Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Advanced Drainage Systems Announces Third Quarter Fiscal 2023 Results By: Advanced Drainage Systems, Inc. via Business Wire February 02, 2023 at 06:40 AM EST 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 third quarter ended December 31, 2022. Third Quarter Fiscal 2023 Results Net sales decreased 8.4% to $655.2 million Net income increased 11.7% to $83.2 million Adjusted EBITDA (Non-GAAP) decreased 3.6% to $169.7 million Year-to-Date Fiscal 2023 Results Net sales increased 17.3% to $2,453.6 million Net income increased 86.5% to $425.0 million Adjusted EBITDA (Non-GAAP) increased 44.2% to $732.0 million Cash provided by operating activities increased 240.7% to $660.4 million Free cash flow (Non-GAAP) increased $440.1 million to $533.6 million Scott Barbour, President and Chief Executive Officer of ADS commented, "The Company executed well in the fiscal third quarter despite a challenging demand environment. Through October and November, demand was largely in line with expectations, but in December domestic construction market demand slowed significantly. As a result, consolidated net sales declined 8% in the fiscal third quarter. The ADS business was down 3%, primarily due to weakness in the non-residential and retail businesses. The 30% decline in Infiltrator sales was a result of the lower residential market demand and inventory destocking, which completed in the fiscal third quarter as we previously communicated." Barbour continued, "Importantly, though we are facing a challenging demand environment, our market leading position, value proposition and execution enabled us to manage costs, maintain favorable price/material cost and generate significant cash flow. As a result, the Company’s Adjusted EBITDA margin expanded 130 basis points and free cash flow increased $440 million, or 370% over the prior year. It is also important to point out that Net Income increased 11.7%. As demonstrated with the margin performance in the fiscal third quarter, our business model remains resilient in a lower demand environment. Going forward, we expect annual margin performance to be consistent with what we communicated at Investor Day in March 2022." "As we look at the significant change in market dynamics that impact construction activity since the beginning of the fiscal year – interest rates nearly doubling and significant inflation – there is no doubt this is creating economic uncertainty. This combination has slowed down demand for the ADS and Infiltrator products. We expect the majority of calendar 2023 to remain a challenging demand environment." Barbour concluded, "The need for the water management solutions and services we provide is as relevant as ever. The Company’s industry leading water management products have significant competitive advantages that will continue to drive above market results. We will work through this period of lower demand by managing our costs, including reducing headcount and optimizing our network. The long-term fundamentals and position of both ADS and Infiltrator remain intact, and we will manage the business through the external conditions appropriately to continue delivering value to our customers and shareholders." Third Quarter Fiscal 2023 Results Net sales decreased $60.2 million, or 8.4%, to $655.2 million, as compared to $715.4 million in the prior year quarter. Domestic pipe sales decreased $24.3 million, or 6.1%, to $375.7 million. Domestic allied products & other sales increased $1.6 million, or 1.1%, to $149.0 million. Infiltrator sales decreased $44.8 million, or 30.1%, to $103.9 million. The decrease in domestic net sales was driven by sales in the U.S. construction end markets. International sales increased $3.1 million, or 5.6%, to $59.0 million, driven by growth in the Canadian and Mexican businesses. Gross profit increased $14.9 million, or 7.1%, to $223.9 million as compared to $209.0 million in the prior year. The increase in gross profit is primarily due to the favorable pricing on pipe, onsite septic and allied products as well as favorable material cost. This increase was partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs. Adjusted EBITDA (Non-GAAP) decreased $6.4 million, or 3.6%, to $169.7 million, as compared to $176.2 million in the prior year. The decrease is primarily due to the factors mentioned above, as well as an increase in selling, general and administrative expenses. As a percentage of net sales, Adjusted EBITDA was 25.9% as compared to 24.6% 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.” Year-to-Date Fiscal 2023 Results Net sales increased $362.4 million, or 17.3%, to $2,453.6 million, as compared to $2,091.1 million in the prior year quarter. Domestic pipe sales increased $243.0 million, or 21.0%, to $1,401.6 million. Domestic allied products & other sales increased $129.9 million, or 30.9%, to $550.2 million. Infiltrator sales decreased $0.4 million, or 0.1%, to $420.9 million. The increase in domestic net sales was driven by double-digit sales growth in the U.S. construction end markets. International sales increased $19.2 million, or 10.4%, to $203.9 million, driven by strong sales growth in the Canadian, Mexican and Exports businesses. Gross profit increased $285.8 million, or 46.8%, to $896.0 million as compared to $610.2 million in the prior year. The increase in gross profit is primarily due to the favorable pricing on pipe, onsite septic and allied products as well as favorable material cost. This increase was partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs. Adjusted EBITDA (Non-GAAP) increased $224.4 million, or 44.2%, to $732.0 million, as compared to $507.5 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 29.8% as compared to 24.3% in the prior year. Balance Sheet and Liquidity Net cash provided by operating activities was $660.4 million, as compared to $193.8 million in the prior year. Free cash flow (Non-GAAP) was $533.6 million, as compared to $93.5 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $882.1 million as of December 31, 2022, a decrease of $42.4 million from March 31, 2022. ADS had total liquidity of $1,017.1 million, comprised of cash of $426.7 million as of December 31, 2022 and $590.4 million of availability under committed credit facilities. As of December 31, 2022, the Company’s trailing-twelve-month leverage ratio was 1.0 times Adjusted EBITDA. In the nine months ended December 31, 2022, the Company repurchased 3.8 million shares of its common stock for a total cost of $375.0 million. As of December 31, 2022, approximately $625.0 million of common stock may be repurchased under the Company's existing share repurchase authorization. Fiscal 2023 Outlook Based on current visibility, backlog of existing orders and business trends, the Company updated its financial targets for fiscal 2023. Net sales are now expected to be in the range of $2.975 billion to $3.050 billion. Adjusted EBITDA is now expected to be in the range of $850 to $890 million. Capital expenditures are expected to be approximately $175 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://www.netroadshow.com/events/login?show=4a232ad6&confId=45958. 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 provides superior drainage solutions for use in a wide variety of markets and applications including commercial, residential, infrastructure and agriculture. ADS delivers tremendous service to its customers with the industry’s largest company-owned fleet, an expansive sales team, and a vast manufacturing network of approximately 70 manufacturing plants and 37 distribution centers. ADS is the largest plastic recycling company 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; the risks related to the COVID-19 pandemic or other pandemics in the future; 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; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; the risks of conducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets; the risk associated with manufacturing processes; the effect of global climate change; cybersecurity risks; our ability to manage our supply purchasing and customer credit policies; our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, including environmental laws and regulations; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; and other risks and uncertainties described in the Company’s filings with the SEC. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautioned not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Financial Statements ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended December 31, Nine Months Ended December 31, (In thousands, except per share data) 2022 2021 2022 2021 Net sales $ 655,167 $ 715,357 $ 2,453,562 $ 2,091,128 Cost of goods sold 431,250 506,380 1,557,575 1,480,973 Gross profit 223,917 208,977 895,987 610,155 Operating expenses: Selling, general and administrative 85,936 80,059 261,095 230,231 (Gain) loss on disposal of assets and costs from exit and disposal activities (348 ) 3,466 (147 ) 2,554 Intangible amortization 13,842 15,138 41,360 46,229 Income from operations 124,487 110,314 593,679 331,141 Other expense: Interest expense 20,001 8,756 49,334 25,100 Derivative gains and other income, net (4,125 ) (979 ) (5,632 ) (2,791 ) Income before income taxes 108,611 102,537 549,977 308,832 Income tax expense 26,068 28,792 128,641 82,063 Equity in net income of unconsolidated affiliates (639 ) (717 ) (3,705 ) (1,128 ) Net income 83,182 74,462 425,041 227,897 Less: net income attributable to noncontrolling interest 1,142 784 3,848 2,873 Net income attributable to ADS 82,040 73,678 421,193 225,024 Dividends to participating securities — (1,357 ) — (4,633 ) Net income available to common stockholders and participating securities 82,040 72,321 421,193 220,391 Undistributed income allocated to participating securities — (9,457 ) — (30,870 ) Net income available to common stockholders $ 82,040 $ 62,864 $ 421,193 $ 189,521 Weighted average common shares outstanding: Basic 82,067 71,267 82,891 71,087 Diluted 82,987 72,789 83,980 72,752 Net income per share: Basic $ 1.00 $ 0.88 $ 5.08 $ 2.67 Diluted $ 0.99 $ 0.86 $ 5.02 $ 2.61 Cash dividends declared per share $ 0.12 $ 0.11 $ 0.36 $ 0.33 ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) As of (Amounts in thousands) December 31, 2022 March 31, 2022 ASSETS Current assets: Cash $ 426,690 $ 20,125 Receivables, net 242,485 341,753 Inventories 459,029 494,324 Other current assets 29,162 15,696 Total current assets 1,157,366 871,898 Property, plant and equipment, net 685,496 619,383 Other assets: Goodwill 619,275 610,293 Intangible assets, net 421,450 431,385 Other assets 122,071 116,799 Total assets $ 3,005,658 $ 2,649,758 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Current maturities of debt obligations $ 15,601 $ 19,451 Current maturities of finance lease obligations 6,556 5,089 Accounts payable 174,106 224,986 Other accrued liabilities 170,549 134,877 Accrued income taxes 3,468 6,838 Total current liabilities 370,280 391,241 Long-term debt obligations, net 1,272,040 908,705 Long-term finance lease obligations 14,571 11,393 Deferred tax liabilities 163,259 168,435 Other liabilities 69,767 64,939 Total liabilities 1,889,917 1,544,713 Mezzanine equity: Redeemable common stock 157,128 — Redeemable convertible preferred stock — 195,384 Total mezzanine equity 157,128 195,384 Stockholders’ equity: Common stock 11,645 11,612 Paid-in capital 1,128,915 1,065,628 Common stock in treasury, at cost (719,702 ) (318,691 ) Accumulated other comprehensive loss (29,871 ) (24,386 ) Retained earnings 550,011 158,876 Total ADS stockholders’ equity 940,998 893,039 Noncontrolling interest in subsidiaries 17,615 16,622 Total stockholders’ equity 958,613 909,661 Total liabilities, mezzanine equity and stockholders’ equity $ 3,005,658 $ 2,649,758 ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended December 31, (Amounts in thousands) 2022 2021 Cash Flow from Operating Activities Net income $ 425,041 $ 227,897 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,346 103,687 Deferred income taxes (4,165 ) 6,243 (Gain) loss on disposal of assets and costs from exit and disposal activities (147 ) 2,554 ESOP and stock-based compensation 19,912 61,900 Amortization of deferred financing charges 909 286 Fair market value adjustments to derivatives 2,309 118 Equity in net income of unconsolidated affiliates (3,705 ) (1,128 ) Other operating activities 2,732 (9,898 ) Changes in working capital: Receivables 99,958 (59,821 ) Inventories 34,871 (161,878 ) Prepaid expenses and other current assets (4,532 ) (5,199 ) Accounts payable, accrued expenses, and other liabilities (20,091 ) 29,086 Net cash provided by operating activities 660,438 193,847 Cash Flows from Investing Activities Capital expenditures (126,858 ) (100,367 ) Acquisition, net of cash acquired (48,010 ) (49,210 ) Other investing activities 46 (463 ) Net cash used in investing activities (174,822 ) (150,040 ) Cash Flows from Financing Activities Payments on syndicated Term Loan Facility (5,250 ) (5,250 ) Proceeds from Revolving Credit Agreement 26,200 258,100 Payments on Revolving Credit Agreement (140,500 ) (124,600 ) Proceeds from Amended Revolving Credit Agreement 97,000 — Payments on Amended Revolving Credit Agreement (97,000 ) — Proceeds from Senior Notes due 2030 500,000 — Debt issuance costs (11,575 ) — Proceeds from Equipment Financing — 35,963 Payments on Equipment Financing (10,213 ) (1,177 ) Payments on finance lease obligations (4,954 ) (49,365 ) Repurchase of common stock (375,027 ) (292,000 ) Cash dividends paid (30,111 ) (27,826 ) Dividends paid to noncontrolling interest holder (3,652 ) (1,471 ) Proceeds from exercise of stock options 5,145 4,274 Payment of withholding taxes on vesting of restricted stock units (28,653 ) (13,055 ) Other financing activities — (167 ) Net cash used in financing activities (78,590 ) (216,574 ) Effect of exchange rate changes on cash (461 ) (69 ) Net change in cash 406,565 (172,836 ) Cash at beginning of period 20,125 195,009 Cash at end of period $ 426,690 $ 22,173 Selected Financial Data The following tables set forth net sales by reportable segment for each of the periods indicated. Three Months Ended December 31, 2022 December 31, 2021 (In thousands) Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 375,719 $ (10,839 ) $ 364,880 $ 400,027 $ (3,332 ) $ 396,695 Infiltrator 103,895 (14,961 ) 88,934 148,677 (26,314 ) 122,363 International International - Pipe 44,882 (5,311 ) 39,571 41,156 (5,700 ) 35,456 International - Allied Products & Other 14,075 — 14,075 14,687 — 14,687 Total International 58,957 (5,311 ) 53,646 55,843 (5,700 ) 50,143 Allied Products & Other 149,044 (1,337 ) 147,707 147,476 (1,320 ) 146,156 Intersegment Eliminations (32,448 ) 32,448 — (36,666 ) 36,666 — Total Consolidated $ 655,167 $ — $ 655,167 $ 715,357 $ — $ 715,357 Nine Months Ended December 31, 2022 December 31, 2021 Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 1,401,554 $ (31,483 ) $ 1,370,071 $ 1,158,558 $ (7,903 ) $ 1,150,655 Infiltrator 420,920 (66,317 ) 354,603 421,330 (67,763 ) 353,567 International International - Pipe 154,762 (18,509 ) 136,253 142,135 (13,784 ) 128,351 International - Allied Products & Other 49,172 — 49,172 42,648 — 42,648 Total International 203,934 (18,509 ) 185,425 184,783 (13,784 ) 170,999 Allied Products & Other 550,153 (6,690 ) 543,463 420,231 (4,324 ) 415,907 Intersegment Eliminations (122,999 ) 122,999 — (93,774 ) 93,774 — Total Consolidated $ 2,453,562 $ — $ 2,453,562 $ 2,091,128 $ — $ 2,091,128 Non-GAAP Financial Measures This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of the Company’s performance. Investors are encouraged to review the reconciliation of non-GAAP financial measures to the comparable GAAP results available in the accompanying tables. Reconciliation of Non-GAAP Financial Measures This press release includes references to organic results, Adjusted EBITDA and Free Cash Flow, non-GAAP financial measures. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for those reported in accordance with GAAP. Adjusted EBITDA and Free Cash Flow may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures. EBITDA and Adjusted EBITDA are non-GAAP financial measures that comprise net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. The Company’s definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board of directors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’s management and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of Adjusted EBITDA to net income. Free Cash Flow is a non-GAAP financial measure that comprises cash flow from operating activities less capital expenditures. Free Cash Flow is a measure used by management and the Company’s board of directors to assess the Company’s ability to generate cash. Accordingly, management believes that Free Cash Flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. In order to provide investors with a meaningful reconciliation, the Company has provided below a reconciliation of cash flow from operating activities to Free Cash Flow. The following tables present a reconciliation of EBITDA and Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from Operating Activities, the most comparable GAAP measures, for each of the periods indicated. Reconciliation of Adjusted Gross Profit to Gross Profit Three Months Ended December 31, Nine Months Ended December 31, (Amounts in thousands) 2022 2021 2022 2021 Segment Adjusted Gross Profit Pipe $ 106,279 $ 92,066 $ 421,011 $ 258,681 Infiltrator 46,497 60,546 193,569 178,795 International 13,342 13,240 51,456 49,695 Allied Products & Other 78,401 72,785 293,472 204,063 Intersegment Elimination 714 (44 ) 329 1,421 Total Segment Adjusted Gross Profit 245,233 238,593 959,837 692,655 Depreciation and amortization 20,573 18,042 61,675 52,824 ESOP and stock-based compensation 743 11,574 2,175 29,676 Total Gross Profit $ 223,917 $ 208,977 $ 895,987 $ 610,155 Reconciliation of Adjusted EBITDA to Net Income Three Months Ended December 31, Nine Months Ended December 31, (Amounts in thousands) 2022 2021 2022 2021 Net income $ 83,182 $ 74,462 $ 425,041 $ 227,897 Depreciation and amortization 35,846 34,837 107,346 103,687 Interest expense 20,001 8,756 49,334 25,100 Income tax expense 26,068 28,792 128,641 82,063 EBITDA 165,097 146,847 710,362 438,747 (Gain) loss on disposal of assets and costs from exit and disposal activities (348 ) 3,466 (147 ) 2,554 Stock-based compensation expense 6,179 6,242 19,912 18,511 ESOP compensation expense — 17,221 — 43,389 Transaction costs 1,334 2,145 3,417 3,022 Other adjustments(a) (2,525 ) 234 (1,562 ) 1,318 Adjusted EBITDA $ 169,737 $ 176,155 $ 731,982 $ 507,541 (a) Includes derivative fair value adjustments, foreign currency transaction (gains) losses, interest income, 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 Nine Months Ended December 31, (Amounts in thousands) 2022 2021 Net cash flow from operating activities $ 660,438 $ 193,847 Capital expenditures (126,858 ) (100,367 ) Free cash flow $ 533,580 $ 93,480 View source version on businesswire.com: https://www.businesswire.com/news/home/20230202005193/en/Contacts Michael Higgins VP, Corporate Strategy & Investor Relations (614) 658-0050 Michael.Higgins@adspipe.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Advanced Drainage Systems Announces Third Quarter Fiscal 2023 Results By: Advanced Drainage Systems, Inc. via Business Wire February 02, 2023 at 06:40 AM EST 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 third quarter ended December 31, 2022. Third Quarter Fiscal 2023 Results Net sales decreased 8.4% to $655.2 million Net income increased 11.7% to $83.2 million Adjusted EBITDA (Non-GAAP) decreased 3.6% to $169.7 million Year-to-Date Fiscal 2023 Results Net sales increased 17.3% to $2,453.6 million Net income increased 86.5% to $425.0 million Adjusted EBITDA (Non-GAAP) increased 44.2% to $732.0 million Cash provided by operating activities increased 240.7% to $660.4 million Free cash flow (Non-GAAP) increased $440.1 million to $533.6 million Scott Barbour, President and Chief Executive Officer of ADS commented, "The Company executed well in the fiscal third quarter despite a challenging demand environment. Through October and November, demand was largely in line with expectations, but in December domestic construction market demand slowed significantly. As a result, consolidated net sales declined 8% in the fiscal third quarter. The ADS business was down 3%, primarily due to weakness in the non-residential and retail businesses. The 30% decline in Infiltrator sales was a result of the lower residential market demand and inventory destocking, which completed in the fiscal third quarter as we previously communicated." Barbour continued, "Importantly, though we are facing a challenging demand environment, our market leading position, value proposition and execution enabled us to manage costs, maintain favorable price/material cost and generate significant cash flow. As a result, the Company’s Adjusted EBITDA margin expanded 130 basis points and free cash flow increased $440 million, or 370% over the prior year. It is also important to point out that Net Income increased 11.7%. As demonstrated with the margin performance in the fiscal third quarter, our business model remains resilient in a lower demand environment. Going forward, we expect annual margin performance to be consistent with what we communicated at Investor Day in March 2022." "As we look at the significant change in market dynamics that impact construction activity since the beginning of the fiscal year – interest rates nearly doubling and significant inflation – there is no doubt this is creating economic uncertainty. This combination has slowed down demand for the ADS and Infiltrator products. We expect the majority of calendar 2023 to remain a challenging demand environment." Barbour concluded, "The need for the water management solutions and services we provide is as relevant as ever. The Company’s industry leading water management products have significant competitive advantages that will continue to drive above market results. We will work through this period of lower demand by managing our costs, including reducing headcount and optimizing our network. The long-term fundamentals and position of both ADS and Infiltrator remain intact, and we will manage the business through the external conditions appropriately to continue delivering value to our customers and shareholders." Third Quarter Fiscal 2023 Results Net sales decreased $60.2 million, or 8.4%, to $655.2 million, as compared to $715.4 million in the prior year quarter. Domestic pipe sales decreased $24.3 million, or 6.1%, to $375.7 million. Domestic allied products & other sales increased $1.6 million, or 1.1%, to $149.0 million. Infiltrator sales decreased $44.8 million, or 30.1%, to $103.9 million. The decrease in domestic net sales was driven by sales in the U.S. construction end markets. International sales increased $3.1 million, or 5.6%, to $59.0 million, driven by growth in the Canadian and Mexican businesses. Gross profit increased $14.9 million, or 7.1%, to $223.9 million as compared to $209.0 million in the prior year. The increase in gross profit is primarily due to the favorable pricing on pipe, onsite septic and allied products as well as favorable material cost. This increase was partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs. Adjusted EBITDA (Non-GAAP) decreased $6.4 million, or 3.6%, to $169.7 million, as compared to $176.2 million in the prior year. The decrease is primarily due to the factors mentioned above, as well as an increase in selling, general and administrative expenses. As a percentage of net sales, Adjusted EBITDA was 25.9% as compared to 24.6% 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.” Year-to-Date Fiscal 2023 Results Net sales increased $362.4 million, or 17.3%, to $2,453.6 million, as compared to $2,091.1 million in the prior year quarter. Domestic pipe sales increased $243.0 million, or 21.0%, to $1,401.6 million. Domestic allied products & other sales increased $129.9 million, or 30.9%, to $550.2 million. Infiltrator sales decreased $0.4 million, or 0.1%, to $420.9 million. The increase in domestic net sales was driven by double-digit sales growth in the U.S. construction end markets. International sales increased $19.2 million, or 10.4%, to $203.9 million, driven by strong sales growth in the Canadian, Mexican and Exports businesses. Gross profit increased $285.8 million, or 46.8%, to $896.0 million as compared to $610.2 million in the prior year. The increase in gross profit is primarily due to the favorable pricing on pipe, onsite septic and allied products as well as favorable material cost. This increase was partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs. Adjusted EBITDA (Non-GAAP) increased $224.4 million, or 44.2%, to $732.0 million, as compared to $507.5 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 29.8% as compared to 24.3% in the prior year. Balance Sheet and Liquidity Net cash provided by operating activities was $660.4 million, as compared to $193.8 million in the prior year. Free cash flow (Non-GAAP) was $533.6 million, as compared to $93.5 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $882.1 million as of December 31, 2022, a decrease of $42.4 million from March 31, 2022. ADS had total liquidity of $1,017.1 million, comprised of cash of $426.7 million as of December 31, 2022 and $590.4 million of availability under committed credit facilities. As of December 31, 2022, the Company’s trailing-twelve-month leverage ratio was 1.0 times Adjusted EBITDA. In the nine months ended December 31, 2022, the Company repurchased 3.8 million shares of its common stock for a total cost of $375.0 million. As of December 31, 2022, approximately $625.0 million of common stock may be repurchased under the Company's existing share repurchase authorization. Fiscal 2023 Outlook Based on current visibility, backlog of existing orders and business trends, the Company updated its financial targets for fiscal 2023. Net sales are now expected to be in the range of $2.975 billion to $3.050 billion. Adjusted EBITDA is now expected to be in the range of $850 to $890 million. Capital expenditures are expected to be approximately $175 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://www.netroadshow.com/events/login?show=4a232ad6&confId=45958. 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 provides superior drainage solutions for use in a wide variety of markets and applications including commercial, residential, infrastructure and agriculture. ADS delivers tremendous service to its customers with the industry’s largest company-owned fleet, an expansive sales team, and a vast manufacturing network of approximately 70 manufacturing plants and 37 distribution centers. ADS is the largest plastic recycling company 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; the risks related to the COVID-19 pandemic or other pandemics in the future; 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; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; the risks of conducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets; the risk associated with manufacturing processes; the effect of global climate change; cybersecurity risks; our ability to manage our supply purchasing and customer credit policies; our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, including environmental laws and regulations; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; and other risks and uncertainties described in the Company’s filings with the SEC. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautioned not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Financial Statements ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended December 31, Nine Months Ended December 31, (In thousands, except per share data) 2022 2021 2022 2021 Net sales $ 655,167 $ 715,357 $ 2,453,562 $ 2,091,128 Cost of goods sold 431,250 506,380 1,557,575 1,480,973 Gross profit 223,917 208,977 895,987 610,155 Operating expenses: Selling, general and administrative 85,936 80,059 261,095 230,231 (Gain) loss on disposal of assets and costs from exit and disposal activities (348 ) 3,466 (147 ) 2,554 Intangible amortization 13,842 15,138 41,360 46,229 Income from operations 124,487 110,314 593,679 331,141 Other expense: Interest expense 20,001 8,756 49,334 25,100 Derivative gains and other income, net (4,125 ) (979 ) (5,632 ) (2,791 ) Income before income taxes 108,611 102,537 549,977 308,832 Income tax expense 26,068 28,792 128,641 82,063 Equity in net income of unconsolidated affiliates (639 ) (717 ) (3,705 ) (1,128 ) Net income 83,182 74,462 425,041 227,897 Less: net income attributable to noncontrolling interest 1,142 784 3,848 2,873 Net income attributable to ADS 82,040 73,678 421,193 225,024 Dividends to participating securities — (1,357 ) — (4,633 ) Net income available to common stockholders and participating securities 82,040 72,321 421,193 220,391 Undistributed income allocated to participating securities — (9,457 ) — (30,870 ) Net income available to common stockholders $ 82,040 $ 62,864 $ 421,193 $ 189,521 Weighted average common shares outstanding: Basic 82,067 71,267 82,891 71,087 Diluted 82,987 72,789 83,980 72,752 Net income per share: Basic $ 1.00 $ 0.88 $ 5.08 $ 2.67 Diluted $ 0.99 $ 0.86 $ 5.02 $ 2.61 Cash dividends declared per share $ 0.12 $ 0.11 $ 0.36 $ 0.33 ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) As of (Amounts in thousands) December 31, 2022 March 31, 2022 ASSETS Current assets: Cash $ 426,690 $ 20,125 Receivables, net 242,485 341,753 Inventories 459,029 494,324 Other current assets 29,162 15,696 Total current assets 1,157,366 871,898 Property, plant and equipment, net 685,496 619,383 Other assets: Goodwill 619,275 610,293 Intangible assets, net 421,450 431,385 Other assets 122,071 116,799 Total assets $ 3,005,658 $ 2,649,758 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Current maturities of debt obligations $ 15,601 $ 19,451 Current maturities of finance lease obligations 6,556 5,089 Accounts payable 174,106 224,986 Other accrued liabilities 170,549 134,877 Accrued income taxes 3,468 6,838 Total current liabilities 370,280 391,241 Long-term debt obligations, net 1,272,040 908,705 Long-term finance lease obligations 14,571 11,393 Deferred tax liabilities 163,259 168,435 Other liabilities 69,767 64,939 Total liabilities 1,889,917 1,544,713 Mezzanine equity: Redeemable common stock 157,128 — Redeemable convertible preferred stock — 195,384 Total mezzanine equity 157,128 195,384 Stockholders’ equity: Common stock 11,645 11,612 Paid-in capital 1,128,915 1,065,628 Common stock in treasury, at cost (719,702 ) (318,691 ) Accumulated other comprehensive loss (29,871 ) (24,386 ) Retained earnings 550,011 158,876 Total ADS stockholders’ equity 940,998 893,039 Noncontrolling interest in subsidiaries 17,615 16,622 Total stockholders’ equity 958,613 909,661 Total liabilities, mezzanine equity and stockholders’ equity $ 3,005,658 $ 2,649,758 ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended December 31, (Amounts in thousands) 2022 2021 Cash Flow from Operating Activities Net income $ 425,041 $ 227,897 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,346 103,687 Deferred income taxes (4,165 ) 6,243 (Gain) loss on disposal of assets and costs from exit and disposal activities (147 ) 2,554 ESOP and stock-based compensation 19,912 61,900 Amortization of deferred financing charges 909 286 Fair market value adjustments to derivatives 2,309 118 Equity in net income of unconsolidated affiliates (3,705 ) (1,128 ) Other operating activities 2,732 (9,898 ) Changes in working capital: Receivables 99,958 (59,821 ) Inventories 34,871 (161,878 ) Prepaid expenses and other current assets (4,532 ) (5,199 ) Accounts payable, accrued expenses, and other liabilities (20,091 ) 29,086 Net cash provided by operating activities 660,438 193,847 Cash Flows from Investing Activities Capital expenditures (126,858 ) (100,367 ) Acquisition, net of cash acquired (48,010 ) (49,210 ) Other investing activities 46 (463 ) Net cash used in investing activities (174,822 ) (150,040 ) Cash Flows from Financing Activities Payments on syndicated Term Loan Facility (5,250 ) (5,250 ) Proceeds from Revolving Credit Agreement 26,200 258,100 Payments on Revolving Credit Agreement (140,500 ) (124,600 ) Proceeds from Amended Revolving Credit Agreement 97,000 — Payments on Amended Revolving Credit Agreement (97,000 ) — Proceeds from Senior Notes due 2030 500,000 — Debt issuance costs (11,575 ) — Proceeds from Equipment Financing — 35,963 Payments on Equipment Financing (10,213 ) (1,177 ) Payments on finance lease obligations (4,954 ) (49,365 ) Repurchase of common stock (375,027 ) (292,000 ) Cash dividends paid (30,111 ) (27,826 ) Dividends paid to noncontrolling interest holder (3,652 ) (1,471 ) Proceeds from exercise of stock options 5,145 4,274 Payment of withholding taxes on vesting of restricted stock units (28,653 ) (13,055 ) Other financing activities — (167 ) Net cash used in financing activities (78,590 ) (216,574 ) Effect of exchange rate changes on cash (461 ) (69 ) Net change in cash 406,565 (172,836 ) Cash at beginning of period 20,125 195,009 Cash at end of period $ 426,690 $ 22,173 Selected Financial Data The following tables set forth net sales by reportable segment for each of the periods indicated. Three Months Ended December 31, 2022 December 31, 2021 (In thousands) Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 375,719 $ (10,839 ) $ 364,880 $ 400,027 $ (3,332 ) $ 396,695 Infiltrator 103,895 (14,961 ) 88,934 148,677 (26,314 ) 122,363 International International - Pipe 44,882 (5,311 ) 39,571 41,156 (5,700 ) 35,456 International - Allied Products & Other 14,075 — 14,075 14,687 — 14,687 Total International 58,957 (5,311 ) 53,646 55,843 (5,700 ) 50,143 Allied Products & Other 149,044 (1,337 ) 147,707 147,476 (1,320 ) 146,156 Intersegment Eliminations (32,448 ) 32,448 — (36,666 ) 36,666 — Total Consolidated $ 655,167 $ — $ 655,167 $ 715,357 $ — $ 715,357 Nine Months Ended December 31, 2022 December 31, 2021 Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 1,401,554 $ (31,483 ) $ 1,370,071 $ 1,158,558 $ (7,903 ) $ 1,150,655 Infiltrator 420,920 (66,317 ) 354,603 421,330 (67,763 ) 353,567 International International - Pipe 154,762 (18,509 ) 136,253 142,135 (13,784 ) 128,351 International - Allied Products & Other 49,172 — 49,172 42,648 — 42,648 Total International 203,934 (18,509 ) 185,425 184,783 (13,784 ) 170,999 Allied Products & Other 550,153 (6,690 ) 543,463 420,231 (4,324 ) 415,907 Intersegment Eliminations (122,999 ) 122,999 — (93,774 ) 93,774 — Total Consolidated $ 2,453,562 $ — $ 2,453,562 $ 2,091,128 $ — $ 2,091,128 Non-GAAP Financial Measures This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of the Company’s performance. Investors are encouraged to review the reconciliation of non-GAAP financial measures to the comparable GAAP results available in the accompanying tables. Reconciliation of Non-GAAP Financial Measures This press release includes references to organic results, Adjusted EBITDA and Free Cash Flow, non-GAAP financial measures. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for those reported in accordance with GAAP. Adjusted EBITDA and Free Cash Flow may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures. EBITDA and Adjusted EBITDA are non-GAAP financial measures that comprise net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. The Company’s definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board of directors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’s management and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of Adjusted EBITDA to net income. Free Cash Flow is a non-GAAP financial measure that comprises cash flow from operating activities less capital expenditures. Free Cash Flow is a measure used by management and the Company’s board of directors to assess the Company’s ability to generate cash. Accordingly, management believes that Free Cash Flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. In order to provide investors with a meaningful reconciliation, the Company has provided below a reconciliation of cash flow from operating activities to Free Cash Flow. The following tables present a reconciliation of EBITDA and Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from Operating Activities, the most comparable GAAP measures, for each of the periods indicated. Reconciliation of Adjusted Gross Profit to Gross Profit Three Months Ended December 31, Nine Months Ended December 31, (Amounts in thousands) 2022 2021 2022 2021 Segment Adjusted Gross Profit Pipe $ 106,279 $ 92,066 $ 421,011 $ 258,681 Infiltrator 46,497 60,546 193,569 178,795 International 13,342 13,240 51,456 49,695 Allied Products & Other 78,401 72,785 293,472 204,063 Intersegment Elimination 714 (44 ) 329 1,421 Total Segment Adjusted Gross Profit 245,233 238,593 959,837 692,655 Depreciation and amortization 20,573 18,042 61,675 52,824 ESOP and stock-based compensation 743 11,574 2,175 29,676 Total Gross Profit $ 223,917 $ 208,977 $ 895,987 $ 610,155 Reconciliation of Adjusted EBITDA to Net Income Three Months Ended December 31, Nine Months Ended December 31, (Amounts in thousands) 2022 2021 2022 2021 Net income $ 83,182 $ 74,462 $ 425,041 $ 227,897 Depreciation and amortization 35,846 34,837 107,346 103,687 Interest expense 20,001 8,756 49,334 25,100 Income tax expense 26,068 28,792 128,641 82,063 EBITDA 165,097 146,847 710,362 438,747 (Gain) loss on disposal of assets and costs from exit and disposal activities (348 ) 3,466 (147 ) 2,554 Stock-based compensation expense 6,179 6,242 19,912 18,511 ESOP compensation expense — 17,221 — 43,389 Transaction costs 1,334 2,145 3,417 3,022 Other adjustments(a) (2,525 ) 234 (1,562 ) 1,318 Adjusted EBITDA $ 169,737 $ 176,155 $ 731,982 $ 507,541 (a) Includes derivative fair value adjustments, foreign currency transaction (gains) losses, interest income, 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 Nine Months Ended December 31, (Amounts in thousands) 2022 2021 Net cash flow from operating activities $ 660,438 $ 193,847 Capital expenditures (126,858 ) (100,367 ) Free cash flow $ 533,580 $ 93,480 View source version on businesswire.com: https://www.businesswire.com/news/home/20230202005193/en/Contacts Michael Higgins VP, Corporate Strategy & Investor Relations (614) 658-0050 Michael.Higgins@adspipe.com
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 third quarter ended December 31, 2022. Third Quarter Fiscal 2023 Results Net sales decreased 8.4% to $655.2 million Net income increased 11.7% to $83.2 million Adjusted EBITDA (Non-GAAP) decreased 3.6% to $169.7 million Year-to-Date Fiscal 2023 Results Net sales increased 17.3% to $2,453.6 million Net income increased 86.5% to $425.0 million Adjusted EBITDA (Non-GAAP) increased 44.2% to $732.0 million Cash provided by operating activities increased 240.7% to $660.4 million Free cash flow (Non-GAAP) increased $440.1 million to $533.6 million Scott Barbour, President and Chief Executive Officer of ADS commented, "The Company executed well in the fiscal third quarter despite a challenging demand environment. Through October and November, demand was largely in line with expectations, but in December domestic construction market demand slowed significantly. As a result, consolidated net sales declined 8% in the fiscal third quarter. The ADS business was down 3%, primarily due to weakness in the non-residential and retail businesses. The 30% decline in Infiltrator sales was a result of the lower residential market demand and inventory destocking, which completed in the fiscal third quarter as we previously communicated." Barbour continued, "Importantly, though we are facing a challenging demand environment, our market leading position, value proposition and execution enabled us to manage costs, maintain favorable price/material cost and generate significant cash flow. As a result, the Company’s Adjusted EBITDA margin expanded 130 basis points and free cash flow increased $440 million, or 370% over the prior year. It is also important to point out that Net Income increased 11.7%. As demonstrated with the margin performance in the fiscal third quarter, our business model remains resilient in a lower demand environment. Going forward, we expect annual margin performance to be consistent with what we communicated at Investor Day in March 2022." "As we look at the significant change in market dynamics that impact construction activity since the beginning of the fiscal year – interest rates nearly doubling and significant inflation – there is no doubt this is creating economic uncertainty. This combination has slowed down demand for the ADS and Infiltrator products. We expect the majority of calendar 2023 to remain a challenging demand environment." Barbour concluded, "The need for the water management solutions and services we provide is as relevant as ever. The Company’s industry leading water management products have significant competitive advantages that will continue to drive above market results. We will work through this period of lower demand by managing our costs, including reducing headcount and optimizing our network. The long-term fundamentals and position of both ADS and Infiltrator remain intact, and we will manage the business through the external conditions appropriately to continue delivering value to our customers and shareholders." Third Quarter Fiscal 2023 Results Net sales decreased $60.2 million, or 8.4%, to $655.2 million, as compared to $715.4 million in the prior year quarter. Domestic pipe sales decreased $24.3 million, or 6.1%, to $375.7 million. Domestic allied products & other sales increased $1.6 million, or 1.1%, to $149.0 million. Infiltrator sales decreased $44.8 million, or 30.1%, to $103.9 million. The decrease in domestic net sales was driven by sales in the U.S. construction end markets. International sales increased $3.1 million, or 5.6%, to $59.0 million, driven by growth in the Canadian and Mexican businesses. Gross profit increased $14.9 million, or 7.1%, to $223.9 million as compared to $209.0 million in the prior year. The increase in gross profit is primarily due to the favorable pricing on pipe, onsite septic and allied products as well as favorable material cost. This increase was partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs. Adjusted EBITDA (Non-GAAP) decreased $6.4 million, or 3.6%, to $169.7 million, as compared to $176.2 million in the prior year. The decrease is primarily due to the factors mentioned above, as well as an increase in selling, general and administrative expenses. As a percentage of net sales, Adjusted EBITDA was 25.9% as compared to 24.6% 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.” Year-to-Date Fiscal 2023 Results Net sales increased $362.4 million, or 17.3%, to $2,453.6 million, as compared to $2,091.1 million in the prior year quarter. Domestic pipe sales increased $243.0 million, or 21.0%, to $1,401.6 million. Domestic allied products & other sales increased $129.9 million, or 30.9%, to $550.2 million. Infiltrator sales decreased $0.4 million, or 0.1%, to $420.9 million. The increase in domestic net sales was driven by double-digit sales growth in the U.S. construction end markets. International sales increased $19.2 million, or 10.4%, to $203.9 million, driven by strong sales growth in the Canadian, Mexican and Exports businesses. Gross profit increased $285.8 million, or 46.8%, to $896.0 million as compared to $610.2 million in the prior year. The increase in gross profit is primarily due to the favorable pricing on pipe, onsite septic and allied products as well as favorable material cost. This increase was partially offset by a decrease in volume, inflationary cost pressures and higher manufacturing costs. Adjusted EBITDA (Non-GAAP) increased $224.4 million, or 44.2%, to $732.0 million, as compared to $507.5 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 29.8% as compared to 24.3% in the prior year. Balance Sheet and Liquidity Net cash provided by operating activities was $660.4 million, as compared to $193.8 million in the prior year. Free cash flow (Non-GAAP) was $533.6 million, as compared to $93.5 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $882.1 million as of December 31, 2022, a decrease of $42.4 million from March 31, 2022. ADS had total liquidity of $1,017.1 million, comprised of cash of $426.7 million as of December 31, 2022 and $590.4 million of availability under committed credit facilities. As of December 31, 2022, the Company’s trailing-twelve-month leverage ratio was 1.0 times Adjusted EBITDA. In the nine months ended December 31, 2022, the Company repurchased 3.8 million shares of its common stock for a total cost of $375.0 million. As of December 31, 2022, approximately $625.0 million of common stock may be repurchased under the Company's existing share repurchase authorization. Fiscal 2023 Outlook Based on current visibility, backlog of existing orders and business trends, the Company updated its financial targets for fiscal 2023. Net sales are now expected to be in the range of $2.975 billion to $3.050 billion. Adjusted EBITDA is now expected to be in the range of $850 to $890 million. Capital expenditures are expected to be approximately $175 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://www.netroadshow.com/events/login?show=4a232ad6&confId=45958. 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 provides superior drainage solutions for use in a wide variety of markets and applications including commercial, residential, infrastructure and agriculture. ADS delivers tremendous service to its customers with the industry’s largest company-owned fleet, an expansive sales team, and a vast manufacturing network of approximately 70 manufacturing plants and 37 distribution centers. ADS is the largest plastic recycling company 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; the risks related to the COVID-19 pandemic or other pandemics in the future; 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; the effect of weather or seasonality; the loss of any of our significant customers; the risks of doing business internationally; the risks of conducting a portion of our operations through joint ventures; our ability to expand into new geographic or product markets; the risk associated with manufacturing processes; the effect of global climate change; cybersecurity risks; our ability to manage our supply purchasing and customer credit policies; our ability to control labor costs and to attract, train and retain highly-qualified employees and key personnel; our ability to protect our intellectual property rights; changes in laws and regulations, including environmental laws and regulations; the risks associated with our current levels of indebtedness, including borrowings under our existing credit agreement and outstanding indebtedness under our existing senior notes; and other risks and uncertainties described in the Company’s filings with the SEC. New risks and uncertainties emerge from time to time and it is not possible for the Company to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this press release. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the Company’s expectations, objectives or plans will be achieved in the timeframe anticipated or at all. Investors are cautioned not to place undue reliance on the Company’s forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Financial Statements ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended December 31, Nine Months Ended December 31, (In thousands, except per share data) 2022 2021 2022 2021 Net sales $ 655,167 $ 715,357 $ 2,453,562 $ 2,091,128 Cost of goods sold 431,250 506,380 1,557,575 1,480,973 Gross profit 223,917 208,977 895,987 610,155 Operating expenses: Selling, general and administrative 85,936 80,059 261,095 230,231 (Gain) loss on disposal of assets and costs from exit and disposal activities (348 ) 3,466 (147 ) 2,554 Intangible amortization 13,842 15,138 41,360 46,229 Income from operations 124,487 110,314 593,679 331,141 Other expense: Interest expense 20,001 8,756 49,334 25,100 Derivative gains and other income, net (4,125 ) (979 ) (5,632 ) (2,791 ) Income before income taxes 108,611 102,537 549,977 308,832 Income tax expense 26,068 28,792 128,641 82,063 Equity in net income of unconsolidated affiliates (639 ) (717 ) (3,705 ) (1,128 ) Net income 83,182 74,462 425,041 227,897 Less: net income attributable to noncontrolling interest 1,142 784 3,848 2,873 Net income attributable to ADS 82,040 73,678 421,193 225,024 Dividends to participating securities — (1,357 ) — (4,633 ) Net income available to common stockholders and participating securities 82,040 72,321 421,193 220,391 Undistributed income allocated to participating securities — (9,457 ) — (30,870 ) Net income available to common stockholders $ 82,040 $ 62,864 $ 421,193 $ 189,521 Weighted average common shares outstanding: Basic 82,067 71,267 82,891 71,087 Diluted 82,987 72,789 83,980 72,752 Net income per share: Basic $ 1.00 $ 0.88 $ 5.08 $ 2.67 Diluted $ 0.99 $ 0.86 $ 5.02 $ 2.61 Cash dividends declared per share $ 0.12 $ 0.11 $ 0.36 $ 0.33 ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) As of (Amounts in thousands) December 31, 2022 March 31, 2022 ASSETS Current assets: Cash $ 426,690 $ 20,125 Receivables, net 242,485 341,753 Inventories 459,029 494,324 Other current assets 29,162 15,696 Total current assets 1,157,366 871,898 Property, plant and equipment, net 685,496 619,383 Other assets: Goodwill 619,275 610,293 Intangible assets, net 421,450 431,385 Other assets 122,071 116,799 Total assets $ 3,005,658 $ 2,649,758 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Current maturities of debt obligations $ 15,601 $ 19,451 Current maturities of finance lease obligations 6,556 5,089 Accounts payable 174,106 224,986 Other accrued liabilities 170,549 134,877 Accrued income taxes 3,468 6,838 Total current liabilities 370,280 391,241 Long-term debt obligations, net 1,272,040 908,705 Long-term finance lease obligations 14,571 11,393 Deferred tax liabilities 163,259 168,435 Other liabilities 69,767 64,939 Total liabilities 1,889,917 1,544,713 Mezzanine equity: Redeemable common stock 157,128 — Redeemable convertible preferred stock — 195,384 Total mezzanine equity 157,128 195,384 Stockholders’ equity: Common stock 11,645 11,612 Paid-in capital 1,128,915 1,065,628 Common stock in treasury, at cost (719,702 ) (318,691 ) Accumulated other comprehensive loss (29,871 ) (24,386 ) Retained earnings 550,011 158,876 Total ADS stockholders’ equity 940,998 893,039 Noncontrolling interest in subsidiaries 17,615 16,622 Total stockholders’ equity 958,613 909,661 Total liabilities, mezzanine equity and stockholders’ equity $ 3,005,658 $ 2,649,758 ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended December 31, (Amounts in thousands) 2022 2021 Cash Flow from Operating Activities Net income $ 425,041 $ 227,897 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,346 103,687 Deferred income taxes (4,165 ) 6,243 (Gain) loss on disposal of assets and costs from exit and disposal activities (147 ) 2,554 ESOP and stock-based compensation 19,912 61,900 Amortization of deferred financing charges 909 286 Fair market value adjustments to derivatives 2,309 118 Equity in net income of unconsolidated affiliates (3,705 ) (1,128 ) Other operating activities 2,732 (9,898 ) Changes in working capital: Receivables 99,958 (59,821 ) Inventories 34,871 (161,878 ) Prepaid expenses and other current assets (4,532 ) (5,199 ) Accounts payable, accrued expenses, and other liabilities (20,091 ) 29,086 Net cash provided by operating activities 660,438 193,847 Cash Flows from Investing Activities Capital expenditures (126,858 ) (100,367 ) Acquisition, net of cash acquired (48,010 ) (49,210 ) Other investing activities 46 (463 ) Net cash used in investing activities (174,822 ) (150,040 ) Cash Flows from Financing Activities Payments on syndicated Term Loan Facility (5,250 ) (5,250 ) Proceeds from Revolving Credit Agreement 26,200 258,100 Payments on Revolving Credit Agreement (140,500 ) (124,600 ) Proceeds from Amended Revolving Credit Agreement 97,000 — Payments on Amended Revolving Credit Agreement (97,000 ) — Proceeds from Senior Notes due 2030 500,000 — Debt issuance costs (11,575 ) — Proceeds from Equipment Financing — 35,963 Payments on Equipment Financing (10,213 ) (1,177 ) Payments on finance lease obligations (4,954 ) (49,365 ) Repurchase of common stock (375,027 ) (292,000 ) Cash dividends paid (30,111 ) (27,826 ) Dividends paid to noncontrolling interest holder (3,652 ) (1,471 ) Proceeds from exercise of stock options 5,145 4,274 Payment of withholding taxes on vesting of restricted stock units (28,653 ) (13,055 ) Other financing activities — (167 ) Net cash used in financing activities (78,590 ) (216,574 ) Effect of exchange rate changes on cash (461 ) (69 ) Net change in cash 406,565 (172,836 ) Cash at beginning of period 20,125 195,009 Cash at end of period $ 426,690 $ 22,173 Selected Financial Data The following tables set forth net sales by reportable segment for each of the periods indicated. Three Months Ended December 31, 2022 December 31, 2021 (In thousands) Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 375,719 $ (10,839 ) $ 364,880 $ 400,027 $ (3,332 ) $ 396,695 Infiltrator 103,895 (14,961 ) 88,934 148,677 (26,314 ) 122,363 International International - Pipe 44,882 (5,311 ) 39,571 41,156 (5,700 ) 35,456 International - Allied Products & Other 14,075 — 14,075 14,687 — 14,687 Total International 58,957 (5,311 ) 53,646 55,843 (5,700 ) 50,143 Allied Products & Other 149,044 (1,337 ) 147,707 147,476 (1,320 ) 146,156 Intersegment Eliminations (32,448 ) 32,448 — (36,666 ) 36,666 — Total Consolidated $ 655,167 $ — $ 655,167 $ 715,357 $ — $ 715,357 Nine Months Ended December 31, 2022 December 31, 2021 Net Sales Intersegment Net Sales Net Sales from External Customers Net Sales Intersegment Net Sales Net Sales from External Customers Pipe $ 1,401,554 $ (31,483 ) $ 1,370,071 $ 1,158,558 $ (7,903 ) $ 1,150,655 Infiltrator 420,920 (66,317 ) 354,603 421,330 (67,763 ) 353,567 International International - Pipe 154,762 (18,509 ) 136,253 142,135 (13,784 ) 128,351 International - Allied Products & Other 49,172 — 49,172 42,648 — 42,648 Total International 203,934 (18,509 ) 185,425 184,783 (13,784 ) 170,999 Allied Products & Other 550,153 (6,690 ) 543,463 420,231 (4,324 ) 415,907 Intersegment Eliminations (122,999 ) 122,999 — (93,774 ) 93,774 — Total Consolidated $ 2,453,562 $ — $ 2,453,562 $ 2,091,128 $ — $ 2,091,128 Non-GAAP Financial Measures This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of the Company’s performance. Investors are encouraged to review the reconciliation of non-GAAP financial measures to the comparable GAAP results available in the accompanying tables. Reconciliation of Non-GAAP Financial Measures This press release includes references to organic results, Adjusted EBITDA and Free Cash Flow, non-GAAP financial measures. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for those reported in accordance with GAAP. Adjusted EBITDA and Free Cash Flow may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures. EBITDA and Adjusted EBITDA are non-GAAP financial measures that comprise net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. The Company’s definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board of directors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’s management and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of Adjusted EBITDA to net income. Free Cash Flow is a non-GAAP financial measure that comprises cash flow from operating activities less capital expenditures. Free Cash Flow is a measure used by management and the Company’s board of directors to assess the Company’s ability to generate cash. Accordingly, management believes that Free Cash Flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. In order to provide investors with a meaningful reconciliation, the Company has provided below a reconciliation of cash flow from operating activities to Free Cash Flow. The following tables present a reconciliation of EBITDA and Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from Operating Activities, the most comparable GAAP measures, for each of the periods indicated. Reconciliation of Adjusted Gross Profit to Gross Profit Three Months Ended December 31, Nine Months Ended December 31, (Amounts in thousands) 2022 2021 2022 2021 Segment Adjusted Gross Profit Pipe $ 106,279 $ 92,066 $ 421,011 $ 258,681 Infiltrator 46,497 60,546 193,569 178,795 International 13,342 13,240 51,456 49,695 Allied Products & Other 78,401 72,785 293,472 204,063 Intersegment Elimination 714 (44 ) 329 1,421 Total Segment Adjusted Gross Profit 245,233 238,593 959,837 692,655 Depreciation and amortization 20,573 18,042 61,675 52,824 ESOP and stock-based compensation 743 11,574 2,175 29,676 Total Gross Profit $ 223,917 $ 208,977 $ 895,987 $ 610,155 Reconciliation of Adjusted EBITDA to Net Income Three Months Ended December 31, Nine Months Ended December 31, (Amounts in thousands) 2022 2021 2022 2021 Net income $ 83,182 $ 74,462 $ 425,041 $ 227,897 Depreciation and amortization 35,846 34,837 107,346 103,687 Interest expense 20,001 8,756 49,334 25,100 Income tax expense 26,068 28,792 128,641 82,063 EBITDA 165,097 146,847 710,362 438,747 (Gain) loss on disposal of assets and costs from exit and disposal activities (348 ) 3,466 (147 ) 2,554 Stock-based compensation expense 6,179 6,242 19,912 18,511 ESOP compensation expense — 17,221 — 43,389 Transaction costs 1,334 2,145 3,417 3,022 Other adjustments(a) (2,525 ) 234 (1,562 ) 1,318 Adjusted EBITDA $ 169,737 $ 176,155 $ 731,982 $ 507,541 (a) Includes derivative fair value adjustments, foreign currency transaction (gains) losses, interest income, 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 Nine Months Ended December 31, (Amounts in thousands) 2022 2021 Net cash flow from operating activities $ 660,438 $ 193,847 Capital expenditures (126,858 ) (100,367 ) Free cash flow $ 533,580 $ 93,480 View source version on businesswire.com: https://www.businesswire.com/news/home/20230202005193/en/
Michael Higgins VP, Corporate Strategy & Investor Relations (614) 658-0050 Michael.Higgins@adspipe.com