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 second quarter ended September 30, 2016.
Second Fiscal Quarter 2017
Highlights
- Net sales decreased 6% to $361
million
- Net income increased 52% to $24
million
- Adjusted EBITDA (Non-GAAP) increased
3% to $66 million
Year-to-Date 2017
Highlights
- Net sales decreased 2% to $718
million
- Net income increased 52% to $44
million
- Adjusted EBITDA (Non-GAAP) increased
18% to $137 million
- Cash flow from operating activities
increased 169% to $46 million
- Free cash flow (Non-GAAP) improved
to $22 million as compared to a use of $5 million
Joe Chlapaty, Chairman and Chief Executive Officer of ADS
commented, “We are pleased with our success in managing our costs
and operations amidst soft market conditions. Second quarter net
sales declined as expected due to relatively flat core domestic
construction growth and continued weakness in Mexico and the
agriculture market. Despite the market conditions, we were still
able to improve our gross margins, Adjusted EBITDA and cash flow.
Free cash flow generation should remain strong in the second half
of fiscal 2017, which will provide us additional avenues to create
shareholder value including investing in our business, making
selective acquisitions and returning cash to our shareholders.”
Chlapaty continued, “We anticipate that market headwinds will
persist for the remainder of fiscal year 2017. However, the
long-term underlying fundamentals of our business are strong and we
remain confident that we will capitalize on our conversion
opportunities that will enable us to continue outpacing market
growth.”
Second Fiscal Quarter 2017
Results
Net sales decreased $22.5 million, or 5.9%, to $360.8 million
for the fiscal second quarter 2017, compared to $383.3 million in
the prior fiscal second quarter. The decrease in net sales was
primarily due to a weaker than anticipated domestic construction
market and continued softness in the domestic agriculture market
and Mexico.
Gross profit increased $4.0 million, or 4.6%, to $90.5 million
for the fiscal second quarter 2017, compared to $86.5 million in
the prior fiscal second quarter. As a percentage of net sales,
gross profit improved to 25.1%, compared to 22.6%, in the prior
fiscal second quarter. The increase in gross profit was largely
attributed to lower raw material costs and good price
management.
The Company reported Adjusted EBITDA (Non-GAAP) of $65.6 million
in the fiscal second quarter 2017 compared to Adjusted EBITDA of
$63.7 million in the prior fiscal second quarter, an increase of
2.9%. As a percentage of net sales, Adjusted EBITDA improved to
18.2% for the fiscal second quarter 2017 compared to 16.6% in the
prior fiscal second quarter. 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 second quarter 2017 was $0.35 per share based on weighted
average fully converted shares of 73.4 million, improved from an
Adjusted Earnings Per Fully Converted Share of $0.21 per share for
the prior fiscal second 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 half 2017, the Company recorded net cash
provided by operating activities of $45.6 million compared to $16.9
million for the same period last year. Net debt (total debt and
capital lease obligations net of cash) was $420.2 million as of
September 30, 2016, a decrease of $75.0 million from September 30,
2015.
Fiscal Year 2017 Outlook
Based on current visibility, backlog of existing orders and
business trends, the Company has revised its net sales and Adjusted
EBITDA targets for fiscal 2017. Net sales are now expected to be in
the range of $1.225 billion to $1.250 billion with Adjusted EBITDA
between $190 and $210 million for fiscal year 2017. The revised
guidance is predicated on the belief that end market performance
will be slightly lower than previously expected for fiscal year
2017. The table below illustrates the expected change in end market
performance.
End Market Previous Outlook Current
Outlook Domestic Construction Up 0% to 4% Up 0%
to 2% Agriculture Down 15% to 25% Down 20% to 25%
International Down 5% to 15% Down 10% to 15%
Scott Cottrill, Executive Vice President and Chief Financial
Officer of ADS, commented, “Our revised expectations reflect
preliminary net sales performance for the fiscal third quarter, as
well as a more conservative view on the fiscal fourth quarter due
primarily to the uncertainty of weather trends. Additionally, our
revised forecast has been calibrated to align with current end
market performance including lower than anticipated growth in our
domestic construction markets and continued weakness in our
agriculture end market and Mexico. While the market environment has
been softer than expected, we continue to outpace market growth in
our core construction markets, our gross and Adjusted EBITDA
margins continue to expand and our profitability and cash flow
remain healthy.”
Webcast Information
The Company will host an investor conference call and webcast on
Thursday, January 12, 2017 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
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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Six Months Ended
September 30, September 30, (Amounts in thousands,
except per share data)
2016 2015 2016
2015 Net sales $ 360,785 $ 383,329 $ 718,361 $
732,453 Cost of goods sold 270,273 296,800
531,243 571,447 Gross profit
90,512 86,529 187,118 161,006 Operating expenses: Selling 23,210
22,594 47,440 43,821 General and administrative 21,181 25,673
55,710 44,358 Loss on disposal of assets or businesses 737 295 939
1,161 Intangible amortization 2,128 2,341
4,315 4,867 Income from
operations 43,256 35,626 78,714 66,799 Other expense: Interest
expense 4,546 4,947 9,330 9,233 Derivative (gains) losses and other
(income) expense, net (1,734 ) 9,192
(4,771 ) 15,772 Income before income taxes 40,444
21,487 74,155 41,794 Income tax expense 15,348 5,187 29,542 13,066
Equity in net loss of unconsolidated affiliates 815
372 911 18 Net income
24,281 15,928 43,702 28,710 Less net income attributable to
noncontrolling interest 547 3,582
1,695 4,670 Net income attributable to
ADS 23,734 12,346 42,007
24,040 Accretion of Redeemable noncontrolling
interest (380 ) (257 ) (742 ) (257 ) Dividends to Redeemable
convertible preferred
stockholders
(415 ) (362 ) (840 ) (733 ) Dividends paid to unvested restricted
stockholders (24 ) (6 ) (54 ) (12 ) Net
income available to common stockholders and participating
securities 22,915 11,721 40,371 23,038 Undistributed income
allocated to participating securities (2,040 ) (980 )
(3,563 ) (1,949 )
Net income available to common
stockholders $ 20,875 $
10,741 $ 36,808 $
21,089 Weighted average common shares
outstanding: Basic 54,429 53,882 54,250 53,753 Diluted 55,276
55,194 55,115 55,093
Net income per share: Basic $ 0.38 $
0.20 $ 0.68 $ 0.39 Diluted $ 0.38 $ 0.19 $ 0.67 $ 0.38
Cash
dividends declared per share $ 0.06 $ 0.05 $ 0.12 $ 0.10
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
As of: (Amounts in thousands) September 30,
2016 March 31, 2016 ASSETS Current
assets: Cash $ 8,804 $ 6,555 Receivables 215,294 186,883
Inventories 223,226 230,466 Deferred income taxes and other current
assets 7,573 15,658 Total current
assets 454,897 439,562 Property, plant and equipment, net 397,409
391,744
Other assets: Goodwill 100,696 100,885 Intangible
assets, net 55,682 59,869 Other assets 46,195
45,256
Total assets $ 1,054,879
$ 1,037,316 LIABILITIES, MEZZANINE
EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities:
Current maturities of debt obligations $ 36,497 $ 35,870 Current
maturities of capital lease obligations 20,640 19,231 Accounts
payable 95,437 119,606 Current portion of liability-classified
stock-based awards 14,344 10,118 Other accrued liabilities 59,582
65,099 Accrued income taxes 10,726 2,260
Total current liabilities 237,226 252,184 Long-term debt
obligation 312,712 312,214 Long-term capital lease obligations
59,170 56,809 Deferred tax liabilities 54,602 63,952 Other
liabilities 34,547 37,921 Total
liabilities 698,257 723,080
Mezzanine equity: Redeemable
convertible preferred stock 305,361 310,240 Deferred compensation —
unearned ESOP shares (202,008 ) (205,664 ) Redeemable
noncontrolling interest in subsidiaries 8,415
7,171 Total mezzanine equity 111,768 111,747
Stockholders’ equity: Common stock 12,393 12,393 Paid-in
capital 748,177 739,097 Common stock in treasury, at cost (438,404
) (440,995 ) Accumulated other comprehensive loss (24,362 ) (21,261
) Retained deficit (67,109 ) (101,778 ) Total ADS
stockholders’ equity 230,695 187,456 Noncontrolling interest in
subsidiaries 14,159 15,033 Total
stockholders’ equity 244,854 202,489
Total liabilities, mezzanine equity and stockholders’ equity
$ 1,054,879 $ 1,037,316
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended September 30, (Amounts in thousands)
2016 2015 Cash Flow from Operating
Activities $ 45,576 $ 16,924
Cash Flows from
Investing Activities Capital expenditures (23,796 ) (21,534 )
Cash paid for acquisitions, net of cash acquired - (3,188 )
Proceeds from note receivable to related party - 3,854 Issuance of
note receivable to related party - (3,854 ) Other investing
activities (622 ) (378 ) Net cash used in investing
activities (24,418 ) (25,100 )
Cash Flows from Financing
Activities Proceeds from Revolving Credit Facility 235,600
252,800 Payments on Revolving Credit Facility (207,900 ) (223,000 )
Payments on Term Loan (5,000 ) (3,750 ) Payments on Senior Notes
(25,000 ) - Proceeds from notes, mortgages, and other debt - 6,682
Payments on notes, mortgages, and other debt (430 ) (7,092 )
Payments on capital lease obligation (10,810 ) (10,247 ) Cash
dividends paid (7,338 ) (8,173 ) Proceeds from exercise of stock
options 2,687 823 Other financing activities (620 )
(369 ) Net cash (used in) provided by financing activities (18,811
) 7,674 Effect of exchange rates changes on cash (98
) 360 Net change in cash 2,249 (142 ) Cash at
beginning of period 6,555 3,623
Cash
at end of period $ 8,804 $
3,481
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 Six Months
Ended September 30, September 30, (Amounts in
thousands)
2016 2015 2016
2015 Net income $ 24,281 $ 15,928 $ 43,702 $ 28,710
Depreciation and amortization 18,010 17,367 36,036 34,751 Interest
expense 4,546 4,947 9,330 9,233 Income tax expense 15,348
5,187 29,542 13,066
EBITDA 62,185 43,429 118,610 85,760 Derivative fair value
adjustments (4,153 ) 5,773 (9,060 ) 9,534 Foreign currency
translation losses (gains) 685 (151 ) (1,077 ) 166 Loss on disposal
of assets or business 737 295 939 1,161 Unconsolidated affiliates
interest, tax, depreciation and
amortization
802 769 1,580 1,638 Contingent consideration remeasurement 33 45 57
100 Stock-based compensation (benefit) expense (2,908 ) 1,170 6,112
2,212 ESOP deferred stock-based compensation 2,368 3,125 5,105
6,250 Expense related to executive termination payments 79 82 158
164 Restatement-related costs 5,773 8,710 14,985 8,710 Loss related
to BaySaver acquisition - 490 -
490
Adjusted EBITDA $ 65,601 $ 63,737
$ 137,409 $ 116,185
Reconciliation of Segment Adjusted
EBITDA to Net Income
Three Months Ended September 30, 2016
2015 (Amounts in thousands)
Domestic
International Domestic International
Net income $ 21,049 $ 3,232 $ 8,641 $ 7,287 Depreciation and
amortization 15,829 2,181 15,243 2,124 Interest expense 4,436 110
4,901 46 Income tax expense (benefit) 13,824
1,524 6,703 (1,516 ) EBITDA 55,138 7,047 35,488 7,941
Derivative fair value adjustments (4,153 ) - 5,784 (11 ) Foreign
currency translation losses (gains) - 685 - (151 ) Loss on disposal
of assets or business 512 225 289 6 Unconsolidated affiliates
interest, tax,
depreciation and amortization
272 530 260 509 Contingent consideration remeasurement 33 - 45 -
Stock-based compensation (benefit) expense (2,908 ) - 1,170 - ESOP
deferred stock-based compensation 2,368 - 3,125 - Expense related
to executive termination payments 79 - 82 - Restatement-related
costs 5,773 - 8,710 - Loss related to BaySaver acquisition -
- 490 -
Adjusted EBITDA $
57,114 $ 8,487 $ 55,443 $ 8,294
Six Months
Ended September 30, 2016 2015 (Amounts in
thousands)
Domestic International
Domestic International Net income $
36,471 $ 7,231 $ 14,221 $ 14,489 Depreciation and amortization
31,507 4,529 30,405 4,346 Interest expense 9,109 221 8,938 295
Income tax expense (benefit) 25,977 3,565
13,529 (463 ) EBITDA 103,064 15,546 67,093
18,667 Derivative fair value adjustments (9,060 ) - 9,506 28
Foreign currency translation (gains) losses - (1,077 ) - 166 Loss
on disposal of assets or business 782 157 1,341 (180 )
Unconsolidated affiliates interest, tax, depreciation and
amortization 551 1,029 546 1,092 Contingent consideration
remeasurement 57 - 100 - Stock-based compensation expense 6,112 -
2,212 - ESOP deferred stock-based compensation 5,105 - 6,250 -
Expense related to executive termination payments 158 - 164 -
Restatement-related costs 14,985 - 8,710 - Loss related to BaySaver
acquisition - - 490 -
Adjusted EBITDA $ 121,754 $ 15,655 $
96,412 $ 19,773
Reconciliation of Free Cash Flow to
Cash flow from Operating Activities
Six Months Ended September 30, (Amounts
in thousands)
2016 2015 Cash flow from
operating activities $ 45,576 $ 16,924 Capital expenditures
(23,796 ) (21,534 )
Free cash flow $ 21,780
$ (4,610 )
Reconciliation of Adjusted Earnings Per
Fully Converted Share (non-GAAP) to Net Income per Share -
Basic
Three Months Ended Six Months
Ended September 30, September 30, (Amounts in
thousands, except per share data)
2016 2015
2016 2015 Net income available to common
stockholders $ 20,875 $ 10,741
$ 36,808 $ 21,089 Weighted average
common shares outstanding - Basic 54,429 53,882
54,250 53,753 Net income per share – Basic
0.38 0.20 0.68 0.39 Adjustments to net
income available to common stockholders: Accretion of Redeemable
non-controlling interest in subsidiaries 380 257 742 257 Dividends
to Redeemable convertible preferred stockholders 415 362 840 733
Dividends paid to unvested restricted stockholders 24 6 54 12
Undistributed income allocated to participating securities
2,040 980 3,563 1,949 Total adjustments to net
income available to common stockholders 2,859 1,605
5,199 2,951 Net income attributable to ADS $ 23,734 $
12,346 $ 42,007 $ 24,040 Adjustments to net income attributable to
ADS: Fair value of ESOP compensation related to Redeemable
convertible preferred stock 1,946 3,125 4,683
6,250
Adjusted net income — (Non-GAAP) $
25,680 $ 15,471 $ 46,690
$ 30,290 Weighted Average Common Shares Outstanding —
Basic 54,429 53,882 54,250 53,753 Adjustments to weighted average
common shares outstanding — Basic Unvested restricted shares 56 117
67 132 Redeemable convertible preferred shares 18,901
19,504 18,983 19,598
Weighted Average Fully
Converted Common Shares (Non-GAAP) 73,386 73,503
73,300 73,483 Adjusted Earnings per Fully
Converted Share (Non-GAAP) $ 0.35 $
0.21 $ 0.64 $ 0.41
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170112005261/en/
Advanced Drainage Systems, Inc.Michael Higgins,
614-658-0050Mike.higgins@ads-pipe.com
Advanced Drainage Systems (NYSE:WMS)
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