Advanced Drainage Systems Announces Fourth Quarter and Fiscal Year 2022 Results

Rhea-AI Summary

Advanced Drainage Systems (NYSE: WMS) reported impressive financial results for Q4 and the fiscal year ending March 31, 2022. Q4 net sales surged 52.8% to $678.2 million with a 126.8% increase in net income to $47.1 million. For the fiscal year, net sales rose 39.7% to $2,769.3 million and net income increased 21.6% to $275.0 million. Adjusted EBITDA saw significant growth, reaching $676.0 million for the year. Despite inflationary pressures, strong demand in domestic construction markets supports a positive outlook for fiscal 2023 with projected net sales between $3.1 and $3.2 billion.

Positive

• Net sales increased 52.8% to $678.2 million for Q4 2022.
• Net income for Q4 grew 126.8% to $47.1 million.
• Annual net sales rose 39.7% to $2,769.3 million.
• Adjusted EBITDA reached $676.0 million, 19.2% increase from previous year.
• Positive guidance for fiscal 2023, expecting net sales between $3.1 and $3.2 billion.

Negative

• Operating cash flow decreased to $274.9 million from $452.2 million year-over-year.
• Free cash flow dropped to $125.8 million, down from $373.5 million in previous year.
• Net debt increased by $278.0 million to $924.5 million as of March 31, 2022.

HILLIARD, Ohio--(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			(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

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220519005263/en/

Michael Higgins

VP, Corporate Strategy & Investor Relations

(614) 658-0050

Mike.Higgins@ads-pipe.com

Source: Advanced Drainage Systems, Inc.

FAQ

What were Advanced Drainage Systems' Q4 2022 financial results?

Q4 2022 net sales increased 52.8% to $678.2 million, and net income rose 126.8% to $47.1 million.

How did Advanced Drainage Systems perform in fiscal year 2022?

Fiscal year 2022 saw a 39.7% increase in net sales to $2,769.3 million and a 21.6% increase in net income to $275.0 million.

What is the outlook for Advanced Drainage Systems in fiscal 2023?

The company expects net sales between $3.1 billion and $3.2 billion and Adjusted EBITDA of $800 million to $820 million.