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Advanced Drainage Systems Announces Fourth Quarter and Fiscal Year 2022 Results

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HILLIARD, Ohio, May 19, 2022--(BUSINESS WIRE)--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 fourth quarter and fiscal year ended March 31, 2022.

Fourth Quarter Fiscal 2022 Results

  • Net sales increased 52.8% to $678.2 million

  • Net income increased 126.8% to $47.1 million

  • Adjusted EBITDA (Non-GAAP) increased 78.2% to $168.5 million

Fiscal 2022 Results

  • Net sales increased 39.7% to $2,769.3 million

  • Net income increased 21.6% to $275.0 million

  • Adjusted EBITDA (Non-GAAP) increased 19.2% to $676.0 million

  • Cash provided by operating activities of $274.9 million

  • Free cash flow (Non-GAAP) of $125.8 million

Scott Barbour, President and Chief Executive Officer of ADS commented, "We achieved another quarter of record revenue and Adjusted EBITDA results in the fourth quarter of fiscal 2022. Sales growth of 53% was driven by favorable pricing at both ADS and Infiltrator, as well as volume growth in the domestic construction markets. We capitalized on strong demand across our product portfolio and geographic footprint, particularly in priority states such as Florida, Texas and California. Leading indicators support continued strength in demand through the calendar year as we work through a strong backlog."

Barbour continued, "The favorable top line growth we achieved in the fourth quarter offset inflationary cost pressure on materials, transportation and labor. We continue to see pressure from labor shortages, and absenteeism related to the COVID variant impacted our manufacturing and transportation operations early in the fourth quarter. The actions we took previously to simplify production processes and increase production rates have been successful, improving service levels to customers overall."

Barbour concluded, "In summary, fiscal 2022 played out largely as we communicated, with profit improvement occurring in the second half of the year as the multiple actions we took to improve pricing and operations were successful. Our demand environment, strong backlog, favorable pricing and progress on the continuous improvement initiatives give us confidence in the guidance being issued today for fiscal year 2023. Backlog levels remain elevated, up double-digits over the prior year but down from fiscal 2022 peaks as a result of capacity additions and improved service levels. We are closely monitoring our end markets, staying close to our distribution partners, and will stay focused on executing the fiscal 2023 plan."

Fourth Quarter Fiscal 2022 Results

Net sales increased $234.4 million, or 52.8%, to $678.2 million, as compared to $443.8 million in the prior year quarter. Domestic pipe sales increased $157.5 million, or 65.8%, to $396.7 million. Domestic allied products & other sales increased $51.2 million, or 52.3%, to $149.1 million. Infiltrator sales increased $39.3 million, or 43.1%, to $130.6 million. These increases were driven by double-digit sales growth in the U.S. construction end markets. International sales increased $5.6 million, or 16.3%, to $40.0 million.

Gross profit increased $63.0 million, or 49.5%, to $190.2 million as compared to $127.2 million in the prior year. The increase in gross profit is primarily due to the increase in sales volume and favorable pricing on pipe, on-site septic and allied products. These increases were partially offset by inflationary cost pressure on materials, transportation and labor, as well as an increase in the use of third-party logistics services. Labor shortages and absenteeism related to COVID-19 remain a challenge in both manufacturing and transportation operations. In addition, the Company recorded $19.2 million of non-cash, stock-based compensation expense in Cost of goods sold - ESOP acceleration expense as described below under the heading "Employee Stock Ownership Plan (ESOP)".

Adjusted EBITDA (Non-GAAP) increased $74.0 million, or 78.2%, to $168.5 million, as compared to $94.5 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.8% as compared to 21.3% 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 2022 Results

Net sales increased $786.5 million, or 39.7%, to $2,769.3 million, as compared to $1,982.8 million in the prior year. Domestic pipe sales increased $496.0 million, or 46.8%, to $1,555.2 million. Domestic allied products & other sales increased $126.9 million, or 28.7%, to $569.4 million. Infiltrator sales increased $154.1 million, or 38.7%, to $551.9 million. These increases were driven by strong sales growth in both the U.S. construction and agriculture end markets. International sales increased $59.9 million, or 36.3%, to $224.7 million, driven by double-digit sales growth in the Canadian, Mexican and Exports businesses.

Gross profit increased $110.3 million, or 16.0%, to $800.4 million as compared to $690.1 million in the prior year. The increase is primarily due to an increase in sales volume and favorable pricing on pipe, on-site septic and allied products. These increases were partially offset by inflationary cost pressure on materials, transportation and labor, as well as an increase in the use of third-party logistics services. Labor shortages and absenteeism related to COVID-19 remain a challenge in both manufacturing and transportation operations. In addition, the Company recorded $19.2 million of non-cash, stock-based compensation expense in Cost of goods sold - ESOP acceleration expense as described below under the heading "Employee Stock Ownership Plan (ESOP)".

Adjusted EBITDA (Non-GAAP) increased $109.1 million, or 19.2%, to $676.0 million, as compared to $567.0 million in the prior year. The increase is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.4% as compared to 28.6% in the prior year.

Employee Stock Ownership Plan (ESOP)

On February 2, 2022, the ADS Board of Directors passed a resolution authorizing a $0.3 million Company cash contribution to the ESOP for the ESOP to repay the remaining balance of its ESOP loan on March 31, 2022, one year ahead of the ESOP loan’s March 31, 2023 maturity date. Effective March 31, 2022, the remaining balance on the Company's ESOP loan was repaid in full, and the remaining shares of unallocated preferred stock were allocated to participants of the ESOP. In April 2022, the 15.6 million shares of preferred stock outstanding converted to 12.0 million shares of common stock, resulting in $19.2 million of additional non-cash, stock-based compensation expense recorded in Cost of goods sold - ESOP acceleration and $11.3 of additional non-cash, stock-based compensation expense recorded in Selling, general and administrative - ESOP acceleration in the fourth quarter and fiscal year ended March 31, 2022. Starting in the fiscal year ending March 31, 2023, ADS will make matching 401(k) contributions for eligible employees, resulting in estimated incremental compensation expense of approximately $8 million to $10 million annually.

For additional information on the Company's ESOP, please refer to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021, and other reports filed by the Company with the SEC. Additional information related to this transaction will be included in the Company's Form 10-K and Form 8-K/A, which the Company intends to file with the SEC after market-close today.

Balance Sheet and Liquidity

Net cash provided by operating activities was $274.9 million, as compared to $452.2 million in the prior year. Free cash flow (Non-GAAP) was $125.8 million, as compared to $373.5 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $924.5 million as of March 31, 2022, an increase of $278.0 million from March 31, 2021.

ADS had total liquidity of $247 million, comprised of cash of $20 million as of March 31, 2022 and $227 million of availability under committed credit facilities. As of March 31, 2022, the Company’s leverage ratio was 1.4 times.

In the twelve months ended March 31, 2022, the Company repurchased 2.6 million shares of its common stock for a total cost of $292.0 million. As of March 31, 2022, the Company has $1 billion remaining under its new share repurchase authorization.

Fiscal 2023 Outlook

Based on current visibility, backlog of existing orders and business trends, the Company issued the following targets for fiscal 2023. Net sales are expected to be in the range of $3.100 billion to $3.200 billion. Adjusted EBITDA is expected to be in the range of $800 to $820 million. Capital expenditures are expected to be in the range of $150 million to $180 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 for this conference call by copy and pasting the following text into your browser: https://www.incommglobalevents.com/registration/q4inc/10578/ads-fourth-quarter-fiscal-year-2022-financial-results/. 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 March 31,

Fiscal Year Ended March 31,

(In thousands, except per share data)

2022

2021

2022

2021

Net sales

$

678,187

$

443,809

$

2,769,315

$

1,982,780

Cost of goods sold

468,777

316,592

1,949,750

1,292,698

Cost of goods sold - ESOP acceleration

19,181

19,181

Gross profit

190,229

127,217

800,384

690,082

Operating expenses:

Selling, general and administrative

79,609

73,491

309,840

267,574

Selling, general and administrative - ESOP acceleration

11,254

11,254

Loss on disposal of assets and costs from exit and disposal activities

844

1,021

3,398

4,275

Intangible amortization

17,745

19,815

63,974

73,708

Income from operations

80,777

32,890

411,918

344,525

Other expense:

Interest expense

8,450

7,895

33,550

35,658

Derivative gains and other income, net

(2,352

)

(2,521

)

(5,143

)

(3,404

)

Income before income taxes

74,679

27,516

383,511

312,271

Income tax expense

28,008

7,091

110,071

86,382

Equity in net income of unconsolidated affiliates

(458

)

(351

)

(1,586

)

(201

)

Net income

47,129

20,776

275,026

226,090

Less: net income attributable to noncontrolling interest

822

1,022

3,695

1,860

Net income attributable to ADS

46,307

19,754

271,331

224,230

Dividends to participating securities

(1,307

)

(1,606

)

(5,940

)

(5,591

)

Net income available to common stockholders and participating securities

45,000

18,148

265,391

218,639

Undistributed income allocated to participating securities

(5,279

)

(1,967

)

(35,859

)

(33,251

)

Net income available to common stockholders

$

39,721

$

16,181

$

229,532

$

185,388

Weighted average common shares outstanding:

Basic

71,855

70,958

71,276

70,155

Diluted

73,414

72,595

72,911

71,566

Net income per share:

Basic

$

0.55

$

0.23

$

3.22

$

2.64

Diluted

$

0.54

$

0.23

$

3.15

$

2.59

Cash dividends declared per share

$

0.11

$

0.09

$

0.44

$

0.36

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

As of

(Amounts in thousands)

March 31, 2022

March 31, 2021

ASSETS

Current assets:

Cash

$

20,125

$

195,009

Receivables, net

341,753

236,191

Inventories

494,324

300,961

Other current assets

15,696

10,817

Total current assets

871,898

742,978

Property, plant and equipment, net

619,383

504,275

Other assets:

Goodwill

610,293

599,072

Intangible assets, net

431,385

482,016

Other assets

116,799

85,491

Total assets

$

2,649,758

$

2,413,832

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current maturities of debt obligations

$

19,451

$

7,000

Current maturities of finance lease obligations

5,089

19,318

Accounts payable

224,986

171,098

Other accrued liabilities

134,877

116,151

Accrued income taxes

6,838

4,703

Total current liabilities

391,241

318,270

Long-term debt obligations, net

908,705

782,220

Long-term finance lease obligations

11,393

32,964

Deferred tax liabilities

168,435

162,185

Other liabilities

64,939

54,767

Total liabilities

1,544,713

1,350,406

Mezzanine equity:

Redeemable convertible preferred stock

195,384

240,944

Deferred compensation — unearned ESOP shares

(11,033

)

Total mezzanine equity

195,384

229,911

Stockholders’ equity:

Common stock

11,612

11,578

Paid-in capital

1,065,628

918,587

Common stock in treasury, at cost

(318,691

)

(10,959

)

Accumulated other comprehensive loss

(24,386

)

(24,220

)

Retained earnings (deficit)

158,876

(75,202

)

Total ADS stockholders’ equity

893,039

819,784

Noncontrolling interest in subsidiaries

16,622

13,731

Total stockholders’ equity

909,661

833,515

Total liabilities, mezzanine equity and stockholders’ equity

$

2,649,758

$

2,413,832

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Fiscal Year Ended March 31,

(Amounts in thousands)

2022

2021

Cash Flow from Operating Activities

Net income

$

275,026

$

226,090

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

Depreciation and amortization

141,808

145,586

Deferred income taxes

2,175

(13,477

)

Loss on disposal of assets and costs from exit and disposal activities

3,398

4,275

ESOP and stock-based compensation

77,559

65,434

ESOP acceleration

30,435

Amortization of deferred financing charges

382

382

Fair market value adjustments to derivatives

(1,392

)

(3,355

)

Equity in net income of unconsolidated affiliates

(1,586

)

(201

)

Other operating activities

(11,679

)

6,770

Changes in working capital:

Receivables

(96,990

)

(34,760

)

Inventories

(189,715

)

(14,561

)

Prepaid expenses and other current assets

(4,642

)

(1,208

)

Accounts payable, accrued expenses and other liabilities

50,109

71,241

Net cash provided by operating activities

274,888

452,216

Cash Flows from Investing Activities

Capital expenditures

(149,083

)

(78,757

)

Acquisition, net of cash acquired

(49,309

)

Other investing activities

(441

)

883

Net cash used in investing activities

(198,833

)

(77,874

)

Cash Flows from Financing Activities

Payments on syndicated Term Loan Facility

(7,000

)

(207,000

)

Proceeds from Revolving Credit Agreement

332,200

Payments on Revolving Credit Agreement

...