Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the
“Company”), a leading provider of innovative water management
solutions in the stormwater and on-site septic waste water
industries today announced financial results for the fiscal first
quarter ended June 30, 2021.
First Quarter Fiscal 2022
Results
- Net sales increased 31.6% to $669.3 million
- Net income increased 9.1% to $77.1 million
- Adjusted EBITDA (Non-GAAP) increased 4.5% to $166.6
million
- Cash provided by operating activities of $104.3
million
- Free cash flow (Non-GAAP) of $78.8 million
Scott Barbour, President and Chief Executive Officer of ADS
commented, “We achieved a record $669 million in sales in the first
quarter driven by strong demand across our product portfolio and
geographic footprint, particularly in priority states such as
Florida, Texas, North Carolina and South Carolina. Overall, the 32%
growth was driven by both ADS and Infiltrator, with favorable
pricing slightly outpacing volume growth.”
Barbour continued, “Our favorable demand trends and strong
top-line growth were matched with inflationary cost pressure on
materials, transportation and labor that proved to be more
significant than initially anticipated. Over the near term, we will
continue to raise pricing in the marketplace and leverage our
productivity improvement initiatives and synergy programs to offset
these pressures on a dollar basis. Over the longer term, we remain
confident in our ability to continue expanding margins through our
traditional profitability levers.”
“Importantly, the momentum underpinning the core drivers of our
business remain strong. We will continue executing on our material
conversion and water management solutions strategies to generate
above-market growth. We are also well positioned to capitalize on
growing residential development and horizontal construction, and
our planned capital investments will increase capacity, support
growth, and improve productivity through the end of the fiscal year
and beyond.”
Barbour concluded, “Finally, we remain confident in our outlook
for the fiscal year as our demand, backlog and pricing remain
favorable, giving us confidence in our increased sales targets as
well as our Adjusted EBITDA guidance for the year.”
First Quarter Fiscal 2022
Results
Net sales increased $160.7 million, or 31.6%, to $669.3 million,
as compared to $508.6 million in the prior year. Domestic pipe
sales increased $100.4 million, or 36.7%, to $374.0 million.
Domestic allied products & other sales increased $10.1 million,
or 8.7%, to $127.0 million. Infiltrator sales increased $24.6
million, or 24.1%, to $126.7 million. These increases were driven
by double-digit sales growth in both the U.S. construction and
agriculture end markets. International sales increased $29.5
million, or 82.4%, to $65.4 million, driven by double-digit sales
growth in the Canadian, Mexican and Exports businesses.
Gross profit increased $12.6 million, or 6.7%, to $201.1 million
as compared to $188.5 million in the prior year. The increase is
primarily due an increase in sales volume and pricing on pipe,
on-site septic and allied products. These increases were partially
offset by inflationary cost pressure on materials, transportation
and labor.
Adjusted EBITDA (Non-GAAP) increased $7.1 million, or 4.5%, to
$166.6 million, as compared to $159.5 million in the prior year.
The increase is primarily due to the factors mentioned above. As a
percentage of net sales, Adjusted EBITDA was 24.9% as compared to
31.4% 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 $104.3 million, as
compared to $133.7 million in the prior year. Free cash flow
(Non-GAAP) was $78.8 million, as compared to $123.4 million in the
prior year. Net debt (total debt and finance lease obligations net
of cash) was $698.9 million as of June 30, 2021, an increase of
$52.4 million from March 31, 2021.
ADS had total liquidity of $480 million, comprised of cash of
$143 million as of June 30, 2021 and $337 million of availability
under committed credit facilities. As of June 30, 2021, the
Company’s leverage ratio was 1.2 times.
In the three months ended June 30, 2021, the Company repurchased
1.1 million shares of its common stock for a total cost of $115.4
million. As of June 30, 2021, the Company had approximately $176.7
million available under its existing share repurchase
authorization.
Fiscal 2022 Outlook
Based on current visibility, backlog of existing orders and
business trends, the Company raised its net sales targets for
fiscal 2022. Net sales are now expected to be in the range of $2.5
billion to $2.6 billion. Adjusted EBITDA is unchanged and expected
to be in the range of $635 to $665 million. Capital expenditures
are expected to be in the range of $130 million to $150
million.
Webcast Information
The live webcast will be accessible via the "Events Calendar”
section of the Company’s Investor Relations website,
www.investors.ads-pipe.com. Participants may also Register Here for
this conference call or copy and paste the following text into your
browser: http://www.directeventreg.com/registration/event/2558055.
After registering, participants will receive a confirmation through
email, including dial in details and unique conference call codes
for entry. Registration is open through the live call. To ensure
participants are connected for the full call, please register at
least 10 minutes before the start of the call. An archived version
of the webcast will be available following the call.
About the Company
Advanced Drainage Systems is a leading provider of innovative
water management solutions in the stormwater and on-site septic
wastewater industries, providing superior drainage solutions for
use in the construction and agriculture marketplace. For over 50
years, the Company has been manufacturing a variety of innovative
and environmentally friendly alternatives to traditional materials.
Its innovative products are used across a broad range of end
markets and applications, including non-residential, residential,
infrastructure and agriculture applications. The Company has
established a leading position in many of these end markets by
leveraging its national sales and distribution platform, overall
product breadth and scale and manufacturing excellence. Founded in
1966, the Company operates a global network of approximately 60
manufacturing plants and 30 distribution centers. To learn more
about ADS, please visit the Company’s website at
www.adspipe.com.
Forward Looking
Statements
Certain statements in this press release may be deemed to be
forward-looking statements. These statements are not historical
facts but rather are based on the Company’s current expectations,
estimates and projections regarding the Company’s business,
operations and other factors relating thereto. Words such as “may,”
“will,” “could,” “would,” “should,” “anticipate,” “predict,”
“potential,” “continue,” “expects,” “intends,” “plans,” “projects,”
“believes,” “estimates,” “confident” and similar expressions are
used to identify these forward-looking statements. Factors that
could cause actual results to differ from those reflected in
forward-looking statements relating to our operations and business
include: fluctuations in the price and availability of resins and
other raw materials and our ability to pass any increased costs of
raw materials on to our customers in a timely manner; volatility in
general business and economic conditions in the markets in which we
operate, including the adverse impact on the U.S. and global
economy of the COVID-19 global pandemic, and the impact of COVID-19
in the near, medium and long-term on our business, results of
operations, financial position, liquidity or cash flows, and other
limitation factors relating to availability of credit, interest
rates, fluctuations in capital and business and consumer
confidence; cyclicality and seasonality of the non-residential and
residential construction markets and infrastructure spending; the
risks of increasing competition in our existing and future markets,
including competition from both manufacturers of high performance
thermoplastic corrugated pipe and manufacturers of products using
alternative materials, and our ability to continue to convert
current demand for concrete, steel and PVC pipe products into
demand for our high performance thermoplastic corrugated pipe and
Allied Products; uncertainties surrounding the integration and
realization of anticipated benefits of acquisitions and similar
transactions, including Infiltrator Water Technologies; the effect
of weather or seasonality; the loss of any of our significant
customers; the risks of doing business internationally; the risks
of conducting a portion of our operations through joint ventures;
our ability to expand into new geographic or product markets,
including risks associated with new markets and products associated
with our recent acquisition of Infiltrator Water Technologies; our
ability to achieve the acquisition component of our growth
strategy; the risk associated with manufacturing processes; our
ability to manage our assets; the risks associated with our product
warranties; our ability to manage our supply purchasing and
customer credit policies; our ability to control labor costs and to
attract, train and retain highly-qualified employees and key
personnel; our ability to protect our intellectual property rights;
changes in laws and regulations, including environmental laws and
regulations; the risks associated with our current levels of
indebtedness, including borrowings under our existing credit
agreement and outstanding indebtedness under our existing senior
notes; fluctuations in our effective tax rate, including from the
Tax Cuts and Jobs Act of 2017; our ability to meet future capital
requirements and fund our liquidity needs; and other risks and
uncertainties described in the Company’s filings with the SEC. New
risks and uncertainties emerge from time to time and it is not
possible for the Company to predict all risks and uncertainties
that could have an impact on the forward-looking statements
contained in this press release. In light of the significant
uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as
a representation by the Company or any other person that the
Company’s expectations, objectives or plans will be achieved in the
timeframe anticipated or at all. Investors are cautioned not to
place undue reliance on the Company’s forward-looking statements
and the Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
Financial
Statements
ADVANCED DRAINAGE SYSTEMS,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INCOME
(unaudited)
Three Months Ended
June 30,
(Amounts in thousands, except per share
data)
2021
2020
Net sales
$
669,300
$
508,639
Cost of goods sold
468,179
320,136
Gross profit
201,121
188,503
Operating expenses:
Selling, general and administrative
76,221
61,776
(Gain) loss on disposal of assets and
costs from exit and disposal activities
(11
)
1,647
Intangible amortization
15,645
17,982
Income from operations
109,266
107,098
Other expense:
Interest expense
7,907
9,970
Derivative gains and other income, net
(2,014
)
(567
)
Income before income taxes
103,373
97,695
Income tax expense
26,455
27,200
Equity in net income of unconsolidated
affiliates
(205
)
(173
)
Net income
77,123
70,668
Less: net income attributable to
noncontrolling interest
1,136
202
Net income attributable to ADS
75,987
70,466
Dividends paid to participating
securities
(1,635
)
(1,368
)
Net income available to common
stockholders and participating securities
74,352
69,098
Undistributed income allocated to
participating securities
(10,933
)
(11,242
)
Net income available to common
stockholders
$
63,419
$
57,856
Weighted average common shares
outstanding:
Basic
71,534
69,380
Diluted
73,124
70,126
Net income per share:
Basic
$
0.89
$
0.83
Diluted
$
0.87
$
0.83
Cash dividends declared per
share
$
0.11
$
0.09
ADVANCED DRAINAGE SYSTEMS,
INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(unaudited)
As of
(Amounts in thousands)
June 30, 2021
March 31, 2021
ASSETS
Current assets:
Cash
$
142,833
$
195,009
Receivables, net
303,736
236,191
Inventories
330,713
300,961
Other current assets
18,314
10,817
Total current assets
795,596
742,978
Property, plant and equipment, net
518,229
504,275
Other assets:
Goodwill
599,255
599,072
Intangible assets, net
466,384
482,016
Other assets
95,154
85,491
Total assets
$
2,474,618
$
2,413,832
LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt obligations
$
7,000
$
7,000
Current maturities of finance lease
obligations
18,934
19,318
Accounts payable
229,300
171,098
Other accrued liabilities
124,081
116,151
Accrued income taxes
28,135
4,703
Total current liabilities
407,450
318,270
Long-term debt obligations, net
780,565
782,220
Long-term finance lease obligations
35,241
32,964
Deferred tax liabilities
162,988
162,185
Other liabilities
62,480
54,767
Total liabilities
1,448,724
1,350,406
Mezzanine equity:
Redeemable convertible preferred stock
228,532
240,944
Deferred compensation — unearned ESOP
shares
(8,942
)
(11,033
)
Total mezzanine equity
219,590
229,911
Stockholders’ equity:
Common stock
11,589
11,578
Paid-in capital
950,963
918,587
Common stock in treasury, at cost
(139,313
)
(10,959
)
Accumulated other comprehensive loss
(22,794
)
(24,220
)
Retained deficit
(8,666
)
(75,202
)
Total ADS stockholders’ equity
791,779
819,784
Noncontrolling interest in
subsidiaries
14,525
13,731
Total stockholders’ equity
806,304
833,515
Total liabilities, mezzanine equity and
stockholders’ equity
$
2,474,618
$
2,413,832
ADVANCED DRAINAGE SYSTEMS,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
Three Months Ended June
30,
(Amounts in thousands)
2021
2020
Cash Flow from Operating
Activities
Net income
$
77,123
$
70,668
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
34,656
35,781
Deferred income taxes
64
(2,357
)
(Gain) loss on disposal of assets and
costs from exit and disposal activities
(11
)
1,647
ESOP and stock-based compensation
20,806
12,462
Amortization of deferred financing
charges
95
98
Fair market value adjustments to
derivatives
(675
)
(1,082
)
Equity in net income of unconsolidated
affiliates
(205
)
(173
)
Other operating activities
450
269
Changes in working capital:
Receivables
(67,388
)
(42,093
)
Inventories
(28,985
)
44,140
Prepaid expenses and other current
assets
(7,442
)
(3,520
)
Accounts payable, accrued expenses, and
other liabilities
75,860
17,893
Net cash provided by operating
activities
104,348
133,733
Cash Flows from Investing
Activities
Capital expenditures
(25,546
)
(10,295
)
Other investing activities
53
435
Net cash used in investing activities
(25,493
)
(9,860
)
Cash Flows from Financing
Activities
Payments on syndicated Term Loan
Facility
(1,750
)
(1,750
)
Payments on Revolving Credit Agreement
-
(50,000
)
Payments on finance lease obligations
(5,379
)
(5,700
)
Repurchase of common stock
(102,013
)
-
Dividends paid to noncontrolling interest
holder
(957
)
-
Cash dividends paid
(9,451
)
(7,737
)
Proceeds from exercise of stock
options
1,336
2,239
Share withholding for tax purposes
(12,976
)
-
Other financing activities
(131
)
-
Net cash used in financing activities
(131,321
)
(62,948
)
Effect of exchange rate changes on
cash
290
52
Net change in cash
(52,176
)
60,977
Cash at beginning of period
195,009
174,233
Cash at end of period
$
142,833
$
235,210
Selected Financial Data
The following tables set forth net sales by reportable segment
for each of the periods indicated.
Three Months Ended
June 30, 2021
June 30, 2020
Net Sales
Intersegment Net Sales
Net Sales from External
Customers
Net Sales
Intersegment Net Sales
Net Sales from External
Customers
Pipe
$
374,010
$
(1,903
)
$
372,107
$
273,652
$
(1,845
)
$
271,807
Infiltrator Water Technologies
126,742
(19,037
)
107,705
102,153
(18,068
)
84,085
International
International - Pipe
50,838
(2,914
)
47,924
26,950
—
26,950
International - Allied Products
14,528
—
14,528
8,879
—
8,879
Total International
65,366
(2,914
)
62,452
35,829
—
35,829
Allied Products & Other
127,036
—
127,036
116,918
—
116,918
Intersegment Eliminations
(23,854
)
23,854
—
(19,913
)
19,913
—
Total Consolidated
$
669,300
$
—
$
669,300
$
508,639
$
—
$
508,639
Employee Stock Ownership Plan (“ESOP”)
The Company established an ESOP to enable employees to acquire
stock ownership in ADS in the form of redeemable convertible
preferred shares (“preferred shares”). All preferred shares will be
converted to common shares by plan maturity, which will be no later
than March 2023. The ESOP’s conversion of preferred shares into
common shares will have a meaningful impact on net income, net
income per share and common shares outstanding. The common shares
outstanding will be greater after conversion.
Net Income (Loss)
The impact of the ESOP on net (loss) income includes the ESOP
deferred compensation attributable to the preferred shares
allocated to employee accounts during the period, which is a
non-cash charge to our earnings and not deductible for income tax
purposes.
Three Months Ended
June 30,
(Amounts in thousands)
2021
2020
Net income attributable to ADS
$
75,987
$
70,466
ESOP deferred stock-based compensation
$
14,155
$
6,863
Common shares outstanding
The conversion of the preferred shares will increase the number
of common shares outstanding. Preferred shares will convert to
common shares at plan maturity, or upon retirement, disability,
death or vested terminations over the life of the plan.
Three Months Ended
June 30,
(Shares in thousands)
2021
2020
Weighted average common shares outstanding
- Basic
71,534
69,380
Conversion of preferred shares
14,817
16,585
Unvested restricted shares
-
2
Non-GAAP Financial Measures
This press release contains financial information determined by
methods other than in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). ADS
management uses non-GAAP measures in its analysis of the Company’s
performance. Investors are encouraged to review the reconciliation
of non-GAAP financial measures to the comparable GAAP results
available in the accompanying tables.
Reconciliation of Non-GAAP Financial Measures
This press release includes references to organic results,
Adjusted EBITDA and Free Cash Flow, non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in
conjunction with results presented in accordance with GAAP. These
measures are not intended to be substitutes for those reported in
accordance with GAAP. Adjusted EBITDA and Free Cash Flow may be
different from non-GAAP financial measures used by other companies,
even when similar terms are used to identify such measures.
EBITDA and Adjusted EBITDA are non-GAAP financial measures that
comprise net income before interest, income taxes, depreciation and
amortization, stock-based compensation, non-cash charges and
certain other expenses. The Company’s definition of Adjusted EBITDA
may differ from similar measures used by other companies, even when
similar terms are used to identify such measures. Adjusted EBITDA
is a key metric used by management and the Company’s board of
directors to assess financial performance and evaluate the
effectiveness of the Company’s business strategies. Accordingly,
management believes that Adjusted EBITDA provides useful
information to investors and others in understanding and evaluating
our operating results in the same manner as the Company’s
management and board of directors. In order to provide investors
with a meaningful reconciliation, the Company has provided below
reconciliations of Adjusted EBITDA to net income.
Free Cash Flow is a non-GAAP financial measure that comprises
cash flow from operating activities less capital expenditures. Free
Cash Flow is a measure used by management and the Company’s board
of directors to assess the Company’s ability to generate cash.
Accordingly, management believes that Free Cash Flow provides
useful information to investors and others in understanding and
evaluating our ability to generate cash flow from operations after
capital expenditures. In order to provide investors with a
meaningful reconciliation, the Company has provided below a
reconciliation of cash flow from operating activities to Free Cash
Flow.
The following tables present a reconciliation of EBITDA and
Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from
Operating Activities, the most comparable GAAP measures, for each
of the periods indicated.
Reconciliation of Segment Adjusted Gross Profit to Gross
profit
Three Months Ended
June 30,
(Amounts in thousands)
2021
2020
Segment Adjusted Gross Profit
Pipe
$
84,143
$
90,599
International
21,378
11,408
Infiltrator Water Technologies
59,402
47,928
Allied Products & Other
63,299
60,468
Intersegment Elimination
(14
)
(358
)
Total Segment Adjusted Gross
Profit
228,208
210,045
Depreciation and amortization
17,532
16,423
ESOP and stock-based compensation
expense
9,555
4,939
COVID-19 related expenses
-
180
Total Gross Profit
$
201,121
$
188,503
Reconciliation of Adjusted EBITDA to Net Income
Three Months Ended
June 30,
(Amounts in thousands)
2021
2020
Net income
$
77,123
$
70,668
Depreciation and amortization
34,656
35,781
Interest expense
7,907
9,970
Income tax expense
26,455
27,200
EBITDA
146,141
143,619
Loss on disposal of assets and costs from
exit and disposal activities
(11
)
1,647
ESOP and stock-based compensation
expense
20,806
12,462
Transaction costs
43
656
Strategic growth and operational
improvement initiatives
-
1,755
COVID-19 related expenses (a)
-
564
Other adjustments(b)
(397
)
(1,233
)
Adjusted EBITDA
$
166,582
$
159,470
(a)
Includes expenses directly related to our
response to the COVID-19 pandemic, including adjustments to our
pandemic pay program and expenses associated with our 3rd party
crisis management vendor.
(b)
Includes derivative fair value
adjustments, foreign currency transaction (gains) losses, the
proportionate share of interest, income taxes, depreciation and
amortization related to the South American Joint Venture, which is
accounted for under the equity method of accounting and executive
retirement expense.
Reconciliation of Free Cash Flow to Cash flow from Operating
Activities
Three Months Ended June
30,
(Amounts in thousands)
2021
2020
Net cash flow from operating
activities
$
104,348
$
133,733
Capital expenditures
(25,546
)
(10,295
)
Free cash flow
$
78,802
$
123,438
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210805005199/en/
Michael Higgins VP, Corporate Strategy & Investor Relations
(614) 658-0050 Mike.Higgins@ads-pipe.com
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