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 first quarter ended June 30, 2023.
First Quarter Fiscal 2024 Results
- Net sales decreased 14.9% to $778.0 million
- Net income decreased 7.7% to $173.9 million
- Net income per diluted share decreased 1.7% to $2.18
- Adjusted EBITDA (Non-GAAP) decreased 5.9% to $281.3 million
- Cash provided by operating activities decreased 2.3% to $244.0 million
- Free cash flow (Non-GAAP) decreased 5.5% to $201.9 million
Scott Barbour, President and Chief Executive Officer of ADS commented, "The first quarter net sales and Adjusted EBITDA results exceeded expectations, primarily driven by better-than-expected performance from the Infiltrator business and the Allied products portfolio. We had an excellent quarter from a profitability standpoint, as the Adjusted EBITDA margin increased to a new quarterly record of 36.2%, 350 basis points above the same quarter last year. This reflects the continued disciplined execution in pricing, good control over material and operational costs, and benefits from actions we took during the second half of last year to reduce manufacturing and transportation costs in the lower demand environment."
“From a top line perspective, the decrease in revenue of the domestic pipe business was generally in-line with our expectations. Allied products performed better than expected and Infiltrator benefited from the improvement in single-family housing starts outlook compared to the beginning of the calendar year. The overall sales decline of 15% in the quarter was modestly better than expected.”
"The need for water management solutions provided by ADS and Infiltrator remains highly relevant due to the increasing effects of heavy rainfall patterns and water scarcity. As communities and developers deal with these emerging issues, ADS is a trusted resource in the development of standards and practices around management of water, the world’s most precious resource, helping to safeguard our environment and communities. Developers, contractors and distributors recognize our expertise and value proposition as they continue to choose ADS and Infiltrator as the premier partner for water management solutions."
Barbour concluded, "We will continue to invest capital to increase manufacturing and recycling capacity, improve productivity and further automation so that we are in a favorable position as the market rebounds. We will focus on opportunities in key states and market segments, large scale development projects, and market penetration opportunities for products such as our HP pipe, Allied products, onsite septic tanks and active onsite treatment solutions to drive sales through our proven go to market capabilities."
First Quarter Fiscal 2024 Results
Net sales decreased $136.1 million, or 14.9%, to $778.0 million, as compared to $914.2 million in the prior year quarter. Domestic pipe sales decreased $96.3 million, or 18.3%, to $428.6 million. Domestic allied products & other sales decreased $15.5 million, or 7.8%, to $183.4 million. Infiltrator sales decreased $24.8 million, or 14.9%, to $141.5 million. The decrease in domestic net sales was primarily driven by lower demand in the U.S. construction end markets. International sales decreased $18.7 million, or 26.2%, to $52.8 million.
Gross profit decreased $20.6 million, or 5.9%, to $331.5 million as compared to $352.1 million in the prior year. The decrease in gross profit is primarily due to the decrease in volume and higher manufacturing costs, partially offset by favorable pricing and material costs.
Net income per diluted share decreased $0.04, or 1.7%, to $2.18, as compared to $2.22 per share in the prior year. Results for the first quarter of fiscal 2024 include a $14.9 million gain on the sale of assets, which after considering the income tax impact of this gain impacted net income per diluted share by $0.14.
Adjusted EBITDA (Non-GAAP) decreased $17.7 million, or 5.9%, to $281.3 million, as compared to $299.0 million in the prior year, primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 36.2% as compared to 32.7% in the prior year.
Reconciliations of GAAP to Non-GAAP financial measures for Adjusted EBITDA and Free Cash Flow have been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”
Balance Sheet and Liquidity
Net cash provided by operating activities was $244.0 million, as compared to $249.8 million in the prior year. Free cash flow (Non-GAAP) was $201.9 million, as compared to $213.6 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $953.7 million as of June 30, 2023, a decrease of $154.0 million from March 31, 2023.
ADS had total liquidity of $955.0 million, comprised of cash of $366.1 million as of June 30, 2023 and $588.9 million of availability under committed credit facilities. As of June 30, 2023, the Company’s trailing-twelve-month leverage ratio was 1.1 times Adjusted EBITDA.
In the three months ended June 30, 2023, the Company repurchased 0.5 million shares of its common stock for a total cost of $47.8 million. As of June 30, 2023, approximately $377.2 million of common stock may be repurchased under the Company's existing share repurchase authorization.
Fiscal 2024 Outlook
Based on current visibility, backlog of existing orders and business trends, the Company confirmed its financial targets for fiscal 2024. Net sales are expected to be in the range of $2.600 billion to $2.800 billion. Adjusted EBITDA is expected to be in the range of $725 to $825 million. Capital expenditures are expected to be in the range of $200 million to $225 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://conferencingportals.com/event/gnGtWRav using Conference ID: 45786. 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 and its subsidiary, Infiltrator Water Technologies, provide superior stormwater drainage and onsite septic wastewater products used in a wide variety of markets and applications including commercial, residential, infrastructure and agriculture, while delivering unparalleled customer service. ADS manages the industry’s largest company-owned fleet, an expansive sales team, and a vast manufacturing network of approximately 70 manufacturing plants and 40 distribution centers. The company is one of the largest plastic recycling companies 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; 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 acquisitions; 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 June 30, | ||||||||
(In thousands, except per share data) | 2023 | 2022 | ||||||
Net sales | $ | 778,046 | $ | 914,186 | ||||
Cost of goods sold | 446,586 | 562,079 | ||||||
Gross profit | 331,460 | 352,107 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 86,511 | 86,520 | ||||||
(Gain) loss on disposal of assets and costs from exit and disposal activities | (13,304 | ) | 303 | |||||
Intangible amortization | 12,802 | 13,677 | ||||||
Income from operations | 245,451 | 251,607 | ||||||
Other expense: | ||||||||
Interest expense | 21,712 | 11,072 | ||||||
Derivative gains and other income, net | (3,549 | ) | (1,902 | ) | ||||
Income before income taxes | 227,288 | 242,437 | ||||||
Income tax expense | 55,058 | 55,065 | ||||||
Equity in net income of unconsolidated affiliates | (1,675 | ) | (1,110 | ) | ||||
Net income | 173,905 | 188,482 | ||||||
Less: net income attributable to noncontrolling interest | 253 | 1,336 | ||||||
Net income attributable to ADS | 173,652 | 187,146 | ||||||
Weighted average common shares outstanding: | ||||||||
Basic | 78,908 | 83,144 | ||||||
Diluted | 79,634 | 84,389 | ||||||
Net income per share: | ||||||||
Basic | $ | 2.20 | $ | 2.25 | ||||
Diluted | $ | 2.18 | $ | 2.22 | ||||
Cash dividends declared per share | $ | 0.14 | $ | 0.12 | ||||
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(unaudited) | ||||||||
As of | ||||||||
(Amounts in thousands) | June 30, 2023 | March 31, 2023 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 366,104 | $ | 217,128 | ||||
Receivables, net | 342,338 | 306,945 | ||||||
Inventories | 434,631 | 463,994 | ||||||
Other current assets | 25,450 | 29,422 | ||||||
Total current assets | 1,168,523 | 1,017,489 | ||||||
Property, plant and equipment, net | 747,312 | 733,059 | ||||||
Other assets: | ||||||||
Goodwill | 620,428 | 620,193 | ||||||
Intangible assets, net | 394,837 | 407,627 | ||||||
Other assets | 117,569 | 122,757 | ||||||
Total assets | $ | 3,048,669 | $ | 2,901,125 | ||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of debt obligations | $ | 13,806 | $ | 14,693 | ||||
Current maturities of finance lease obligations | 10,447 | 8,541 | ||||||
Accounts payable | 205,591 | 210,111 | ||||||
Other accrued liabilities | 137,511 | 142,400 | ||||||
Accrued income taxes | 52,232 | 3,057 | ||||||
Total current liabilities | 419,587 | 378,802 | ||||||
Long-term debt obligations, net | 1,266,797 | 1,269,391 | ||||||
Long-term finance lease obligations | 28,795 | 32,272 | ||||||
Deferred tax liabilities | 158,942 | 159,056 | ||||||
Other liabilities | 62,682 | 66,744 | ||||||
Total liabilities | 1,936,803 | 1,906,265 | ||||||
Mezzanine equity: | ||||||||
Redeemable common stock | 148,397 | 153,220 | ||||||
Total mezzanine equity | 148,397 | 153,220 | ||||||
Stockholders’ equity: | ||||||||
Common stock | 11,654 | 11,647 | ||||||
Paid-in capital | 1,147,449 | 1,134,864 | ||||||
Common stock in treasury, at cost | (977,812 | ) | (920,999 | ) | ||||
Accumulated other comprehensive loss | (25,399 | ) | (27,580 | ) | ||||
Retained earnings | 788,780 | 626,215 | ||||||
Total ADS stockholders’ equity | 944,672 | 824,147 | ||||||
Noncontrolling interest in subsidiaries | 18,797 | 17,493 | ||||||
Total stockholders’ equity | 963,469 | 841,640 | ||||||
Total liabilities, mezzanine equity and stockholders’ equity | $ | 3,048,669 | $ | 2,901,125 | ||||
ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(unaudited) | ||||||||
Three Months Ended June 30, | ||||||||
(Amounts in thousands) | 2023 | 2022 | ||||||
Cash Flow from Operating Activities | ||||||||
Net income | $ | 173,905 | $ | |||||
