Advanced Drainage Systems, Inc. (NYSE:WMS) (“ADS” or the
“Company”), a leading global manufacturer of water management
products and solutions for commercial, residential, infrastructure
and agricultural applications, today announced financial results
for the fiscal first quarter ended June 30, 2016.
First Fiscal Quarter 2017
Highlights
- Quarterly net sales increased 2.4%
to $358 million
- Net income increased 96% to $25
million
- Adjusted EBITDA (Non-GAAP) increased
34% to $72 million
- Cash flow from operating activities
went from a use of $18 million to flat
- Free cash flow (Non-GAAP) improved
from a use of $30 million to a use of $13 million
Joe Chlapaty, Chairman and Chief Executive Officer of ADS
commented, “We are very pleased with our performance for the first
fiscal quarter, which reflected solid execution of our conversion
strategy as well as strong growth in HP Pipe and Allied Products.
Our growth was particularly strong in our nonresidential end
market, which grew 11% versus the prior year. This performance was
partially offset by a weaker-than-expected agriculture end market
and continued softness in Mexico. In addition, Adjusted EBITDA
increased 34% over the prior year period to $72 million for the
quarter.
Chlapaty continued, “The underlying fundamentals of our business
remain strong as we continue to execute on our strategies. We
anticipate that for the remainder of fiscal year 2017, we will
continue to face headwinds in our agriculture end market and in
Mexico. In addition, like many of our peers in the construction
market, we are seeing domestic growth moderate slightly from
previous expectations. That said, we remain optimistic about our
ability to continue generating above-market growth and healthy
profitability for fiscal year 2017 and beyond.”
First Fiscal Quarter 2017
Results
Gross profit increased $22.2 million, or 29.8%, to $96.7 million
for the fiscal first quarter 2017, compared to $74.5 million in the
prior fiscal year. As a percentage of net sales, gross profit was
27.0%, compared to 21.3%, in the prior fiscal first quarter. The
increase in gross profit was largely attributed to lower raw
material costs, increased sales of Allied Products and lower diesel
costs.
The Company reported Adjusted EBITDA (Non-GAAP) of $71.8 million
in the fiscal first quarter 2017 compared to Adjusted EBITDA of
$53.7 million in the prior fiscal year, an increase of 33.7%. As a
percentage of net sales, Adjusted EBITDA was 20.1% for the fiscal
first quarter 2017 compared to 15.4% in the prior fiscal year. The
increase in Adjusted EBITDA was largely attributed to the same
factors mentioned above.
Adjusted Earnings Per Fully Converted Share (Non-GAAP) for the
fiscal first quarter 2017 was $0.37 per share based on weighted
average fully converted shares of 73.7 million, improved from an
Adjusted Earnings Per Fully Converted Share of $0.20 per share for
the prior fiscal first quarter.
A reconciliation of GAAP to Non-GAAP financial measures for
Adjusted EBITDA, Free Cash Flow and Adjusted Earnings Per Fully
Converted Share has 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.”
For the fiscal first quarter 2017, the Company recorded net cash
provided by operating activities of $(0.1) million compared to
$(18.1) million for the same period last year. Net debt (total debt
and capital lease obligations net of cash) was $445.9 million as of
June 30, 2016, a decrease of $61.2 million from June 30, 2015.
Fiscal Year 2017 Outlook
Based on current visibility, backlog of existing orders and
business trends, the Company has revised its net sales target for
fiscal year 2017. Net sales for fiscal year 2017 are now forecast
to be in the range of $1.270 billion to $1.310 billion. The revised
guidance is predicated on the belief that end market performance
will be slightly lower than previously expected for the remainder
of fiscal year 2017. The table below illustrates the expected
change in end market performance.
End Market
Previous Outlook Current
Outlook Domestic Construction
Up 4% to 7% Up 0% to 4%
Agriculture Down
5% to 12% Down 15% to 25%
International Down 1% to 6%
Down 5% to 15%
With the revised net sales guidance, the Company is adjusting
its Adjusted EBITDA (Non-GAAP) expectations to $200 million to $225
million for the full fiscal year.
Scott Cottrill, Executive Vice President and Chief Financial
Officer of ADS, commented, “Our revised expectations for end market
performance is based in part on the trends we saw during the first
half of the fiscal year, in particular slower market growth in our
domestic construction markets and continued weakness in our
agriculture and Mexican markets as we moved into the second fiscal
quarter. Although we cannot control the macro environment, we will
continue to strive for performance above the market. In fact, we
believe we will generate growth of mid-single digits in our core
domestic construction markets for the full fiscal year, which we
believe would outpace our revised market growth expectations. In
addition, our adjusted EBITDA performance remains strong, as we
continue to operate in a favorable cost environment and effectively
manage our operations. As such, we are only slightly lowering our
full year adjusted EBITDA guidance to $200 million to $225
million.”
Webcast Information
The Company will host an investor conference call and webcast on
Thursday, October 6, 2016 at 10:00 a.m. Eastern Time. The live call
can be accessed by dialing 1-866-450-8367 (US toll-free) or
1-412-317-5465 (international) and asking to be connected to the
Advanced Drainage Systems, Inc. call. The live webcast will also be
accessible via the "Events Calendar” section of the Company’s
Investor Relations website, www.investors.ads-pipe.com. An archived
version of the webcast will be available for 90 days following the
call.
About ADS
Advanced Drainage Systems (ADS) is the leading manufacturer of
high performance thermoplastic corrugated pipe, providing a
comprehensive suite of water management products and superior
drainage solutions for use in the construction and infrastructure
marketplace. Its innovative products are used across a broad range
of end markets and applications, including non-residential,
residential, agriculture and infrastructure applications. The
Company has established a leading position in many of these end
markets by leveraging its national sales and distribution platform,
its overall product breadth and scale and its manufacturing
excellence. Founded in 1966, the Company operates a global network
of 61 manufacturing plants and 31 distribution centers. To learn
more about the ADS, please visit the Company’s website at
www.ads-pipe.com.
Forward Looking
Statements
Certain statements in this press release may be deemed to be
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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, without 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; 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; 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; our ability to achieve the
acquisition component of our growth strategy; the risk associated
with manufacturing processes; our ability to manage our assets; the
risks associated with our product warranties; our ability to manage
our supply purchasing and customer credit policies; the risks
associated with our self-insured programs; our ability to control
labor costs and to attract, train and retain highly-qualified
employees and key personnel; our ability to protect our
intellectual property rights; changes in laws and regulations,
including environmental laws and regulations; our ability to
project product mix; the risks associated with our current levels
of indebtedness; our ability to meet future capital requirements
and fund our liquidity needs; the risk that additional information
may arise that would require the Company to make additional
adjustments or revisions or to restate the financial statements and
other financial data for certain prior periods and any future
periods, any further delay in the filing of any filings with the
SEC; the review of potential weaknesses or deficiencies in the
Company’s disclosure controls and procedures, and discovering
further weaknesses of which we are not currently aware or which
have not been detected and the other risks and uncertainties
described in the Company’s filings with the Securities and Exchange
Commission. 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
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
INCOME(unaudited)
Three Months Ended June 30, (Amounts in thousands,
except per share data) 2016 2015 Net sales
$ 357,576 $ 349,124 Cost of goods sold 260,870 274,647 Gross profit
96,706 74,477 Operating expenses: Selling 23,930 21,227 General and
administrative 26,284 18,286 Loss on disposal of assets or
businesses 202 866 Intangible amortization 2,187 2,526 Income from
operations 44,103 31,572 Other (income) expense: Interest expense
4,784 4,286 Derivative (gains) losses and other (income) expense,
net (3,037) 6,580 Income before income taxes 42,356 20,706 Income
tax expense 16,909 8,148 Equity in net loss (income) of
unconsolidated affiliates 96 (354) Net income 25,351 12,912 Less
net income attributable to noncontrolling interest 1,148 1,088 Net
income attributable to ADS 24,203 11,824 Accretion of Redeemable
noncontrolling interest (362) - Dividends to Redeemable convertible
preferred stockholders (426) (371) Dividends paid to unvested
restricted stockholders (3) (6) Net income available to common
stockholders and participating securities 23,412 11,447
Undistributed income allocated to participating securities (2,142)
(982)
Net income available to common stockholders
$
21,270 $ 10,465 Weighted average
common shares outstanding: Basic 54,534 53,623 Diluted 55,437
54,775
Net income per share: Basic $ 0.39 $ 0.20 Diluted $
0.38 $ 0.19
Cash dividends declared per share $ 0.06 $ 0.05
ADVANCED DRAINAGE SYSTEMS, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE
SHEETS(unaudited)
As of (Amounts in thousands)
June 30,2016
March 31,2016
ASSETS Current assets: Cash $ 9,168 $
6,555 Receivables 212,167 186,883 Inventories 238,718
230,466 Other current assets 8,460
12,859 Total current assets 468,513 436,763 Property,
plant and equipment, net 401,822 391,744
Other assets:
Goodwill 100,857 100,885 Intangible assets, net 57,822 59,869 Other
assets 45,614 45,256
Total assets $ 1,074,628
$ 1,034,517 LIABILITIES, MEZZANINE
EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities:
Current maturities of debt obligations $ 35,880 $ 35,870 Current
maturities of capital lease obligations 20,872 19,231 Accounts
payable 112,646 119,606 Other accrued liabilities 64,806 65,099
Accrued income taxes 2,380
1,822 Total current liabilities 236,584 241,628 Long-term
debt obligation 335,130 312,214 Long-term capital lease obligations
63,231 56,809 Deferred tax liabilities 55,075 63,683 Other
liabilities 30,684 30,803
Total liabilities 720,704 705,137 Commitments and contingencies
Mezzanine equity: Redeemable convertible preferred stock
307,513 310,240 Deferred compensation — unearned ESOP shares
(203,836) (205,664) Redeemable noncontrolling interest in
subsidiaries 7,794 7,171
Total mezzanine equity 111,471 111,747
Stockholders’ equity:
Common stock 12,393 12,393 Paid-in capital 720,389 715,859 Common
stock in treasury, at cost (439,009) (440,995) Accumulated other
comprehensive loss (22,881) (21,261) Retained deficit
(42,858)
(63,396)
Total ADS stockholders’ equity 228,034 202,600 Noncontrolling
interest in subsidiaries 14,419
15,033 Total stockholders’ equity
242,453 217,633
Total liabilities,
mezzanine equity and stockholders’ equity $
1,074,628 $
1,034,517
ADVANCED DRAINAGE SYSTEMS, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)
Three Months Ended June 30, (Amounts in
thousands) 2016 2015 Cash Flow
from Operating Activities $ (132) $
(18,142)
Cash Flows from Investing Activities
Capital expenditures (12,595) (11,535) Issuance of
note receivable to related party - (3,854) Other investing
activities (200) (172)
Net cash used in investing activities (12,795)
(15,561)
Cash Flows from Financing
Activities Proceeds from Revolving Credit Facility 114,000
130,400 Payments from Revolving Credit Facility (88,700) (90,100)
Payments on Term Loan (2,500) (1,875) Proceeds from notes,
mortgages, and other debt - 6,926 Payments from notes, mortgages,
and other debt (215) (3,217) Payments on capital lease obligation
(5,358) (4,192) Cash dividends paid (3,665) (3,784) Other financing
activities 2,640 587 Net
cash provided by financing activities 16,202
34,745 Effect of exchange rates changes on
cash (662) 182 Net change in cash 2,613 1,224 Cash at beginning of
period 6,555 3,623
Cash at end of period $ 9,168
$ 4,847
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 Fully Converted Share, all
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, Free Cash Flow, and Adjusted Earnings per Fully Converted
Share may be different from non-GAAP financial measures used by
other companies, even when similar terms are used to identify such
measures.
Adjusted EBITDA is a non-GAAP financial measure that comprises
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.
Adjusted Earnings Per Fully Converted Share is a non-GAAP
measure that is calculated by adjusting our Net income per share –
Basic, the most comparable GAAP measure. To effect this adjustment
with respect to Net income available to common stockholders, we
have (1) removed the accretion of Redeemable noncontrolling
interest in subsidiaries, (2) added back the dividends to
Redeemable convertible preferred stockholders and dividends paid to
unvested restricted stockholders, (3) made corresponding
adjustments to the amount allocated to participating securities
under the two class earnings per share computation method, and (4)
added back ESOP deferred compensation attributable to the shares of
Redeemable convertible preferred stock allocated to employee ESOP
accounts during the applicable period, which is a non-cash charge
to our earnings. We have also made adjustments to the weighted
average common shares outstanding – Basic to assume (1) share
conversion of the Redeemable convertible preferred stock
outstanding shares to common stock and (2) add shares of
outstanding unvested restricted stock. Adjusted Earnings Per Fully
Converted Share (non-GAAP) is a key metric used by management and
our board of directors to assess our financial performance. This
information is useful to investors as the preferred shares held by
the ESOP are required to be distributed to our employees over time,
which is done in the form of common stock after the conversion of
the preferred shares. As such, this measure is included because it
provides investors with information to understand the impact on the
financial statements once all preferred shares are converted and
distributed.
The following tables present a reconciliation of Adjusted EBITDA
to Net Income, Free Cash Flow to Cash Flow from Operating
Activities, and Adjusted Earnings Per Fully Converted Share to Net
income per share – Basic, the most comparable GAAP measures, for
each of the periods indicated:
Reconciliation of Adjusted EBITDA to
Net Income
Three Months Ended June 30,
(Amounts in thousands) 2016 2015 Net
income $ 25,351 $ 12,912
Depreciation and amortization 18,026 18,639 Interest expense 4,784
4,286 Income tax expense 16,909 8,148 EBITDA 65,070
43,985 Derivative fair value adjustments (4,907) 3,761 Foreign
currency transaction (gains) losses (1,762) 317 Loss on disposal of
assets or businesses 202 866
Unconsolidated affiliates interest, tax,
depreciation and amortization
778 870 Contingent consideration remeasurement 24 55 Stock-based
compensation 454 725 ESOP deferred stock-based compensation 2,738
3,125 Restatement-related costs 9,212 -
Adjusted
EBITDA $ 71,809 $ 53,704
Reconciliation of Segment Adjusted
EBITDA to Net Income
Three Months Ended June 30,
2016 2015
(Amounts in thousands) Domestic
International
Domestic International
Net income $ 23,634
$ 1,717
$ 5,571 $
7,341 Depreciation and amortization 15,678 2,348
16,417 2,222 Interest expense 4,673 111 4,037 249 Income tax
expense 14,868
2,041 7,094
1,054 EBITDA 58,853 6,217 33,119 10,866
Derivative fair value adjustments (4,907) - 3,721 40
Foreign currency transaction (gains)
losses
- (1,762) - 317
Loss on disposal of assets or
businesses
270 (68) 1,052 (186)
Unconsolidated affiliates interest, tax,
depreciation and amortization
279 499 286 584
Contingent consideration remeasurement
24 - 55 - Stock-based compensation 454 - 725 -
ESOP deferred stock-based compensation
2,738 - 3,125 - Restatement- related costs
9,212 -
- -
Adjusted EBITDA $ 66,923
$ 4,886
$ 42,083 $
11,621
Reconciliation of Free Cash Flow to
Cash flow from Operating Activities
Three Months Ended June 30,
(Amounts in thousands) 2016
2015 Cash flow from
operating activities $ (132) $ (18,142) Capital
expenditures (12,595) (11,535)
Free cash flow $ (12,727) $
(29,677)
Reconciliation of Adjusted Earnings Per
Fully Converted Share (non-GAAP) to Net Income per Share -
Basic
Three Months Ended June 30, (Amounts
in thousands, except per share data) 2016
2015 Net income available to
common stockholders $ 21,270 $
10,465 Weighted average common shares outstanding -
Basic 54,534 53,623 Net income per share –
Basic 0.39 0.20 Adjustments to net income
available to common stockholders: Accretion of Redeemable
non-controlling interest in subsidiaries 362 - Dividends to
Redeemable convertible preferred stockholders 426 371 Dividends
paid to unvested restricted stockholders 3 6 Undistributed income
allocated to participating securities 2,142
982
Total adjustments to net income available
to common stockholders
2,933 1,359 Net income attributable to
ADS $ 24,203 $ 11,824 Adjustments to net income
attributable to ADS:
Fair value of ESOP compensation related to
Redeemable convertible preferred stock
2,738 3,125
Adjusted net income —
(Non-GAAP) $ 26,941 $ 14,949
Weighted Average Common Shares Outstanding — Basic 54,534
53,623
Adjustments to weighted average common
shares outstanding — Basic
Unvested restricted shares 79 148 Redeemable convertible preferred
shares 19,065 19,693
Weighted
Average Fully Converted Common Shares (Non-GAAP)
73,678 73,464 Adjusted
Earnings per Fully Converted Share (Non-GAAP) $
0.37 $ 0.20
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version on businesswire.com: http://www.businesswire.com/news/home/20161006005316/en/
Advanced Drainage Systems, Inc.Michael Higgins,
614-658-0050Mike.Higgins@ads-pipe.com
Advanced Drainage Systems (NYSE:WMS)
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