

98,231

 

 

 

108,584

 

Stockholders’ equity:

 

 

 

 

Common stock

 

 

11,690

 

 

 

11,679

 

Paid-in capital

 

 

1,255,794

 

 

 

1,219,834

 

Common stock in treasury, at cost

 

 

(1,219,438

)

 

 

(1,140,578

)

Accumulated other comprehensive loss

 

 

(30,689

)

 

 

(29,830

)

Retained earnings

 

 

1,359,100

 

 

 

1,092,208

 

Total ADS stockholders’ equity

 

 

1,376,457

 

 

 

1,153,313

 

Noncontrolling interest in subsidiaries

 

 

17,578

 

 

 

18,802

 

Total stockholders’ equity

 

 

1,394,035

 

 

 

1,172,115

 

Total liabilities, mezzanine equity and stockholders’ equity

 

$

3,535,750

 

 

$

3,268,913

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Six Months Ended September 30,

(Amounts in thousands)

 

 

2024

 

 

 

2023

 

Cash Flow from Operating Activities

 

 

 

 

Net income

 

$

293,496

 

 

$

310,932

 

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

 

 

 

 

Depreciation and amortization

 

 

85,905

 

 

 

73,961

 

Deferred income taxes

 

 

(2,270

)

 

 

519

 

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

 

 

909

 

 

 

(13,181

)

Stock-based compensation

 

 

13,960

 

 

 

16,234

 

Amortization of deferred financing charges

 

 

1,022

 

 

 

1,022

 

Fair market value adjustments to derivatives

 

 

1,024

 

 

 

(1,889

)

Equity in net income of unconsolidated affiliates

 

 

(2,619

)

 

 

(2,576

)

Other operating activities

 

 

(6,124

)

 

 

756

 

Changes in working capital:

 

 

 

 

Receivables

 

 

(35,565

)

 

 

(43,530

)

Inventories

 

 

(24,750

)

 

 

79,215

 

Prepaid expenses and other current assets

 

 

(4,804

)

 

 

(2,228

)

Accounts payable, accrued expenses, and other liabilities

 

 

30,142

 

 

 

39,629

 

Net cash provided by operating activities

 

 

350,326

 

 

 

458,864

 

Cash Flows from Investing Activities

 

 

 

 

Capital expenditures

 

 

(112,182

)

 

 

(82,625

)

Proceeds from disposition of assets

 

 

 

 

 

19,979

 

Other investing activities

 

 

640

 

 

 

446

 

Net cash used in investing activities

 

 

(111,542

)

 

 

(62,200

)

Cash Flows from Financing Activities

 

 

 

 

Payments on syndicated Term Loan Facility

 

 

(3,500

)

 

 

(3,500

)

Payments on Equipment Financing

 

 

(2,665

)

 

 

(4,458

)

Payments on finance lease obligations

 

 

(11,756

)

 

 

(5,452

)

Repurchase of common stock

 

 

(69,922

)

 

 

(101,564

)

Cash dividends paid

 

 

(24,917

)

 

 

(22,224

)

Proceeds from exercise of stock options

 

 

8,694

 

 

 

2,623

 

Payment of withholding taxes on vesting of restricted stock units

 

 

(10,576

)

 

 

(8,811

)

Other financing activities

 

 

2

 

 

 

 

Net cash used in financing activities

 

 

(114,640

)

 

 

(143,386

)

Effect of exchange rate changes on cash

 

 

(1,142

)

 

 

3

 

Net change in cash

 

 

123,002

 

 

 

253,281

 

Cash and restricted cash at beginning of period

 

 

495,848

 

 

 

217,128

 

Cash and restricted cash at end of period

 

$

618,850

 

 

$

470,409

 

 

 

 

 

 

RECONCILIATION TO BALANCE SHEET

 

 

 

 

Cash

 

$

613,020

 

 

 

Restricted cash

 

 

5,830

 

 

 

Total cash and restricted cash

 

$

618,850

 

 

 

Selected Financial Data

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

 

 

Three Months Ended

 

 

September 30, 2024

 

September 30, 2023

(In thousands)

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales
from
External
Customers

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales
from
External
Customers

Pipe

 

$

425,099

 

 

$

(14,611

)

 

$

410,488

 

$

427,997

 

 

$

(12,284

)

 

$

415,713

Infiltrator

 

 

148,690

 

 

 

(20,198

)

 

 

128,492

 

 

133,731

 

 

 

(17,553

)

 

 

116,178

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

 

44,445

 

 

 

(3,437

)

 

 

41,008

 

 

52,407

 

 

 

(3,284

)

 

 

49,123

International - Allied Products & Other

 

 

15,613

 

 

 

(68

)

 

 

15,545

 

 

17,025

 

 

 

(14

)

 

 

17,011

Total International

 

 

60,058

 

 

 

(3,505

)

 

 

56,553

 

 

69,432

 

 

 

(3,298

)

 

 

66,134

Allied Products & Other

 

 

191,114

 

 

 

(4,037

)

 

 

187,077

 

 

185,696

 

 

 

(3,501

)

 

 

182,195

Intersegment Eliminations

 

 

(42,351

)

 

 

42,351

 

 

 

 

 

(36,636

)

 

 

36,636

 

 

 

Total Consolidated

 

$

782,610

 

 

$

 

 

$

782,610

 

$

780,220

 

 

$

 

 

$

780,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

September 30, 2024

 

September 30, 2023

(In thousands)

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales
from
External
Customers

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales
from
External
Customers

Pipe

 

$

871,278

 

 

$

(29,365

)

 

$

841,913

 

$

856,569

 

 

$

(20,043

)

 

$

836,526

Infiltrator

 

 

303,720

 

 

 

(45,010

)

 

 

258,710

 

 

275,217

 

 

 

(36,131

)

 

 

239,086

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

 

88,372

 

 

 

(7,290

)

 

 

81,082

 

 

89,585

 

 

 

(3,799

)

 

 

85,786

International - Allied Products & Other

 

 

33,292

 

 

 

(116

)

 

 

33,176

 

 

32,623

 

 

 

(26

)

 

 

32,597

Total International

 

 

121,664

 

 

 

(7,406

)

 

 

114,258

 

 

122,208

 

 

 

(3,825

)

 

 

118,383

Allied Products & Other

 

 

391,687

 

 

 

(8,622

)

 

 

383,065

 

 

369,141

 

 

 

(4,870

)

 

 

364,271

Intersegment Eliminations

 

 

(90,403

)

 

 

90,403

 

 

 

 

 

(64,869

)

 

 

64,869

 

 

 

Total Consolidated

 

$

1,597,946

 

 

$

 

 

$

1,597,946

 

$

1,558,266

 

 

$

 

 

$

1,558,266

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 Adjusted EBITDA, Free Cash Flow and Adjusted Earnings per Share, 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 a reconciliation 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 a reconciliation of cash flow from operating activities to Free Cash Flow.

Adjusted Earnings per Share excludes (gains) losses on disposals of assets or business, restructuring expenses, impairment charges and transaction costs. Adjusted Earnings per Share is a measure used by management and may be useful for investors to evaluate the Company's operational performance.

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

Reconciliation of Adjusted Gross Profit to Gross Profit

 

 

 

Three Months Ended

 

Six Months Ended

September 30,

September 30,

(Amounts in thousands)

 

2024

 

2023

 

2024

 

2023

Segment Adjusted Gross Profit

 

 

 

 

 

 

 

 

Pipe

 

$

115,422

 

 

$

125,856

 

 

$

257,659

 

 

$

286,505

 

Infiltrator

 

 

86,135

 

 

 

73,663

 

 

 

172,550

 

 

 

147,927

 

International

 

 

17,445

 

 

 

21,339

 

 

 

37,108

 

 

 

37,368

 

Allied Products & Other

 

 

107,324

 

 

 

106,239

 

 

 

221,191

 

 

 

212,424

 

Intersegment Elimination

 

 

(394

)

 

 

(454

)

 

 

(1,569

)

 

 

(2,509

)

Total Segment Adjusted Gross Profit

 

 

325,932

 

 

 

326,643

 

 

 

686,939

 

 

 

681,715

 

Depreciation and amortization

 

 

30,536

 

 

 

22,622

 

 

 

57,748

 

 

 

45,421

 

Stock-based compensation expense

 

 

1,455

 

 

 

1,344

 

 

 

2,796

 

 

 

2,157

 

Total Gross Profit

 

$

293,941

 

 

$

302,677

 

 

$

626,395

 

 

$

634,137

 

Reconciliation of Adjusted EBITDA to Net Income

 

 

 

Three Months Ended

 

Six Months Ended

September 30,

September 30,

(Amounts in thousands)

 

2024

 

2023

 

2024

 

2023

Net income

 

$

131,174

 

 

$

137,027

 

 

$

293,496

 

 

$

310,932

 

Depreciation and amortization

 

 

44,807

 

 

 

36,721

 

 

 

85,905

 

 

 

73,961

 

Interest expense

 

 

23,156

 

 

 

21,941

 

 

 

45,980

 

 

 

43,653

 

Income tax expense

 

 

40,920

 

 

 

47,476

 

 

 

90,806

 

 

 

102,534

 

EBITDA

 

 

240,057

 

 

 

243,165

 

 

 

516,187

 

 

 

531,080

 

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

 

 

617

 

 

 

123

 

 

 

909

 

 

 

(13,181

)

Stock-based compensation expense

 

 

6,983

 

 

 

9,331

 

 

 

13,960

 

 

 

16,234

 

Transaction costs

 

 

2,685

 

 

 

52

 

 

 

2,695

 

 

 

2,024

 

Interest income

 

 

(7,368

)

 

 

(5,137

)

 

 

(13,933

)

 

 

(8,626

)

Other adjustments (a)

 

 

2,576

 

 

 

(1,284

)

 

 

1,230

 

 

 

32

 

Adjusted EBITDA

 

$

245,550

 

 

$

246,250

 

 

$

521,048

 

 

$

527,563

 

(a)

 

Includes derivative fair value adjustments, foreign currency transaction (gains) losses, legal settlements, 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

 

 

Six Months Ended

September 30,

(Amounts in thousands)

 

2024

 

2023

Net cash flow from operating activities

 

$

350,326

 

 

$

458,864

 

Capital expenditures

 

 

(112,182

)

 

 

(82,625

)

Free cash flow

 

$

238,144

 

 

$

376,239

 

Reconciliation of Diluted Earnings per Share to Adjusted Earnings per Share

The following table presents diluted earnings per share on an adjusted basis to supplement the Company's discussion of its results of operations herein.

 

 

Three Months Ended

 

Six Months Ended

September 30,

September 30,

 

 

2024

 

2023

 

2024

 

2023

Diluted Earnings Per Share

 

$

1.67

 

 

$

1.71

 

$

3.73

 

 

$

3.89

 

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

 

 

0.01

 

 

 

 

 

0.01

 

 

 

(0.17

)

Transaction costs

 

 

0.03

 

 

 

 

 

0.03

 

 

 

0.03

 

Income tax impact of adjustments (a)

 

 

(0.01

)

 

 

 

 

(0.01

)

 

 

0.03

 

Adjusted Earnings per Share

 

$

1.70

 

 

$

1.71

 

$

3.76

 

 

$

3.78

 

(a)

 

The income tax impact of adjustments to each period is based on the statutory tax rate.

 

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

Source: Advanced Drainage Systems, Inc.