Advanced Drainage Systems Announces Second Quarter Fiscal 2022 Results

HILLIARD, Ohio--()--Advanced Drainage Systems, Inc. (NYSE: WMS) (“ADS” or the “Company”), a leading provider of innovative water management solutions in the stormwater and on-site septic waste water industries today announced financial results for the fiscal second quarter ended September 30, 2021.

Second Quarter Fiscal 2022 Results

  • Net sales increased 29.8% to $706.5 million
  • Net income decreased 5.3% to $76.3 million
  • Adjusted EBITDA (Non-GAAP) decreased 5.3% to $164.8 million

Year-to-Date Fiscal 2022 Results

  • Net sales increased 30.7% to $1,375.8 million
  • Net income increased 1.4% to $153.4 million
  • Adjusted EBITDA (Non-GAAP) decreased 0.6% to $331.4 million
  • Cash provided by operating activities of $94.9 million
  • Free cash flow (Non-GAAP) of $31.1 million

Scott Barbour, President and Chief Executive Officer of ADS commented, "We achieved another quarter of record revenue results in the second quarter of fiscal 2022. Sales growth of 30% was driven by favorable pricing at both ADS and Infiltrator, as we capitalized on strong demand across our product portfolio and geographic footprint, particularly in priority states such as Florida, Texas and Georgia. Our leading indicators support continued strength in demand for the foreseeable future as we work through our record-high levels of backlog."

Barbour continued, "The favorable pricing we achieved in the second quarter offset inflationary cost pressure on materials and diesel. However, labor shortages impacted our manufacturing and transportation operations, limiting production and causing an increased use of third-party logistics services, at costs well above our internal fleet costs, to service our customers. We took actions to simplify our production processes and increase production rates, which are gaining traction and rebuilding service levels to customers."

"Year-to-date, capital spending more than doubled compared to last year as we continue to invest organically in growth of the ADS and Infiltrator businesses. We have approved capital investments that will result in double-digit increases in capacity at both businesses, enabling us to better serve customers as we progress through the second half of this fiscal year and beyond."

Barbour concluded, "Finally, our demand environment, strong backlog, favorable pricing and continued progress on our self-help initiatives give us confidence in our increased sales targets and reaffirmed Adjusted EBITDA guidance."

Second Quarter Fiscal 2022 Results

Net sales increased $162.3 million, or 29.8%, to $706.5 million, as compared to $544.2 million in the prior year quarter. Domestic pipe sales increased $92.4 million, or 31.6%, to $384.5 million. Domestic allied products & other sales increased $27.7 million, or 23.5%, to $145.7 million. Infiltrator sales increased $39.9 million, or 37.7%, to $145.9 million. These increases were driven by double-digit sales growth in both the U.S. construction and agriculture end markets. International sales increased $14.3 million, or 29.0%, to $63.6 million, driven by double-digit sales growth in the Canadian and Mexican businesses.

Gross profit decreased $5.8 million, or 2.8%, to $200.1 million as compared to $205.9 million in the prior year. In the second quarter, favorable pricing primarily offset the inflationary cost pressure on materials, diesel and labor. The decrease in gross profit is primarily due to an increase in the use of third-party logistics services due to labor shortages impacting the manufacturing and transportation operations.

Adjusted EBITDA (Non-GAAP) decreased $9.3 million, or 5.3%, to $164.8 million, as compared to $174.1 million in the prior year. The decrease is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 23.3% as compared to 32.0% 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 $322.9 million, or 30.7%, to $1,375.8 million, as compared to $1,052.8 million in the prior year. Domestic pipe sales increased $192.7 million, or 34.1%, to $758.5 million. Domestic allied products & other sales increased $37.8 million, or 16.1%, to $272.8 million. Infiltrator sales increased $64.5 million, or 31.0%, to $272.7 million. These increases were driven by double-digit sales growth in both the U.S. construction and agriculture end markets. International sales increased $43.8 million, or 51.5%, to $128.9 million, driven by double-digit sales growth in the Canadian, Mexican and Exports businesses.

Gross profit increased $6.8 million, or 1.7%, to $401.2 million as compared to $394.4 million in the prior year. The increase is primarily due 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 due to labor shortages impacting the manufacturing and transportation operations.

Adjusted EBITDA (Non-GAAP) decreased $2.2 million, or 0.6%, to $331.4 million, as compared to $333.5 million in the prior year. The decrease is primarily due to the factors mentioned above. As a percentage of net sales, Adjusted EBITDA was 24.1% as compared to 31.7% in the prior year.

Balance Sheet and Liquidity

Net cash provided by operating activities was $94.9 million, as compared to $286.2 million in the prior year. Free cash flow (Non-GAAP) was $31.1 million, as compared to $257.2 million in the prior year. Net debt (total debt and finance lease obligations net of cash) was $947.1 million as of September 30, 2021, an increase of $300.6 million from March 31, 2021.

ADS had total liquidity of $229 million, comprised of cash of $14 million as of September 30, 2021 and $215 million of availability under committed credit facilities. As of September 30, 2021, the Company’s leverage ratio was 1.7 times.

In the six months ended September 30, 2021, the Company repurchased 2.6 million shares of its common stock for a total cost of $292.0 million. As of September 30, 2021, the Company has utilized all of the common stock repurchase authorization.

Fiscal 2022 Outlook

Based on current visibility, backlog of existing orders and business trends, the Company raised its net sales targets for fiscal 2022. Net sales are now expected to be in the range of $2.550 billion to $2.650 billion. Adjusted EBITDA is unchanged and expected to be in the range of $635 to $665 million. Capital expenditures are expected to be in the range of $130 million to $150 million.

Webcast Information

The live webcast will be accessible via the "Events Calendar” section of the Company’s Investor Relations website, www.investors.ads-pipe.com. Participants may also register for this conference call by copy and pasting the following text into your browser: http://www.directeventreg.com/registration/event/9136768. 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
September 30,

 

Six Months Ended
September 30,

(In thousands, except per share data)

2021

 

2020

 

2021

 

2020

Net sales

$

706,471

 

 

 

$

544,187

 

 

 

$

1,375,771

 

 

 

$

1,052,826

 

 

Cost of goods sold

506,414

 

 

 

338,330

 

 

 

974,593

 

 

 

658,466

 

 

Gross profit

200,057

 

 

 

205,857

 

 

 

401,178

 

 

 

394,360

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

73,951

 

 

 

65,701

 

 

 

150,172

 

 

 

127,477

 

 

(Gain) loss on disposal of assets and costs from exit and disposal activities

(901

)

 

 

627

 

 

 

(912

)

 

 

2,274

 

 

Intangible amortization

15,446

 

 

 

17,955

 

 

 

31,091

 

 

 

35,937

 

 

Income from operations

111,561

 

 

 

121,574

 

 

 

220,827

 

 

 

228,672

 

 

Other expense:

 

 

 

 

 

 

 

Interest expense

8,437

 

 

 

9,360

 

 

 

16,344

 

 

 

19,330

 

 

Derivative (gains) loss and other (income) expense, net

202

 

 

 

(151

)

 

 

(1,812

)

 

 

(718

)

 

Income before income taxes

102,922

 

 

 

112,365

 

 

 

206,295

 

 

 

210,060

 

 

Income tax expense

26,816

 

 

 

31,827

 

 

 

53,271

 

 

 

59,027

 

 

Equity in net income of unconsolidated affiliates

(206

)

 

 

(67

)

 

 

(411

)

 

 

(240

)

 

Net income

76,312

 

 

 

80,605

 

 

 

153,435

 

 

 

151,273

 

 

Less: net income attributable to noncontrolling interest

953

 

 

 

369

 

 

 

2,089

 

 

 

571

 

 

Net income attributable to ADS

75,359

 

 

 

80,236

 

 

 

151,346

 

 

 

150,702

 

 

Dividends to participating securities

(1,636

)

 

 

(1,329

)

 

 

(3,276

)

 

 

(2,697

)

 

Net income available to common stockholders and participating securities

73,723

 

 

 

78,907

 

 

 

148,070

 

 

 

148,005

 

 

Undistributed income allocated to participating securities

(10,494

)

 

 

(12,760

)

 

 

(21,430

)

 

 

(24,025

)

 

Net income available to common stockholders

$

63,229

 

 

 

$

66,147

 

 

 

$

126,640

 

 

 

$

123,980

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

70,464

 

 

 

69,843

 

 

 

70,993

 

 

 

69,612

 

 

Diluted

71,924

 

 

 

70,755

 

 

 

72,614

 

 

 

70,459

 

 

Net income per share:

 

 

 

 

 

 

 

Basic

$

0.90

 

 

 

$

0.95

 

 

 

$

1.78

 

 

 

$

1.78

 

 

Diluted

$

0.88

 

 

 

$

0.93

 

 

 

$

1.74

 

 

 

$

1.76

 

 

Cash dividends declared per share

$

0.11

 

 

 

$

0.09

 

 

 

$

0.22

 

 

 

$

0.18

 

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

As of

 

(Amounts in thousands)

September 30,
2021

 

March 31,
2021

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

$

14,005

 

 

 

$

195,009

 

 

 

Receivables, net

361,466

 

 

 

236,191

 

 

 

Inventories

425,244

 

 

 

300,961

 

 

 

Other current assets

16,858

 

 

 

10,817

 

 

 

Total current assets

817,573

 

 

 

742,978

 

 

 

Property, plant and equipment, net

544,187

 

 

 

504,275

 

 

 

Other assets:

 

 

 

 

Goodwill

598,976

 

 

 

599,072

 

 

 

Intangible assets, net

450,925

 

 

 

482,016

 

 

 

Other assets

94,963

 

 

 

85,491

 

 

 

Total assets

$

2,506,624

 

 

 

$

2,413,832

 

 

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Current maturities of debt obligations

$

7,000

 

 

 

$

7,000

 

 

 

Current maturities of finance lease obligations

17,467

 

 

 

19,318

 

 

 

Accounts payable

257,576

 

 

 

171,098

 

 

 

Other accrued liabilities

129,818

 

 

 

116,151

 

 

 

Accrued income taxes

1,978

 

 

 

4,703

 

 

 

Total current liabilities

413,839

 

 

 

318,270

 

 

 

Long-term debt obligations, net

901,511

 

 

 

782,220

 

 

 

Long-term finance lease obligations

35,149

 

 

 

32,964

 

 

 

Deferred tax liabilities

163,238

 

 

 

162,185

 

 

 

Other liabilities

61,366

 

 

 

54,767

 

 

 

Total liabilities

1,575,103

 

 

 

1,350,406

 

 

 

Mezzanine equity:

 

 

 

 

Redeemable convertible preferred stock

228,532

 

 

 

240,944

 

 

 

Deferred compensation — unearned ESOP shares

(7,014

)

 

 

(11,033

)

 

 

Total mezzanine equity

221,518

 

 

 

229,911

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock

11,590

 

 

 

11,578

 

 

 

Paid-in capital

968,198

 

 

 

918,587

 

 

 

Common stock in treasury, at cost

(315,935

)

 

 

(10,959

)

 

 

Accumulated other comprehensive loss

(26,020

)

 

 

(24,220

)

 

 

Retained deficit

57,386

 

 

 

(75,202

)

 

 

Total ADS stockholders’ equity

695,219

 

 

 

819,784

 

 

 

Noncontrolling interest in subsidiaries

14,784

 

 

 

13,731

 

 

 

Total stockholders’ equity

710,003

 

 

 

833,515

 

 

 

Total liabilities, mezzanine equity and stockholders’ equity

$

2,506,624

 

 

 

$

2,413,832

 

 

 

ADVANCED DRAINAGE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

Six Months Ended September 30,

 

(Amounts in thousands)

2021

 

2020

 

Cash Flow from Operating Activities

 

 

 

 

Net income

$

153,435

 

 

 

$

151,273

 

 

 

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

 

 

 

 

Depreciation and amortization

68,850

 

 

 

71,559

 

 

 

Deferred income taxes

15

 

 

 

(3,446

)

 

 

(Gain) loss on disposal of assets and costs from exit and disposal activities

(912

)

 

 

2,274

 

 

 

ESOP and stock-based compensation

38,437

 

 

 

27,088

 

 

 

Amortization of deferred financing charges

191

 

 

 

197

 

 

 

Fair market value adjustments to derivatives

(446

)

 

 

(1,455

)

 

 

Equity in net income of unconsolidated affiliates

(411

)

 

 

(240

)

 

 

Other operating activities

441

 

 

 

(236

)

 

 

Changes in working capital:

 

 

 

 

Receivables

(138,063

)

 

 

(60,106

)

 

 

Inventories

(124,429

)

 

 

60,663

 

 

 

Prepaid expenses and other current assets

(6,738

)

 

 

(3,666

)

 

 

Accounts payable, accrued expenses, and other liabilities

104,508

 

 

 

42,263

 

 

 

Net cash provided by operating activities

94,878

 

 

 

286,168

 

 

 

Cash Flows from Investing Activities

 

 

 

 

Capital expenditures

(63,764

)

 

 

(28,959

)

 

 

Other investing activities

1,556

 

 

 

455

 

 

 

Net cash used in investing activities

(62,208

)

 

 

(28,504

)

 

 

Cash Flows from Financing Activities

 

 

 

 

Payments on syndicated Term Loan Facility

(3,500

)

 

 

(103,500

)

 

 

Proceeds from Revolving Credit Agreement

146,800

 

 

 

 

 

 

Payments on Revolving Credit Agreement

(24,200

)

 

 

(100,000

)

 

 

Payments on finance lease obligations

(10,437

)

 

 

(10,677

)

 

 

Repurchase of common stock

(292,000

)

 

 

 

 

 

Cash dividends paid

(18,758

)

 

 

(15,402

)

 

 

Dividends paid to noncontrolling interest holder

(1,471

)

 

 

 

 

 

Proceeds from exercise of stock options

3,179

 

 

 

3,275

 

 

 

Payment of withholding taxes on vesting of restricted stock units

(12,976

)

 

 

 

 

 

Other financing activities

(230

)

 

 

(1,489

)

 

 

Net cash used in financing activities

(213,593

)

 

 

(227,793

)

 

 

Effect of exchange rate changes on cash

(81

)

 

 

(221

)

 

 

Net change in cash

(181,004

)

 

 

29,650

 

 

 

Cash at beginning of period

195,009

 

 

 

174,233

 

 

 

Cash at end of period

$

14,005

 

 

 

$

203,883

 

 

 

Selected Financial Data

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

 

Three Months Ended

 

 

September 30, 2021

 

September 30, 2020

 

(In thousands)

Net Sales

 

Intersegment
Net Sales

 

Net Sales from
External
Customers

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales from
External
Customers

 

Pipe

$

384,521

 

 

 

$

(2,668

)

 

 

$

381,853

 

 

$

292,133

 

 

 

$

(1,637

)

 

 

$

290,496

 

 

Infiltrator Water Technologies

145,911

 

 

 

(22,412

)

 

 

123,499

 

 

105,986

 

 

 

(18,692

)

 

 

87,294

 

 

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

50,141

 

 

 

(5,170

)

 

 

44,971

 

 

35,592

 

 

 

(896

)

 

 

34,696

 

 

International - Allied Products & Other

13,433

 

 

 

 

 

 

13,433

 

 

13,706

 

 

 

 

 

 

13,706

 

 

Total International

63,574

 

 

 

(5,170

)

 

 

58,404

 

 

49,298

 

 

 

(896

)

 

 

48,402

 

 

Allied Products & Other

145,719

 

 

 

(3,004

)

 

 

142,715

 

 

117,995

 

 

 

 

 

 

117,995

 

 

Intersegment Eliminations

(33,254

)

 

 

33,254

 

 

 

 

 

(21,225

)

 

 

21,225

 

 

 

 

 

Total Consolidated

$

706,471

 

 

 

$

 

 

 

$

706,471

 

 

$

544,187

 

 

 

$

 

 

 

$

544,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

September 30, 2021

 

September 30, 2020

 

(In thousands)

Net Sales

 

Intersegment
Net Sales

 

Net Sales from
External
Customers

 

Net Sales

 

Intersegment
Net Sales

 

Net Sales from
External
Customers

 

Pipe

$

758,531

 

 

 

$

(4,571

)

 

 

$

753,960

 

 

$

565,785

 

 

 

$

(3,482

)

 

 

$

562,303

 

 

Infiltrator Water Technologies

272,653

 

 

 

(41,449

)

 

 

231,204

 

 

208,139

 

 

 

(36,760

)

 

 

171,379

 

 

International

 

 

 

 

 

 

 

 

 

 

 

 

International - Pipe

100,979

 

 

 

(8,084

)

 

 

92,895

 

 

62,542

 

 

 

(896

)

 

 

61,646

 

 

International - Allied Products & Other

27,961

 

 

 

 

 

 

27,961

 

 

22,585

 

 

 

 

 

 

22,585

 

 

Total International

128,940

 

 

 

(8,084

)

 

 

120,856

 

 

85,127

 

 

 

(896

)

 

 

84,231

 

 

Allied Products & Other

272,755

 

 

 

(3,004

)

 

 

269,751

 

 

234,913

 

 

 

 

 

 

234,913

 

 

Intersegment Eliminations

(57,108

)

 

 

57,108

 

 

 

 

 

(41,138

)

 

 

41,138

 

 

 

 

 

Total Consolidated

$

1,375,771

 

 

 

$

 

 

 

$

1,375,771

 

 

$

1,052,826

 

 

 

$

 

 

 

$

1,052,826

 

 

Employee Stock Ownership Plan (“ESOP”)

The Company established an ESOP to enable employees to acquire stock ownership in ADS in the form of redeemable convertible preferred shares (“preferred shares”). All preferred shares will be converted to common shares by plan maturity, which will be no later than March 2023. The ESOP’s conversion of preferred shares into common shares will have a meaningful impact on net income, net income per share and common shares outstanding. The common shares outstanding will be greater after conversion.

Net Income (Loss)

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

 

Three Months Ended
September 30,

 

Six Months Ended
September 30,

 

2021

 

2020

 

2021

 

2020

 

(In thousands)

Net income attributable to ADS

$

75,359

 

$

80,236

 

$

151,346

 

$

150,702

ESOP deferred stock-based compensation

12,013

 

9,130

 

26,168

 

15,993

Common shares outstanding

The conversion of the preferred shares will increase the number of common shares outstanding. Preferred shares will convert to common shares at plan maturity, or upon retirement, disability, death or vested terminations over the life of the plan.

 

Three Months Ended
September 30,

 

Six Months Ended
September 30,

 

2021

 

2020

 

2021

 

2020

 

(Shares in millions)

Weighted average common shares outstanding

70,464

 

69,843

 

70,993

 

69,612

Conversion of redeemable convertible shares

14,062

 

16,298

 

14,439

 

16,440

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
September 30,

 

Six Months Ended
September 30,

(Amounts in thousands)

2021

 

2020

 

2021

 

2020

Segment adjusted gross profit

 

 

 

 

 

 

 

Pipe

$

82,472

 

$

100,496

 

$

166,615

 

$

191,095

Infiltrator Water Technologies

58,847

 

53,105

 

118,249

 

101,033

International

15,077

 

14,582

 

36,455

 

25,990

Allied Products & Other

67,979

 

60,380

 

131,278

 

120,848

Intersegment Eliminations

1,479

 

372

 

1,465

 

14

Total Segment Adjusted Gross Profit

225,854

 

228,935

 

454,062

 

438,980

Depreciation and amortization

17,250

 

16,463

 

34,782

 

32,886

ESOP and stock-based compensation expense

8,547

 

6,598

 

18,102

 

11,537

COVID-19 related expenses

 

17

 

 

197

Total Gross Profit

$

200,057

 

$

205,857

 

$

401,178

 

$

394,360

Reconciliation of Adjusted EBITDA to Net Income

 

Three Months Ended
September 30,

 

Six Months Ended
September 30,

(Amounts in thousands)

2021

 

2020

 

2021

 

2020

Net income

$

76,312

 

 

 

$

80,605

 

 

 

$

153,435

 

 

 

$

151,273

 

 

Depreciation and amortization

34,194

 

 

 

35,778

 

 

 

68,850

 

 

 

71,559

 

 

Interest expense

8,437

 

 

 

9,360

 

 

 

16,344

 

 

 

19,330

 

 

Income tax expense

26,816

 

 

 

31,827

 

 

 

53,271

 

 

 

59,027

 

 

EBITDA

145,759

 

 

 

157,570

 

 

 

291,900

 

 

 

301,189

 

 

(Gain) loss on disposal of assets and costs from exit and disposal activities

(901

)

 

 

627

 

 

 

(912

)

 

 

2,274

 

 

ESOP and stock-based compensation expense

17,631

 

 

 

14,626

 

 

 

38,437

 

 

 

27,088

 

 

Transaction costs

834

 

 

 

718

 

 

 

877

 

 

 

1,374

 

 

Strategic growth and operational improvement initiatives

 

 

 

361

 

 

 

 

 

 

2,116

 

 

COVID-19 related expenses (a)

 

 

 

242

 

 

 

 

 

 

806

 

 

Other adjustments(b)

1,481

 

 

 

(70

)

 

 

1,084

 

 

 

(1,303

)

 

Adjusted EBITDA

$

164,804

 

 

 

$

174,074

 

 

 

$

331,386

 

 

 

$

333,544

 

 

   

(a)

Includes expenses directly related to our response to the COVID-19 pandemic, including adjustments to our pandemic pay program and expenses associated with our 3rd party crisis management vendor.

   

(b)

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

Reconciliation of Free Cash Flow to Cash flow from Operating Activities

 

Six Months Ended September 30,

 

(Amounts in thousands)

2021

 

2020

 

Net cash flow from operating activities

$

94,878

 

 

 

$

286,168

 

 

 

Capital expenditures

(63,764

)

 

 

(28,959

)

 

 

Free cash flow

$

31,114

 

 

 

$

257,209

 

 

 

 

Contacts

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

Contacts

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