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

 

(217,900

)

 

 

(100,000

)

Proceeds from Equipment Financing

 

35,963

 

 

 

 

Payments on Equipment Financing

 

(4,715

)

 

 

 

Payments on finance lease obligations

 

(50,447

)

 

 

(21,491

)

Repurchase of common stock

 

(292,000

)

 

 

 

Cash dividends paid

 

(38,494

)

 

 

(32,155

)

Proceeds from option exercises

 

4,574

 

 

 

7,553

 

Payment of withholding taxes on vesting of restricted stock units

 

(13,063

)

 

 

 

Other financing activities

 

(186

)

 

 

(1,490

)

Net cash used in financing activities

 

(251,068

)

 

 

(354,583

)

Effect of exchange rate changes on cash

 

129

 

 

 

1,017

 

Net change in cash

 

(174,884

)

 

 

20,776

 

Cash at beginning of year

 

195,009

 

 

 

174,233

 

Cash at end of year

$

20,125

 

 

$

195,009

 

Selected Financial Data

The following tables set forth net sales by reportable segment for each of the periods indicated.

 

Three Months Ended

 

March 31, 2022

 

March 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

$

396,690

 

 

$

(7,911

)

 

$

388,779

 

$

239,206

 

 

$

(1,487

)

 

$

237,719

Infiltrator Water Technologies

 

130,576

 

 

 

(23,643

)

 

 

106,933

 

 

91,265

 

 

 

(14,721

)

 

 

76,544

International

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

29,390

 

 

 

(5,646

)

 

 

23,744

 

 

25,197

 

 

 

(2,723

)

 

 

22,474

International - Allied Products & Other

 

10,569

 

 

 

 

 

 

10,569

 

 

9,157

 

 

 

 

 

 

9,157

Total International

 

39,959

 

 

 

(5,646

)

 

 

34,313

 

 

34,354

 

 

 

(2,723

)

 

 

31,631

Allied Products & Other

 

149,121

 

 

 

(959

)

 

 

148,162

 

 

97,915

 

 

 

 

 

 

97,915

Intersegment Eliminations

 

(38,159

)

 

 

38,159

 

 

 

 

 

(18,931

)

 

 

18,931

 

 

 

Total Consolidated

$

678,187

 

 

$

 

 

$

678,187

 

$

443,809

 

 

$

 

 

$

443,809

 

 

 

 

 

 

 

 

 

 

 

 

 

Twelve Months Ended

 

March 31, 2022

 

March 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

$

1,555,248

 

 

$

(15,814

)

 

$

1,539,434

 

$

1,059,200

 

 

$

(6,280

)

 

$

1,052,920

Infiltrator Water Technologies

 

551,906

 

 

 

(91,406

)

 

 

460,500

 

 

397,813

 

 

 

(68,669

)

 

 

329,144

International

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

 

171,525

 

 

 

(19,430

)

 

 

152,095

 

 

121,468

 

 

 

(6,589

)

 

 

114,879

International - Allied Products & Other

 

53,217

 

 

 

 

 

 

53,217

 

 

43,390

 

 

 

 

 

 

43,390

Total International

 

224,742

 

 

 

(19,430

)

 

 

205,312

 

 

164,858

 

 

 

(6,589

)

 

 

158,269

Allied Products & Other

 

569,352

 

 

 

(5,283

)

 

 

564,069

 

 

442,447

 

 

 

 

 

 

442,447

Intersegment Eliminations

 

(131,933

)

 

 

131,933

 

 

 

 

 

(81,538

)

 

 

81,538

 

 

 

Total Consolidated

$

2,769,315

 

 

$

 

 

$

2,769,315

 

$

1,982,780

 

 

$

 

 

$

1,982,780

Employee Stock Ownership Plan ("ESOP")

The Company established an ESOP to enable employees to acquire stock ownership in ADS in the form of redeemable convertible preferred shares ("preferred shares"). All preferred shares were converted to common shares within thirty days following the March 31, 2022 ESOP loan repayment; and the remaining shares of unallocated preferred stock will be allocated to the participants of the ESOP. The ESOP’s conversion of preferred shares into common shares will have a meaningful impact on net income, net income per share and common shares outstanding. The common shares outstanding will be greater after conversion.

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 a Current Report on Form 8-K, which the Company intends to file with the SEC after market-close today.

Net Income (Loss)

The impact of the ESOP on net (loss) income includes the ESOP deferred compensation attributable to the preferred shares allocated to employee accounts during the period, which is a non-cash charge to our earnings and not deductible for income tax purposes.

 

Three Months Ended March 31,

 

Fiscal Year Ended March 31,

 

2022

 

2021

 

2022

 

2021

 

(In thousands)

Net income attributable to ADS

$

46,307

 

$

19,754

 

$

271,331

 

$

224,230

ESOP acceleration compensation

 

30,435

 

 

 

 

30,435

 

 

ESOP deferred stock-based compensation

 

10,012

 

 

15,475

 

 

53,401

 

 

44,981

Common shares outstanding

The conversion of the preferred shares increased the number of common shares outstanding.

 

Three Months Ended March 31,

 

 

Fiscal Year Ended March 31,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

(In thousands)

Weighted average common shares outstanding

71,855

 

70,958

 

71,276

 

70,155

Conversion of redeemable convertible shares

12,663

 

15,361

 

13,635

 

16,001

Non-GAAP Financial Measures

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). ADS management uses non-GAAP measures in its analysis of the Company’s performance. Investors are encouraged to review the reconciliation of non-GAAP financial measures to the comparable GAAP results available in the accompanying tables.

Reconciliation of Non-GAAP Financial Measures

This press release includes references to organic results, Adjusted EBITDA and Free Cash Flow, non-GAAP financial measures. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. These measures are not intended to be substitutes for those reported in accordance with GAAP. Adjusted EBITDA and Free Cash Flow may be different from non-GAAP financial measures used by other companies, even when similar terms are used to identify such measures.

EBITDA and Adjusted EBITDA are non-GAAP financial measures that comprise net income before interest, income taxes, depreciation and amortization, stock-based compensation, non-cash charges and certain other expenses. The Company’s definition of Adjusted EBITDA may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA is a key metric used by management and the Company’s board of directors to assess financial performance and evaluate the effectiveness of the Company’s business strategies. Accordingly, management believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as the Company’s management and board of directors. In order to provide investors with a meaningful reconciliation, the Company has provided below reconciliations of Adjusted EBITDA to net income.

Free Cash Flow is a non-GAAP financial measure that comprises cash flow from operating activities less capital expenditures. Free Cash Flow is a measure used by management and the Company’s board of directors to assess the Company’s ability to generate cash. Accordingly, management believes that Free Cash Flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. In order to provide investors with a meaningful reconciliation, the Company has provided below a reconciliation of cash flow from operating activities to Free Cash Flow.

The following tables present a reconciliation of EBITDA and Adjusted EBITDA to Net Income and Free Cash Flow to Cash Flow from Operating Activities, the most comparable GAAP measures, for each of the periods indicated.

Reconciliation of Segment Adjusted Gross Profit to Gross profit

 

Three Months Ended March 31,

 

Fiscal Year Ended March 31,

(Amounts in thousands)

2022

 

2021

 

2022

 

2021

Segment adjusted gross profit

 

 

 

 

 

 

 

Pipe

$

94,501

 

 

$

53,100

 

$

353,182

 

 

$

322,846

 

Infiltrator Water Technologies

 

53,030

 

 

 

41,612

 

 

231,825

 

 

 

191,163

 

International

 

9,127

 

 

 

10,945

 

 

58,822

 

 

 

49,921

 

Allied Products & Other

 

80,028

 

 

 

49,046

 

 

284,091

 

 

 

225,052

 

Intersegment Eliminations

 

(1,449

)

 

 

415

 

 

(28

)

 

 

(503

)

Total Segment Adjusted Gross Profit

 

235,237

 

 

 

155,118

 

 

927,892

 

 

 

788,479

 

Depreciation and amortization

 

18,881

 

 

 

17,090

 

 

71,705

 

 

 

66,408

 

ESOP and stock-based compensation expense

 

6,946

 

 

 

10,811

 

 

36,622

 

 

 

31,792

 

ESOP acceleration

 

19,181

 

 

 

 

 

19,181

 

 

 

 

COVID-19 related expenses

 

 

 

 

 

 

 

 

 

197

 

Total Gross Profit

$

190,229

 

 

$

127,217

 

$

800,384

 

 

$

690,082

 

Reconciliation of Adjusted EBITDA to Net Income

 

Three Months Ended March 31,

 

Fiscal Year Ended March 31,

(Amounts in thousands)

2022

 

2021

 

2022

 

2021

Net income

$

47,129

 

 

$

20,776

 

 

$

275,026

 

$

226,090

 

Depreciation and amortization

 

38,121

 

 

 

38,265

 

 

 

141,808

 

 

145,586

 

Interest expense

 

8,450

 

 

 

7,895

 

 

 

33,550

 

 

35,658

 

Income tax expense

 

28,008

 

 

 

7,091

 

 

 

110,071

 

 

86,382

 

EBITDA

 

121,708

 

 

 

74,027

 

 

 

560,455

 

 

493,716

 

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

 

844

 

 

 

1,021

 

 

 

3,398

 

 

4,275

 

ESOP and stock-based compensation expense

 

15,659

 

 

 

20,021

 

 

 

77,559

 

 

65,434

 

ESOP acceleration (a)

 

30,435

 

 

 

 

 

 

30,435

 

 

 

Transaction costs

 

517

 

 

 

(13

)

 

 

3,539

 

 

1,415

 

Strategic growth and operational improvement initiatives

 

 

 

 

615

 

 

 

 

 

3,304

 

COVID-19 related expenses (b)

 

 

 

 

 

 

 

 

 

806

 

Other adjustments (c)

 

(662

)

 

 

(1,123

)

 

 

656

 

 

(1,995

)

Adjusted EBITDA

$

168,501

 

 

$

94,548

 

 

$

676,042

 

$

566,955

 

(a)

In the fourth quarter of fiscal 2022, the ESOP committee notified the Company that it will instruct the ESOP trustee to cause the repayment of the remaining balance of the ESOP Loan in full with proceeds from a cash contribution to be paid by the Company to the ESOP, which repayment was effective as of March 31, 2022. The approximately 0.3 million remaining unallocated shares of Preferred Stock were allocated on March 31, 2022.

(b)

Includes expenses in connection with our response to the COVID-19 pandemic including pandemic pay.

(c)

Includes derivative fair value adjustments, foreign currency transaction (gains) losses, the proportionate share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is accounted for under the equity method of accounting, contingent consideration remeasurement, executive retirement expense (benefit) and legal settlements.

Reconciliation of Free Cash Flow to Cash flow from Operating Activities

 

Fiscal Year Ended March 31,

(Amounts in thousands)

2022

 

2021

Net cash flow from operating activities

$

274,888

 

 

$

452,216

 

Capital expenditures

 

(149,083

)

 

 

(78,757

)

Free cash flow

$

125,805

 

 

$

373,459

 

 

Michael Higgins VP, Corporate Strategy & Investor Relations (614) 658-0050 Mike.Higgins@ads-pipe.com

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